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 March 31, 1998
[ ] 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 May 11, 1998, a total of 2,945 Limited Partnership Units were outstanding.
<PAGE>
PART 1
------
FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Essex Hospitality Associates IV L.P.
Balance Sheets
As of March 31, 1998 and 1997
ASSETS 1998 1997
------- ----- ----
Investments in real estate, at cost:
Land $ 1,531,644 2,492,194
Land improvements 191,023 271,348
Buildings 4,728,324 4,961,877
Furniture, fixtures and equipment 964,824 1,339,793
Construction in progress 1,745,625 1,967,458
------------ -----------
9,161,440 11,032,670
Less accumulated depreciation (275,158) (346,658)
------------ -----------
Net investments in real estate 8,886,283 10,686,012
------------ -----------
Cash and cash equivalents 414,558 2,159,932
Land held for sale 646,981
Deferred costs:
Debt issuance 873,926 780,755
Franchise 85,000 128,000
Other 50,766 60,766
------------ -----------
1,009,692 969,521
Less accumulated amortization (233,853) (222,284)
------------ -----------
775,839 747,237
------------ -----------
Investment in partnership 277,133 --
Due from affiliate -- 110,000
Other assets 191,887 158,426
------------ -----------
Total assets $ 11,192,681 13,861,607
============ ===========
LIABILIITIES AND PARTNERS' CAPITAL
----------------------------------
Liabilities
Accounts payable and accrued expenses $ 74,828 117,995
Accounts payable - construction 982,948 869,993
First mortgage loan payable 4,500,000 5,000,000
Subordinated notes payable 5,413,000 5,182,000
Construction loan payable 28,507 --
Notes payable -- 1,500,000
------------ -----------
Total liabilities 10,999,283 12,669,988
------------ -----------
Minority interest - Essex Glenmaura L.P. -- 566,095
------------ -----------
Commitments and contingencies (notes 5 and 6)
Partners' capital 219,939 791,777
Less notes receivable from partners (26,541) (166,253)
------------ -----------
Total partners' capital 193,398 625,524
------------ -----------
Total liabilities and partners' capital $ 11,192,681 13,861,607
============ ===========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
Essex Hospitality Associates IV L.P.
Statements of Operations
For the Quarters ended March 31, 1998 and 1997
1998 1997
----- ----
REVENUE:
- -------
Rooms 495,624 420,339
Food and beverage -- 56,265
Telephone and other commissions 36,028 32,435
-------- --------
531,652 509,039
-------- --------
OPERATING EXPENSES:
- ------------------
Rooms 117,390 118,381
Food & beverage expenses -- 66,572
Commissions expenses 18,942 13,001
Advertising & promotion 28,188 30,191
Repairs & maintenance 16,868 25,622
Utilities 41,684 39,464
Administrative & general 29,586 47,511
Property taxes 10,017 9,501
Insurance 3,325 13,506
Franchise fees 18,376 14,842
Management fees 22,709 20,563
Partnership management fees 3,784 3,427
Equity in loss of partnership 71,268 --
Depreciation and amortization 120,418 146,198
Miscellaneous 10,707 9,189
-------- --------
513,262 557,968
-------- --------
Income (loss) from operations before interest 18,390 (48,929)
Interest expense (198,935) (228,454)
Interest income 13,113 27,232
-------- --------
(185,822) (201,222)
-------- --------
Loss before minority interest in loss of
partnership (167,432) (250,151)
-------- --------
Minority interest in income/(loss) of partnership -- (75,273)
--------
Net income (167,432) (174,878)
======== ========
Net loss - general partners (1,674) (1,749)
- limited partners (165,757) (173,129)
-------- --------
(167,432) (174,878)
======== ========
Net loss per limited partner unit (56) (78)
======== ========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Essex Hospitality Associates IV L.P.
