SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A-1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] 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 September 19, 1997, a total of 2,416 Limited Partnership Units were
outstanding.
<PAGE>
PART 1
------
FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------
<TABLE>
<CAPTION>
Essex Hospitality Associates IV L.P.
Balance Sheets
March 31, 1997 and 1996
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Investments in real estate, at cost:
Land $ 2,492,194 2,610,289
Land improvements 271,348 0
Buildings 4,961,877 0
Furniture, fixtures and equipment 1,339,793 0
Construction in progress 1,967,458 2,847,238
----------- -----------
11,032,670 5,457,527
Less accumulated depreciation (346,659) 0
----------- -----------
Net investments in real estate 10,686,011 5,457,527
----------- -----------
Cash and cash equivalents 2,159,933 1,354,265
Deferred costs:
Debt issuance 780,755 534,600
Franchise 128,000 128,000
Other 60,766 68,087
----------- -----------
969,521 730,687
Less accumulated amortization (222,284) (29,371)
----------- -----------
747,237 701,316
----------- -----------
Due from affiliate 110,000 0
Other assets 158,426 4,237
----------- -----------
Total assets $ 13,861,607 7,517,345
============ ===========
Liabiliities and Partners' Capital
----------------------------------
Liabilities
Accounts payable and accrued expenses $ 117,995 20,970
Accounts payable - construction 869,993 493,368
First mortgage loan payable 5,000,000 0
Subordinated notes payable 5,182,000 3,846,000
Notes payable 1,500,000 1,500,000
----------- -----------
Total liabilities 12,669,988 5,860,338
----------- -----------
Minority interest - Essex Glenmaura L.P. 566,094 1,045,574
----------- -----------
Commitments and contingencies (notes 5 and 6)
Partners' capital 791,777 786,142
Less notes receivable from partners (166,252) (174,709)
----------- -----------
Total partners' capital 625,525 611,433
----------- -----------
Total liabilities and partners' capital $ 13,861,607 7,517,345
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Essex Hospitality Associates IV L.P.
Statements of Operations
For the Quarters ended March 31, 1997 and 1996
1997 1996
---- ----
<S> <C> <C>
REVENUE:
- --------
Rooms 420,339 0
Food and beverage 56,265 0
Telephone and other commissions 32,435 0
--------- --------
509,039 0
--------- --------
OPERATING EXPENSES:
- -------------------
Rooms 118,381 0
Food & beverage expenses 66,572 0
Commissions expenses 13,001 0
Advertising & promotion 30,191 0
Repairs & maintenance 25,622 0
Utilities 39,464 0
Administrative & general 47,511 1,094
Property taxes 9,501 0
Insurance 13,506 0
Franchise fees 14,842 0
Management fees 20,563 0
Partnership management fees 3,427 0
Depreciation and amortization 146,198 10,995
Miscellaneous 9,189 4,295
--------- --------
557,968 16,384
--------- --------
Loss from operations before interest (48,929) (16,384)
Interest expense (228,454) (61,281)
Interest income 27,232 2,717
--------- --------
(201,222) (58,564)
--------- --------
Loss before minority interest in loss of
partnership (250,151) (74,948)
--------- --------
Minority interest in income/(loss) of partnership (75,273) 1,063
--------- --------
Net income (174,878) (76,011)
========== =========
Net loss - general partners (1,749) (760)
- limited partners (173,129) (75,251)
--------- --------
(174,878) (76,011)
========== =========
Net loss per limited partner unit (77) (90)
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Essex Hospitality Associates IV L.P.
