SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission file number 0-8913
SUPER 8 MOTELS, LTD.
(Exact name of registrant as specified in its charter)
California 94-2514354
(State or other jurisdiction of (I.R.S. Employer Iden-
incorporation or organization) tification No.)
2030 J Street, Sacramento, California 95814
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 442-9183
Securities registered pursuant to Section 12(b) of the Act: None Securities
registered pursuant to Section 12 (g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant has
been required to file such reports) and (2) has been subject to the filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.(X)
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Inapplicable.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. BUSINESS
General Development of Business
Super 8 Motels, Ltd. (the "Partnership") is a limited partnership, which was
organized under the California Uniform Limited Partnership Act on August 25,
1978. The general partner of the Partnership is Grotewohl Management Services,
Inc. (the "General Partner"), a California corporation, which is 50% owned by
Philip B. Grotewohl.
In an offering which terminated on January 8, 1979, 5,000 units of limited
partnership interest in the Partnership (the "Units") were offered and sold at a
purchase price of $1,000 per Unit.
The proceeds of the offering were expended for the acquisition (by lease) and
development of three properties located in South San Francisco, Modesto and
Sacramento County, California. The Modesto motel was sold on February 22, 1999
and the other motels were sold on March 24, 1999. See Item 4 hereof.
Upon the sale of its last property, the Partnership was dissolved. The
Partnership is now winding up its activities by identifying and paying its
remaining obligations and liabilities. Upon completion of its winding-up
activities the Partnership will distribute its then remaining cash to the
General and Limited Partners and will then cancel its certificate of limited
partnership as filed with the California Secretary of State and be terminated.
Narrative Description of Business
(a) Franchise Agreements
The Partnership operated 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. As of September 30, 1998, Super 8 Motels,
Inc. had franchised a total of 1,722 motels having an aggregate of 103,888
guestrooms in operation.
The objective of the Super 8 Motel chain is to maintain a competitive position
in the motel industry by offering to the public comfortable, no-frills
accommodations at a budget price. Each Super 8 Motel provides its guests with
attractively decorated rooms, free color television, direct dial telephone and
other basic amenities, but eliminates or modifies other items to provide
substantial cost reduction without seriously affecting comfort or convenience.
Some of these savings are accomplished by reductions in room size, elimination
of expensive lobbies, and by substantial economies in building construction.
By the terms of each franchise agreement with Super 8 Motels, Inc., the
Partnership paid monthly franchise fees equal to 4% of its gross room revenues
(half of which was paid to the sub-franchisor) and contributed 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.
2
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(b) Operation of the Motels
The General Partner manages and operated the Partnership's motels. The General
Partner's management responsibilities include, but were not limited to,
supervision and direction of the Partnership's employees who operated each
motel, the establishment of room rates and the direction of the promotional
activities of the Partnership's employees. In addition, the General Partner
directed the purchase of replacement equipment and supplies, maintenance
activity and the engagement or selection of all vendors, suppliers and
independent contractors. The Partnership's financial activities were and 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, 1998, the Partnership employed a total of 61 persons, either
full or part-time at its three motel properties, including 17 desk clerks, 35
housekeeping and laundry personnel, four maintenance personnel, two van drivers,
and three motel managers. In addition, and as of the same date, the Partnership
employed 10 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, motel supervisory personnel,
secretarial personnel, and purchasing personnel, including David Grotewohl, son
of Philip Grotewohl, whom the Partnership employs as Director of Operations and
as an attorney, and, until April 30, 1998, Mark Grotewohl, whom the Partnership
employed as marketing and sales director and as manager of the Sacramento County
motel.
Item 2. PROPERTIES
As of March 24, 1999, the Partnership no longer owns any real property.
Item 3. LEGAL
Inapplicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During November 1998 the Partnership submitted to the limited partners of the
Partnership (the "Limited Partners") a consent solicitation statement soliciting
the consent of the Limited Partners to (i) the sale of the Partnership's motels
and related assets at an aggregate purchase price of $12,100,000, and (ii) the
dissolution and termination of the Partnership. The Limited Partners consented
to such sale by majority vote. No meeting was held in connection with the
solicitation of consents. The result of the solicitation was as follows: In
favor, 3,590; opposed, 322; and not voting, 1,088. As discussed above, the
Partnership's motels and related personal property have been sold and the
Partnership has been dissolved. See Item 1 above.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Units are not freely transferable and no public market in the Units has
developed or is expected to develop.
Holders
As of December 31, 1998, 771 investors held Units in the Partnership.
Distributions
Distributions are made from "Operational Cash Flow" and from sale or refinancing
proceeds.
"Operational Cash Flow" is defined in the Partnership's Certificate and
Agreement of Limited Partnership, as amended (the "Partnership Agreement") as
total cash receipts from Partnership operations less cash operating
disbursements. Except for payment to the General Partner of a property
management fee (see Item 11 hereof), distributions of Operational Cash Flow are
generally allocated between and paid to the General Partner and Limited Partners
as follows:
(1) Ninety percent to the Limited Partners;
(2) Ten percent to the General Partner.