Statements of Cash Flows
For the Quarters ended March 31, 1998 and 1997
1998 1997
----- ----
<S> <C> <C>
Cash flows from operating activities
Cash received from customers 480,772 518,958
Cash paid to suppliers (357,926) (536,596)
Interest received 13,113 27,232
Interest paid (198,935) (228,454)
---------- ----------
Net cash from operating activities (62,976) (218,860)
---------- ----------
Cash flows from investing activities
Payments for land and construction in progress (1,024,599) (1,078,583)
Payments for deposits (89,615) (10,757)
---------- ----------
Net cash used in investing activities (1,114,214) (1,089,340)
---------- ----------
Cash flows from financing activities
Partners' capital contributions -- 141,422
Payments for syndication costs (1,373) (16,074)
Proceeds from notes payable -- 262,000
Proceeds from 1st mortgage loan -- 5,000,000
Proceeds from (payoff of) construction loan 28,507 (4,294,243)
Payments for debt acquisition costs (77,333) (98,446)
Payments for distributions -- (42,212)
---------- ----------
Net cash from financing activities (50,199) 952,447
---------- ----------
Net increase in cash and cash equivalents (1,227,389) (355,753)
Cash and cash equivalents - beginning of quarter 1,641,947 2,515,685
---------- ----------
Cash and cash equivalents - end of quarter 414,558 2,159,932
========== ==========
Reconciliation of net income to net cash flows from
operating activities:
Net loss (167,432) (174,878)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 120,418 146,198
Changes in:
Shortterm assets (59,580) (157)
Equity on loss of partnership 71,268
Minority interest in net loss of partnership -- (75,273)
Accounts payable and other expenses (27,646) (114,750)
---------- ----------
(62,972) (218,860)
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1998
(1) ORGANIZATION
------------
Essex Hospitality Associates IV L.P. (the Partnership) is a New York
limited partnership formed in 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 which was
completed in November 1997. The Partnership's general partner is Essex
Partners Inc. (Essex Partners), a wholly-owned subsidiary of Essex
Investment Group, Inc. (Essex).
The Partnership has acquired land in order to construct and operate
hotels. A Hampton Inn hotel was constructed in Solon, Ohio and the
hotel commenced operations in August 1997. In June 1997, land was
purchased in Erie, Pennsylvania and construction of a Hampton Inn hotel
has begun. In December 1995, land was purchased in Warwick, Rhode
Island in anticipation of the construction of a Homewood Suites hotel.
However, as a result of higher than projected construction costs and a
change in market conditions, the Partnership has decided not to proceed
with development of the hotel and is now pursuing the sale of the land.
In 1997 Solon Hotel LLC, a special purpose entity was created to own
the Solon Hampton Inn. The managing member of the Solon Hotel LLC is
Essex Hotel LLC, a single purpose entity created to act as the managing
member. The membership interests of Solon Hotel LLC are owned 99% by
the Partnership and 1% by Essex Hotel LLC, whose sole member is the
Partnership.
In June 1997, the Partnership transferred the Erie property to a single
purpose entity, Erie Hotel LLC. The managing member of Erie Hotel LLC
is Essex Hotels II LLC, a single purpose entity created to act as the
managing member of Erie Hotel LLC. The membership interests in Erie
Hotel LLC are owned 99% by the Partnership and 1% by Essex Hotels II
LLC, whose sole member is the Partnership.
In January 1996, the Partnership acquired a 54.3% 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 pro rata 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
and operations began in September 1996. In June 1997, the Partnership
sold 1.05 limited partnership units of Glenmaura to Essex Partners for
$105,000, reducing the Partnership's ownership interest to 49.8%.
A general description of the allocation of Partnership income, loss,
and distributions follows. For a more comprehensive description see the
Partnership Agreement:
Allocations 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.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1998
(1) ORGANIZATION, CONTINUED
-----------------------
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 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 pro rata 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 6).
(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, Solon Hotel LLC, Essex Hotel LLC, Erie Hotel LLC and Essex
Hotels II LLC. All significant inter-partnership transactions and
balances have been eliminated in consolidation.
The first quarter 1997 consolidated financial statements also include
the accounts of Glenmaura.