Statements of Cash Flows
For the Quarters ended March 31, 1997 and 1996
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Cash received from customers 518,958 0
Cash paid to suppliers (536,595) (4,387)
Interest received 27,232 2,717
Interest paid (228,454) (61,281)
----------- ---------
Net cash from operating activities (218,859) (62,951)
----------- ---------
Cash flows from investing activities
Payments for land and construction in progress (1,078,583) (1,746,881)
Payments for deposits (10,757) (144,966)
----------- ---------
Net cash used in investing activities (1,089,340) (1,891,847)
----------- ---------
Cash flows from financing activities
Partners' capital contributions 141,422 694,194
Payments for syndication costs (16,074) (137,467)
Proceeds from notes payable 262,000 2,102,000
Proceeds from 1st mortgage loan 5,000,000 0
Payoff of construction loan (4,294,243) 0
Payments for debt acquisition costs (98,446) (211,973)
Payments for organization costs 0 (548)
Payments for distributions (42,212) (14,529)
----------- ---------
Net cash from financing activities 952,447 2,431,677
----------- ---------
Net increase in cash and cash equivalents (355,752) 476,879
Cash and cash equivalents - beginning of quarter 2,515,685 877,386
----------- ---------
Cash and cash equivalents - end of quarter 2,159,933 1,354,265
=========== ==========
Reconciliation of net income to net cash flows from operating activities:
Net loss (174,878) (76,011)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 146,198 10,995
Changes in:
Shortterm assets (157) 1,002
Minority interest in net loss of partnership (75,273) 1,063
Accounts payable and other expenses (114,749) 0
----------- ---------
(218,859) (62,951)
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
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 may also invest in and 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's general partner is Essex Partners Inc. (Essex
Partners), a subsidiary of Essex Investment Group, Inc. (Essex).
The Partnership has acquired land in order to construct and operate
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.
Construction was delayed at both sites as a result of higher than
projected construction costs and a change in market conditions. The
Solon site is now under construction for a Hampton Inn hotel while
plans for the Warwick site have not yet been resolved.
In January 1996, the Partnership acquired a 54% limited partnership
interest in Essex Glenmaura L.P. (Glenmaura) through the purchase of
12.5 limited partnership units for $1,250,000. The purchase price was
equal to the prorata portion of the fair value of the net assets
acquired. Glenmaura owns and operates a Courtyard by Marriott hotel
near Scranton, Pennsylvania. Construction of the hotel was completed
during 1996 and operations began on September 4, 1996.
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 partner. 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 partner. 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 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
partner.
Cash distributions will initially be made 99% to the limited
partners and 1% to
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
(1) ORGANIZATION (continued)
------------------------
the general partner. 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 partner. 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 prorata in accordance with the number of units held
by each limited partner 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.
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).
In accordance with the Partnership agreement, the ratio of gross
proceeds from the offering of limited partnership units to total gross
proceeds from the public offering of notes and limited partnership
units prior to the termination of the offering may not be less than .15
to 1. At March 31, 1997, that ratio was .31 to 1.
(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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Partnership and Glenmaura. All significant intercompany transactions
and balances have been eliminated in consolidation.
INVESTMENT IN REAL ESTATE
Investment in real estate is stated at cost. Investment in real estate
is reviewed for possible impairment when events or changed
circumstances may affect the underlying basis of the asset.
Depreciation is calculated using the straight-line method for buildings
and accelerated methods for land improvements, furniture, fixtures and
equipment over the following estimated useful lives of the assets as
each hotel commences operations:
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Buildings 39 years
Land improvements 15 years
Furniture, fixtures and equipment 5 - 7 years
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, as each hotel commences operations.
SYNDICATION COSTS
Selling commissions and legal, accounting, printing and other filing
costs totaling $322,350 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.
RECOGNITION OF REVENUE
Revenues are recognized as earned in accordance with contractual
arrangements for each transaction.
LIMITED PARTNERSHIP PER UNIT DATA
Net loss per limited partner unit is calculated by dividing net loss by
the weighted average number of units outstanding during the year. The
weighted average number of units outstanding was 2,242 during the first
quarter, 1997.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the general partner
to make estimates and assumptions that affect the reported amounts of
asset and liabilities and disclosure 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) DEBT
----
FIRST MORTGAGE LOAN
On February 28, 1997, Glenmaura obtained permanent financing from GMAC
Commercial Mortgage Corporation for $5,000,000. The term of the loan
will be for four years with a one year extension available if certain
debt service coverage is attained. Monthly payments of interest only
will be due at 3% over the LIBOR rate for the first year. Principal and
interest payments are due thereafter. The loan is collateralized by the
real and personal property and certain other assets.
NOTES PAYABLE
Glenmaura has $1,500,000 of unsecured notes requiring monthly payments
of interest only at 10.5% through June 1, 1998, at which time all
principal will be due unless Glenmaura exercises its two one-year
extensions at extension fees ranging from one-half to one percent.
Glenmaura also has the right to prepay the notes at face value. Essex
Partners guarantees payment of principal and interest on the notes.