Notwithstanding the foregoing, however, the General Partner's distributions from
Operational Cash Flow are deferred and paid to the General Partner only after
payment to the Limited Partners of distributions from Operational Cash Flow
equal to 10% of their capital contributions, calculated on a cumulative annual
basis (the "Preferred Return"), and payment to the General Partner of deferred
and current property management fees. (See Item 11 hereof.) Distributions of
Operational Cash Flow to the Limited Partners satisfied the Preferred Return
after the distribution made for the quarter ending December 31, 1985 and in each
subsequent year, together with payment of all current and accrued property
management fees. (See Item 11 hereof.) Accordingly, for any year in which the
Limited Partners receive the Preferred Return calculated on a cumulative annual
basis and after payment of any current property management fees (see Item 11
hereof), the General Partner will be entitled to its share of distributions from
Operational Cash Flow for such year.
4
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The following distributions to the Limited Partners were made from Operational
Cash Flow during the years 1998 and 1997:
Total Amount
Date Distribution Per Unit
--------------------------------------------------
2/15/97 $150,000 $30.00
5/15/97 $162,500 $32.50
6/15/97 $600,000 $120.00
8/15/97 $187,500 $37.50
11/15/97 $200,000 $40.00
2/15/98 $200,000 $40.00
5/15/98 $200,000 $40.00
8/15/98 $200,000 $40.00
11/15/98 $200,000 $40.00
See Item 11 for the amount of distributions from Operational Cash Flow to the
General Partner.
Item 6. SELECTED FINANCIAL DATA
Following are selected financial data for the Partnership for its last five
fiscal years ended December 31, 1998, 1997, 1996, 1995 and 1994.
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SUPER 8 MOTELS, LTD.
Item 6. Selected Financial Data
Years Ended December 31:
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Guest room income $4,126,336 $4,067,156 $3,668,873 $3,373,790 $3,236,373
Net Income $964,190 $889,604 $807,895 $530,783 $471,069
Per Partnership Unit:
Cash distributions (1) $160.00 $260.00 $107.50 $100.00 $100.00
Net Income $190.91 $176.14 $159.96 $105.10 $93.27
December 31:
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Total Assets $2,552,024 $2,490,307 $2,878,579 $2,618,110 $2,628,782
Long-Term Debt $868,581 $901,925 $932,561 $960,709 $986,557
(1) On an annual basis, to the extent cash distributions exceed net income,
Limited Partners receive a return of capital rather than a return on capital.
However, an annual analysis will be misleading if the Limited Partners do not
receive their investment back upon liquidation of the Partnership. For investors
who purchased their Units directly from the Partnership, the original investment
was $1,000 per Unit, cumulative allocations of income through December 31, 1998
were approximately $1,702 per Unit, and cumulative distributions through
December 31, 1998 were approximately $2,264 per Unit. Investors who did not
purchase their Units directly from the Partnership must consult with their own
advisors in this regard.
6
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Liquidity and Capital Resources
The General Partner believes that the Partnership's liquidity, defined as its
ability to generate sufficient cash to meet its cash needs, is adequate. As of
December 31, 1998 the Partnership's current assets of $1,143,028 exceeded its
current liabilities of $179,250 by $963,778. The Partnership's Statements of
Cash Flows reflects an increase in cash and temporary investments during the
fiscal year covered by this report.
As of March 24, 1999, the last of the Partnership's motels was sold and the
Partnership's long-term note payable was retired. The Partnership is currently
in a winding-up phase, identifying its outstanding short-term liabilities, and
after the payment thereof will distribute the balance of its cash to the Limited
Partners and General Partner in accordance with the terms of the Partnership
Agreement. Thereafter, the Partnership will be terminated.
Since commencement of motel operations, the Partnership has, either by purchase
or lease, expended cash for the improvement and refurbishment of its motels. All
such expenditures have been funded with the Partnership's revenue from motel
operations.
The Partnership expended $240,199 or 5.8% of guest room revenue on renovations
and replacements during the fiscal year ended December 31, 1998. Included in the
total renovations and replacements (of which $149,350 was capitalized) were,
$100,752 in replacement guest room and corridor carpets, $19,000 for a
replacement shuttle van, $15,259 for a replacement washing machine and three
dryers, $8,070 in tub repairs, $10,159 in replacement bedspreads, $19,825 in
parking lot repairs, $11,887 for replacement air-conditioners, $9,643 for
replacement lamps, $4,061 in furniture repairs and $6,742 for replacement
chairs.
The Partnership expended $177,451 or 4.4% of guest room revenue on renovations
and replacements during the fiscal year ended December 31, 1997. Included in the
total renovations and replacements (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 ten replacement
air-conditioners , $8,494 in furniture repairs and $8,008 for replacement
drapes.
Results of Operations
Combined Financial Results
The following tables summarize the Partnership's operating results for the
fiscal years ended December 31, 1996, 1997 and 1998 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 and debt service include the
operating expenses of the motels, together with the cost of capital improvements
and those Partnership expenses properly allocable to such motels.
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Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
-----------------------------------------------------
December 31, 1996 66.5% $46.39
December 31, 1997 67.9% $50.46
December 31, 1998 59.5% $58.42
Total
Expenditures Partnership
Total and Cash Flow
Fiscal Year Ended: Revenues Debt Service (1)
- -----------------------------------------------------------------------------
December 31, 1996 $3,818,298 $2,832,177 $986,121
December 31, 1997 $4,218,479 $3,214,059 $1,004,420
December 31, 1998 $4,255,720 $3,201,576 $1,054,144
(1) (1) While Partnership Cash Flow as it is used here is not an amount found
in the financial statements, the General Partner believes 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 because it
tracks the definition of the term "Operational Cash Flow" as it is used
in the Partnership Agreement. This calculation is reconciled to the
financial statements in the following table. Limited Partners should not
interpret Partnership Cash Flow as an alternative to net income or as a
measure of performance.
