SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Super 8 Motels, Ltd., a California limited partnership
(Name of Registrant as Specified In Its Charter)
- - -------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction
applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
Purchase price for registrant's property
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4) Proposed maximum aggregate value of transaction:
$12,100,000
5) Total fee paid:
$2,420
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Dated Filed:
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PRELIMINARY COPY
INFORMATION STATEMENT
PROPOSED ACTIONS BY WRITTEN CONSENT
OF LIMITED PARTNERS
OF
SUPER 8 MOTELS, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
May ____, 1998
SOLICITATION OF CONSENTS
The limited partners (the "Limited Partners") of SUPER 8 MOTELS, LTD.,
a California limited partnership (the "Partnership"), are being asked to
consider and approve by written consent the proposed sale of all of the
Partnership's interests in real property and related personal property (the
"Properties") for an aggregate purchase price of $12,100,000, and the
dissolution of the Partnership, which proposals are described hereinafter. It is
estimated that the sale of the Properties on the proposed terms would result in
total additional distributions to the Limited Partners in the approximate amount
of $1,936 per each original $1,000 Unit of limited partnership interest. If the
proposals are approved and the proposed sale is consummated, among other things,
all of the Partnership's assets will be liquidated and the Partnership will be
dissolved. (See "Effects of Approval of the Proposals" below.)
THE ENCLOSED FORM OF ACTIONS BY WRITTEN CONSENT OF LIMITED PARTNERS
(THE "CONSENT") IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND GROTEWOHL
MANAGEMENT SERVICES, INC., THE GENERAL PARTNER OF THE PARTNERSHIP (THE "GENERAL
PARTNER"). This Information Statement and the enclosed Consent were first sent
to the Limited Partners on or about May __, 1998.
Units of limited partnership interest in the Partnership (the "Units")
represented by Consents duly executed and returned to the Partnership on or
before July __, 1998 (unless extended by the General Partner pursuant to notice
mailed to the Limited Partners) will be voted or not voted in accordance with
the instructions contained therein. If no instructions for the proposals are
given on an executed and returned Consent, Units so represented will be voted in
favor of the proposals. The General Partner will take no action with respect to
the proposals addressed herein except as specified in the duly executed and
returned Consents.
The cost of this solicitation of Consents is being borne by the
Partnership. Such solicitation is being made by mail and, in addition, may be
made by officers and employees of the Partnership and the General Partner,
either in person or by telephone or telegram.
REASONS FOR THE PROPOSAL
The Partnership was formed in 1978 and its three motel properties
located in South San Francisco, Sacramento County and Modesto opened for
business during the years 1979, 1980 and 1980, respectively.
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During recent years, increasing levels of earnings have resulted in
increased fair market values for the Properties. This Information Statement has
been prepared to ask the Limited Partners to approve the sale of the Properties
for cash in the amount of the aggregate appraised fair market values of
$12,100,000.
It has always been the intention of the Partnership to liquidate the
Properties when it became apparent that the best interests of the Limited
Partners would be served by doing so. The General Partner has received inquiries
over the years as to when the Properties were to be sold and the Partnership
liquidated. Its response, until recently, has been that because of overbuilt and
depressed motel market conditions, the time was not right for a sale of the
Properties. Conditions have changed, and the General Partner believes that they
should be sold now and the Partnership liquidated.
During September and October 1997, Everest Properties II, LLC, a member
of an affiliated group of entities which is the second largest investor group in
the Partnership (the "Everest Group"), made an offer to purchase the Properties
and the motel properties of four other California limited partnerships as to
which the General Partner serves as general partner (the "GMS Partnerships").
The purchase price set forth in the October offer was $8,351,230, a price far
below $12,100,000, the recent appraised value and the price offered in the
current proposal. The General Partner rejected the prior offer, and a conflict
between the Everest Group and the Partnership arising out of the rejection
resulted in lawsuits. Inasmuch as the General Partner agreed with the Everest
Group in principle that the Properties should be sold, a settlement was reached
whereby, among other things, the General Partner agreed to take steps to sell
the Properties, and the lawsuits were dismissed.
As discussed more fully below under "Appraisal of the Properties" the
Properties have been appraised by PKF Consulting, a highly-respected national
hospitality industry specialist. Its conclusion is that the aggregate fair
market value of the Properties is $12,100,000, which is the proposed purchase
price of the Properties. The purchase price is to be paid in cash, and the net
proceeds thereof will be distributed in accordance with the Partnership
Agreement upon the close of the sales transactions and the concomitant
dissolution of the Partnership. Termination of the Partnership will occur as
soon as the winding up process can be completed.
The General Partner is recommending the approval of the transaction by
the Limited Partners for the following reasons:
The General Partner believes that the sale value of the Properties is now
at the crest of a seller's market which may not last much longer. Although
there can be no assurance that the Properties' values will not increase
over time, the General Partner believes that within the next five years
only modest increases in the Properties' values can be expected to occur.
This belief is substantiated by the appraisals. The General Partner
believes that now is the time to sell the Properties.
Although the motels are in good condition, they are almost 20 years old
and have never been refurbished. If the Properties are to be retained, it
would be necessary for the Partnership to spend large sums for their
refurbishment and modernization. The General Partner believes that the
funds for such expenditures would not be available from cash flow without
reducing future distributions.
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The Partnership's intention has always been to sell the Properties when
the market conditions warranted sale. It was never an investment objective
of the Partnership to hold the Properties permanently.
The General Partner understands that the circumstances of many of the
Limited Partners have changed over the life of the Partnership and believes
that the Limited Partners should be presented with an opportunity to
liquidate their investments. In this regard, the General Partner believes
that it is important to understand that no true market exists for the sale
of Units. Heretofore, to dispose of their Units, Limited Partners have had
to arrange private sales, or accept tender offers, at prices well below the
correlative value of the underlying assets.
The Properties are proposed to be sold to the Buyer for $12,100,000,
approximately $3,750,000 more than was offered for the Properties in
October 1997 by the Everest Group. The sales price is equal to the
appraised value of the Properties as determined by PKF Consulting, an
independent real estate advisory firm specializing in the valuation of
lodging properties. The proposed sale will be for all cash. PKF Consulting
has rendered to the Partnership a fairness opinion, stating its opinion
that the sales price is fair to the Partnership. The contract of sale
between the Partnership and the Buyer provides for a closing of the sale on
July 15, 1998 or within 30 days after approval of the sale by the limited
partners of the Partnership, whichever occurs later. For these reasons, and
because of the length of time that widespread marketing of the Properties
might take, the General Partner has not actively marketed the Properties
for sale. There can, therefore, be no assurance that the proposed sale of
the Properties to the Buyer is at the highest price attainable for the
Properties.
As of February 15, 1998, the Limited Partners had already received, over
the life of the Partnership, the sum of $2,103.64 per Unit (more than twice
their $1,000 per Unit original investment) in the form of quarterly
distributions. Upon the sale of the Properties pursuant to the proposed
transaction, the Limited Partners would receive an additional pre-tax
distribution in the estimated amount of $1,936 per Unit.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The only outstanding class of voting securities of the Partnership is
the Units. Each Unit entitles its holder to one vote on each proposal.
All Limited Partners as of the date action is taken on the proposals
(the "Record Date") are entitled to notice of and to vote on the proposals. As
of April 13, 1998 there were 5,000 Units outstanding and a total of 745 Limited
Partners entitled to vote such Units. With respect to the proposals to be voted
upon, the favorable vote of Limited Partners holding in excess of 50% of the
Units outstanding as of the Record Date will be required for approval. There are
no rights of appraisal or similar rights of dissenters with regard to the
proposals to be voted upon.