SUBORDINATED NOTES PAYABLE
Subordinated notes payable of the Partnership of $5,182,000 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.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
(3) DEBT (CONTINUED)
----------------
The aggregate annual principal payments of the debt obligations for the
nine months ended December 31, 1997 and years subsequent to 1997 are as
follows:
1997 -0-
1998 1,539,129
1999 51,449
2000 56,836
2001 10,034,586
------------------------
11,682,000
========================
In the first quarter 1997, interest of $37,615 was capitalized in
investments in real estate as the debt was used to finance construction
of hotels. Interest of $31,375 was capitalized in the first quarter,
1996.
(4) FRANCHISE FEES
--------------
In 1995, the Partnership entered into license agreements with Promus
Corporation (Promus) to operate a Homewood Suites hotel in Warwick,
Rhode Island and a Hampton Inn and Suites hotel in Solon, Ohio. An
initial franchise fee of $40,000 was paid for each hotel and the term
and amortization period of the franchise agreements is twenty years. In
addition, for each hotel, the Partnership will be required to pay
Promus a monthly royalty fee of 4% of gross rooms revenues, a monthly
marketing/reservation fee of 4% of gross rooms revenue, an initial
software license fee of $3,000 plus $85 per guest room with a monthly
maintenance charge of $200 to $400 per month, and a monthly amount
equal to any sales tax or similar tax imposed on Promus on payments
received under the license agreement. During 1996 Promus approved the
conversion of the Solon, Ohio agreement to a Hampton Inn.
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 Promus 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.
Glenmaura has a franchise agreement with Marriott International, Inc.
Under the terms of the agreement, Glenmaura paid an initial franchise
fee of $48,000 in 1995. The term and amortization period of the
franchise agreement is twenty years, with an option to renew for an
additional ten-year period. Glenmaura is required to pay a monthly
royalty fee in an amount equal to 4% of gross room rentals for the
first two years of operations and 5% during the
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
(4) FRANCHISE FEES (CONTINUED)
--------------------------
remainder of the term of the agreement, a marketing fee of 2-3% gross
revenues, a reservation system fee and a property management system
fee. In the first quarter 1997, these fees totaled $40,976. There were
no payments made in the first quarter 1996.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
(5) RELATED PARTY TRANSACTIONS
--------------------------
A summary of fees earned by Essex Partners or its affiliates since
inception through March 31, 1997 under the terms of the Partnership
agreement follows:
<TABLE>
<CAPTION>
1ST QTR 1ST QTR
TYPE OF FEE AMOUNT OF FEE 1997 1996
- ----------- ------------- ---- ----
<S> <C> <C> <C>
Selling Commission Up to $80 per limited partnership $25,690 $150,200
unit and $55 per $1,000 sold
Organization and 3.4% of the gross proceeds of the 13,700 87,060
Offering Fee offering
Acquisition Fee $110,000 per hotel site 0 0
Development Fee $160,000 per hotel, plus 5% of the 108,000 0
total cost of the hotel in excess of
$2.7 million (not to exceed $325,000
per hotel)
Offering and Up to $40,000 if proceeds of the 0 16,000
Organization Fee - offering of limited partnership units
Glenmaura is $4,000,000, reduced by any
selling commissions paid
Development Fee - $285,000 (less $171,000 paid prior 0 85,500
Glenmaura to the Partnership's purchase of a
controlling interest of Glenmaura)
Property 4.5% of gross operating revenues 20,600 0
Management Fee from the hotels
Partnership .75% to 1.25% of gross operating 3,430 0
Management Fee revenues from the hotels
Accounting Fee $800 per month 2,400 0
$173,820 $338,760
======== ========
</TABLE>
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
(5) RELATED PARTY TRANSACTIONS (CONTINUED)
--------------------------------------
The above fees are reflected in the accompanying financial statements
as follows:
<TABLE>
<S> <C> <C>
1ST QTR 1ST QTR
Balance Sheet: 1997 1996
---- ----
Investment in real estate $108,000 $ 85,500
Deferred debt issuance costs 23,320 187,000
Syndication costs, charged to partner's capital 16,070 66,160
$147,390 $338,660
======== ========
Statements of Operations:
Management fees to affiliates $20,600 0
Administrative expense 2,400 0
Partnership management fees 3,430 0
$26,430 $0
======== ========
</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.
