SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1996
Commission file number 0-8913
SUPER 8 MOTELS, LTD.
(Exact name of registrant as specified in its charter)
California 94-2514354
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer Iden-
incorporation or organization) tification No.)
2030 J Street, Sacramento, California 95814
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 442-9183
Securities registered pursuant to Section 12
(b) of the Act: None Securities registered
pursuant to Section 12 (g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
-------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant has
been required to file such reports) and (2) has been subject to the filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.(X)
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Inapplicable.
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DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. BUSINESS
General Development of Business
Super 8 Motels, Ltd. (the "Partnership") is a limited partnership which was
organized under the California Uniform Limited Partnership Act on August 25,
1978. The general partner of the Partnership is Grotewohl Management Services,
Inc. (the "General Partner"), a California corporation which is 50% owned by
Philip B. Grotewohl.
In an offering which terminated on January 8, 1979, 5,000 units of limited
partnership interest in the Partnership (the "Units") were offered and sold at a
purchase price of $1,000 per Unit.
The proceeds of the offering have been expended for the acquisition (by lease)
and development of three properties located in South San Francisco, Modesto and
Sacramento County, California, all of which are currently operational motel
properties. These motels are managed and operated by the Partnership under the
name "Super 8 Motel."
There is hereby incorporated by reference herein the information regarding the
Partnership's motel properties contained in Item 2 of this report.
Narrative Description of Business
(a) Franchise Agreements
The Partnership operates each of its motel properties as a franchisee of Super 8
Motels, Inc. through sub-franchises obtained from Super 8 Management
Corporation. In March 1988, Brown & Grotewohl, a California general partnership
which is an affiliate of the General Partner, became sub-franchisor in the stead
of Super 8 Management Corporation. As of December 20, 1996, Super 8 Motels, Inc.
had franchised a total of 1,480 motels having an aggregate of 89,678 guest rooms
in operation.
The objective of the Super 8 Motel chain is to maintain a competitive position
in the motel industry by offering to the public comfortable, no-frills
accommodations at a budget price. Each Super 8 Motel provides its guests with
attractively decorated rooms, free color television, direct dial telephone and
other basic amenities, but eliminates or modifies other items to provide
substantial cost reduction without seriously affecting comfort or convenience.
Some of these savings are accomplished by reductions in room size, elimination
of expensive lobbies, and by substantial economies in building construction.
By the terms of each franchise agreement with Super 8 Motels, Inc., the
Partnership pays monthly franchise fees equal to 4% of its gross room revenues
(half of which is paid to the sub-franchisor) and contributes an additional 1%
of its gross room revenues to a fund administered by Super 8 Motels, Inc. to
finance the national reservation and promotions program.
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(b) Operation of the Motels
The General Partner manages and operates the Partnership's motels. The General
Partner's management responsibilities include, but are not limited to,
supervision and direction of the Partnership's employees having direct
responsibility for the operation of each motel, establishment of room rates and
direction of the promotional activities of the Partnership's employees. In
addition, the General Partner directs the purchase of replacement equipment and
supplies, maintenance activity and the engagement or selection of all vendors,
suppliers and independent contractors. The Partnership's financial activities
are performed by the individual motel staffs and a centralized accounting staff,
all of which work under the direction of the General Partner. Together, these
staffs perform all bookkeeping duties in connection with each motel, including
all collections and all disbursements to be paid out of funds generated by motel
operations or otherwise supplied by the Partnership.
As of December 31, 1996, the Partnership employed a total of 55 persons, either
full or part-time at its three motel properties, including 17 desk clerks, 29
housekeeping and laundry personnel, three maintenance personnel, three van
drivers, and three motel managers.
In addition, and as of the same date, the Partnership employed 11 persons in
administrative positions at its central office in Sacramento, California, all of
whom worked for the Partnership on a part-time basis. They included accounting,
investor service, sales and marketing and motel supervisory personnel,
secretarial personnel, and purchasing personnel. Employed by the Partnership on
a part-time basis are David and Mark Grotewohl. David Grotewohl, an attorney, is
the Partnership's general counsel and is the Director of Operations. Mark
Grotewohl is the manager of the Sacramento motel and is the Director of
Marketing and Sales.
(c) Property Acquisition and Development
The net proceeds of the offering of the Units, and financing in the amount of
$850,000 secured by deeds of trust on each of the three Partnership motels, was
expended in connection with the acquisition (by lease) and development of three
properties located in South San Francisco, Modesto and Sacramento County,
California, respectively.
It is the present intention of the General Partner that the proceeds of any sale
or refinancing be distributed to the Limited Partners rather than reinvested.
(d) Competition
As discussed in greater detail below, each area in which its motel properties
are located the Partnership faces intense competition from in motels of varying
quality and size, including other budget motels which are part of nationwide
chains and which have access to nationwide reservation systems.
Super 8 Motels offer accommodations at the upper end, in terms of facilities and
prices, of the budget segment of the lodging industry. Generally, Super 8 Motels
offer larger rooms and higher quality furnishings at higher rates than motels
franchised under the trade-names Motel 6, California 6, Western 6, Regal 8, and
E-Z 8.
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Item 2. PROPERTIES
The net proceeds of the offering of Units have been expended for the acquisition
(by lease) and development of three properties located in Sacramento County,
South San Francisco and Modesto, California. The aggregate acquisition and
development cost of the properties was funded with such proceeds and financing
in the amount of $850,000 secured by deeds of trust to each of the motels. This
original loan was subsequently repaid on April 8,1988 with the proceeds of the
San Francisco Federal Savings & Loan Association (SFFSLA) loan described in Note
6 of the Financial Statements. The SFFSLA loan bears interest at the rate of 3%
over the Federal Home Loan Bank Board 11th District Cost of Funds with a minimum
interest rate of 8.5% and requires monthly payments of principal and interest in
the amount of $9,061. The SFFSLA loan, which is secured by a deed of trust
encumbering the South San Francisco motel, matures May 1, 2003, at which time a
"balloon" payment of approximately $740,000 will be due and payable. SFFSLA has
become California Federal Bank.
(a) Sacramento County
Description of Motel. The Partnership is the lessee of approximately 241,000
square feet of land located at the northeast corner of Madison Avenue and
Hillsdale Boulevard, and adjacent to Interstate Highway 80, in Sacramento
County, California. The site is located to the east of the City of Sacramento.
The Partnership has constructed a 128-room motel on the site. Construction of
the motel was completed and the motel commenced operations in April 1980.
The property site consists of two leased parcels. The leases provide for payment
by the Partnership of all taxes, utilities and costs of maintenance in addition
to the monthly rent, and will expire on June 30, 2013. Pursuant to the lease
agreements, the Partnership has five consecutive 10-year renewal options. The
leases provide for adjustments to the monthly rent every two years according to
changes in the Consumer Price Index for all Urban Consumers for the San
Francisco-Oakland Area (the "CPI"). The total monthly rent was adjusted to
$9,719 ($116,630 annually) as of July 1, 1996.
The leases provide that the improvements constructed by the Partnership on the
leased premises will remain the property of the Partnership during the lease
term but that upon expiration of the leases, title to any such improvements will
pass to the lessor. The Partnership has subleased several unused portions of the
motel site as described below. As a result of the development discussed below,
the General Partner regards the Sacramento site as completely developed.