As of April 13, 1998 no person or group of related persons was known by
the Partnership to be the beneficial owner of more than 5% of the Units, except
the following group of related Unit holders:
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Liquidity Fund 73 143 Units 2.86%
Liquidity Fund 74 127 Units 2.54%
Liquidity Fund 75 66 Units 1.32%
Liquidity Fund Tax Exempt Partners 116 Units 2.32%
Liquidity Fund Tax Exempt Partners II 153 Units 3.06%
Liquidity Fund XI 13 Units 0.26%
Liquidity Fund XIII 2 Units 0.04%
Liquidity Fund XIV 5 Units 0.10%
Liquidity Income/Growth Fund 1985 29 Units 0.58%
Liquidity Fund 65 17 Units 0.34%
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Total 671 Units 13.42%
Neither the General Partner nor any of its affiliates are the beneficial owners
of any Units.
No meeting will be held with regard to this solicitation of the Limited
Partners. Voting may be accomplished by completing and returning to the offices
of the Partnership, at 2030 J Street, Sacramento, California 95814, telephone:
(916) 442-9183, the form of Consent included herewith. Only Consents received
prior to the close of business on the date (the "Action Date") which is the
earlier of (i) the date on which the Partnership receives approval of both
proposals by a majority-in-interest of the Limited Partners, or (ii) July __,
1998 (unless extended by the General Partner pursuant to notice mailed to the
Limited Partners), will be counted toward the vote on the proposals. However,
Limited Partners are urged to return their Consents at the earliest practicable
date.
If a Limited Partner has delivered an executed Consent to the
Partnership, the Limited Partner may revoke such Consent not later than the
close of business on the date immediately prior to the Action Date. As of the
Action Date, the actions which are the subject of this solicitation will either
be effective (if the requisite number of executed Consents have been received by
the Partnership) or the solicitation period will have expired without approval
of the proposals. The only method for revoking a Consent once it has been
delivered to the Partnership is by the delivery to the Partnership prior to the
Action Date of a written instrument executed by the Limited Partner who executed
the Consent which states that the Consent previously executed and delivered is
thereby revoked. Other than the substance of the revocation described above, no
specific form is required for such revocation. An instrument of revocation will
be effective only upon its actual receipt prior to the Action Date by the
Partnership or its authorized agent at the Partnership's place of business as
set forth in the foregoing paragraph.
CONSENT UNDER PARTNERSHIP AGREEMENT
Pursuant to Section 6.3F of the Partnership's Certificate and Agreement
of Limited Partnership (the "Partnership Agreement"), a majority-in-interest of
the Limited Partners must approve or disapprove the sale at one time of all or
substantially all of the Partnership's assets. Because the Properties constitute
substantially all of the Partnership's assets (as discussed below under "The
Properties and the Partnership's Business"), the General Partner and the
Partnership are seeking the approval of the proposed sale of the Properties by a
majority-in-interest of the Limited Partners. If the proposals are approved by
the Limited Partners but the proposed sale of the Properties described herein is
not consummated because one or more of the conditions precedent to the sale (see
"Purchase Agreement") is not satisfied (excluding the condition precedent that
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the Limited Partners approve the proposed sale), the General Partner will
consider the Limited Partners' approval of the proposals set forth herein to
constitute approval of any purchase offer for the Properties (or for an
individual motel, including the related leasehold and personal property) if such
purchase offer is reflected in an executed purchase agreement no later than
January 31, 1999, is consummated no later than June 30, 1999, is for "all cash,"
and is for an amount equal to or greater than $2,700,000 for the Sacramento
County motel, $7,600,000 for the South San Francisco motel, and/or $1,800,000
for the Modesto motel. If the General Partner should receive more than one such
purchase offer, it would accept the best offer, unless the General Partner had
already entered into a binding contract for a less favorable offer. However,
notwithstanding the preceding, if prior to entering into a binding contract the
General Partner should receive one or more "all cash" purchase offers and also
should receive one or more purchase offers in an amount greater than that set
forth in the highest "all cash" offer but entailing the receipt by the
Partnership of a promissory note for part of the purchase price, the Partnership
would present all such offers to the Limited Partners for approval.
Under Section 13.1 of the Partnership Agreement, the sale of all or
substantially all of the Partnership's assets will not result in the dissolution
of the Partnership. Accordingly, the General Partner is also seeking the
approval by a majority-in-interest of the Limited Partners of the dissolution of
the Partnership if the proposed sale of the Properties are actually consummated.
Limited Partners must approve each proposal in order for either of them
to be effective. In the event the Limited Partners do not approve both
proposals, the Partnership will not proceed to implement the proposed sale of
the Properties.
THE PROPERTIES AND THE PARTNERSHIP'S BUSINESS
The Properties consists of three leasehold interests, the motel
properties constructed thereon, and the related personal property. The three
motels are managed and operated by the Partnership under the name "Super 8
Motel."
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
that is an Affiliate of the General Partner, became sub-franchisor in the stead
of Super 8 Management Corporation, another Affiliate of the General Partner. As
of November 10, 1997, Super 8 Motels, Inc. had franchised a total of 1,619
motels having an aggregate of 98,000 guestrooms in operation. Super 8 Motels,
Inc. is a wholly-owned subsidiary of Hospitality Franchise Systems, Inc. Neither
the Partnership nor the General Partner has any interest in Hospitality
Franchise Systems, Inc.
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
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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.
(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 accounting
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, 1997, the Partnership employed a total of 59
persons, either full or part-time, at its three motel properties, including 20
desk clerks, 31 housekeeping and laundry personnel, three maintenance personnel,
two 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.
(c) Competition
As discussed in greater detail below, in the areas in which its motel
properties are located the Partnership faces intense competition from 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.
Properties
The net proceeds of the Partnership's offering of Units were 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 repaid in April 1988 with the proceeds of the San
Francisco Federal Savings & Loan Association (SFFSLA) loan described in Note 6
of the audited 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
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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 on May 1, 2003, at
which time a "balloon" payment of approximately $740,000 will be due and
payable. SFFSLA is now known as 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.During February 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.
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, 1998 the fixed annual rent was
increased to $38,073.
The total rent earned by the Partnership during the last three years is
as follows:
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Year Rent
1995 $34,385
1996 $35,398
1997 $35,736
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 this 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 that 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
1995 $29,672
1996 $29,885
1997 $31,092
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 overall motel property end on June 30,
2013, the Partnership has agreed in this 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.
The sublease provides for a minimum annual rent that is adjusted every
two years for changes in the CPI. On November 12, 1997, the minimum annual rent
was adjusted to $20,868.
Pursuant to the sublease Sterling has developed and is operating a
retail shopping center on the subleased land. Sterling is required to pay, in
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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
1995 $19,001
1996 $19,676
1997 $19,835
Motel Operations. The Sacramento motel achieved the following average
occupancy rates and average room rates for the years 1997, 1996 and 1995:
1997 1996 1995
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Average Occupancy 58.4% 55.5% 53.8%
Average Room Rate $42.09 $40.37 $41.06
The following lodging facilities provide direct and indirect
competition to the Partnership's Sacramento County motel:
Approximate
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 1997 the McCllelan Air Force Base, which
is in the process of closing, provided approximately 11% of the occupied rooms
and approximately 8% of the room revenue, in 1996 approximately 15% of the
occupied rooms and approximately 11% of the room revenue, and in 1995
approximately 19% of the occupied rooms and approximately 14% of the room
revenue. McCllelan Air Force Base is scheduled for complete closure in 2001. No
other customer supplies as much as 5% of the motel's patronage.
(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.
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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 leased premises will
remain the property of the Partnership during the lease terms. However, upon the
expiration of the leases, title to any such improvements will pass to the
lessor.
Motel Operations. The South San Francisco motel achieved the following
average occupancy rates and average room rates for the years 1997, 1996 and
1995:
1997 1996 1995
---- ---- ----
Average Occupancy 83.7% 78.3% 69.4%
Average Room Rate $59.68 $53.83 $49.43
The following lodging facilities provide direct and indirect
competition to the Partnership's South San Francisco motel:
Approximate
Motel Number Distance From
Facility Of Rooms The 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 miles
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.
(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
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the termination of the lease, at which time they will become the property of the
lessor.