In 1995, the Partnership paid a $110,000 acquisition fee in connection
with the Warwick, Rhode Island site. As it is unlikely that a hotel
will be constructed on the Warwick site, the amount of the fee is
included in due from affiliates at December 31, 1996.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
(5) RELATED PARTY TRANSACTIONS (continued)
--------------------------------------
Under the terms of the Partnership agreement, Essex Partners or its
affiliates will also earn other fees as follows:
TYPE OF FEE AMOUNT OF FEE
----------- -------------
Investor Relations Fee .25% of the gross proceeds of the offering payable
annually in 1998 through 2001
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
Glenmaura has made a non-refundable deposit of $55,000 pursuant to an
option to purchase a second parcel of land (the Second Project)
adjacent to the Project for purposes of constructing a second hotel.
The option agreement expired in December of 1996 but is currently being
renegotiated. In the event that Essex Partners elects to proceed with
the Second Project on behalf of Glenmaura, Essex Partners will receive
additional compensation related to the acquisition of the second
parcel, construction of the Second Project and securing additional
equity and debt financing to fund such activities. Such compensation
will include an acquisition fee equal to $50,000 for its services
related to the acquisition of the second parcel and a development fee
up to $150,000 plus 3% of total construction, site development and
fixtures, furniture and equipment costs. In addition, as compensation
for arranging construction and permanent financing, Essex Partners may
receive a financing fee equal to 1% of the gross proceeds of the
financing.
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.
(6) SUBSEQUENT EVENTS
-----------------
In May 1997, the Partnership elected not to proceed with development of
a hotel on the Warwick, Rhode Island property and is pursuing the sale
of the property. the disposal is not expected to have a significant
impact on the Partnership's financial statements.
In June 1997, the Partnership acquired a property in Erie, Pennsylvania
for $650,000 in anticipation of constructing a Hampton Inn hotel. The
Partnership is currently negotiating with GMAC for a first mortgage
loan of approximately $4.5 million.
On June 9, 1997, the Partnership sold 1.05 limited partnership units of
Glenmaura for $105,000 to Essex Partners, thereby reducing the
Partnership's investment interest to 49.8%. As a result, the
Partnership n o longer controls Glenmaura and will be accounted for on
the equity method.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1997
(6) SUBSEQUENT EVENTS (CONTINUED)
-----------------------------
In July 1997, the Partnership completed construction of the Hampton Inn
in Solon, Ohio and obtained a first mortgage of $4.5 million with GMAC.
the term is for four years with a one year extension available if
certain debt service coverage is attained. Monthly payments of interest
only will be due at 3.25% over the LIBOR rate for the first year.
Principal and interest payments are due thereafter.
<PAGE>
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. 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. Gross offering proceeds of up to $21,000,000 may be raised
through the public offering. Through May 8, 1997, the Partnership has received
gross offering proceeds of $7,629,000, including $5,298,000 from the sale of
subordinated notes and $2,331,000 from the sale of limited partnership units.
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 began construction of a 100-room Hampton Inn in Solon, Ohio in
late, 1996, which is expected to open in early summer, 1997. The Solon Hampton
Inn is expected to cost about $6,900,000, including the cost of the land, cost
of construction, cost of furnishings, construction period interest, financing
costs (debt and equity) and all soft costs such as architectural costs,
engineering, franchise fee and working capital. The General Partner expects to
secure first mortgage financing from institutional lenders, however, no external
financing source has issued a commitment to lend funds to the Partnership for
construction or permanent financing. The Partnership does not have sufficient
funds to complete construction of the Solon property. Although additional
funding is not assured, based on the rate funds are being raised, the timing of
construction, and the expected availability of external financing, the
Partnership anticipates sufficient funds will be available to pay for
construction and for future property acquisitions when required.