Following is a reconciliation of Total Expenditures and Debt Service as used
above to Total Expenses as shown ion the Statement of Operations (in the audited
financial statements):
1998 1997 1996
-------------------------------------
Total Expenditures and Debt Service $3,201,576 $3,214,059 $2,832,177
Additions to Fixed Assets (149,350) (111,960) (63,372)
Depreciation and Amortization 265,489 254,260 255,459
Other Items (26,185) (27,483) (13,861)
-------------------------------------
Net Income $3,291,530 $3,328,876 $3,010,403
=====================================
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A reconciliation of Partnership Cash Flow (included in the chart above) to Net
Income as shown on the Statements of Operations (in the financial statements) is
as follows:
1998 1997 1996
-----------------------------------
Partnership Cash Flow $1,054,144 $1,004,420 $986,121
Principal Payments on Financial Obligations 30,636 28,148 25,862
Additions to Fixed Assets 149,350 111,960 63,372
Depreciation and Amortization (265,489) (254,260) (255,459)
Other Items (4,451) (664) (12,001)
-----------------------------------
Net Income $964,190 $889,604 $807,895
===================================
Following is a reconciliation of Partnership Cash Flow (shown above) to the
aggregate total of Cash Flow from Operations for the Partnership's three motels
which are segregated in the tables following this reconciliation.
1998 1997 1996
-----------------------------------
South San Francisco Motel $946,871 $814,752 $637,439
Sacramento Motel 213,087 240,429 284,759
Modesto Motel (54,611) 52,295 93,876
-----------------------------------
Aggregate Cash Flow from Property Operations 1,105,347 1,107,476 1,016,074
Partnership Management Fees (88,889) (144,444) (59,722)
Interest on Cash Reserves 34,359 36,765 28,421
Other Income (net of Other Expenses) not
allocated to the individual properties 3,327 4,623 1,348
-----------------------------------
Partnership Cash Flow $1,054,144 $1,004,420 $986,121
===================================
The Partnership's total revenue per the table above increased $37,241 or 0.9%
during the fiscal year covered by this report as compared to the previous fiscal
year. As discussed below in the various individual property sections, increased
room rates at the South San Francisco motel offset revenue reductions at the
Sacramento and Modesto motels.
The Partnership's total revenue per the table above increased $400,181 or 10.5%
during the fiscal year ended December 31, 1997 as compared to the previous
fiscal year. As discussed below, the improved revenues were generated primarily
by improved average occupancies and improved average room rates at the South San
Francisco motel.
The Partnership's total expenses per the Statement of Operations decreased
$37,346 or 1.1% during the fiscal year covered by this report as compared to the
previous fiscal year. The reduction was due primarily to a tax-filing penalty in
1997 that was later waived in 1998. The increase in motel operating expenses was
due primarily to increased maintenance costs.
The Partnership's total expenses per the Statement of Operations increased
$318,473 or 10.6% during the fiscal year ended December 31, 1997 as compared to
the previous fiscal year. The increased expenses are associated with the
increased room revenue and occupancy.
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South San Francisco Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
-----------------------------------------------------------
December 31, 1996 78.3% $53.83
December 31, 1997 83.7% $59.68
December 31, 1998 74.7% $72.89
Total Cash Flow
Expenditures from
Total and Property
Fiscal Year Ended: Revenues Debt Service Operations
------------------------------------------------------------------------
December 31, 1996 $1,857,629 $1,220,190 $637,439
December 31, 1997 $2,187,188 $1,372,436 $814,752
December 31, 1998 $2,376,166 $1,429,295 $946,871
The Partnership's South San Francisco motel achieved a $188,978 or 8.6% increase
in total revenues during the fiscal year covered by this report as compared to
the previous fiscal year. Guestroom revenues increased $192,030 or 9.0% due to
the increase in the average room rate. The motel achieved significant increases
in the corporate and group market segments while it experienced a downturn in
the number of leisure 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 $329,559 or 17.7%
increase in total revenues during the fiscal year ended December 31, 1997 as
compared to the previous fiscal year. 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 and occupancy rate is related to
the increased strength of the lodging market in the San Francisco airport area.
The Partnership's South San Francisco motel experienced a $56,859 or 0.4%
increase in total expenditures and debt service during the fiscal year covered
by this report as compared to the previous fiscal year due primarily to cost
inflation. Included in the total expenditure increase were increased front desk
wages of $5,436, increased manager's salary of $5,242, increased credit card
discounts of $6,391 and increased franchise and management fees of $17,125 which
are related to the increased revenue. Legal fees associated with selling the
properties caused legal fees to increase $15,103. Bad debt increased $6,608 due
primarily to the write-off of some bankrupt direct bill accounts. Partially
offsetting the cost increases was decreased security service of $10,745.
10
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The Partnership's South San Francisco motel experienced a $152,246 or 12.5%
increase in total expenditures and debt service during the fiscal year ended
December 31, 1997 as compared to the previous fiscal year due primarily to the
increase in room sales. Included in the total expenditure 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 related to the increased
occupancy and revenue. Bad debt increased $10,556 due primarily to the write-off
of some bankrupt direct bill accounts.