Motel Operations. The Modesto motel achieved the following average
occupancy rates and average room rates for the years 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Average Occupancy 60.1% 66.8% 73.2%
Average Room Rate $44.70 $41.63 $41.06
The following lodging facilities provide direct and indirect
competition to the Partnership's Modesto motel:
Approximate
Motel Number Distance From
Facility Of Rooms The 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 the many sports teams attending athletic events
in the area. No single account generates as much as 5% of the motel's total
patronage.
PURCHASE AGREEMENT
On _______________, the Partnership entered into an agreement to sell
the Properties to Tiburon Capital Corporation, San Francisco, California, or a
nominee of Tiburon Capital Corporation (the "Buyer"), for the sum of
$12,100,000, payable in cash at the close of escrow. Escrow was opened at
Chicago Title Company, San Francisco, California on _______________ 1998.
The Buyer is a California corporation. It is anticipated that the
nominee of the Buyer, which would ultimately own the Properties, would be a
limited liability company in which Mark Grotewohl would be involved as a member
and, as such, Mark Grotewohl would be entitled to 50% of the profits of that
company. He would also be the manager of the motels owned by the company. Mark
Grotewohl is the son of Philip Grotewohl, the owner of 50% of the stock of the
General Partner. He was employed until recently as the manager of the Sacramento
motel and as the marketing and sales director for all five of the GMS
Partnerships. It might be contended that Mark Grotewohl is, by virtue of his
past relationship with the Partnership, an Affiliate of the Partnership as
defined in its Partnership Agreement. Under Section 6.3H of the Partnership
Agreement, the Partnership is not permitted to sell its real property to
"Affiliates" of the General Partner. The General Partner believes that, based on
the facts and circumstances, Mark Grotewohl is not an Affiliate of the
Partnership or General Partner. (The Partnership Agreement defines "Affiliate"
as (i) any person directly or indirectly controlling, controlled by, or under
common control with another person, (ii) a person owning or controlling 10% or
more of the outstanding voting securities of another person, (iii) any officer,
director, partner or employee of any person, and (iv) if a person classified as
an affiliate by virtue of (i), (ii) or (iii) above is an officer, director,
11
<PAGE>
partner or employee, any company for which such person acts in any such
capacity.)
The Buyer has made a contemporaneous offer to purchase the motel
properties of the four other GMS Partnerships. The offers made by the Buyer for
the properties of each of the GMS Partnerships have been evaluated independently
by the General Partner. Other than with respect to the purchase price of each
motel, the offers are on identical terms. If the limited partners of the other
partnerships do not approve the sale of their respective properties to the
Buyer, however, the Buyer has the right and option not to proceed with the
proposed purchase of the Properties from the Partnership, even if the Limited
Partners approve this sale. In this regard, the Partnership has not solicited
any offers to purchase the Properties or the motel properties of the other GMS
Partnerships, has not listed the Properties or the motel properties of the other
GMS Partnerships for sale with independent brokers, and has not otherwise
actively sought competing offers for the Properties or the motel properties of
the other GMS Partnerships. Consequently, the offer presented by the Buyer is
the only offer that the General Partner has received for the Properties or the
motel properties of the other GMS Partnerships other than those presented by the
Everest Group.
There are a number of significant conditions to the consummation of the
proposed sale of the Properties; therefore, there can be no assurance as to
whether, or when, such transaction will be consummated. Among these conditions
are the Partnership's receipt of the approval of the Limited Partners; the
Buyer's receipt (at the Partnership's expense) and approval of an ALTA Survey
and preliminary title report for the Properties; the absence of any damage or
loss to the Properties prior to the closing date in excess of $50,000; the
decision by the Buyer, in its unfettered discretion, to terminate the proposed
purchase prior to June 30, 1998, provided that this deadline may be extended
upon request of the Buyer for up to 15 days; the Buyer's receipt prior to June
30, 1998 of a loan commitment for financing in an amount of not less than 90% of
the purchase price of the Properties, provided that the deadline may be extended
upon request of the Buyer for up to 15 days; and receipt by the Partnership of
any necessary approvals of the sale by, among others, the franchisor, the
landlords, and the subtenants. The General Partner expects that such conditions
will be satisfied; however, there can be no assurances in this regard. No
federal or state regulatory requirements must be complied with, or approvals
obtained, in connection with the transaction.
The Buyer will deposit the sum of $63,000 into escrow on the later of
the expiration of the Buyer's inspection period referred to above or the date
the Partnership notifies the Buyer that the Limited Partners have approved the
proposed sale of the Properties. Should the Buyer default in the performance of
its obligations under the purchase agreement, the Partnership will be entitled
to retain said deposit as its only damages.
The Partnership and the Buyer will share closing costs. The General
Partner anticipates that the Partnership's share of aggregate closing costs,
including real estate brokerage commissions, will be approximately $453,750.
Included therein is a real estate brokerage commission payable to Everest
Financial, Inc., a member of the Everest Group, in an amount equal to 2.75% of
the purchase price. Everest Financial, Inc. has agreed to reallow 1.25% of the
purchase price to the Buyer's broker or, at the Buyer's option, the Buyer will
be entitled to a credit against the purchase price in the amount of 1.25% of the
12
<PAGE>
purchase price. It is possible that Everest Financial, Inc. may also receive a
loan brokerage fee from the Buyer.
EFFECTS OF APPROVAL OF THE PROPOSALS
General
The consummation of the proposed sale of the Properties and the
dissolution of the Partnership should result in the following consequences for
the Partnership, the Limited Partners and the General Partner:
(i) The Limited Partners and General Partner are expected to receive the
distributions of net cash proceeds from the sale of the Properties as described
below.
(ii) The Limited Partners and General Partner are expected to realize the
Federal income tax consequences as described below.
(iii) All of the Partnership's assets will be liquidated and the Partnership
will be dissolved and terminated.
The consequences stated above are discussed in more detail in the
subsections which follow. Those subsections, in part, include computations as to
the cash proceeds to be received and distributed by the Partnership, and the
taxable gain and allocations thereof to be made by the Partnership, in the event
the proposed sale is consummated. HOWEVER, THIS INFORMATION IS PRESENTED SOLELY
FOR THE PURPOSES OF EVALUATING THE PROPOSAL. ALL AMOUNTS ARE ESTIMATES ONLY. ALL
COMPUTATIONS ARE BASED ON ASSUMPTIONS (SUCH AS THE DATE OF SALE, THE EXPENSES OF
THE SALE, AND THE RESULTS OF PARTNERSHIP OPERATIONS THROUGH THE DATE OF SALE)
WHICH MAY OR MAY NOT PROVE TO BE ACCURATE AND SHOULD NOT BE RELIED UPON TO
INDICATE THE ACTUAL RESULTS WHICH MAY BE ATTAINED.
Determination and Use of Net Proceeds
The following is a summary of the projected amount of cash to be
received by the Partnership and the projected amount of cash to be distributed
to the Limited Partners and the General Partner, assuming the Properties is sold
for a gross sales price of $12,100,000. This summary has been prepared by the
General Partner.
If the proposed transaction is consummated on September 30, 1998, it is
estimated that the Partnership would receive the following net proceeds:
Gross sales price $12,100,000
Less: Real estate commission (332,750)
Retirement of debt (920,000)
Estimated escrow and closing costs (121,000)
Net proceeds of sale $10,726,250
The Partnership's real property taxes are payable twice yearly on April
10 and December 10, partially in arrears, in the current amount of $48,334 each.
The Partnership's aggregate lease payment for its three leasehold interests are
$23,179 monthly, and its aggregate sublease receipts for the Sacramento County
motel are $7,448 monthly. Accordingly, if the proposed transaction is
13
<PAGE>
consummated, the actual date of consummation will determine whether there is a
credit to the Partnership for prorated lease payments and/or a credit to the
Buyer for prorated real property taxes and sublease payments. Similarly, the
amount indicated below as the estimate of reserves available for distribution
immediately prior to the sale of the Properties and on dissolution of the
Partnership will vary depending on the actual date of consummation of the
proposed transaction.