The Partnership also invested $1,250,000 in another partnership, Essex Glenmaura
L.P. ("Glenmaura") in two purchases in the first quarter of 1996. Glenmaura
completed construction of a 120-room Marriott Courtyard in Scranton,
Pennsylvania in September, 1996. The total cost of the project was $8.7 million,
including the cost of the land, cost of construction, cost of furnishings,
construction period interest, financing costs (debt and equity) and all soft
costs such as architectural costs, engineering, franchise fee and working
capital. The project was funded with $2,300,000 of partner equity, $1,500,000 of
unsecured notes and a $5,000,000 first mortgage loan from GMAC Commercial
Mortgage Corporation. The term of the first mortgage loan is for four years with
a one year extension available if the specified debt service coverage is
attained. Monthly payments of interest only accrue a 3% over the LIBOR rate for
the first year. Principal and interest payments are due thereafter based on a
twenty-five year loan amortization. Starting in the second year of the loan,
Glenmaura will be required to maintain a replacement reserve escrow at 4% of
room revenues.
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
<PAGE>
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 expects to have the results of the
market study within the next month and will be determining whether to proceed
with the Warwick Homewood Suites by the end of the second quarter. If the
Partnership decides not to construct the Homewood Suites in Warwick, the
Partnership intends to sell the Warwick site and specify at least one more site
for development by the Partnership.
The General Partner is evaluating other potential sites to by acquired by the
Partnership, however, it has not identified any additional property for
acquisition.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following discussion analyzes the consolidated financial statements of the
Partnership as of March 31, 1997, which are attached. The consolidated financial
statements include the accounts of the Partnership and Essex Glenmaura. All
significant intercompany transactions and balances have been eliminated in
consolidation.
From April 1, 1996 to March 31, 1997, the consolidated total assets of the
Partnership increased $6,344,000. The increase was caused by several factors.
Net investment in real estate increased $5,228,000, an increase of $3,978,000
from construction of the Courtyard by Marriott hotel by Essex Glenmaura, an
increase of $1,597,000 from development activities by the Partnership, and a
reduction from depreciation expense of $347,000. Cash and cash equivalents
increased $806,000 from proceeds of the Partnership's offering of subordinated
notes and units. Debt issuance costs increased $246,000, $131,000 from costs
incurred in the Partnership's offering of subordinated notes, and $115,000 of
costs associated with obtaining the first mortgage financing for Glenmaura.
Partnership consolidated liabilities increased $6,829,000, for several reasons.
Subordinated notes payable increased $1,336,000 from the issuance of
subordinated notes payable in the Partnership's offering. First mortgage
financing increased 5,000,000 which represents the first mortgage obtained by
Glenmaura in February, 1997. Accounts payable increased $493,000, primarily from
outstanding construction invoices. The minority interest in Glenmaura decreased
$489,000, representing the minority interest share in the net losses of Essex
Glenmaura in 1996 and the first quarter, 1997. Limited partners' equity
increased only $3,000, which represents proceeds of the Partnership's public
offering of the Units, net of syndication costs and Partners' Notes, and from
the consolidation of the Partnership's interest in Glenmaura. The consolidated
net loss for the Partnership of $186,000 for the first quarter 1997 and $867,000
for 1996 also decreased partners' equity.
The primary revenue source was room revenues of $420,000 from Essex Glenmaura,
which is the only hotel in operation. Other revenue totaled $89,000, for total
revenues of $509,000. Operating expenses for the first quarter, 1997, before
interest and depreciation, totaled $428,000, for income from operations before
interest, depreciation and amortization of $81,000. The largest single operating
expense for the Partnership is rooms expense, followed by food and beverage
expenses. The Partnership's consolidated interest expense, net of interest
income was $201,000, representing interest incurred on the notes payable and the
first mortgage loan, and interest on the subordinated
<PAGE>
notes to the extent the proceeds were not used for construction. Interest of
$38,000 on the proceeds of the subordinated notes used in construction was
capitalized. Depreciation and amortization expenses totaled $146,000, for a net
loss of $270,000 before allocating $84,000 of the net loss to the minority
interest in Glenmaura. The consolidated net loss for the Partnership was
$186,000.
Glenmaura is in the start-up phase of operations. New hotels require from
several months to a couple years to establish a stable customer base. During the
start-up phase, occupancy is building, and room rates may be lower to attract
new customers. When a strong customer base is established, room rates can be
raised to a more competitive level.
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
a. EXHIBITS
None
b. REPORTS ON FORM 8-K
None
SIGNATURES
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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: September 19, 1997 /S/ LORRIE L. LOFASO
--------------------
Essex Hospitality Associates IV L.P.
Essex Partners Inc.
Lorrie L. LoFaso
Vice President and Chief Accounting Officer