Sacramento Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
----------------------------------------------------------
December 31, 1996 55.5% $40.37
December 31, 1997 58.4% $42.09
December 31, 1998 49.1% $46.35
Cash Flow
from
Total Total Property
Fiscal Year Ended: Revenues Expenditures Operations
-----------------------------------------------------------------------
December 31, 1996 $1,092,057 $807,298 $284,759
December 31, 1997 $1,187,852 $947,423 $240,429
December 31, 1998 $1,087,633 $874,546 $213,087
The Partnership's Sacramento motel experienced a $100,219 or 8.4% decrease in
total revenues during the fiscal year covered by this report as compared to the
previous fiscal year. This decrease was due primarily to the $86,279 decrease in
guestroom revenue, which was the result of a decrease in the average occupancy
rate, only partially offset by increased room rates. Revenue from the McCllelan
Air Force Base decreased from 8% of total room revenue to approximately 3% of
total room revenue. Future business from the McCllelan Air Force Base is
uncertain as the base will take some time to actually close. The termination
functions should provide room nights for transient personnel and the final
alternate use of the facility is not yet determined. The motel also experienced
a reduction in its discount market segment.
The Partnership's Sacramento motel achieved a $95,795 or 8.8% increase in total
revenues during the fiscal year ended December 31, 1997 as compared to the
previous fiscal year. 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 the 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 actually close. The termination functions should
provide room nights for transient personnel and the final alternate use of the
facility is not yet determined.
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The Partnership's Sacramento motel achieved a $72,877 or 7.7% decrease in
expenditures during the fiscal year covered by this report as compared to the
previous fiscal year. The primary cause of decreased expenditures was the waiver
of the tax filing fee accrued during the previous fiscal year. Other decreased
expenditures for wages and salaries of $22,976 and for renovations of $22,792
were partially offset by increased security services of $5,861 and increased
legal fees of $16,522.
The Partnership's Sacramento motel experienced a $140,125 or 17.4% increase in
expenditures during the fiscal year ended December 31, 1997 as compared to the
previous fiscal year. 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 over
three years-old 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.
Modesto Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
--------------------------------------------------------
December 31, 1996 66.8% $41.63
December 31, 1997 60.1% $44.70
December 31, 1998 54.1% $46.71
Cash Flow
from
Total Total Property
Fiscal Year Ended: Revenues Expenditures Operations
--------------------------------------------------------------------------
December 31, 1996 $838,579 $744,703 $93,876
December 31, 1997 $806,675 $754,380 $52,295
December 31, 1998 $754,234 $808,845 $(54,611)
The Partnership's Modesto motel experienced a $52,441 or 6.5% decrease in total
revenue during the fiscal year covered by this report as compared to the
previous fiscal year. The decrease in revenue was due to a 10.0% reduction in
guestroom occupancy, which was slightly offset by a 4.5% increase in average
room rate. The occupancy reduction was experienced in all market segments,
except the discount and group rate market segments.
The Partnership's Modesto motel experienced a $31,904 or 3.8% decrease in total
revenue during the fiscal year ended December 31, 1997 as compared to the
previous fiscal year. 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.
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The Partnership's Modesto motel experienced a $54,465 or 7.2% increase in total
expenditures during the fiscal year covered by this report as compared to the
previous fiscal year. The condition of the property required increased
expenditures of $56,257 for renovation and replacements.
The Partnership's Modesto motel experienced a $9,677 or 1.3% increase in total
expenditures during the fiscal year ended December 31, 1997 as compared to the
previous fiscal year. The condition of the property required increased
expenditures of $11,710 for renovation and replacements and of $6,938 for
landscaping.
Future Trends
The Modesto motel was sold on February 22, 1999. The net proceeds of that sale
and $600,000 of excess reserves have been distributed. The South San Francisco
and Sacramento motels were sold on March 24, 1999 and proceeds of those sales
have been distributed. The Partnership will be terminated after it completes its
winding-up activities. As a result, "Y2K" problems are irrelevant to the
Partnership.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements at pages F-1 through
F-14 attached hereto.
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ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS
SUPER 8 MOTELS, LTD.
SACRAMENTO, CALIFORNIA
DECEMBER 31, 1998
F-1
<PAGE>
Item 8: Financial Statements
SUPER 8 MOTELS, LTD.
INDEX OF FINANCIAL STATEMENTS
Pages
Report of Independent Certified Public Accountants F-3
Balance Sheets, December 31, 1998 and 1997 F-4
Statements of Operations for the years
ended December 31, 1998, 1997 and 1996 F-5
Statements of Partners' Equity for the years
ended December 31, 1998, 1997 and 1996 F-6
Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 F-7 and
F-8
Notes to Financial Statements F-9 to
F-14
Note: All schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedules or because the information required is included in the financial
statements or notes thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Super 8 Motels, Ltd.
We have audited the accompanying balance sheets of Super 8 Motels, Ltd., a
California limited partnership, as of December 31, 1998 and 1997, and the
related statements of operations, partners' equity and cash flows for each of
the years in the three year period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
As discussed in Note 12 to the financial statements, on March 24, 1999, the
Partnership was dissolved as a result of the sale of all of its properties.
VOCKER KRISTOFFERSON AND CO.