Prior to the sale, the Partnership is expected to make its regular
quarterly distributions on May 15 and August 15, 1998, in the anticipated amount
of $250,000 ($50.00 per Unit) to the Limited Partners and $27,778 to the General
Partner, and, if the proposed sale is approved, is also expected to make a
distribution from reserves in the amount of $450,000 ($90.00 per Unit) to the
Limited Partners and $50,000 to the General Partner. The net proceeds of
$10,726,250 estimated to be received by the Partnership from the proposed
transaction, based on a closing date of September 30, 1998, would be distributed
99% to the Limited Partners and 1% to the General Partner until the Limited
Partners had received $2,815,022, or $563.00 per Unit (i.e., the Limited
Partners' original investments plus a 10% return on their adjusted investments,
less all prior distributions from the Partnership) and the General Partner had
received $28,435, and the balance ($7,882,793) would be distributed 85% to the
Limited Partners ($6,700,374, or $1,340.07 per Unit) and 15% to the General
Partner ($1,182,419). The Partnership's remaining cash reserves would be
retained for the payment of accounts payable and other liabilities and expenses
incurred to that date or expected to be incurred in connection with the
operation of the Properties through the date of sale and the operation and
winding-up of the Partnership through its termination, and the balance,
estimated to be $____________, would be distributed 85% to the Limited Partners
($___________, or $________ per Unit) and 15% to the General Partner
($___________). Alternatively, if the proposed sale is not approved, the
Partnership would continue to operate the Properties for an indeterminate period
pending receipt of another purchase offer which is acceptable to the Limited
Partners. The General Partner estimates that if the Properties are not sold the
Partnership will make average annual distributions to the Limited Partners of
from $500,000 ($100 per Unit) to $800,000 ($160 per Unit), and to the General
Partner of from $55,000 to $89,000 for the foreseeable future. However, there
can be no assurance that the General Partner's estimate in this regard will be
borne out.
Federal Income Tax Consequences
(a) General. The following is a summary of the Federal income tax
consequences expected to result from consummation of the proposed transaction
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing
laws, judicial decisions and administrative regulations, rulings and practices.
This summary is general in content and does not include considerations which
might affect certain Limited Partners, such as Limited Partners which are
trusts, corporations or tax-exempt entities, or Limited Partners who must pay an
alternative minimum tax. Except as otherwise specifically indicated, this
summary does not address any state or local tax consequences.
Tax counsel to the Partnership, Derenthal & Dannhauser, has delivered
an opinion to the Partnership which states that the following summary has been
reviewed by it and, to the extent the summary involves matters of law,
represents its opinion, subject to the assumptions, qualifications, limitations
and uncertainties set forth therein.
14
<PAGE>
(b) Characterization of Gain. Upon the sale of property, the owner
thereof measures his gain or loss by the difference between the amount of
consideration received in connection with the sale and the owner's adjusted
basis in the property. A gain will be recognized for Federal income tax
purposes. This is so because the depreciation used for Federal income tax
purposes, which decreases adjusted basis, was greater than that used for book
purposes.
The Properties should constitute "Section 1231 property" (i.e., real
property and depreciable assets used in a trade or business which are held for
more than one year) rather than "dealer" property (i.e., property which is held
primarily for sale to customers in the ordinary course of business). While it is
possible that the Internal Revenue Service will argue that the Properties is
"dealer" property, gain upon the sale of which would be taxed entirely as
ordinary income, tax counsel to the Partnership is of the opinion that it is
more likely than not that such an assertion would not be sustained by a court.
A Limited Partner's allocable share of Section 1231 gain from the sale
of the Properties would be combined with any other Section 1231 gains or losses
incurred by him in the year of sale, and his net Section 1231 gains or losses
would be taxed as long-term capital gains or constitute ordinary losses, as the
case may be, except that a Limited Partner's net Section 1231 gains will be
treated as ordinary income to the extent of net Section 1231 losses for the five
most recent years which have not previously been offset against net Section 1231
gains.
Long-term gain on sale of Section 1231 property is taxed as follows:
(i) the excess of accelerated depreciation over straight-line depreciation is
taxed at ordinary income rates, (ii) to the extent that any other gain would be
treated as ordinary income if the property were depreciable personal property
rather than depreciable real property, at a maximum rate of 25%, and (iii) the
balance at a maximum rate of 20%.
Set forth below are the General Partner's estimates of the total
taxable gain for Federal income tax purposes, and the allocations thereof, which
will result if the proposed sale of the Properties is consummated, based on an
assumed closing date of September 30, 1998. These estimates do not include any
amounts relating to Partnership operations prior to the sale of the Properties
or relating to dissolution of the Partnership. These estimates are not the
subject of an opinion of counsel.
Portion
Total Taxed As Portion Portion
Estimated Ordinary Taxed At Taxed At
Gain Income 25% Rate 20% Rate
------------------------------------------------------------
Limited Partners $10,150,000 $54,000 $3,961,000 $6,135,000
General Partner 103,000 1,000 40,000 62,000
------- ----- ------ ------
Total $10,253,000 $55,000 $4,001,000 $6,197,000
========== ====== ========= =========
Per Unit $2,030.00 $10.80 $792.20 $1,227.00
======== ===== ====== ========
15
<PAGE>
The General Partner anticipates that consummation of the proposed
transaction would produce a gain for California income tax purposes in the
amount of approximately $10,251,000, of which approximately $103,000 and
$10,148,000 would be allocated to the General Partner and to the Limited
Partners, respectively.
Dissolution of the Partnership
Section 13.1B of Partnership Agreement provides that the Partnership
shall be dissolved upon the vote of a majority of the Limited Partners.
As set forth above, if both proposals are approved by a
majority-in-interest of the Limited Partners, and if the proposed sale of the
Properties is consummated, the net cash proceeds received by the Partnership
upon close of escrow for the proposed transaction will be distributed in
accordance with the provisions of the Partnership Agreement. Thereupon the
Partnership will be dissolved, the General Partner will commence to wind up the
business of the Partnership, and after payment of all expenses of the
Partnership (including the expense of a final accounting for the Partnership)
the remaining cash reserves of the Partnership will be distributed in accordance
with the provisions of the Partnership Agreement. The General Partner will then
take all necessary steps toward termination of the Partnership's Certificate of
Limited Partnership.
APPRAISAL OF THE PROPERTIES/FAIRNESS OPINION
The appraisals of the three motel properties, dated February 20, 1998,
were prepared by PKF Consulting, San Francisco, California, and indicate that
the aggregate current fair market value as of January 1, 1998 was $12,100,000.
PKF Consulting was selected by the General Partner based on its expertise in
appraising motel properties in the State of California. PKF Consulting also
prepared appraisals of the motel properties of the other Plaintiff Partnerships.
The appraised value of the Properties was determined through the use of two
methodologies: the sales comparison approach and the income capitalization
approach.
No limitations were imposed by the General Partner on the appraiser's
investigation.
Upon request the Partnership will furnish to a Limited Partner, without
charge, a copy of each appraisal. In this regard Limited Partners are cautioned
to refer to the entire appraisal reports, inasmuch as the opinions of value
stated therein are subject to the assumptions and limiting conditions stated
therein. Furthermore, Limited Partners should be aware that appraised values are
opinions and, as such, may not represent the realizable value of the Properties.
Neither the appraiser, nor any of its affiliates, has had any prior
relationship with the Partnership, the General Partner or any of their
affiliates other than as an appraiser of the Properties and the properties of
the other GMS Partnerships and no future relationship other than as an appraiser
is contemplated.
The Partnership has also received an opinion from PKF Consulting to the
effect that the terms of the proposed sale are fair to the Partnership.
16
<PAGE>
FINANCIAL INFORMATION
Selected Partnership Financial Data
Following are selected financial data of the Partnership for the period
from January 1, 1993 to December 31, 1997.