Madison Avenue Properties Sublease. On February 25, 1983 the Partnership entered
into a sublease with Madison Avenue Properties (an unaffiliated developer which
is a general partnership of which Jim White, Norbert J. Havlick, William J.
Hughes, Jr. and Merle D. Gilliland are the partners) of an undeveloped portion
of the motel site comprising approximately 38,000 square feet. Construction of a
restaurant and cocktail lounge facility on the property was completed and the
facility opened for business in April 1984.
The sublease to Madison Avenue Properties extends through March 31, 2003, and
has five consecutive 10-year renewal options (but does not require the
Partnership to extend the term of its master leases for the property.) The cost
of improvements and all maintenance, taxes and utilities are the responsibility
of the sublessee. The Partnership and the fee owner of the property have agreed
to subordinate their interests therein to encumbrances securing permanent
financing for the restaurant and cocktail lounge facility.
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The annual rent payable to the Partnership is equal to the greater of 1.5% of
gross receipts generated by the restaurant and cocktail lounge facility, or a
fixed annual rent. The fixed annual rent is adjusted every two years according
to changes in the CPI. On April 1, 1996 the fixed annual rent was increased to
$35,736.
The total rent earned by the Partnership during the last three years is as
follows:
Year Rent
---- -------
1994 $34,012
1995 $34,385
1996 $35,398
KMH Trinity Properties Sublease. During December 1986, the Partnership entered
into a sublease with KMH Trinity Properties ("KMH") of another undeveloped
portion of the motel site consisting of approximately 33,000 square feet. KMH is
an unaffiliated limited partnership of which Kenneth L. Mackey and William J.
Hughes, Jr. are the general partners.
The sublease to KMH is for a term expiring on June 30, 2013, with five
consecutive 10-year renewal options exercisable by KMH. Because the initial
terms of the Partnership's leases of the overall motel property end on June 30,
2013, the Partnership has agreed in the sublease to exercise up to two of its
10-year renewal options in the event that KMH elects to extend the basic term of
its sublease with the Partnership.
The sublease provides for a minimum annual rent which is adjusted every two
years for changes in the CPI. On December 1, 1996 the minimum annual rent was
adjusted to $31,092.
Pursuant to the sublease, KMH has developed and is operating a retail shopping
center on the subleased land. KMH is required to pay, in addition to the minimum
rent described above, 25% of all rent received each year from tenants of the
shopping center in excess of a sum which is equal to $1.05 multiplied by the
rentable square footage of the shopping center (9,930 square feet). The shopping
center opened in September 1987. The total annual rent (including the minimum
rent) earned by the Partnership during the last three years is as follows:
Year Rent
---- -------
1994 $30,309
1995 $29,672
1996 $29,885
Sterling Equity Investments Sublease. During November 1987, the Partnership
entered into a sublease with Sterling Equity Investments ("Sterling") of an
undeveloped portion of the motel site consisting of approximately 27,000 square
feet. Sterling is an unaffiliated general partnership of which Kenneth L. Mackey
and William J. Hughes, Jr. are the partners.
The sublease is for a term expiring on June 30, 2013, with five consecutive
10-year renewal options exercisable by Sterling. Because the initial terms of
the Partnership's leases of the property end on June 30, 2013, the Partnership
has agreed in the sublease to exercise up to two of its 10-year renewal options
in the event that Sterling elects to extend the basic term of its sublease with
the Partnership.
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The sublease provides for a minimum annual rent which is adjusted every two
years for changes in the CPI. On November 12, 1995, the minimum annual rent was
adjusted to $19,676.
Pursuant to the sublease Sterling has developed and is operating a retail
shopping center on the subleased land. Sterling is required to pay, in addition
to the minimum rent described above, 25% of all rent received in each year from
tenants of the shopping center in excess of a sum which is equal to $1.10
multiplied by the rentable square footage of the shopping center (9,069 square
feet). The shopping center opened in July 1988. The total annual rent (including
the minimum rent) earned by the Partnership during the last three years is as
follows:
Year Rent
---- -------
1994 $18,912
1995 $19,001
1996 $19,676
Motel Operations. The Sacramento motel achieved the following average occupancy
rates and average room rates for the years 1996, 1995 and 1994:
Average Occupancy Rate
1996 1995 1994
------ ------ ------
Annual Average 55.5% 53.8% 61.9%
Average Room Rate
1996 1995 1994
------ ------ ------
Annual Average $40.37 $41.06 $37.21
The following lodging facilities provide direct and indirect competition to the
Partnership's Sacramento County motel:
NUMBER DISTANCE FROM
FACILITY OF ROOMS THE MOTEL
--------------- -------- -------------
Motel 6 82 Across Street
Holiday Inn 350 0.25 mile
La Quinta Motel 130 0.50 mile
Oxford Suites 131 5.00 miles
The Sacramento County motel's patronage consists primarily of leisure, military
and corporate sources. The motel has significant weekend patronage from sports
teams and vacation travelers. In 1996 the McClellan Air Force base provided
approximately 15% of the occupied rooms and 11% of the motel's room revenue, and
in 1995 accounted for approximately 14% of the room revenue and approximately
19% of the occupied rooms. The base added 30 rooms of on-base transient housing
during 1994 which caused its share of occupancy to decline from 30% in 1994 to
19% in 1995 and to 15% in 1996. McClellan Air Force Base is scheduled for
complete closure in 2001. No other customer supplies as much as 5% of the
motel's patronage.
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(b) South San Francisco
Description of Motel. The Partnership is the lessee of two parcels of
approximately 81,330 square feet of land located at the corner of Mitchell and
West Harris Avenues in the City of South San Francisco, approximately two miles
north of the San Francisco International Airport. One of the two parcels leased
was pursuant to a sublease until the Partnership's landlord purchased the
subleased area in 1984 from an unrelated party. In 1984 the original lease was
modified to reflect the changed ownership, and has substantially the same terms
and conditions as the original lease. The Partnership has constructed a 117-room
motel on the site. Construction of the motel was completed and motel operations
commenced on December 5, 1979.
The leases provide for payment by the Partnership of all taxes, utilities and
costs of maintenance and expire, according to their terms, on December 31, 2007.
Each lease provides for five consecutive five-year renewal options exercisable
by the Partnership. The monthly rent for each parcel is adjusted at five-year
intervals according to changes in the CPI. As of December 15, 1993 the rent was
adjusted to $7,547 per month ($90,564 per year).
Improvements constructed by the Partnership on the subleased premises will
remain the property of the Partnership during the sublease term. However, upon
the expiration of the subleases, title to any such improvements will pass to the
lessor.
Motel Operation. The South San Francisco motel achieved the following average
occupancy rates and average room rates for the years 1996, 1995 and 1994:
Average Occupancy Rate
1996 1995 1994
------ ------ ------
Annual Average 78.3% 69.4% 63.8%
Average Room Rate
1996 1995 1994
------ ------ ------
Annual Average $53.83 $49.43 $48.13
The following lodging facilities provide direct and indirect competition to the
Partnership's South San Francisco motel:
APPROXIMATE
DISTANCE
NUMBER FROM THE
FACILITY OF ROOMS MOTEL
------------------- -------- -------------
Ramada Inn 250 Across Street
Econo Lodge 51 Adjacent
La Quinta Motor Inn 174 0.25 mile
TraveLodge 200 0.50 mile
Grosvenor Inn 210 0.50 mile
Comfort Suites 165 1.00 mile
Days Inn 200 2.00 mile
The major sources of patronage at the motel are leisure travelers and business
travelers. No single account supplies as much as 5% of the motel's patronage.