February 4, 1999
(except for Note 12 as to which the date is March 24, 1999)
San Mateo, California
F-3
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
---------- ----------
Current Assets:
Cash and temporary investments (Notes 3, 9 and 11) $1,001,312 $ 812,763
Accounts receivable 32,284 108,255
Sublease rents receivable 33,621 17,899
Other receivables (Note 10) 54,429 -
Prepaid expenses 21,382 21,588
---------- ----------
Total Current Assets 1,143,028 960,505
---------- ----------
Property and Equipment (Notes 2 and 4):
Buildings 5,223,252 5,223,252
Furniture and equipment 1,198,528 1,147,274
---------- ----------
6,421,780 6,370,526
Accumulated depreciation (5,026,922) (4,858,036)
---------- ----------
Property and Equipment, Net 1,394,858 1,512,490
---------- ----------
Other Assets 14,138 17,312
---------- ----------
Total Assets $2,552,024 $2,490,307
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of note payable (Notes 7 and 11) $ 33,344 $ 30,636
Accounts payable and accrued liabilities 130,399 193,805
Due to related parties 15,507 23,938
---------- ----------
Total Current Liabilities 179,250 248,379
---------- ----------
Long-term Liabilities, Net of Current Portion:
Note payable (Notes 7 and 11) 868,581 901,925
---------- ----------
Total Liabilities 1,047,831 1,150,304
---------- ---------
Lease Commitments (Note 6) - -
Partners' Equity:
Limited Partners; 5,000 units authorized,
issued and outstanding 1,419,096 1,264,548
General Partner 85,097 75,455
---------- ----------
Total Partners' Equity 1,504,193 1,340,003
---------- ---------
Total Liabilities and Partners' Equity $2,552,024 $2,490,307
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended December 31:
----------------------------------
1998 1997 1996
---------- ---------- ----------
Income:
Guest room $4,126,336 $4,067,156 $3,668,873
Telephone and vending 56,303 82,035 90,377
Interest 34,359 36,765 28,421
Other 38,722 32,524 30,627
---------- ---------- ----------
Total Income 4,255,720 4,218,480 3,818,298
---------- ---------- ----------
Expenses:
Motel operations (exclusive of depreciation
shown separately below) (Notes 5, 6 and 7) 2,549,103 2,497,568 2,318,534
General and administrative(exclusive of
depreciation shown separately below
(Note 5) 102,356 89,290 104,592
Depreciation and amortization (Note 2) 265,489 254,260 255,459
Interest 77,875 80,381 82,683
Penalties assessed (waived) (53,847) 53,847 -
Legal settlement and related legal fees 21,368 - -
Legal fees related to pending sale 29,401 - -
Property management fees (Note 5) 210,896 209,086 189,413
Partnership management fees (Note 5) 88,889 144,444 59,722
---------- ---------- ----------
Total Expenses 3,291,530 3,328,876 3,010,403
---------- ---------- ----------
Net Income $964,190 $889,604 $807,895
========== ======== ========
Net Income Allocable to Limited Partners $954,548 $880,708 $799,816
======== ======== ========
Net Income Allocable to General Partner $9,642 $8,896 $8,079
====== ====== ======
Net Income Per Partnership Unit (Note 1) $190.91 $176.14 $159.96
======= ======= =======
Distributions to Limited Partners Per
Partnership Unit (Note 1) $160.00 $260.00 $107.50
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31:
----------------------------------
1998 1997 1996
---------- ---------- ----------
Limited Partners:
Balance, beginning of year $1,264,548 $1,683,840 $1,421,524
Net income 954,548 880,708 799,816
Less: Cash distributions to
limited partners (800,000) (1,300,000) (537,500)
---------- ---------- ----------
Balance, End of Year 1,419,096 1,264,548 1,683,840
---------- ---------- ----------
General Partner:
Balance, beginning of year 75,455 66,559 58,480
Net income 9,642 8,896 8,079
---------- ---------- ----------
Balance, End of Year 85,097 75,455 66,559
---------- ---------- ----------
Total Partners' Equity $1,504,193 $1,340,003 $1,750,399
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31:
----------------------------------
1998 1997 1996
---------- ---------- ----------
Cash Flows From Operating Activities:
Received from motel operations $4,281,547 $4,178,483 $3,776,765
Expended for motel operations and
general and administrative expenses (3,069,342) (2,940,025) (2,671,907)
Interest received 34,422 36,684 28,351
Interest paid (78,092) (80,580) (82,866)
---------- ---------- ----------
Net Cash Provided by Operating Activities 1,168,535 1,194,562 1,050,343
---------- ---------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment (149,350) (111,960) (63,372)
Proceeds from sales of property and
equipment - - 3,500
---------- ---------- ----------
Net Cash Used by Investing Activities (149,350) (111,960) (59,872)
---------- ---------- ----------
Cash Flows From Financing Activities:
Payments on notes payable (30,636) (28,148) (25,862)
Distributions paid to limited partners (800,000) (1,300,000) (537,500)
---------- ---------- ----------
Net Cash Used by Financing Activities (830,636) (1,328,148) (563,362)
---------- ---------- ----------
Net Increase (Decrease) in Cash and
Temporary Investments 188,549 (245,546) 427,109
Cash and Temporary Investments:
Beginning of year 812,763 1,058,309 631,200
---------- ---------- ----------
End of Year $1,001,312 $812,763 $1,058,309
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31:
----------------------------------
1998 1997 1996
---------- ---------- ----------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $964,190 $889,604 $ 807,895
---------- ---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 265,489 254,260 255,459
Loss on disposition of property
and equipment 4,668 863 1,036
(Increase) decrease in accounts
receivable 75,971 14,586 (28,182)
Increase in sublease rents receivable (15,722) (17,899) -
Increase in other receivables (54,429) - -
(Increase) decrease in prepaid expenses 206 2,875 (1,801)
Increase (decrease) in accounts payable
and accrued liabilities (63,407) 36,093 6,177
Increase (decrease) in due to
related parties (8,431) 14,180 9,759
---------- ---------- ----------
Total Adjustments 204,345 304,958 242,448
---------- ---------- ----------
Net Cash Provided By
Operating Activities $1,168,535 $1,194,562 $1,050,343
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Super 8 Motels, Ltd. is a limited partnership organized under California law on