<TABLE>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
----------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Guest room income $4,067,156 $3,668,873 $3,373,790 $3,236,373 $3,252,522
Net income $889,604 $807,895 $530,783 $471,069 $227,464
Per Partnership Unit:
Cash distributions $260.00 $107.50 $100.00 $100.00 $100.00
Net income $176.14 $159.96 $105.10 $93.27 $45.04
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
Total assets $2,490,307 $2,878,579 $2,618,110 $2,628,782 $2,671,473
Long-term debt $901,925 $932,561 $960,709 $986,557 $1,010,318
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
I. Fiscal Year Financial Statements
(a) 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 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 current assets of $960,505 exceed its
current liabilities of $248,379 by $712,126. These net current assets provide a
reserve in excess of the General Partner's target, which is 5% of adjusted
capital contributions or $250,000.
The Partnership's properties are currently unencumbered except for the
loan described above (see "The Properties and the Partnership's Business"), the
principal balance of which was $932,561 at December 31, 1997. 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. Unless the properties are sold prior to that date, the General
Partner may use excess reserves to liquidate the loan when its becomes due in
2003.
The Partnership expended $177,451 on renovations and replacements
during 1997. Included in the total (of which $111,960 was capitalized) were
$51,522 in replacement guest room and corridor carpets, $33,228 in replacement
washing machines, $12,890 in tub repairs, $11,831 in replacement bedspreads,
$9,246 in replacement guest room chairs, $8,523 for replacement
air-conditioners, $8,494 in furniture repairs and $8,008 for replacement drapes.
17
<PAGE>
The Partnership expended $112,233 on renovation and replacements during
1996. Included in the total (of which $63,372 was capitalized) were $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 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. If the
properties are not sold 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. If the properties are retained adequate working capital is expected
to be generated by motel operations.
(b) Results of Operations
(i) Combined Financial Results
The following tables summarize the Partnership's operating results for
1995, 1996 and 1997 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, 1995 64.2% $44.32
December 31, 1996 66.5% $46.39
December 31, 1997 67.9% $50.46
Total
Expenditures Partnership
Total and Cash Flow
Fiscal Year Ended: Revenues Debt Service (1)
- - -------------------------------------------------------------------------
December 31, 1995 $3,476,890 $2,836,242 $640,648
December 31, 1996 $3,818,298 $2,832,177 $986,121
December 31, 1997 $4,218,479 $3,214,059 $1,004,420
(1) While Partnership Cash Flow as it is used here is not an amount
found in the financial statements, it is the best indicator of the annual change
in the amount, if any, available for distribution to the Limited Partners and
the General Partner. This calculation is reconciled to the financial statement
in the following table.
18
<PAGE>
A reconciliation of Partnership Cash Flow (included in the chart above)
to Net Income as shown on the Statements of Operations (in the audited financial
statements) is as follows:
1997 1996 1995
-----------------------------------------------
Partnership Cash Flow $1,004,420 $986,121 $640,648
Principal Payments on Financial 28,148 25,862 23,747
Obligations
Additions to Fixed Assets 111,960 63,372 128,748
Depreciation and Amortization (254,260) (255,459) (261,488)
Other Items (664) (12,001) (872)
===============================================
Net Income $889,604 $807,895 $530,783
===============================================
Following is a reconciliation of Partnership Cash Flow (shown above) to
the aggregate total of Cash Flow from Properties Operations for the
Partnership's three motels which are segregated in the tables following this
subsection:
<TABLE>
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
South San Francisco Motel Cash Flow $814,752 $637,439 $372,917
Sacramento Motel Cash Flow 240,429 284,759 195,669
Modesto Motel Cash Flow 52,294 93,876 108,118
--------------------------------------------
Aggregate Cash Flow from Properties Operations 1,107,475 1,016,074 676,704
Partnership Management Fees (144,444) (59,722) (55,556)
Interest on Cash Reserves 36,765 28,421 17,226
Other Income (Net of Other Expenses) Not
Allocated to the Individual Properties 4,624 1,348 2,274
=============================================
Partnership Cash Flow $1,004,420 $986,121 $640,648
=============================================
</TABLE>
The Partnership's total revenues increased $400,181 or 10.5% during
1997 as compared to 1996. As discussed below, the improved revenues were
generated primarily by improved occupancies and room rates at the South San
Francisco motel and to a lesser degree by improved performance at the Sacramento
motel.
The Partnership's total revenue increased $341,408 or 9.8% during 1996
as compared to 1995. As discussed below, the improved revenues were generated
primarily by improved occupancies and room rates at the South San Francisco
motel.
The Partnership's total expenditures and debt service increased
$381,882 or 13.5% during 1997 as compared to 1996. The increased expenses are
associated with the increased room revenue and occupancy.
The Partnership's total expenditures and debt service were essentially
unchanged from 1995 to 1996.
19
<PAGE>
(ii) South San Francisco Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
- - ----------------------------------------------------------------
December 31, 1995 69.4% $49.43
December 31, 1996 78.3% $53.83
December 31, 1997 83.7% $59.68
Total Cash Flow
Expenditures From
Total And Properties
Fiscal Year Ended: Revenues Debt Service Operations
- - ----------------------------------------------------------------------------
December 31, 1995 $1,501,439 $1,128,522 $372,917
December 31, 1996 $1,857,629 $1,220,190 $637,439
December 31, 1997 $2,187,188 $1,372,436 $814,752
The Partnership's South San Francisco motel achieved a $329,559 or
17.7% increase in total revenues during 1997 as compared to 1996. Guestroom
revenues increased $328,285 or 18.2% 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 downturn in the number of corporate, group
and discount rooms sold. The improvement in the average daily rate is related to
the increased strength of the lodging market in the San Francisco airport area.
The Partnership's South San Francisco motel achieved a $356,190 or
23.7% increase in total revenues during 1996 as compared to 1995. Guestroom
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 to the strength
of the San Francisco airport market.
The Partnership's South San Francisco motel experienced a $152,246 or
12.5% increase in total expenditures and debt service during 1997 as compared to
1996 due primarily to the increase in room sales. Included in the increase were
increased front desk wages of $15,231, increased housekeeping wages of $8,642,
increased credit card discounts of $7,152, increased security service of $10,745
and increased franchise and management fees of $29,602. Bad debt expense
increased $10,556 due primarily to the write-off of some bankrupt direct bill
accounts.
The Partnership's South San Francisco motel experienced a $91,668 or
8.1% increase in total expenditures and debt service during 1996 as compared to
1995 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 renovations.
20
<PAGE>
(iii) Sacramento Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
- - ------------------------------------------------------------------------------
December 31, 1995 53.8% $41.06
December 31, 1996 55.5% $40.37
December 31, 1997 58.4% $42.09
Total Cash Flow
Expenditures From
Total and Properties
Fiscal Year Ended: Revenues Debt Service Operations
- - ----------------------------------------------------------------------------
December 31, 1995 $1,061,119 $865,450 $195,669
December 31, 1996 $1,092,057 $807,298 $284,759
December 31, 1997 $1,187,852 $947,423 $240,429
The Partnership's Sacramento motel achieved a $95,795 or 8.8% increase
in total revenues during 1997 as compared to 1996. This increase was due
primarily to the $99,778 increase in guestroom revenue, which was achieved by
increases in both the average room rate and the average occupancy rate. Revenue
from McCllelan Air Force Base decreased from 11% of total room revenue to
approximately 8% of total room revenue. Future business from the McCllelan Air
Force Base is uncertain as the base will take some time to completely 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 Partnership's Sacramento motel achieved a $30,938 or 2.9% increase
in total revenues during 1996 as compared to 1995. 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 McCllelan Air Force Base decreased from 14% of total room revenue
to approximately 11% of total room revenue.
The Partnership's Sacramento motel experienced a $140,125 or 17.4%
increase in expenditures during 1997 as compared to 1996. Decreased expenditures
for maintenance employees of $11,495 were offset by increased front desk wages
of $8,908 and increased housekeeping expenses of $16,202. The uncertain
collection of receivables aged more than three years led to the write-off of
$21,227 in bad debts. The age of the property and the location required
increased expenditures of $49,575 for renovations and replacements and for
increased security of $19,180.
21
<PAGE>
The Partnership's Sacramento motel achieved a $58,152 or 6.7% decrease
in expenditures during 1996 as compared to 1995. 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.