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(c) Modesto
Description of Motel. The Partnership is the lessee of 2.188 acres of land in
the City of Modesto on Orangeburg Avenue near Evergreen Road, located
immediately east of U.S. Highway 99, upon which it has constructed an 80-room
motel. Construction of the motel was completed and operations commenced during
April 1980.
The lease term will expire on September 13, 2029. The lease may be extended at
the Partnership's option for three additional 10-year periods. The monthly rent
is adjusted at three-year intervals according to changes in the CPI. The rent
was adjusted effective September 15, 1996 to $5,913 per month ($70,954 per
year).
During the term of the lease, the Partnership is responsible for the payment of
all taxes, utilities and costs of maintenance. The lease provides that the
improvements on the premises are the property of the Partnership until the
termination of the lease, at which time they will become the property of the
lessor.
Motel Operation. The Modesto motel achieved the following average occupancy
rates and average room rates for the years 1996, 1995 and 1994:
Average Occupancy Rate
1996 1995 1994
------ ------ ------
Annual Average 66.8% 73.2% 71.0%
Average Room Rate
1996 1995 1994
------ ------ ------
Annual Average $41.63 $41.06 $41.02
The following lodging facilities provide direct and indirect competition to the
Partnership's Modesto motel:
APPROXIMATE
DISTANCE
NUMBER FROM THE
FACILITY OF ROOMS MOTEL
---------------------- -------- -----------
Ramada Inn 115 0.10 mile
Holiday Inn 188 0.25 mile
Mallard's Best Western 120 0.50 mile
Red Lion 285 2.00 miles
The major sources of patronage at the Modesto motel are business travelers,
leisure travelers and many sports teams attending athletic events in the area.
No single account generates as much as 5% of the motel's total patronage.
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Item 3. LEGAL PROCEEDINGS
Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Units are not freely transferable and no public market in the Units has
developed or is expected to develop.
Holders
As of December 31, 1996, 785 investors (the "Limited Partners") held Units in
the Partnership.
Distributions
In the discretion of the General Partner distributions are made from
"Operational Cash Flow," defined in the Partnership's Certificate and Agreement
of Limited Partnership, as amended (the "Partnership Agreement") as total cash
receipts from Partnership operations less cash operating disbursements. Except
for payment to the General Partner of a property management fee (see Item 11
hereof), distributions of Operational Cash Flow are generally allocated between
and paid to the General Partner and Limited Partners as follows:
(1) Ninety percent to the Limited Partners;
(2) Ten percent to the General Partner.
Notwithstanding the foregoing, however, the General Partner's distributions from
Operational Cash Flow are deferred and paid to the General Partner only after
payment to the Limited Partners of distributions from Operational Cash Flow
equal to 10% of their capital contributions, calculated on a cumulative annual
basis (the "Preferred Return"), and payment to the General Partner of deferred
and current property management fees. (See Item 11 hereof.) Distributions of
Operational Cash Flow to the Limited Partners satisfied the Preferred Return
after the distribution made for the quarter ending December 31, 1985 and in each
subsequent year, together with payment of all current and accrued property
management fees. (See Item 11 hereof.) Accordingly, for any year in which the
Limited Partners receive the Preferred Return calculated on a cumulative annual
basis and after payment of any current property management fees (see Item 11
hereof), the General Partner will be entitled to its share of distributions from
Operational Cash Flow for such year.
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The following distributions to the Limited Partners were made during the years
1995 and 1996:
Total Amount
Date Distribution Per Unit
-------- ------------ --------
2/15/95 $125,000 $25.00
5/15/95 $125,000 $25.00
8/15/95 $125,000 $25.00
11/15/95 $125,000 $25.00
2/15/96 $125,000 $25.00
5/15/96 $137,500 $27.50
8/15/96 $137,500 $27.50
11/15/96 $137,500 $27.50
See Item 11 for the amount of distributions to the General Partner.
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Item 6. SELECTED FINANCIAL DATA
Following are selected financial data for the Partnership for its last five
fiscal years ended December 31, 1996, 1995, 1994, 1993 and 1992.
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SUPER 8 MOTELS, LTD.
Item 6. Selected Financial Data
Years Ended December 31:
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Guest room income $3,668,873 $3,373,790 $3,236,373 $3,252,522 $3,392,719
Net Income $807,895 $530,783 $471,069 $227,464 $324,269
Per Partnership Unit:
Cash distributions $107.50 $100.00 $100.00 $100.00 $100.00
Net income $159.96 $105.01 $93.27 $45.04 $64.21
Years Ended December 31:
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Total Assets $2,878,579 $2,618,110 $2,628,782 $2,671,473 $2,987,613
Long-Term Debt $932,561 $960,709 $986,557 $1,010,318 $1,032,150
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Liquidity and Capital Resources
The General Partner believes that the Partnership's liquidity, defined as its
ability to generate sufficient cash to meet its cash needs, is adequate. The
Partnership's current assets of $1,205,613 exceed its current liabilities of
$195,619 by $1,009,994. These net current assets provide a reserve in excess of
the General Partner's target of $250,000. The Partnership's primary source of
internal liquidity is revenues from motel operations, which, since commencement
of motel operations, have been sufficient to satisfy the Partnership's cash
needs, including repayment of debt interest and principal, capital improvements
and distributions to the Limited Partners and General Partner. The Partnership's
Statements of Cash Flows reflects an increase in cash and temporary investments
during the fiscal year covered by this report.
The Partnership's properties are currently unencumbered except for the loan
described in Item 2 above, the principal balance of which was $960,709 at
December 31, 1996. Although no assurance can be had in this regard, the General
Partner believes that the Partnership's equity in its properties provides a
potential source of external liquidity (through financing) in the event the
Partnership's internal liquidity is impaired. The General Partner may use excess
reserves to liquidate the loan when its becomes due in 2003 or add a motel to
the Partnership., in which case, the loan would probably be refinanced with the
additional funding required for another motel.
Since commencement of motel operations, the Partnership has, either by purchase
or lease, expended cash for the improvement and refurbishment of its motels. All
such expenditures have been funded with the Partnership's revenue from motel
operations.
The Partnership expended 3.1% of room revenue on renovation and replacements
during the fiscal year covered by this report. The $112,233 expended (of which
$63,372 was capitalized) included $43,534 for guest room carpet, $17,743 for
painting and exterior building repairs at the South San Francisco property,
$17,448 for computer system replacements, $6,394 for replacement
air-conditioning units, $4,544 for replacement televisions and $4,215 for
bathtub repairs.
The Partnership expended 6.8% of room revenue on renovation and replacements
during the fiscal year ended December 31, 1995. The $229,207 expended (of which
$128,748 was capitalized) included $16,797 in guest room tub repairs, $12,925
for replacement guest room chairs, $9,142 for replacement bedspreads, $8,256 for
replacement air conditioning units, $8,007 for replacement lamps and lampshades,
$5,788 for guest room wallpaper and $5,553 for building repairs. The items
capitalized included $33,364 for roof replacements in Sacramento and Modesto,
$39,781 in guest room carpet, $12,039 to re-key the South San Francisco
property, $28,730 for shuttle vehicles at the South San Francisco property,
$4,940 for an ice machine at the Sacramento property, $2,797 for a replacement
dryer in Modesto and $2,191 for a new computer in Modesto.