August 25, 1978, to acquire and operate motel properties in South San Francisco,
Sacramento and Modesto, California. The term of the Partnership expires December
31, 2027, and may be dissolved earlier under certain circumstances (see note
12.) 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.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
F-9
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, 1998 and 1997 consists of the
following:
1998 1997
---------- ----------
Cash in bank $ 72,646 $ 100,529
Money market accounts 828,666 612,234
Certificate of deposit 100,000 100,000
---------- ----------
Total Cash and Temporary Investments $1,001,312 $ 812,763
========== ==========
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 - PROPERTY AND EQUIPMENT
The following is a summary of the accumulated depreciation and amortization of
property and equipment:
1998 1997
---------- ----------
Buildings $4,097,866 $3,925,355
Furniture and equipment 929,056 932,681
---------- ----------
$5,026,922 $4,858,036
========== ==========
The following is a summary of the federal income tax basis as of December 31,
1998:
Buildings $5,223,252
Furniture and equipment 1,198,528
----------
6,421,780
Less accumulated depreciation and amortization (5,024,172)
----------
$1,397,608
==========
F-10
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - 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, $206,325 in 1998,
$203,358 in 1997 and $183,444 in 1996 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 $82,530, $81,343 and $73,377 in 1998, 1997 and 1996,
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, 1998, 1997 and
1996 the General Partner received property management fees of $210,896, $209,086
and $189,413, 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, 1998, 1997 and 1996 the General
Partner received partnership management fees of $88,889, $144,444 and $59,722,
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, 1998, no such proceeds had been distributed.
F-11
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
Administrative Expenses Shared by the Partnership and Its Affiliates
There are certain administrative expenses allocated between the Partnership and
affiliated Super 8 partnerships. These expenses, which are allocated based on
usage, are telephone, data processing, rent of the administrative office,
administrative salaries and duplication expenses. Management believes that the
methods used to allocate shared administrative expenses are reasonable. The
administrative expenses allocated to the Partnership were approximately $371,000
in 1998, $344,000 in 1997 and $338,000 in 1996 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 shareholder of Grotewohl Management Services, Inc., a General Partner of
the Partnership. One of these employees terminated his employment prior to May
1998.
NOTE 6 - 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 $282,022 in 1998, $278,148 in 1997 and $272,438 in 1996, less
$89,624, $86,662 and $84,959 in sub-lease rentals in 1998, 1997 and 1996,
respectively. Such amounts are included in motel operations expense in the
accompanying statements of operations.
The future lease commitments at December 31, 1998 using the minimum monthly
amounts, are as follows:
Years Ending South San
December 31: Modesto Sacramento Francisco Total
------------ ---------- ---------- --------- ----------
1999 $ 70,954 $ 124,379 $ 90,564 $ 285,897
2000 70,954 124,379 90,564 285,897
2001 70,954 124,379 90,564 285,897
2002 70,954 124,379 90,564 285,897
2003 70,954 124,379 90,564 285,897
Thereafter 1,821,145 1,419,994 452,820 3,693,959
Less subleases - (945,874) - (945,874)
---------- ---------- --------- ----------
Total $2,175,915 $1,096,015 $905,640 $4,177,570
========== ========== ========= ==========
F-12
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 7 - 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, 1998 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:
-------------------------
1999 $ 33,344
2000 36,291
2001 39,499
2002 42,990
2003 749,801
--------
Total $901,925
========
NOTE 8 - MOTEL OPERATING EXPENSES
The following table summarizes the major components of motel operating expenses
for the following years:
1998 1997 1996
---------- ---------- ----------
Salaries and related costs $ 823,213 $ 824,819 $ 790,722
Rent 194,561 193,120 187,479
Franchise and advertising fees 206,324 203,358 183,444
Utilities 179,544 179,184 166,900
Allocated costs, mainly indirect salaries 296,544 279,007 276,096
Replacement and renovations 90,849 65,491 48,861
Maintenance expenses 162,733 127,481 123,854
Property taxes 88,514 86,669 98,586
Property insurance 68,020 68,606 61,104
Other operating expenses 438,80 469,833 381,488
---------- ---------- ----------
Total motel operating expenses $2,549,103 $2,497,568 $2,318,534
========== ========== ==========
F-13
<PAGE>
SUPER 8 MOTELS, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 9 - 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, 1998 follows:
Total cash in all California banks $1,030,341
Portion insured by FDIC (450,554)
----------
Uninsured cash balances $ 579,787
==========
NOTE 10 - PENDING SALE OF MOTEL ASSETS (SEE NOTE 12)
On May 15, 1998 the Partnership and four other limited partnerships managed by
the general partner entered into a contract to sell all their motel assets.
Escrow for the sales opened June 1998. By majority vote the limited partners of
the Partnership have approved the sale of the Partnership's motel assets
pursuant to such contract, and the limited partners of the four other limited
partnerships have also approved by majority vote the sale of their respective
limited partnership's motel assets. The sale of the Partnership's motel assets
and the motel assets of the other limited partnerships are subject to certain
contingencies. Because of these contingencies the Partnership has not yet
reclassified its motel assets as held for sale. If the sale occurs on the terms
approved by the limited partners, it is anticipated that the Partnership would
report a gain per books in the amount of approximately $10,700,000. Accordingly,
there has been no adjustment to the carrying value of the Partnership's motel
assets. If the sale is consummated the Partnership would be liquidated.