INVESTMENT IN REAL ESTATE
-------------------------
Investment in real estate is shared at cost. Possible impairment of the
carrying value is evaluated when events or changed circumstances may
affect the underlying basis of the asset. Depreciation is calculated
using the straight-
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
line method for buildings and accelerated methods for land
improvements, furniture, fixtures, and equipment over the estimated
useful lives of the assets as each hotel commences operations:
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 debt are being amortized on a straight-line basis over
the terms of the debt.
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, once each hotel commences operations.
SYNDICATION COSTS
-----------------
Selling commissions and legal, accounting, printing and other filing
costs totaling $418,892 related to the offering of the limited
partnership units were charged against the proceeds of the public
offering.
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 2,945 in 1998 and
2,242 in 1997.
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
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-----------------------------------------------------
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) INVESTMENT IN PARTNERSHIP
-------------------------
Summarized financial information for Glenmaura as of and for the
quarters ended March 31, 1998 and 1997 follows:
MARCH 31,
---------
1998 1997
---- ----
Net investment in real estate $ 7,030,000 $ 7,449,000
Net deferred costs 130,000 177,000
Other assets 213,000 280,000
Borrowed funds 6,496,000 6,500,000
Other liabilities 322,000 128,000
Partners' capital 602,000 1,249,000
Minority interest -- 566,000
Revenue 509,000 509,000
Operating Income (Loss) 10,000 (47,000)
Interest Expense 153,000 137,000
Net Loss 143,000 165,000
Minority Interest in Loss -- 75,000
The Partnership's ownership interest in Glenmaura was reduced from
54.3% to 49.8% as of June 9, 1997. Therefore, the assets, liabilities
and results of operations of Glenmaura, and the minority interest
thereon, are only reflected in the accompanying financial statements
for the first quarter of 1997.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1998
(4) DEBT
----
MORTGAGE NOTE PAYABLE
---------------------
On July 7, 1997, the Partnership obtained permanent financing from GMAC
Commercial Mortgage Corporation (GMAC) for $4,500,000 for the Solon,
Ohio hotel. The loan is due July 1, 2001 with a one year extension
available upon the payment of a fee and if certain debt service
coverage is attained. Interest accrues at 3.25% over the 30-day LIBOR
index (8.94% at March 31, 1998). Monthly payments of interest only are
due until August 1, 1998. Principal and interest payments are due
thereafter based on a 25-year amortization. Starting in the second year
of the loan, the Partnership will be required to contribute 2% of
monthly room revenues to a replacement reserve. The replacement reserve
payment will increase to 4% of monthly room revenues in the third year
of the loan. The loan is collateralized by the real and personal
property and certain other assets of Solon Hotel LLC. The Partnership
was also required to pledge its limited partnership interest in
Glenmaura and the loan is thirty percent guaranteed by Essex Partners.
SUBORDINATED NOTES PAYABLE
--------------------------
Subordinated notes payable of $5,413,000 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, 2001 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.
The future annual principal payments of the debt obligations
outstanding as of March 31, 1998 are estimated as follows:
1998 $ 17,500
1999 44,500
2000 49,000
2001 9,801,000
=========
9,798,000
=========
In the first quarter of 1998 and 1997, interest of $43,904 and $37,615,
respectively, was capitalized in investments in real estate as the debt
was used to finance construction of hotels.
CONSTRUCTION LOAN COMMITMENT
----------------------------
In 1998 the Partnership received construction financing from a bank for
$4,700,000 for the Hampton Inn in Erie, Pennsylvania. The term is for
twelve months and requires monthly payments of interest only at a rate
of 2.5% over the LIBOR rate (8.2% at March 31, 1998). The facility is
guaranteed by Essex Partners and collateralized by the related hotel
property. Additionally, covenants require minimum net worth and limited
distributions. There were
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1998
(4) DEBT, CONTINUED
---------------
no draws outstanding on the facility at March 31, 1998 except for
approximately $28,000 in loan fees and interest. The Partnership is
also negotiating with GMAC for permanent financing of the Erie Hampton
Inn hotel.
(5) FRANCHISE FEES
--------------
The Solon, Ohio Hampton Inn opened under a license agreement with
Promus Corporation (Promus). An initial franchise fee of $40,000 was
paid in 1995. In 1997, the Partnership entered into another license
agreement with Promus to operate the Hampton Inn in Erie, Pennsylvania.