The General Partner anticipates future expenditures for refurbishment of the
Partnership's motels to amount to approximately 3% of room revenues as some
deferred items have been completed.
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The Partnership currently has no material commitments for capital expenditures.
Its three motel properties are in full operation and no further property
acquisitions or extraordinary capital expenditures are planned. The General
Partner is aware of no material trends or changes with respect to the mix or
relative cost of the Partnership's capital resources. Adequate working capital
is expected to be generated by motel operations.
Results of Operations
Combined Financial Results
The following tables summarize the Partnership's operating results for the
fiscal years ended December 31, 1994, 1995 and 1996 on a combined basis. The
results of the individual properties follow in separate subsections. The income
and expense numbers in the following table are shown on an accrual basis and
other payments on a cash basis. Total expenditures include the operating
expenses of the motels, together with the cost of capital improvements and those
Partnership expenses properly allocable to such motels.
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
------------------ --------- -------
December 31, 1994 64.8% $42.11
December 31, 1995 64.2% $44.32
December 31, 1996 66.5% $46.39
Total
Expenditures Partnership
Total and Cash Flow
Fiscal Year Ended: Revenues Debt Service (1)
------------------ ---------- ------------ -----------
December 31, 1994 $3,318,533 $2,686,966 $631,567
December 31, 1995 $3,476,890 $2,836,242 $640,648
December 31, 1996 $3,818,298 $2,832,177 $986,121
(1) While Partnership Cash Flow as it is used here is not an amount found in the
financial statements, this amount is the best indicator of the annual change in
the amount, if any, available for distribution to the Limited Partners. This
calculation is reconciled to the financial statement in the following table.
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Reconciliation of Partnership's Cash Flow included in the chart above to Net
Income as shown on the Statements of Operations (in the financial statements) is
as follows:
1996 1995 1994
-------- -------- --------
Partnership Cash Flow $986,121 $640,648 $631,567
Principal Payments on Financial Obligations 25,862 23,747 21,832
Additions to Fixed Assets 63,372 128,748 90,107
Depreciation and Amortization (255,459) (261,488) (275,859)
Other Items (12,001) (872) 3,422
-------- -------- --------
Net Income $807,895 $530,783 $471,069
======== ======== ========
Following is a reconciliation of Partnership Cash Flow (shown above) to the
aggregate total of Cash Flow from Operations for the Partnership's three motels
which are segregated in the tables following this reconciliation.
1996 1995 1994
--------- --------- ---------
South San Francisco Motel $637,439 $372,917 $281,648
Sacramento Motel 284,759 195,669 288,450
Modesto Motel 93,876 108,118 108,860
--------- --------- ---------
Aggregate Cash Flow from Property Operations 1,016,074 676,704 678,958
Partnership Management Fees (59,722) (55,556) (55,556)
Interest on Cash Reserves 28,421 17,226 8,413
Other Income (net of Other Expenses) not
allocated to the individual properties 1,348 2,274 (248)
--------- --------- ---------
Partnership Cash Flow $986,121 $640,648 $631,567
========= ========= =========
The Partnership's total revenue increased $341,408 or 9.8% during the fiscal
year covered by this report as compared to the previous fiscal year. As
discussed below, the improved revenues were generated primarily by improved
average occupancies and improved average room rates at the South San Francisco
motel.
The Partnership's total revenue increased $158,357 or 4.8% during the fiscal
year ended December 31, 1995 as compared to the previous fiscal year. As
discussed below, the improved revenues were generated primarily by improved
average occupancies at the South San Francisco motel.
The Partnership's total expenses per the statement of income increased $64,296
or 2.2% during the fiscal year covered by this report as compared to the
previous fiscal year. The increased expenses are associated with the increased
room revenue and occupancy.
The Partnership's total expenses per the statement of income increased $98,643
or 3.5% during the fiscal year ended December 31, 1995 as compared to the
previous fiscal year. This increase was primarily in the motel operating
expenses category, which increased $108,310 or 5.0%. While some of the increased
costs are associated with the net increase in occupancy, the Partnership
expended $79,025 more for renovations and replacements in 1995 then in the
previous fiscal year.
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South San Francisco Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
------------------ --------- -------
December 31, 1994 63.8% $48.13
December 31, 1995 69.4% $49.43
December 31, 1996 78.3% $53.83
Total Cash Flow
Expenditures from
Total and Property
Fiscal Year Ended: Revenues Debt Service Operations
------------------ ---------- ------------ ----------
December 31, 1994 $1,337,463 $1,055,815 $281,648
December 31, 1995 $1,501,439 $1,128,522 $372,917
December 31, 1996 $1,857,629 $1,220,190 $637,439
The Partnership's South San Francisco motel achieved a $356,190 or 23.7%
increase in total revenues during the fiscal year covered by this report as
compared to the previous fiscal year. Guest room revenues increased $339,825 or
23.2% due to the increases in occupancy and in the average room rate. The motel
achieved significant increases in the leisure market segment while it
experienced a slight downturn in the number of corporate rooms sold. The
improvement in the average daily rate is related strength of the San Francisco
airport market.
The Partnership's South San Francisco motel achieved a $163,976 or 12.3%
increase in total revenue during the fiscal year ended December 31, 1995 as
compared to the previous fiscal year. Guest room revenue increased $154,861 or
11.8% due primarily to the increase in occupancy. The motel achieved significant
increases in the leisure and corporate market segments while it experienced a
slight downturn in the number of discount rooms sold. The improvement in the
average daily rate is related to the decrease in discount business.
The Partnership's South San Francisco motel experienced a $91,668 or 8.1%
increase in total expenditures and debt service during the fiscal year covered
by this report as compared to the previous fiscal year due primarily to the
increase in room sales. Increased housekeeping wages of $17,200, increased guest
transportation cost of $9,802, increased costs of guest services of $6,045,
increased appraisal fees of $7,250, increased workers' compensation costs of
$6,934 and increased franchise and management fees of $34,798 were partially
offset by reductions of $6,478 in maintenance wages and $19,207 in reduced
renovations.
The Partnership's South San Francisco motel experienced a $72,717 or 6.9%
increase in total expenditures and debt service during the fiscal year ended
December 31, 1995 as compared to the previous fiscal year due primarily to the
increase in average occupancy. Increased housekeeping wages of $9,845, increased
utility costs of $7,801, increased costs of guest services of $6,045, increased
taxes and insurance of $5,937 and increased franchise and management fees of
$16,110 were substantially offset by reductions of $19,737 in maintenance wages,
$7,295 in workers' compensation costs and $6,958 in bad debts. The renovations
and replacements as discussed previously increased $36,460.
16
<PAGE>
Sacramento Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
------------------ --------- -------
December 31, 1994 61.9% $37.21
December 31, 1995 53.8% $41.06
December 31, 1996 55.5% $40.37
Total Cash Flow
Expenditures from
Total and Property
Fiscal Year Ended: Revenues Debt Service Operations
------------------ ---------- ------------ ----------
December 31, 1994 $1,099,720 $811,270 $288,450
December 31, 1995 $1,061,119 $865,450 $195,669
December 31, 1996 $1,092,057 $807,298 $284,759
The Partnership's Sacramento motel achieved a $30,938 or 2.9% increase in total
revenues during the fiscal year covered by this report as compared to the
previous fiscal year. The property's 3.2% increase in occupancy was partially
offset by the 1.7% decrease in average room rate. The motel experienced growth
in the corporate and discount rooms market segments. Revenue from the McClellan
Air Force Base decreased from 14% of total room revenue to approximately 11% of
total room revenue. Future business from the McCllelan Air Force Base is
uncertain as the base will take some time to actually close. The termination
functions should provide additional room nights for transient personnel and the
final alternate use of the facility is not yet determined. The General Partner
expects the lost revenue from the low rate military business will eventially be
replaced by higher rate commerical travelers.
