<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 September 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)
NEW YORK
(State or other jurisdiction of incorporation or organization)
16-1485632
(I.R.S. Employer Identification No.)
100 CORPORATE WOODS
ROCHESTER, NEW YORK 14623
(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 November 1, 1996, a total of 2,151 Limited Partnership Units were
outstanding.
<PAGE> 2
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
Essex Hospitality Associates IV L.P.
Balance Sheets
September 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ --------- ----------
<S> <C> <C>
Investments in real estate, at cost:
Land 2,640,300
Construction in progress 6,507,304
Less accumulated depreciation -
-----------
Net investments in real estate 9,147,604
-----------
Cash and cash equivalents 2,454,055 100
Deferred costs:
Debt issuance 690,253
Franchise 128,000
Other 60,766
-----------
879,019
Less accumulated amortization (51,361)
-----------
827,658
-----------
Other assets 494,340
----------- ----------
Total assets 12,923,657 100
----------- ----------
Liabiliities and Partners' Capital
----------------------------------
Liabilities
Construction payable 47,696
Accounts payable and accrued expenses 46,241
Notes payable 6,420,000
Construction loan payable 4,213,008
Minority interest - Essex Glenmaura L.P. 973,087
----------- ----------
Total liabilities 11,700,032 -
----------- ----------
Commitments and contingencies (notes 5 and 6)
Partners' capital 1,396,824 100
Less notes receivable from partners (173,199)
----------- ----------
Total partners' capital 1,223,625 100
----------- ----------
Total liabilities and partners' capital 12,923,657 100
----------- ----------
</TABLE>
<PAGE> 3
Essex Hospitality Associates IV L.P.
Statement of Income
For the Quarter ended September 30, 1996
<TABLE>
<CAPTION>
1996
----
<S> <C>
INCOME
- ------
Rooms 56,629
Food and beverage 11,265
Other income 4,313
--------
Total income 72,207
--------
EXPENSES:
- ---------
Rooms 27,924
Food & beverage expenses 21,148
Commissions expenses 402
Advertising & promotion 12,684
Repairs & maintenance 8,885
Utilities -
Administrative & general 9,438
Property taxes -
Insurance 1,095
Franchise fees 2,265
Management fees 3,254
Marketing research fees 1,133
Miscellaneous 2,762
--------
Total expenses 90,990
--------
Operating income (18,783)
Interest expense 111,187
Interest income (17,541)
Partnership management fees 542
Amortization 10,995
--------
Total other expenses 105,183
--------
Net income (123,966)
=========
</TABLE>
<PAGE> 4
Essex Hospitality Associates IV L.P.
Statements of Cash Flows
For the Quarters ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Cash received from customers 53,310
Cash paid to suppliers (52,775)
Interest received 17,551
Interest paid (111,187)
----------- ------------
Net cash from operating activities (93,101) -
----------- ------------
Cash flows from investing activities
Payments for land and construction in progress (3,236,046)
Payments for deposits 126,756
----------- ------------
Net cash used in investing activities (3,109,290) -
----------- ------------
Cash flows from financing activities
Partners' capital contributions 270,972 100
Payments for syndication costs (30,085)
Proceeds from notes payable 277,000
Proceeds from construction loan 3,035,859
Payments for debt acquisition costs (38,032)
Payments for organization costs -
Payments for distributions (34,488)
----------- ------------
Net cash from financing activities 3,481,226 100
----------- ------------
Net increase in cash and cash equivalents 278,835 100
Cash and cash equivalents - beginning of quarter 1,354,265 -
----------- ------------
Cash and cash equivalents - end of quarter 1,633,100 100
=========== ============
Reconciliation of net income to net cash flows from
operating activities:
Net income (123,966) -
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 10,995 -
Changes in:
Shortterm assets (18,228) -
Accounts payable and other expenses 38,098 -
----------- ------------
(93,101) -
=========== ============
</TABLE>
<PAGE> 5
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
September 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
September 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
September 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 $283,415 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
September 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 September 30, 1996, that ratio was .29
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
September 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 September 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 $420,277
$55 per $1,000 not sold
Organization and 3.4% of the gross proceeds 233,409
Offering Fee of the offering
Acquisition Fee $110,000 per hotel site 220,000
Development Fee $160,000 per hotel, plus 5% of the total cost 180,000
-------
of the hotel in excess of $2.7 million (not to
exceed $325,000 per hotel)
$1,053,686
==========
</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
September 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 $400,000
Deferred debt issuance costs 437,880
Syndication costs, charged to partner's capital 215,806
-------
$1,053,686
==========
</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
September 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 September 30, 1996, Glenmaura completed construction of a
Courtyard by Marriott hotel near Scranton, Pennsylvania. The hotel
opened on September 4, 1996. Glenmaura has invested $7,998,000 into the
land acquisition and construction costs. The financing of the land
acquisition, construction costs and all related fees and expenses
through September 30 1996 for the hotel project has been funded by
$1,500,000 in unsecured notes, construction loan proceeds of $4,213,,000
and $2,300,000 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. Limited partnership units in another partnership
were purchased in the first quarter, 1996.
The Partnership expects to begin construction of a 100-room Hampton Inn in
Solon, Ohio within the next month with an opening in early summer, 1997. The
Partnership had originally intended to build an Hampton Inn & Suites on the
site in Solon, Ohio, however, the General Partner concluded that the
construction cost of the Hampton Inn & Suites was too high. 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. 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. just completed construction of a 120-room Marriott Courtyard in Scranton,
Pennsylvania, which opened in September, 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 before the end of 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.. The Partnership's
investment in Essex Glenmaura L.P. represented 25% of the Partnership's assets
at September 30, 1996.
The Partnership had intended to build an 80-room Homewood Suites hotel in
Warwick, Rhode Island. However, the Partnership has learned that additional
new hotels are planned for the area on the Partnership's site which would be
directly competitive with the Partnership's hotel. The Partnership has decided
to review the market for the Warwick area again to determine if the market
exists to support the additional hotel rooms before proceeding with
construction.
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
November 6, 1996, $6,808,000 has been raised. Gross offering proceeds of up to
$21,000,000 may be raised through the public offering. The Partnership does
not have sufficient funds to complete construction of the two specified
properties. Although
<PAGE> 13
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.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
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: November 7, 1996 /s/ Lorrie L. LoFaso
---------------------------------------------
Essex Hospitality Associates IV L.P.
Essex Partners Inc.
Lorrie L. LoFaso
Vice President and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,454
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,147
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 12,924
<CURRENT-LIABILITIES> 0
<BONDS> 4,213
0
0
<COMMON> 0
<OTHER-SE> 1,224<F3>
<TOTAL-LIABILITY-AND-EQUITY> 12,924
<SALES> 57
<TOTAL-REVENUES> 72
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 92
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> (124)
<INCOME-TAX> 0
<INCOME-CONTINUING> (124)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0<F4>
<FN>
<F1>UNCLASSIFIED BALANCE SHEET USED
<F2>PROPERTY IS UNDER DEVELOPMENT, NOT IN USE
<F3>EQUITY IS PARTNERS' CAPITAL
<F4>ENTITY IS A PARTNERSHIP
</FN>
</TABLE>