An initial franchise fee of $45,000 was required. The term of the
license agreement is approximately twenty years from the date the hotel
commences operations. In addition, for each hotel, the Partnership will
be required to pay Promus a monthly royalty fee of an 4% of gross rooms
revenues, a monthly marketing/reservation fee of an additional 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 $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.
Royalty and marketing/reservation fees were each $18,376 in the first
quarter of 1998. There were no royalty, marketing/reservation fees for
the first quarter of 1997 under the Promus license agreement.
Promus requires the Partnership to establish a capital reserve escrow
account based on a percentage of room 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 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.
In 1995, the Partnership entered into a license agreement with Promus
to operate a Homewood Suites hotel in Warwick, Rhode Island. An initial
franchise fee of $40,000 was paid. The franchise agreement for the
Homewood Suites in Warwick has expired. The franchise fee has been
written off since the franchise agreement has expired.
(6) RELATED PARTY TRANSACTIONS
--------------------------
A summary of fees earned by Essex Partners or its affiliates for the
three months ended September 30, 1997 under the terms of the
Partnership agreement follows:
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1998
<TABLE>
<CAPTION>
1ST QTR 1ST QTR
TYPE OF FEE AMOUNT OF FEE 1998 1997
- ----------- ------------- ---- ----
<S> <C> <C> <C>
Selling Commission Up to $80 per limited partnership unit and $ -0- $ 25,690
$55 per $1,000 sold
Organization and Offering 3.4% of the gross proceeds of the offering -0- 13,700
Fee
Acquisition Fee $110,000 per hotel site -0- -0-
Development Fee $160,000 per hotel, plus 5% of the total cost 112,500 108,000
of the hotel in excess of $2.7 million (not to
exceed $325,000 per hotel)
Property Management Fee 4.5% of gross operating revenues from the 22,709 20,600
hotels
Partnership Management .75% to 1.25% of gross operating revenues 3,784 3,430
Fee from the hotels
Accounting Fee $800 per month 2,400 2,400
Refinancing Fee 1% of gross proceeds of re-financing any or all 47,000 -0-
of the hotels ========= =========
$ 188,393 $ 173,820
========= =========
The above fees are reflected in the accompanying financial statements
as follows:
1ST QTR 1ST QTR
Balance Sheet: 1998 1997
---- ----
Investment in real estate $ 112,500 $ 108,000
Deferred debt issuance costs 47,000 23,320
Syndication costs, charged to partner's capital -0- 16,070
$ 159,500 $ 147,390
========= =========
</TABLE>
<PAGE>
ESSEX HOSPITALITY ASSOCIATES IV L.P
(A New York Limited Partnership)
Notes to Financial Statements
March 31, 1998
(6) RELATED PARTY TRANSACTIONS, CONTINUED
-------------------------------------
Statements of Operations:
Management fees to affiliates $22,709 20,600
Administrative expense 2,400 2,400
Partnership management fees 3,784 3,430
$ 28,893 $ 26,430
======== =========
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.
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
Sales Fee 3% of the gross sale price of any or
all of the hotels
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>
Item 2. Management's Discussion and Analysis or Plan of Operation
The Partnership was formed on August 30, 1995. The Partnership completed its
public offering on November 24, 1997, raising $5,413,000 in subordinated notes
and $2,876,000 in limited partnership units for total offering proceeds of
$8,289,000.
The following discussion analyzes the financial statements of the Partnership as
of March 31, 1998 and 1997, which are attached. Investments with a 50% or less
ownership interest are accounted for by the equity method. Ownership interests
exceeding 50% are accounted for under the consolidated method. The Partnership
had a 54.3% ownership interest in Glenmaura until June 9, 1997, at which time
the Partnership's ownership interest was reduced to 49.8%. Accordingly, the
financial statements for the quarter ended March 31, 1997 include the accounts
of the Partnership and Glenmaura. In the financial statements for the quarter
ended March 31, 1998 the investment in Glenmaura is accounted for under the
equity method. All significant intercompany transactions and balances have been
eliminated in consolidation.