The Partnership's Sacramento motel experienced a 3.5% decrease in total revenues
during the fiscal year ended December 31, 1995 as compared to the previous
fiscal year. The motel experienced a 13.1% decline in its average occupancy
which was substantially offset by a 10.3% increase in the average room rate.
Revenue from the McClellan Air Force Base decreased from 20% of total room
revenue to approximately 14% of total room revenue.
The Partnership's Sacramento motel achieved a $58,152 or 6.7% decrease in
expenditures during the fiscal year covered by this report as compared to the
previous fiscal year. Total expenditure increases of $5,830 for workers'
compensation insurance and $7,250 for appraisal fees were offset by reduced
expenditures of $54,978 for renovations and replacements, $6,606 in security
services, $6,035 in housekeeping wages and $5,271 in air-conditioning repairs
and replacements.
The Partnership's Sacramento motel experienced a $54,180 or 6.7% increase in
expenditures during the fiscal year ended December 31, 1995 as compared to the
previous fiscal year. Total expenditure increases of $7,751 for print
advertising, $19,512 for security services, $5,540 for front desk wages and
$22,128 for various replacements and renovations were partially offset by a
$10,005 reduction in housekeeping wages, $6,560 in reduced phone repair costs
and by $5,010 in reduced workers' compensation insurance costs.
17
<PAGE>
Modesto Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
------------------ --------- -------
December 31, 1994 71.0% $41.02
December 31, 1995 73.2% $41.06
December 31, 1996 66.8% $41.63
Total Cash Flow
Expenditures from
Total and Property
Fiscal Year Ended: Revenues Debt Service Operations
------------------ ---------- ------------ ----------
December 31, 1994 $868,476 $759,616 $108,860
December 31, 1995 $896,780 $788,662 $108,118
December 31, 1996 $838,579 $744,703 $93,876
The Partnership's Modesto motel experienced a $58,201 or 6.5% decrease in total
revenue during the fiscal year covered by this report as compared to the
previous fiscal year. The decrease in revenue was due to an 8.7% reduction in
guest room occupancy which was slightly offset by a 1.4% increase in average
room rate. The occupancy reduction was experienced in all market segments.
The Partnership's Modesto motel achieved a $28,304 or 3.3% increase in total
revenue during the fiscal year ended December 31, 1995 as compared to the
previous fiscal year. The increase, which was primarily in guest room revenue,
was due to the improved average occupancy rates at the motel. The room nights
provided by the leisure travel market segment increased at a rate faster than
the rate at which the corporate market segment declined.
The Partnership's Modesto motel achieved a $43,959 or 5.6% decrease in total
expenditures during the fiscal year covered by this report as compared to the
previous fiscal year. The reduced expenditures of $42,788 for renovations and
replacements and of $8,391 for landscaping were partially offset by increased
expenditures of $5,148 for workers' compensation and of $7,250 for appraisal
fees.
The Partnership's Modesto motel experienced a $29,046 or 3.8% increase in total
expenditures during the fiscal year ended December 31, 1995 as compared to the
previous fiscal year. Increased expenditures of $7,672 for landscaping, $7,502
for water and sewer costs and $5,273 for print advertising were substantially
offset by $10,144 in reduced maintenance wages and $8,957 in reduced property
taxes. As discussed previously, renovation and replacement expenditures were
$20,436 higher than in the previous fiscal year.
18
<PAGE>
Future Trends
The General Partner anticipates that the South San Francisco motel will continue
to improve slightly over the results for the fiscal years ended December 31,
1995 and 1996. The future of the Sacramento motel is uncertain due to the
closing of the McClellan Air Force Base. The General Partner anticipates that
any increases in operating costs and expenses realized during the upcoming
fiscal year as a result of inflation will, to the extent possible, be met by
upward adjustment of room rates.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements at pages F-1 through
F-12 attached hereto.
19
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS
SUPER 8 MOTELS, LTD.
SACRAMENTO, CALIFORNIA
DECEMBER 31, 1996
F-1
<PAGE>
Item 8: Financial Statements
SUPER 8 MOTELS, LTD.
INDEX OF FINANCIAL STATEMENTS
Pages
-----
Report of Independent Certified Public Accountants F-3
Balance Sheets, December 31, 1996 and 1995 F-4
Statements of Operations for the years
ended December 31, 1996, 1995 and 1994 F-5
Statements of Partners' Equity for the years
ended December 31, 1996, 1995 and 1994 F-6
Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 F-7 and
F-8
Notes to Financial Statements F-9 to
F-12
Note: All schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Super 8 Motels, Ltd.
We have audited the accompanying balance sheets of Super 8 Motels, Ltd., a
California limited partnership, as of December 31, 1996 and 1995, and the
related statements of operations, partners' equity and cash flows for each of
the years in the three year period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Super 8 Motels, Ltd. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
February 20, 1997
San Mateo, California
F-3
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
---------- ----------
Current Assets:
Cash and temporary investments (Notes 3 and 8) $1,058,309 $ 631,200
Accounts receivable 122,841 94,659
Prepaid expenses 24,463 22,662
---------- ----------
Total Current Assets 1,205,613 748,521
---------- ----------
Property and Equipment (Note 2):
Buildings 5,223,252 5,223,252
Furniture and equipment 1,049,769 1,061,233
---------- ----------
6,273,021 6,284,485
Accumulated depreciation (4,620,543) (4,438,559)
---------- ----------
Property and Equipment, Net 1,652,478 1,845,926
---------- ----------
Other Assets 20,488 23,663
---------- ----------
Total Assets $2,878,579 $2,618,110
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of note payable (Note 6) $ 28,148 $ 25,862
Accounts payable and accrued liabilities 157,712 151,535
Due to related parties 9,759 -
---------- ----------
Total Current Liabilities 195,619 177,397
Long-term Liabilities, Net of Current Portion:
Note payable (Note 6) 932,561 960,709
---------- ----------
Total Liabilities 1,128,180 1,138,106
---------- ----------
Lease Commitments (Note 5)
Partners' Equity:
General Partner 66,559 58,480
Limited Partners 1,683,840 1,421,524
---------- ----------
Total Partners' Equity 1,750,399 1,480,004
---------- ----------
Total Liabilities and Partners' Equity $2,878,579 $2,618,110
========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended December 31:
----------------------------------
1996 1995 1994
---------- ---------- ----------
Income:
Guest room $3,668,873 $3,373,790 $3,236,373
Telephone and vending 90,377 75,815 60,987
Interest 28,421 17,226 8,413
Other 30,627 10,059 12,760
---------- ---------- ----------
Total Income 3,818,298 3,476,890 3,318,533
---------- ---------- ----------
Expenses:
Motel operations (Notes 4, 5 and 8) 2,318,534 2,293,289 2,184,979
General and administrative (Note 4) 104,592 77,993 79,311
Depreciation and amortization (Note 2) 255,459 261,488 275,859
Interest 82,683 84,812 86,741
Property management fees (Note 4) 189,413 172,969 165,018
Partnership management fees (Note 4) 59,722 55,556 55,556
---------- ---------- ----------
Total Expenses 3,010,403 2,946,107 2,847,464
---------- ---------- ----------
Net Income $ 807,895 $ 530,783 $ 471,069
========== ========== ==========
Net Income Allocable to General Partner $8,079 $5,308 $4,711
====== ====== ======
Net Income Allocable to Limited Partners $799,816 $525,475 $466,358
======== ======== ========
Net Income Per Partnership Unit (Note 1) $159.96 $105.10 $93.27
======= ======= ======
Distributions to Limited Partners Per
Partnership Unit (Note 1) $107.50 $100.00 $100.00
======= ======= =======
See accompanying notes to financial statements.