(iv) Modesto Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
- - ---------------------------------------------------------------------
December 31, 1995 73.2% $41.06
December 31, 1996 66.8% $41.63
December 31, 1997 60.1% $44.70
Total Cash Flow
Expenditures from
Total And Properties
Fiscal Year Ended: Revenues Debt Service Operations
- - ---------------------------------------------------------------------------
December 31, 1995 $896,780 $788,662 $108,118
December 31, 1996 $838,579 $744,703 $93,876
December 31, 1997 $806,674 $754,380 $52,294
The Partnership's Modesto motel experienced a $31,905 or 3.8% decrease
in total revenue during 1997 as compared to 1996. The decrease in revenue was
due to a 10.0% reduction in guestroom occupancy, which was slightly offset by a
7.4% increase in average room rate. The occupancy reduction was experienced in
all market segments, except the corporate market segment, which was essentially
unchanged.
The Partnership's Modesto motel experienced a $58,201 or 6.5% decrease
in total revenue during 1996 as compared to 1995. The decrease in revenue was
due to an 8.7% reduction in guestroom 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 experienced a $9,677 or 1.3% increase
in total expenditures during 1997 as compared 1996. The condition of the
property required increased expenditures of $11,710 for renovation and
replacements and of $6,938 for landscaping.
22
<PAGE>
The Partnership's Modesto motel achieved a $43,959 or 5.6% decrease in
total expenditures during 1996 as compared to 1995. 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.
II. Interim Financial Statements
(a) Liquidity and Capital Resources
As of March 31, 1998, the Partnership's current assets of $1,004,484
exceeded its current liabilities of $330,630, providing an operating reserve of
$673,854. The General Partner's reserves target is 5% of adjusted capital
contributions, or $250,000.
The Partnership expended $58,402 on renovations and replacements during
the three months ended March 31, 1998, of which $40,758 was capitalized. The
expenditures included $43,224 for guest room and hallway carpets.
(b) Results of Operations
Total Partnership income decreased $6,427 or 0.7% for the first quarter
of 1998 as compared to the first quarter of 1997. Guest room revenue increased
$3,979 or 0.4% due to an increase in the average room rate from $45.72 in 1997
to $52.87 in 1998. Such increase was partially offset by a decrease in the
average occupancy rate from 68.2% to 59.2%. All three motels had higher room
rates and lower occupancies. Overall, the South San Francisco motel had an
increase in guest room revenues and the other motels had a decrease in guest
room revenues.
Total Partnership expenses increased $48,750 or 6.5%, primarily due to
increases in the minimum wage, management fees and legal, appraisal and other
costs associated with the proposed sale of the properties and the liquidation of
the Partnership.
Other Financial Information
Items 304 and 305 of Regulation S-K promulgated by the Securities and
Exchange Commission are not applicable to the Partnership. Moreover, the General
Partner is unaware of any "Year 2000" problems which could impact the
Partnership's operations.
23
<PAGE>
FINANCIAL STATEMENTS
for
INFORMATION STATEMENT
of
SUPER 8 MOTELS, LTD.
May __, 1998
F-i
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SUPER 8 MOTELS, LTD. Page
INDEPENDENT AUDITORS' REPORT ............................................. F-1
FINANCIAL STATEMENTS:
Balance Sheets, December 31, 1997 and 1996................................ F-2
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995..................................... F-3
Statements of Partners' Equity for the Years
Ended December 31, 1997, 1996 and 1995............................... F-4
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995..................................... F-5
Notes to Financial Statements............................................. F-7
Balance Sheets, March 31, 1998 and December 31, 1997 (Unaudited).......... F-12
Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 (Unaudited)............................ F-13
Statements of Partners' Equity for the Three Months
Ended March 31, 1998 and 1997 (Unaudited)............................ F-14
Statement of Cash Flows for the Three Months
Ended March 31, 1998 (Unaudited)..................................... F-15
Notes to Financial Statements............................................. F-16
F-ii
<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, 1997 and 1996, and the
related statements of operations, partners' equity and cash flows for each of
the years in the three year period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
February 26, 1998
San Mateo, California
e-super8\s8197fs.wp8.wpd F-1
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
----------- ---------
Current Assets:
<S> <C> <C>
Cash and temporary investments (Notes 3, 8 and 9) $ 812,763 $1,058,309
Accounts receivable 126,154 122,841
Prepaid expenses 21,588 24,463
----------- -----------
Total Current Assets 960,505 1,205,613
---------- ----------
Property and Equipment (Note 2):
Buildings 5,223,252 5,223,252
Furniture and equipment 1,147,274 1,049,769
--------- ----------
6,370,526 6,273,021
Accumulated depreciation (4,858,036) (4,620,543)
---------- ----------
Property and Equipment, Net 1,512,490 1,652,478
--------- ----------
Other Assets 17,312 20,488
------------- -----------
Total Assets $2,490,307 $2,878,579
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of note payable (Notes 6 and 9) $ 30,636 $ 28,148
Accounts payable and accrued liabilities 193,805 157,712
Due to related parties 23,938 9,759
----------- ------------
Total Current Liabilities 248,379 195,619
---------- -----------
Long-term Liabilities, Net of Current Portion:
Note payable (Notes 6 and 9) 901,925 932,561
---------- -----------
Total Liabilities 1,150,304 1,128,180
--------- ----------
Lease Commitments (Note 5)
Partners' Equity:
General Partner 75,455 66,559
Limited Partners 1,264,548 1,683,840
--------- ----------
Total Partners' Equity 1,340,003 1,750,399
--------- ----------
Total Liabilities and Partners' Equity $2,490,307 $2,878,579
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended December 31:
1997 1996 1995
---------- ---------- ----------
Income:
<S> <C> <C> <C>
Guest room $4,067,156 $3,668,873 $3,373,790
Telephone and vending 82,035 90,377 75,815
Interest 36,765 28,421 17,226
Other 32,524 30,627 10,059
---------- ----------- -----------
Total Income 4,218,480 3,818,298 3,476,890
---------- ---------- ----------
Expenses:
Motel operations (Notes 4, 5 and 7) 2,497,568 2,318,534 2,293,289
General and administrative (Note 4) 143,137 104,592 77,993
Depreciation and amortization (Note 2) 254,260 255,459 261,488
Interest 80,381 82,683 84,812
Property management fees (Note 4) 209,086 189,413 172,969
Partnership management fees (Note 4) 144,444 59,722 55,556
---------- ----------- -----------
Total Expenses 3,328,876 3,010,403 2,946,107
--------- ---------- ----------
Net Income $889,604 $807,895 $530,783
======== ======== ========
Net Income Allocable to General Partner $8,896 $8,079 $5,308
====== ====== ======
Net Income Allocable to Limited Partners $880,708 $799,816 $525,475
======== ======== ========
Net Income Per Partnership Unit (Note 1) $176.14 $159.96 $105.10
======= ======= =======
Distributions to Limited Partners Per
Partnership Unit (Note 1) $260.00 $107.50 $100.00
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31:
1997 1996 1995
---------- ---------- -----------
General Partner:
Balance, beginning of year $ 66,559 $ 58,480 $ 53,172
Net income 8,896 8,079 5,308
---------- ------------ ------------
Balance, End of Year 75,455 66,559 58,480
---------- ----------- -----------
Limited Partners:
Balance, beginning of year 1,683,840 1,421,524 1,396,049
Net income 880,708 799,816 525,475
Less: Cash distributions to
limited partners (1,300,000) (537,500) (500,000)
---------- ----------- -----------
Balance, End of Year 1,264,548 1,683,840 1,421,524
---------- ---------- ----------
Total Partners' Equity $1,340,003 $1,750,399 $1,480,004
========== ========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31:
1997 1996 1995
---------- ---------- -------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Received from motel operations $4,178,483 $3,776,765 $3,455,302
Expended for motel operations and
general and administrative expenses (2,940,025) (2,671,907) (2,617,626)
Interest received 36,684 28,351 16,576
Interest paid (80,580) (82,866) (84,980)
----------- ----------- -----------
Net Cash Provided by Operating Activities 1,194,562 1,050,343 769,272
---------- ---------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment (111,960) (63,372) (128,748)
Proceeds from sales of property and equipment - 3,500 12,285
-------------- ------------ -----------
Net Cash Used by Investing Activities (111,960) (59,872) (116,463)
---------- ----------- -----------
Cash Flows From Financing Activities:
Payments on notes payable (28,148) (25,862) (23,747)
Distributions paid to limited partners (1,300,000) (537,500) (500,000)
---------- ----------- -----------
Net Cash Used by Financing Activities (1,328,148) (563,362) (523,747)
---------- ----------- -----------
Net Increase (Decrease) in Cash and
Temporary Investments (245,546) 427,109 129,062
Cash and Temporary Investments:
Beginning of year 1,058,309 631,200 502,138
--------- ----------- -----------
End of Year $812,763 $1,058,309 $ 631,200
======== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31:
1997 1996 1995
---------- ---------- ---------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
<S> <C> <C> <C>
Net income $889,604 $ 807,895 $530,783
-------- ---------- --------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 254,260 255,459 261,488
Loss on disposition of property
and equipment 863 1,036 1,040
Increase in accounts receivable (3,313) (28,182) (5,012)
(Increase) decrease in prepaid expenses 2,875 (1,801) (1,319)
Increase (decrease) in accounts payable and
accrued liabilities 36,093 6,177 (1,784)
Increase (decrease) in due to related parties 14,180 9,759 (15,924)
------------ ------------ ---------
Total Adjustments 304,958 242,448 238,489
----------- ----------- --------
Net Cash Provided By Operating Activities $1,194,562 $1,050,343 $769,272
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-6
<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 circumstances. 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., the fifty
percent stockholder and 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
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.