In connection with the anticipated sale of the motel assets, the Partnership has
incurred reimbursable costs in the amount of $54,429 which are included as other
receivables in the accompanying balance sheet.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and temporary investments, accounts receivable,
other receivables, accounts payable, notes payable, accrued liabilities, and due
to related parties in the balance sheet approximates fair value.
NOTE 12 - SUBSEQUENT EVENTS AND TERMINATION OF PARTNERSHIP
On February 22, 1999, the Partnership sold the Modesto motel's leasehold
interest and related assets. The property were purchased by Tiburon Hospitality
LLC, a California limited liability company in which Mark Grotewohl has a 50%
profits interest. Mark Grotewohl is a former employee of the Partnership and the
son of the two owners of the Partnership's general partner. The Partnership
received cash of approximately $1,750,000 and recognized a gain per books of
approximately $1,390,000.
On March 24, 1999, the Partnership sold the Sacramento motel property and
related assets and the South San Francisco motel property and related assets.
The properties were purchased by Tiburon Hospitality LLC. The Partnership
received cash of approximately $2,624,257 and $6,497,094 for the Sacramento and
South San Francisco properties, respectively, and recognized gain per books of
$2,080,000 and $6,880,000, respectively.
As a result of the sale of all of its properties the Partnership was dissolved
on March 24, 1999. Upon completion of its winding-up activities and, after
payment of all expenses, the Partnership will make a final distribution to its
partners and will be terminated.
F-14
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The original general partners of the Partnership were Dennis A. Brown and Philip
B. Grotewohl. Upon Mr. Brown's death on February 25, 1988, Mr. Grotewohl elected
to continue the Partnership as the sole remaining general partner. During March
1988, Mr. Grotewohl appointed Grotewohl Management Services, Inc., a California
corporation, his successor as General Partner of the Partnership.
The General Partner was organized in 1981 to serve as a general partner of
limited partnerships to be formed for the purpose of investing in Super 8
Motels. The 50% shareholder, sole director and principal executive officer of
the General Partner is Mr. Grotewohl.
Mr. Grotewohl, age 80, was an attorney-at-law and was engaged in the private
practice of law in San Mateo County, California, between 1967 and 1978. Since
1978, Mr. Grotewohl's principal occupation has been as a promoter and general
partner of Super 8 Motels limited partnerships.
Item 11. EXECUTIVE COMPENSATION
Although Mr. Brown ceased to be a general partner of the Partnership upon his
death, a trust established for Mr. Brown's heirs shares in certain of the
compensation otherwise payable to the General Partner and its affiliates.
Following is a description of compensation paid or payable to the General
Partner and the Brown trust.
Property Management Fees
The fee for this service was 5% of the gross revenues from motel operations, not
including income from the sale, exchange or refinancing of such properties. This
fee was payable only out of Operational Cash Flow with payment subordinated to
the receipt by the Limited Partners of the Preferred Return as discussed in Item
5 above. A total of $210,896 in property management fees accrued and was paid
during the fiscal year covered by this report.
Franchise Fees and Advertising Fees
The Partnership operated its motels as a franchisee of Super 8 Motels, Inc.,
pursuant to sub-franchises from the Manager, an affiliate of the General
Partner. In connection with the operation of each of its motels, the
Partnership, as franchisee, paid 4% of its gross room revenues to the
franchisor. One-half of the franchise fee was paid to the affiliate of the
General Partner. In addition to the franchise fee, the Partnership paid 1% of
its gross room revenues to the franchisor as an advertising fee. No part of this
fee was paid to the Manager.
The total franchise fee accrued during the fiscal year covered by this report
was $165,060 of which $82,530 accrued to the Manager. All of the above amounts
have been paid.
14
<PAGE>
General Partner's Interest in Operational Cash Flow
Except for payment to the General Partner of property management fees, as
discussed above, distributions of Operational Cash Flow are made as follows: (1)
90% thereof is paid to the Limited Partners; (2) 9% thereof is paid to the
General Partner as Partnership management fees; and (3) 1% thereof is paid to
the General Partner as its interest in the income and losses of the Partnership.
However, payment of Operational Cash Flow to the General Partner is subordinated
as discussed in Item 5 above. The General Partner received distributions from
Operational Cash Flow during the fiscal year covered by this report in the
amount of $88,889 from distributions attributable to 1998.
General Partner's Interest in Net Proceeds of Sales and Financing
of Partnership Properties
Net proceeds of the sale of any of the Partnership's motel properties and of any
financing or refinancing (to the extent that the proceeds of any such financing
or refinancing are not to be reinvested in the acquisition of additional
properties) will be promptly distributed to the partners. Such distributions
will be paid as follows: (1) until the Limited Partners have received
distributions from all sources equal to 100% of their capital contributions plus
10% per annum cumulative on their adjusted capital contributions, all of such
proceeds will be distributed to the Limited Partners; (2) thereafter, 15% of the
balance of such proceeds will be distributed to the General Partner as cash
incentive distributions and the remaining 85% thereof will be distributed to the
Limited Partners. No such distributions were made during the fiscal year covered
by this report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
AMOUNT AND
TITLE NATURE OF
OF NAME AND ADDRESS OF BENEFICIAL BENEFICIAL PERCENT
CLASS OWNER OWNERSHIP OF CLASS
- -------------------------------------------------------------------------------
Units Liquidity Fund 73, LP. 143 Units 2.86%
Units Liquidity Fund 74, LP. 127 Units 2.54%
Units Liquidity Fund 75, LP. 66 Units 1.32%
Units Liquidity Fund IX, LP. 5 Units .10%
Units Liquidity Fund Tax Exempt Partners 116 Units 2.32%
Units Liquidity Fund Tax Exempt Partners II 153 Units 3.06%
Units Liquidity Fund XI 13 Units .26%
Units Liquidity Fund XIII 2 Units .04%
Units Liquidity Fund XIV 5 Units .10%
Units Liquidity Income/Growth Fund 1985 29 Units .58%
Units Liquidity Fund 65 LP. 17 Units .34%
------ ------
Total 676 Units 13.52%
======
Security Ownership of Management
The General Partner is not the beneficial owner of any Units.