F-5
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31:
----------------------------------
1996 1995 1994
---------- ---------- ----------
General Partner:
Balance, beginning of year $ 58,480 $ 53,172 $ 48,461
Net income 8,079 5,308 4,711
---------- ---------- ----------
Balance, End of Year 66,559 58,480 53,172
---------- ---------- ----------
Limited Partners:
Balance, beginning of year 1,421,524 1,396,049 1,429,691
Net income 799,816 525,475 466,358
Less: Cash distributions to
limited partners (537,500) (500,000) (500,000)
---------- ---------- ----------
Balance, End of Year 1,683,840 1,421,524 1,396,049
---------- ---------- ----------
Total Partners' Equity $1,750,399 $1,480,004 $1,449,221
========== ========== ==========
See accompanying notes to financial statements.
F-6
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31:
----------------------------------
1996 1995 1994
---------- ---------- ----------
Cash Flows From Operating Activities:
Received from motel operations $3,776,765 $3,455,302 $3,300,513
Expended for motel operations and
general and administrative expenses (2,671,907) (2,617,626) (2,479,227)
Interest received 28,351 16,576 8,336
Interest paid (82,866) (84,980) (86,896)
---------- ---------- ----------
Net Cash Provided by Operating Activities 1,050,343 769,272 742,726
---------- ---------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment (63,372) (128,748) (90,107)
Proceeds from sales of property and equipment 3,500 12,285 10,600
---------- ---------- ----------
Net Cash Used by Investing Activities (59,872) (116,463) (79,507)
---------- ---------- ----------
Cash Flows From Financing Activities:
Payments on notes payable (25,862) (23,747) (21,832)
Distributions paid to limited partners (537,500) (500,000) (500,000)
---------- ---------- ----------
Net Cash Used by Financing Activities (563,362) (523,747) (521,832)
---------- ---------- ----------
Net Increase (Decrease) in Cash and
Temporary Investments 427,109 129,062 141,387
Cash and Temporary Investments:
Beginning of year 631,200 502,138 360,751
---------- ---------- ----------
End of Year $1,058,309 $ 631,200 $ 502,138
========== ========== ==========
See accompanying notes to financial statements.
F-7
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31:
----------------------------------
1996 1995 1994
---------- ---------- ----------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 807,895 $ 530,783 $ 471,069
---------- ---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 255,459 261,488 275,859
Loss (gain) on disposition of property
and equipment 1,036 1,040 (3,268)
Increase in accounts receivable (28,182) (5,012) (9,684)
(Increase) decrease in prepaid expenses (1,801) (1,319) 126
Decrease in other assets - - 551
Increase (decrease) in accounts payable
and accrued liabilities 6,177 (1,784) 5,746
Increase (decrease) in due to
related parties 9,759 (15,924) 2,327
---------- ---------- ----------
Total Adjustments 242,448 238,489 271,657
---------- ---------- ----------
Net Cash Provided By
Operating Activities $1,050,343 $ 769,272 $ 742,726
========== ========== ==========
See accompanying notes to financial statements.
F-8
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Super 8 Motels, Ltd. is a limited partnership organized under California law on
August 25, 1978, to acquire and operate motel properties in South San Francisco,
Sacramento and Modesto, California. The term of the Partnership expires December
31, 2027, and may be dissolved earlier under certain cercumstances. The
Partnership grants credit to customers, substantially all of which are local
businesses in South San Francisco, Sacramento or Modesto.
The general partner is Grotewohl Management Services, Inc., a 50% stockholder
and the principal officer of which is Philip B. Grotewohl.
The net income or net loss of the Partnership is allocated 1% to the General
Partner and 99% to the Limited Partners. Net income and distributions per
partnership unit are based upon 5,000 units outstanding. All partnership units
are owned by the Limited Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Items of Partnership income are passed through to the individual partners for
income tax purposes, along with any income tax credits. Therefore, no federal or
California income taxes are provided for in the financial statements of the
Partnership.
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the following estimated useful lives and methods:
Description Methods Useful Lives
----------------------- ------------------------- ------------
Buildings 200% and 150% declining 7-31.5 years
balance and straight-line
Furniture and equipment Straight-line and 200% 3-7 years
declining balance
Property held under Straight-line and 200% 5-7 years
capital leases declining balance
Costs incurred in connection with maintenance and repair are charged to expense.
Major renewals and betterments that materially prolong the lives of assets are
capitalized.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
F-9
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of December 31, 1996 and 1995 consists of the
following:
1996 1995
Cash in bank $ 79,142 $ 80,878
Money market accounts 879,167 450,322
Certificate of deposit 100,000 100,000
---------- --------
Total Cash and Temporary Investments $1,058,309 $631,200
Temporary investments are recorded at cost, which approximates market value. The
Partnership considers temporary investments and all highly liquid marketable
securities with original maturities of three months or less to be cash
equivalents for purposes of the statement of cash flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
Franchise Fees
Super 8 Motels, Inc., now a wholly-owned subsidiary of Hospitality Franchise
Systems, Inc., is franchisor of all Super 8 Motels. The Partnership pays to the
franchisor monthly fees equal to 4% of the gross room revenues of each motel and
contributes an additional 1% of its gross room revenues to an advertising fund
administered by the franchisor. In return, the franchisor provides the right to
use the name "Super 8", a national institutional advertising program, an advance
room reservation system, and inspection services. These costs, $183,444 in 1996,
$168,690 in 1995 and $161,554 in 1994 are included in motel operations expense
in the accompanying statements of operations. The Partnership operates its motel
properties as a franchisee of Super 8 Motels, Inc., through a sub-franchise
agreement with Brown & Grotewohl, a California general partnership, of which
Grotewohl Management Services, Inc. (see Note 1) is a 50% owner. Under the
sub-franchise agreement, Brown & Grotewohl earned 40% of the above franchise
fees, which amounted to $73,377, $67,476 and $64,621 in 1996, 1995 and 1994,
respectively.
Property Management Fees
The General Partner, or its affiliates, handles the management of the motel
properties of the Partnership. The fee for this service is 5% of the gross
revenues from Partnership operations, as defined in the Partnership agreement,
not including income from the sale, exchange or refinancing of such properties.
This fee is payable only out of the Operational Cash Flow of the Partnership,
defined as the total cash receipts from Partnership operations during a given
period of time less cash operating disbursements during the same period. It is
subordinated to prior receipt by the Limited Partners of a cumulative 10% per
annum pre-tax return on their adjusted capital contributions for each year of
the Partnership's existence. During the years ended December 31, 1996, 1995 and
1994 the General Partner received property management fees of $189,413, $172,969
and $165,019, respectively.