NOTE 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of December 31, 1997 and 1996 consists of the
following:
1997 1996
---------- ----------
Cash in bank $ 100,529 $ 79,142
Money market accounts 612,234 879,167
Certificate of deposit 100,000 100,000
---------- -----------
Total Cash and Temporary Investments $ 812,763 $1,058,309
========= ==========
F-7
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 - CASH AND TEMPORARY INVESTMENTS (Continued)
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, $203,358 in 1997,
$183,444 in 1996 and $168,690 in 1995 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 $81,343, $73,377 and $67,476 in 1997, 1996 and 1995,
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, 1997, 1996 and
1995 the General Partner received property management fees of $209,086, $189,413
and $172,969, 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, 1997, 1996 and 1995 the General
Partner received partnership management fees of $144,444, $59,722 and $55,556,
respectively.
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,
1997, no such proceeds had been distributed.
F-8
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
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 $344,000
in 1997, $338,000 in 1996 and $334,000 in 1995 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 two employees who are related to Philip B. Grotewohl, the fifty
percent 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
subleases of all three parcels of land for five consecutive periods of ten years
each.
Rental expense under long-term lease commitments incurred by the Partnership
amounted to $278,148 in 1997, $272,438 in 1996 and $268,526 in 1995, less
$86,662 , $84,959 and $83,058 in sub-lease rentals in 1997, 1996 and 1995,
respectively. Such amounts are included in motel operations expense in the
accompanying statements of operations.
The future lease commitments at December 31, 1997 using the minimum monthly
amounts, are as follows:
Years Ending South San
December 31: Modesto Sacramento Francisco Total
------------ ----------- ------------ ----------- --------
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
2002 70,954 116,630 90,564 278,148
Thereafter 1,892,099 1,341,243 543,384 3,776,726
Less subleases - (992,990) - (992,990)
-------------- ----------- ----------- -----------
Total $2,246,869 $ 931,403 $996,204 $4,174,476
========== ========== ======== ==========
F-9
<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, 1997 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:
1998 $ 30,636
1999 33,344
2000 36,291
2001 39,499
2002 42,990
2003 749,801
---------
Total $932,561
NOTE 7 - MOTEL OPERATING EXPENSES
The following table summarizes the major components of motel operating expenses
for the following years:
1997 1996 1995
--------- --------- -------
Salaries and related costs $ 824,819 $ 790,722 $ 764,251
Rent 193,120 187,479 185,468
Franchise and advertising fees 203,358 183,444 168,690
Utilities 179,184 166,900 168,641
Allocated costs, mainly indirect salaries 279,007 276,096 272,411
Replacement and renovations 65,491 48,861 100,459
Other operating expenses 752,589 665,032 633,369
----------- ----------- ----------
Total motel operating expenses $2,497,568 $2,318,534 $2,293,289
========== ========== ==========
NOTE 8 - CONCENTRATION OF CREDIT RISK
The Partnership 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, 1997 follows:
Total cash in all California banks $866,080
Portion insured by FDIC (696,729)
Uninsured cash balances $169,351
F-10
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents - The carrying amount approximates fair value because
of the short-term maturity of these instruments.
Long-term debt - The carrying amount of the Partnership's notes payable
approximate fair value.
NOTE 10 - LEGAL PROCEEDINGS AND SUBSEQUENT EVENT
On October 27, 1997, a complaint was filed in the United States District
Court by the General Partner naming as defendants Everest/Madison Investors,
LLC, Everest Lodging Investors, LLC, Everest Properties II, LLC, Everest
Properties, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre Capital
Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citron, Ronald J.
Kravit, and Stephen P. Enquist. The complaint alleged that the defendants
violated certain provisions of the Security and Exchange Act of 1934 and sought
injunctive and declarative relief
On October 28, 1997, a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC as plaintiffs against the General Partners of the
Partnership and four other partnerships which have common general partners as
nominal defendants. The complaint pertained to the receipt by the defendants of
franchise fees and reimbursement of expenses, the indications of interest made
by the plaintiffs in purchasing the properties of the nominal defendants, and
the alleged refusal of the defendants to provide information required by the
terms of the Partnership's partnership agreement and California law.
On February 20, 1998, the parties entered into a settlement agreement and both
of the above complaints were dismissed. Pursuant to the terms of the settlement
agreement, the General Partner has agreed to proceed with the marketing for sale
of the properties of the Partnerships, among other things, if by June 30, 1998,
it receives an offer to purchase one or more properties for a cash price equal
to 75% or more of the appraised value. In addition, the General Partner has
agreed to submit the offer for approval to the limited partners and other
procedures as required by the partnership agreements and applicable law. The
General Partner has also agreed that upon the sale of one or more properties, to
distribute promptly the proceeds of the sale after payment of payables and
retention of reserves to pay anticipated expenses. The Everest Defendants agreed
not to generally solicit the acquisition of any additional units of the
Partnerships without first filing necessary documents with the SEC. Under the
terms of the settlement agreement, the Partnerships have agreed to reimburse the
Everest Defendants for certain costs not to exceed $60,000, to be allocated
among the Partnerships. Of this amount, the Partnership will pay approximately
$12,000 during the year ended December 31, 1998.