COMPARISON OF THE QUARTER ENDED MARCH 31, 1998 TO THE QUARTER ENDED
MARCH 31, 1997
From April 1, 1997 to March 31, 1998, the total assets of the Partnership
decreased approximately $2.7 million. There were two primary reasons for the
decrease. The change in accounting method for Glenmaura from the consolidated to
the equity method reduced net fixed assets. The net fixed assets as of March 31,
1997 included $8,718,000 from Glenmaura, which are no longer included in the net
fixed assets of the Partnership. The investment in the Solon and Erie Hampton
Inns increased by approximately $7.8 million, due to completing construction of
the Solon Hampton Inn and acquiring the land and beginning construction of the
Erie Hampton Inn. The Partnership's cash balance decreased from approximately
$2.2 million to $415,000 from costs incurred in the acquisition and construction
of properties. Land held for sale increased $647,000, which represents the costs
incurred for the Warwick site, which is currently being offered for sale by the
Partnership. The assets of the Partnership at March 31, 1998 include $277,000 of
investment in partnership, which represents the Partnership's investment in
Glenmaura. During the period, the Partnership incurred additional deferred costs
of $394,000, representing $349,000 of additional debt acquisition costs from the
offering of the subordinated notes, costs incurred to obtain the Solon first
mortgage loan, costs incurred to obtain the construction and permanent financing
for Erie Hampton Inn and the $45,000 franchise fee paid for the Erie Hampton Inn
hotel, net of the write-off the $40,000 franchise fee paid for the Warwick site,
which has expired.
The Partnership's liabilities decreased $1,671,000 from April 1, 1997 to March
31, 1998, primarily from the change to the equity method of accounting as
described above. The liabilities as of March 31, 1997 included $128,000 of
accounts payable and accrued expenses and $6,500,000 of debt relating to
Glenmaura. Since March 31, 1997, the Partnership received a $4,500,000 first
mortgage loan for Solon from GMAC Commercial Mortgage Corp. and subordinated
notes of $231,000 were sold in the Partnership's offering. Accounts payable-
construction increased approximately $132,000 from outstanding construction
invoices for the Erie Hampton Inn hotel. The minority interest in Glenmaura is
no longer presented in the Partnership's balance sheet due to the change in
accounting method for Glenmaura. Limited partners' equity decreased $432,000.
From April 1, 1997 to March 31, 1998, the Partnership received $588,000 in
limited partner equity from proceeds of the offering, incurred an additional
$98,000 in syndication costs, paid $95,000 in distributions to limited partners,
collected $145,000 in promissory note payments from limited partners and
incurred net losses of $972,000.
The primary revenue source for the quarter ended March 31, 1998 was room
revenues of $496,000 from the Solon Hampton Inn. The primary revenue source for
the quarter ended March 31, 1997 was room revenues of $420,000 from the
Courtyard by Marriott. There are no revenues from the Solon Hampton Inn in the
first quarter 1997 since the Solon Hampton Inn did not open until August, 1997.
Telephone and other commission revenue for the first quarter 1998 totaled
$36,000, for total revenues of $532,000. For the first quarter, 1996, food and
beverage revenue and telephone and other commission revenue from Glenmaura
totaled $89,000 for total revenues of $509,000. Operating expenses for the
quarter ended March 31, 1998, before equity loss in partnership and
depreciation, totaled $705,000. The equity loss from Glenmaura for the first
quarter, 1998 was $71,000. Depreciation and amortization of $120,000 was
recorded for income from operations of $18,000. Other than
<PAGE>
depreciation and equity loss in partnership, the largest operating expense for
the Partnership was rooms expense of $117,000, followed by utilities expenses of
$42,000. Operating expenses for the first quarter 1997 totaled $558,000. The
largest expenses in the first quarter 1997 were depreciation of $146,000, rooms
expenses of $118,000 and administrative and general expenses of $47,000. The
loss from operations in the first quarter 1997 was $49,000. Other income and
expense for the first quarter 1998 includes net interest expense of $186,000,
compared to net interest expense of $201,000 for the same period in 1997. The
Partnership's interest expense in the first quarter 1998 is composed of the
interest incurred on the first mortgage loan for Solon, and interest on the
subordinated notes to the extent the proceeds have not been used for the
construction of the Erie Hampton Inn. Interest incurred on subordinated note
proceeds used for the Erie Hampton Inn and on the Erie Hampton Inn construction
loan have been capitalized as construction period interest. The Partnership's
interest expense in the first quarter 1997 was composed of interest on the first
mortgage loan for Glenmaura and interest on the subordinated notes to the extent
the proceeds were not used for construction. Interest incurred in the first
quarter 1997 on the subordinated note proceeds which were used in construction
was capitalized as construction period interest. The net loss for the
Partnership for the first quarter, 1998 was $167,000. The loss before minority
interest in Glenmaura for the quarter ended March 31, 1997 totaled $250,000.