Subordinated Partnership Management Fees
During the Partnership's operational stage, the General Partner is to receive a
fee for partnership management services equal to one-ninth of the amounts which
have been distributed to the Limited Partners subordinated, however, to receipt
by the Limited Partners of a cumulative 10% per annum pre-tax return on their
adjusted capital contributions and to payment of the property management fees
referred to above. This fee is payable only from cash funds provided from
operations of the Partnership, and may not be paid from the proceeds of sale or
refinancing. During the years December 31, 1996, 1995 and 1994 the General
Partner received partnership management fees of $59,722, $55,556 and $55,556,
respectively. F-10
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
Subordinated Incentive Distributions
Under the terms of the Partnership agreement, the General Partner is to receive
15% of distributions of net proceeds from the sale or refinancing of Partnership
properties remaining after distribution to the Limited Partners of any portion
thereof required to cause distributions to the Limited Partners from all sources
to be equal to their capital contributions plus a cumulative 10% per annum
pre-tax return on their adjusted capital contributions. Through December 31,
1996, no such proceeds had been distributed.
Administrative Expenses Shared by the Partnership and Its Affiliates
There are certain administrative expenses allocated between the Partnership and
other partnerships managed by the General Partner and its affiliates. These
expenses, which are allocated based on usage, are telephone, data processing,
rent of the administrative office and administrative salaries. The
administrative expenses allocated to the Partnership were approximately $338,000
in 1996, $334,000 in 1995 and $311,000 in 1994 and are included in general and
administrative expenses and motel operations expenses in the accompanying
statements of operations. Included in administrative salaries are allocated
amounts paid to three employees who are related to Philip B. Grotewohl, a 50%
stockholder of Grotewohl Management Services, Inc., the General Partner.
NOTE 5 - LEASE COMMITMENTS
The Partnership has long-term lease commitments on land in Modesto, Sacramento,
and South San Francisco, California for original terms of 50, 35, and 29 years,
respectively. The Partnership has the right to extend the Modesto lease for
three consecutive periods of ten years each, the Sacramento lease for five
consecutive periods of ten years each, and the South San Francisco lease for
five consecutive periods of five years each. The base monthly rent is subject to
adjustment at three, two and five year intervals, respectively, to reflect
changes in the Consumer Price Index. The Partnership pays all property taxes,
assessments and utilities.
The Partnership has entered into three sublease agreements which cover
unimproved portions of the Sacramento property and expire on various dates from
March, 2003 through June, 2013, with the sublessees' options to renew the sub-
leases of all three parcels of land for 5 consecutive periods of 10 years each.
Rental expense under long-term lease commitments incurred by the Partnership
amounted to $272,438 in 1996, $268,526 in 1995 and $267,057 in 1994, less
$84,959, $83,058 and $83,233 in sub-lease rentals in 1996, 1995 and 1994,
respectively. Such amounts are included in motel operations expense in the
accompanying statements of operations.
The future lease commitments at December 31, 1996 using the minimum monthly
amounts, are as follows:
Years Ending South San
December 31: Modesto Sacramento Francisco Total
1997 $ 70,954 $ 116,630 $ 90,564 $ 278,148
1998 70,954 116,630 90,564 278,148
1999 70,954 116,630 90,564 278,148
2000 70,954 116,630 90,564 278,148
2001 70,954 116,630 90,564 278,148
Thereafter 1,963,053 1,341,243 543,384 3,847,680
Less subleases - (1,061,017) - (1,061,017)
---------- ---------- ---------- ----------
Total $2,317,823 $ 863,376 $ 996,204 $4,177,403
F-11
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 - NOTE PAYABLE
The note payable is due to a federal savings bank, with monthly interest and
principal payments of $9,061. The interest rate is adjusted monthly and the
payment is adjusted annually. The interest rate was equal to 8.5% as of December
31, 1996 and is the lesser of 3% over the cost of funds index of the Federal
Home Loan Bank of San Francisco or 14.5% but not less than 8.5%. A balloon
payment of approximately $740,000 for the balance of the principal is due in May
2003. The note is collateralized by a first deed of trust on the leasehold
interests in real property in South San Francisco.
Note payable maturities are as follows:
Years Ending December 31:
1997 $ 28,148
1998 30,636
1999 33,344
2000 36,291
2001 39,499
2002-2003 792,791
--------
Total $960,709
========
NOTE 7 - MOTEL OPERATING EXPENSES
The following table summarizes the major components of motel operating expenses
for the following years:
1996 1995 1994
---------- ---------- ----------
Salaries and related costs $ 790,722 $ 764,251 $ 800,819
Rent 187,479 185,468 183,825
Franchise and advertising fees 183,444 168,690 161,554
Utilities 166,900 168,641 154,010
Allocated costs, mainly indirect salaries 276,096 272,411 254,483
Replacement and renovations 48,861 100,459 60,073
Other operating expenses 665,032 633,369 570,215
---------- ---------- ----------
Total motel operating expenses $2,318,534 $2,293,289 $2,184,979
========== ========== ==========
NOTE 8 - CONCENTRATION OF CREDIT RISK
The company maintains its cash accounts in seven commercial banks located in
California. Accounts at each bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000 per bank. A summary of the total
insured and uninsured cash balances (not reduced by outstanding checks) as of
December 31, 1996 follows:
Total cash in all California banks $1,078,213
Portion insured by FDIC (698,626)
----------
Uninsured cash balances $ 379,587
==========
F-12
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The original general partners of the Partnership were Dennis A. Brown and Philip
B. Grotewohl. Upon Mr. Brown's death on February 25, 1988, Mr. Grotewohl elected
to continue the Partnership as the sole remaining general partner. During March
1988, Mr. Grotewohl appointed Grotewohl Management Services, Inc., a California
corporation, his successor as General Partner of the Partnership.
The General Partner was organized in 1981 to serve as a general partner of
limited partnerships to be formed for the purpose of investing in Super 8
Motels. The 50% shareholder, director and principal officer of the General
Partner is Mr. Grotewohl.
Mr. Grotewohl, age 78, was an attorney-at-law and was engaged in the private
practice of law in San Mateo County, California, between 1967 and 1978. Since
1978, Mr. Grotewohl's principal occupation has been as a promoter and general
partner of Super 8 Motels limited partnerships.
Item 11. EXECUTIVE COMPENSATION
Although Mr. Brown ceased to be a general partner of the Partnership upon his
death, a trust of Mr. Brown's shares in certain of the compensation otherwise
payable to the General Partner and its affiliates. This revenue is now paid to a
successor trust.
Following is a description of compensation paid or payable to the General
Partner and the Brown trust.
Property Management Fees
The fee for this service is 5% of the gross revenues from motel operations, not
including income from the sale, exchange or refinancing of such properties. This
fee is payable only out of Operational Cash Flow with payment subordinated to
the receipt by the Limited Partners of the Preferred Return as discussed in Item
5 above. A total of $189,413 in property management fees accrued and was paid
during the fiscal year covered by this report.
Franchise Fees and Advertising Fees
The Partnership operates its motels as a franchisee of Super 8 Motels, Inc.,
pursuant to sub-franchises from the Manager, an affiliate of the General
Partner. In connection with the operation of each of its motels, the
Partnership, as franchisee, pays 4% of its gross room revenues to the
franchisor. One-half of the franchise fee is paid to the affiliate of the
General Partner. In addition to the franchise fee, the Partnership pays 1% of
its gross room revenues to the franchisor as an advertising fee. No part of this
fee is paid to the Manager.