F-11
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
Balance Sheet
March 31, 1998 and December 31, 1997
3/31/98 12/31/97
--------------------- ---------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and temporary investments $ 896,546 $ 812,763
Accounts receivable 105,689 126,154
Prepaid expenses 2,249 21,588
--------------------- ---------------------
Total current assets 1,004,484 960,505
--------------------- ---------------------
Property and Equipment:
Buildings 5,223,252 5,223,252
Furniture and equipment 1,184,933 1,147,274
--------------------- ---------------------
6,408,185 6,370,526
Accumulated depreciation (4,916,985) (4,858,036)
--------------------- ---------------------
Property and equipment, net 1,491,200 1,512,490
--------------------- ---------------------
Other Assets: 16,519 17,312
--------------------- ---------------------
Total Assets $ 2,512,203 $ 2,490,307
===================== =====================
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of note payable $ 31,292 $ 30,636
Accounts payable and accrued liabilities 299,338 217,743
--------------------- ---------------------
Total current liabilities 330,630 248,379
Long - Term Liabilities:
Note payable 893,852 901,925
--------------------- ---------------------
Total liabilities 1,224,482 1,150,304
--------------------- ---------------------
Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 76,932 75,455
Limited Partners 1,210,789 1,264,548
--------------------- ---------------------
Total partners' equity 1,287,721 1,340,003
--------------------- ---------------------
Total Liabilities and Partners' Equity $ 2,512,203 $ 2,490,307
===================== =====================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
Statement of Operations
For the Three Months Ending March 31, 1998 and 1997
Three Months Three Months
Ended Ended
3/31/98 3/31/97
--------------------- ---------------------
Income:
<S> <C> <C>
Guest room $ 915,699 $ 911,720
Telephone and vending 15,136 21,702
Interest 7,237 10,067
Other 7,834 8,844
--------------------- ---------------------
Total Income 945,906 952,333
--------------------- ---------------------
Expenses:
Motel operating expenses (Note 2) 591,225 575,173
General and administrative 55,230 28,635
Depreciation and amortization 62,842 61,492
Interest 19,712 20,319
Property management fees 46,957 47,152
Partnership management fees 22,222 16,667
--------------------- ---------------------
Total Expenses 798,188 749,438
--------------------- ---------------------
Net Income (Loss) $ 147,718 $ 202,895
===================== =====================
Net Income (Loss) Allocable
to General Partners $1,477 $2,029
===================== =====================
Net Income (Loss) Allocable
to Limited Partners $146,241 $200,866
===================== =====================
Net Income (Loss)
per Partnership Unit $29.25 $40.17
===================== =====================
Distribution to Limited Partners
per Partnership Unit $40.00 $30.00
===================== =====================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
Statement of Changes in Partners' Equity
For the Three Months Ending March 31, 1998 and 1997
1998 1997
--------------------- ---------------------
General Partners:
<S> <C> <C>
Balance at beginning of year $ 75,455 $ 66,559
Net income (loss) 1,477 2,029
--------------------- ---------------------
Balance at end of period 76,932 68,036
--------------------- ---------------------
Limited Partners:
Balance at beginning of year 1,264,548 1,683,840
Net income (loss) 146,241 146,241
Distributions to limited partners (200,000) (150,000)
--------------------- ---------------------
Balance at end of period 1,210,789 1,680,081
--------------------- ---------------------
Total balance at end of period $ 1,287,721 $ 1,748,117
===================== =====================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
<TABLE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
Statement of Cash Flows
For the Three Months Ending March 31, 1998 and 1997
1998 1997
--------------------- ---------------------
Cash flows from operating activities:
<S> <C> <C>
Received from motel revenues $ 960,454 $ 944,513
Expended for motel operations and
general and administrative expenses (614,648) (599,717)
Interest received 5,917 8,765
Interest paid (19,765) (20,367)
--------------------- ---------------------
Net cash provided by operating activities 331,958 333,194
--------------------- ---------------------
Cash flows from investing activities:
Purchases of property and equipment (40,758) (33,228)
--------------------- ---------------------
Net cash provided (used) by investing activities (40,758) (33,228)
--------------------- ---------------------
Cash flows from financing activities:
Principal payments on notes payable (7,417) (6,815)
Distributions paid to limited partners (200,000) (150,000)
--------------------- ---------------------
Net cash provided (used) by financing activities (207,417) (156,815)
--------------------- ---------------------
Net increase (decrease) in cash
and temporary investments 83,783 143,151
Cash and Temporary Investments:
Beginning of period 812,763 1,058,309
--------------------- ---------------------
End of period $ 896,546 $ 1,201,460
===================== =====================
Reconciliation of net income to net cash provided
by operating activities:
Net income (loss) $ 147,718 $ 202,895
--------------------- ---------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 62,842 61,492
(Increase) decrease in accounts receivable 20,465 945
(Increase) decrease in prepaid expenses 19,339 19,116
Increase (decrease) in accounts payable
and accrued liabilities 81,594 48,746
--------------------- ---------------------
Total adjustments 184,240 130,299
--------------------- ---------------------
Net cash provided by
operating activities $ 331,958 $ 333,194
===================== =====================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
Notes to Financial Statements
For the Three Months ending March 31, 1998 and 1997
Note 1:
The attached interim financial statements include all adjustments (consisting of
only normal recurring adjustments) which are, in the opinion of management,
necessary to a fair statement of the results for the period presented.
Users of these interim financial statements should refer to the audited
financial statements for the year ended December 31, 1997 for a complete
disclosure of significant accounting policies and practices and other detail
necessary for a fair presentation of the financial statements.
In accordance with the partnership agreement, the following information is
presented related to fees paid or accrued to the General Partner or affiliate
for the period.
Property Management Fees $46,957
Franchise Fees $18,326
Partnership Management Fees $22,222
Note 2:
The following table summarizes the major components of motel operating expenses
for the periods reported:
Three Months Three Months
Ended Ended
3/31/98 3/31/97
--------------------- ----------------
Salaries and related costs $ 209,931 $ 199,494
Rent 48,292 47,911
Franchise and advertising 45,816 45,643
Utilities 33,093 41,587
Allocated costs,
mainly indirect salaries 74,642 66,165
Replacements and renovations 17,644 9,904
Other operating expenses 161,807 164,469
--------------------- ----------------
Total motel operating expenses $ 591,225 $ 575,173
===================== ================
The following additional material contingencies are required to be restated
in interim reports under federal securities law: None.
F-16
<PAGE>
APPENDIX 1
PRELIMINARY COPY
SUPER 8 MOTELS, LTD.,
a California limited partnership
Notice of Proposed Actions By Written Consent
TO THE LIMITED PARTNERS OF
SUPER 8 MOTELS, LTD.:
The Limited Partners of SUPER 8 MOTELS, LTD., a California limited partnership
(the "Partnership"), are being asked by the Partnership and the General Partner
to consider and approve by written consent the proposed sale of substantially
all of the Partnership's assets and the dissolution of the Partnership.
The Limited Partners of the Partnership are entitled to vote on the proposals by
completing, executing and returning to the Partnership the enclosed form of
Actions by Written Consent of Limited Partners.
PLEASE FILL IN, DATE AND SIGN THE ENCLOSED POSTPAID CONSENT CARD AND RETURN IT
PROMPTLY. ONLY CONSENTS RECEIVED ON OR BEFORE JULY ____, 1998 (UNLESS EXTENDED
BY THE GENERAL PARTNER PURSUANT TO NOTICE MAILED TO THE LIMITED PARTNERS) WILL
BE COUNTED TO DETERMINE WHETHER THE PROPOSAL IS APPROVED.
May ___, 1998
Grotewohl Management Services, Inc.,
a California corporation,
General Partner
<PAGE>
APPENDIX 2
PRELIMINARY COPY
ACTIONS BY WRITTEN CONSENT OF LIMITED PARTNERS
SUPER 8 MOTELS, LTD.,
a California limited partnership
2030 J Street
Sacramento, California 95814
(916) 442-9183
THIS CONSENT IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND THE GENERAL PARTNER.
The undersigned votes all the units of limited partnership interest of Super 8
Motels, Ltd., a California limited partnership, held of record by him, her or it
as follows:
PROPOSAL TO APPROVE THE SALE OF SUBSTANTIALLY ALL OF THE
PARTNERSHIP'S ASSETS, as described in the Information
Statement dated May ___, 1998. Please mark one of the
following:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PROPOSAL TO APPROVE THE DISSOLUTION OF THE PARTNERSHIP, as
described in the Information Statement dated May ___, 1998.
Please mark one of the following:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This Consent, when properly executed and returned to the Partnership, will be
voted in the manner directed herein by the undersigned limited partner.
IF NO DIRECTION IS MADE, THIS CONSENT, IF SO EXECUTED AND RETURNED, WILL BE
VOTED FOR THE PROPOSALS SET FORTH ABOVE.
Please sign exactly as name When Units are held by joint tenants, both should
appears below: sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please sign
in full corporate name by president or other
authorized officer. If a partnership, please sign
in partnership name by authorized person.
DATED: , 1998
-----------------------------------
Signature
-----------------------------------
Additional signature, if held jointly
PLEASE MARK, SIGN, DATE AND
RETURN THIS
POSTPAID CONSENT CARD.