15
<PAGE>
Changes in Control
The General Partner has the right to appoint and substitute successor general
partners and to sell, transfer, or assign its rights to receive fees or other
income to such successor general partners so long as (i) an opinion of counsel
is obtained that the Partnership, with the new general partners, ought to be
taxed as a partnership for purposes of federal income taxation and not as an
association taxable as a corporation, and (ii) the approval of a majority in
interest of the Limited Partners is obtained; provided such approval shall not
be required in connection with such appointment and substitution of, and the
sale, transfer, or assignment to, a corporation, if either (A) the majority of
such corporation's voting securities are owned by the General Partner or (B) the
General Partner is the chief executive officer of the corporation. Neither the
Partnership nor the Limited Partners shall have any right to proceeds paid to
the General Partner in connection with any such sale, transfer, or assignment.
Upon the vote of a majority-in-interest of the Limited Partners, after written
notice to the General Partner, the General Partner may be expelled from the
Partnership and new general partners elected.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative Expenses Shared by the Partnership and its Affiliates
There are certain administrative expenses allocated between the Partnership and
other partnerships managed by the General Partner and its affiliates. These
expenses, which are allocated based on usage, are telephone, data processing,
rent of administrative offices, administrative salaries and depreciation
expenses. The administrative expenses allocated to the Partnership were
approximately $371,000 in 1998 and are included in general and administrative
expenses and motel operations expenses in the Partnership's financial
statements. Included in administrative salaries are allocated amounts paid to
two employees who are related to Philip B. Grotewohl, the 50% shareholder of the
General Partner.
16
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements Included in Part II of this Report
Report of Independent Certified Public Accountants Balance Sheets,
December 31, 1998 and 1997 Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 Statements of Partners' Equity for the
Years Ended December 31, 1998, 1997 and 1996 Statements of Cash Flow for
the Years Ended December 31, 1998, 1997 and 1996 Notes to Financial
Statements
2. Financial Statement Schedules Included in Part IV of the Report
None
3. Exhibits
3.1 and 4.1 The Partnership Agreement is incorporated herein as an
exhibit from the annual report on Form 10-K for the fiscal year ended
December 31, 1982.
3.2 & 4.2 Amendment to Partnership Agreement is hereby incorporated
herein by reference from the annual report on Form 10-K for the fiscal
year ended December 31, 1988.
(10) Material Contracts
Exhibits 10.1 through 10.7 are hereby incorporated herein by reference
from the annual report on Form 10-K for the fiscal year ended December
31, 1982. 10.2 Franchise Agreement between the Partnership and Super 8
Motels respecting the Barstow Hotel.
10.1 Ground lease and sublease, South San Francisco 10.2 Ground Lease -
Modesto 10.3 Ground Leases - Sacramento County 10.4 Franchise Agreement
- South San Francisco 10.5 Franchise Agreement - Modesto 10.6 Franchise
Agreement - Sacramento County 10.7 Sacramento County Restaurant
Development Sublease
Exhibits 10.8 through 10.10 are hereby incorporated herein by reference
from the annual report on Form 10-K for the fiscal year ended December
31, 1988.
10.8 Amended Parking Lease - South San Francisco
10.9 Lease to KMH Trinity Properties - Sacramento County
10.10 Lease to Sterling Equity Investments
Exhibits 10.11 and 10.12 are hereby incorporated herein by reference from
Schedule 14A filed by registrant on November 2, 1998.
10.11 Purchase and Sale Agreement dated April 30, 1998.
10.12 Agreement dated April 21, 1998 and Exclusive Sales Agency
contract dated May 8, 1998 Exhibits 10.13 and 10.14 are hereby
incorporated herein by reference from the Rule 13E-3 Transaction
Statement filed by registrant on November 17, 1998.
10.13 First Amendment dated May 15, 1998 to Agreement dated April 21,
1998. 10.14 Second Amendment dated October 29, 1998 to Agreement dated
April 21, 1998
(b) Reports on Form 8-K
Inapplicable.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant) SUPER 8 MOTELS, LTD.
By (Signature and Title) /s/ Philip B. Grotwohl
------------------------------
Philip B. Grotewohl,
Chairman of Grotewohl Management Services, Inc.,
General Partner
Date April 12, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By (Signature and Title) /s/ Philip B. Grotwohl
--------------------------------
Philip B. Grotewohl,
Chief executive officer, chief financial officer,
chief accounting officer and director of Grotewohl
Management Services, Inc., General Partner
Date: April 12, 1999
18
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,001,312
<SECURITIES> 0
<RECEIVABLES> 120,334
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