The total franchise fee accrued during the fiscal year covered by this report
was $146,755 of which $73,377 accrued to the Manager. The total advertising fees
paid to Super 8 Motels, Inc. was $36,689. All the above amounts have been paid.
20
<PAGE>
General Partner's Interest in Operational Cash Flow
Except for payment to the General Partner of property management fees, as
discussed above, distributions of Operational Cash Flow are made as follows: (1)
90% thereof is paid to the Limited Partners; (2) 9% thereof is paid to the
General Partner as Partnership management fees; and (3) 1% thereof is paid to
the General Partner as its interest in the income and losses of the Partnership.
However, payment of Operational Cash Flow to the General Partner is subordinated
as discussed in Item 5 above. The General Partner received distributions from
Operational Cash Flow during the fiscal year covered by this report in the
amount of $59,722 from distributions attributable to 1996.
General Partner's Interest in Net Proceeds of Sales and Financing
of Partnership Properties
Net proceeds of the sale of any of the Partnership's motel properties and of any
financing or refinancing (to the extent that the proceeds of any such financing
or refinancing are not to be reinvested in the acquisition of additional
properties) will be promptly distributed to the partners. Such distributions
will be paid as follows: (1) until the Limited Partners have received
distributions from all sources equal to 100% of their capital contributions plus
10% per annum cumulative on their adjusted capital contributions, all of such
proceeds will be distributed to the Limited Partners; (2) thereafter, 15% of the
balance of such proceeds will be distributed to the General Partner as cash
incentive distributions and the remaining 85% thereof will be distributed to the
Limited Partners. No such distributions were made during the fiscal year covered
by this report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
AMOUNT AND
TITLE NATURE OF
OF NAME AND ADDRESS OF BENEFICIAL BENEFICIAL PERCENT
CLASS OWNER OWNERSHIP OF CLASS
----- ------------------------------ ------------ --------
Units Liquidity Fund 73, L.P. 143 Units 2.86%
Units Liquidity Fund 74, L.P. 127 Units 2.54%
Units Liquidity Fund 75, L.P. 66 Units 1.32%
Units Liquidity Fund IX, L.P. 5 Units .10%
Units Liquidity Fund Tax Exempt Partners 116 Units 2.32%
Units Liquidity Fund Tax Exempt Partners II 153 Units 3.06%
Units Liquidity Fund XI 13 Units .26%
Units Liquidity Fund XIII 2 Units .04%
Units Liquidity Fund XIV 5 Units .10%
Units Liquidity Income/Growth Fund 1985 29 Units .58%
Units Liquidity Fund 65 L.P. 17 Units .34%
-----
Total 676 Units 13.52%
=====
21
<PAGE>
Security Ownership of Management
The General Partner is not the beneficial owner of any Units.
Changes in Control
The General Partner has the right to appoint and substitute successor general
partners and to sell, transfer, or assign its rights to receive fees or other
income to such successor general partners so long as (i) an opinion of counsel
is obtained that the Partnership, with the new general partners, ought to be
taxed as a partnership for purposes of federal income taxation and not as an
association taxable as a corporation, and (ii) the approval of a majority in
interest of the Limited Partners is obtained; provided such approval shall not
be required in connection with such appointment and substitution of, and the
sale, transfer, or assignment to, a corporation, if either (A) the majority of
such corporation's voting securities are owned by the General Partner or (B) the
General Partner is the chief executive officer of the corporation. Neither the
Partnership nor the Limited Partners shall have any right to proceeds paid to
the General Partner in connection with any such sale, transfer, or assignment.
Upon the vote of a majority-in-interest of the Limited Partners, after written
notice to the General Partner, the General Partner may be expelled from the
Partnership and new general partners elected.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative Expenses Shared by the Partnership and its Affiliates
There are certain administrative expenses allocated between the Partnership and
other partnerships managed by the General Partner and its affiliates. These
expenses, which are allocated based on usage, are telephone, data processing,
rent of administrative offices and administrative salaries. The administrative
expenses allocated to the Partnership were approximately $338,000 in 1996 are
included in general and administrative expenses and motel operations expenses in
the Partnership's financial statements. Included in administrative salaries are
allocated amounts paid to three employees who are related to Philip B.
Grotewohl, the 50% shareholder of the General Partner.
22
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements Included in Part II of this Report
Report of Independent Certified Public Accountants
Balance Sheets, December 31, 1996 and 1995
Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994
Statements of Partners' Equity for the Years Ended December 31, 1996,
1995 and 1994
Statements of Cash Flow for the Years Ended December 31, 1996,
1995 and 1994
Notes to Financial Statements
2. Financial Statement Schedules Included in Part IV of the Report
None
3. Exhibits
3.1 and 4.1 The Partnership Agreement is incorporated herein
as an exhibit from the annual report on Form 10-K for the fiscal year
ended December 31, 1982.
3.2 & 4.2 Amendment to Partnership Agreement is hereby incorporated
herein by reference from the annual report on Form 10-K for the fiscal
year ended December 31, 1988.
(10) Material Contracts
Exhibits 10.1 through 10.7 are hereby incorporated herein by reference
from the annual report on Form 10-K for the fiscal year ended December
31, 1982.
10.1 Ground lease and sublease, South San Francisco
10.2 Ground Lease - Modesto
10.3 Ground Leases - Sacramento County
10.4 Franchise Agreement - South San Francisco
10.5 Franchise Agreement - Modesto
10.6 Franchise Agreement - Sacramento County
10.7 Sacramento County Restaurant Development Sublease
Exhibits 10.8 through 10.10 are hereby incorporated herein by
reference from the annual report on Form 10-K for the fiscal year
ended December 31, 1988.
10.8 Amended Parking Lease - South San Francisco
10.9 Lease to KMH Trinity Properties - Sacramento County
10.10 Lease to Sterling Equity Investments
(b) Reports on Form 8-K
Inapplicable
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) SUPER 8 MOTELS, LTD.
By (Signature and Title) /s/ Philip B. Grotewohl
-----------------------------
Philip B. Grotewohl,
Chairman of Grotewohl Management Services, Inc.,
General Partner
Date March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By (Signature and Title) /s/ Philip B. Grotewohl
-----------------------------
Philip B. Grotewohl,
Chief executive officer, chief
financial officer, chief
accounting officer and sole
director of Grotewohl Management
Services, General Partner
Date March 28, 1997
24
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,058,309
<SECURITIES> 0
<RECEIVABLES> 122,841
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,205,613
<PP&E> 6,273,021
<DEPRECIATION> 4,620,543
<TOTAL-ASSETS> 2,878,579
<CURRENT-LIABILITIES> 195,619
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,750,399
<TOTAL-LIABILITY-AND-EQUITY> 2,878,579
<SALES> 3,759,250
<TOTAL-REVENUES> 3,818,298
<CGS> 2,318,534
<TOTAL-COSTS> 2,318,534
<OTHER-EXPENSES> 609,186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,683
<INCOME-PRETAX> 807,895
<INCOME-TAX> 0
<INCOME-CONTINUING> 807,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 807,895
<EPS-PRIMARY> 159.96
<EPS-DILUTED> 159.96
</TABLE>