After allocating $75,000 to the minority interests in Glenmaura, the
Partnership's net loss for the first quarter 1997 was $175,000.
The Partnership used $63,000 of cash in operations in the first quarter 1998,
compared to cash used in operations in the first quarter 1997 of $219,000. The
cash used in operations in the first quarter 1998 was less than the same period
in 1997 for three reasons, more revenue was generated in 1998, the level of debt
is lower in 1998 without the debt attributable to Glenmaura, which resulted in
lower interest expense, and the expenses required to operate the Solon Hampton
Inn are less than the expenses required to operate the Courtyard by Marriott.
Cash required for investing activities in the first quarter 1998 was $1,114,000,
$25,000 higher than for the first quarter 1997, due to the timing of
construction activities. The Partnership required $50,000 of cash for financing
activities in the first quarter 1998 due to payments for debt acquisition costs.
Financing activities for the first quarter 1997 provided $952,000 in cash due to
the closing of the GMAC Commercial Mortgage Corp. first mortgage loan for
Glenmaura. Cash decreased $1,227,000 in the first quarter 1998, compared to a
decrease of $356,000 in the first quarter 1997.
The Solon Hampton Inn opened on August 1, 1997. The property achieved an average
occupancy of 74% in 1997 after five months of operation, with an average daily
rate of $77.97. The revenue per available room for 1997 was $57.62. The average
occupancy for the first quarter 1998 was also 74%, with an average daily rate of
$72.45. The revenue per available room for the first quarter 1998 was $53.47.
The first quarter of the year is typically the weakest quarter in the lodging
industry. The Solon Hampton Inn maintained strong results during the weakest
period of the year, which indicates that the Solon market is an extremely strong
market. Strong results have continued since the end of first quarter, with
average occupancy in April, 1998 of 81%, an average daily rate of $70.92 and
revenue per available room of $56.81.
The Courtyard by Marriott hotel opened in September 1996. The property achieved
an average occupancy of 63% for the first quarter 1998, higher than the 59%
average occupancy for the first quarter 1997. The average daily rate for the
first quarter 1998 was $64.26, less than the average daily rate of $66.58 for
the first quarter 1997. The revenue per available room for the first quarter
1998 was $40.61 versus $38.95 for the first quarter 1997. The market in the
Scranton area is extremely price sensitive. The Courtyard by Marriott hotel was
able to increase revenues by reducing rates for its business travelers and
achieving higher occupancy. Results for April were disappointing, with room
revenues $15,000 lower in April 1998 than in April 1997. Additional competition
opened in the Scranton market in June, 1997, which has negatively impacted the
Courtyard by Marriott hotel. The Scranton market is stronger in the winter
months than in early spring, due to the number of skiers that visit Montage
Mountain ski resort, which is very close to the Courtyard by Marriott hotel.
YEAR 2000 DISCLOSURE
The Partnership is currently working to resolve the potential impact of the year
2000 on the processing of date- sensitive information by the Partnership's
computerized information systems. Based on preliminary information, costs of
addressing potential problems are not currently expected to have a material
adverse impact on the Partnership's financial position, results of operations or
cash flows in future periods. However, if the Partnership, its customers or
vendors are unable to resolve such processing issues in a timely manner, it
could result in a material
<PAGE>
financial risk. Accordingly, the Partnership plans to devote the necessary
resources to resolve all significant year 2000 issues in a timely manner.
LIQUIDITY AND FINANCIAL CONDITION
The Solon Hampton Inn is generating sufficient funds from operations to fund all
operating expenses and debt service payments on the first mortgage loan. As of
March 31, 1998 the Partnership has $9,913,000 in outstanding long term
indebtedness comprised of subordinated notes of $5,413,000 and first mortgage
financing of $4,500,000. In addition, the Partnership has obtained construction
financing in the amount of $4,700,000 for the Erie Hampton Inn which it expects
will be replaced by permanent first mortgage financing in the amount of
$4,700,000. The notes are due in December 2001, unless extended by their terms
for one year to December 2002. The Solon first mortgage loan Solon loan is due
July, 2001, unless extended by its terms for one year to July, 2002. The Erie
first mortgage loan is expected to be due before December, 2002, unless extended
by its terms for one year to December, 2003. Once the Solon Hampton Inn and Erie
Hampton Inn reach more stabilized operations, the Partnership expects to be able
to place larger new first mortgages on the properties, such that when it needs
to refinance the total outstanding indebtedness, (which is expected to total
approximately $14.3 million in July, 2001), it can do so through a combination
of retained excess working capital, new first mortgage financing and, if
necessary, new subordinated note financing.
The Partnership believes that it has sufficient funding to complete the
construction of the Erie Hampton Inn. However, given the uncertainty of
construction, it is possible that significant unanticipated cost overruns could
occur that would cause the Partnership to not have sufficient funds to complete
construction. The Partnership intends to monitor construction costs very closely
to minimize the possibility of significant cost overruns.
The Partnership included a working capital reserve in its total costs for the
Solon Hampton Inn and has included a working capital reserve in its costs for
the Erie Hampton Inn. The Partnership expects that the working capital reserves
will be sufficient to fund any operating deficits.
The General Partner believes good investment opportunities exist in the limited
service segments of the lodging industry. The limited service segment of the
lodging industry has experienced significant growth in recent years as a greater
number of leisure travelers seek to maximize value. The General Partner believes
that the continued success of the lodging industry will depend upon, among other
things, the continued demand for lodging facilities by both business and leisure
travelers, which such demand is affected by general economic conditions,
including, costs of labor and materials, unemployment, inflation and interest
rates. In addition to, but directly affected by, economic trends, is the
availability of financing on favorable terms for the construction and operation
of hotels. In recent years a limited number of institutional lenders have been
more willing to provide financing for hotel construction and operations, and
hotel franchisors or their affiliates have established financing programs for
construction and operation of the hotel franchisors' particular hotels. In
addition to these industry considerations, the success of the Partnership's
hotels will depend upon the hotel franchises developed and operated by the
Partnership, as well as the location of the hotels.
<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
----------
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: May 14, 1998 /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
<CIK> 0001000375
<NAME> ESSEX HOSPITALITY ASSOCIATES IV L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 415
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<FN>
<F1> UNCLASSIFIED BALANCE SHEET USED
</FN>
<PP&E> 9,161
<DEPRECIATION> 272
<TOTAL-ASSETS> 11,193
<CURRENT-LIABILITIES> 1,086
<BONDS> 9,913
<COMMON> 0
0
0
<OTHER-SE> 193
<FN>
<F2> EQUITY IS PARTNERS' CAPITAL
</FN>
<TOTAL-LIABILITY-AND-EQUITY> 11,193
<SALES> 496
<TOTAL-REVENUES> 532
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187
<INCOME-PRETAX> (167)
<INCOME-TAX> 0
<INCOME-CONTINUING> (167)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (167)
<EPS-PRIMARY> (56)
<EPS-DILUTED> (56)
<FN>
<F3> ENTITY IS A PARTNERSHIP, EPS IS
LOSS PER LIMITED PARTNERSHIP UNIT
</FN>
</TABLE>
