FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1995, or
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ________.
Commission file number 0-9708.
SUPER 8 MOTELS TEXAS, LTD.
(Exact name of registrant as specified in its charter)
State of Organization TEXAS IRS Identification No.74-2062237
P. O. Box 969 Rockwall, TX 75087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (214) 771-6783
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
Limited Partnership Interests
(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 for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirement for the past 90 days.
YES X NO_____
State the aggregate market value of the voting stock held by non-
affiliates of the registrant.
Not Applicable to Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Certain Exhibits in Part IV are hereby incorporated by reference from
the Registrant's Form 10-K for the year ended December 29, 1989, the
Registrant's Form 10-K for the year ended December 28, 1990 and the
Registrant's Form 10-K for the year ended December 31, 1993.
PART I
Item 1. Business.
Historical Development of Business
Super 8 Motels Texas, Ltd., a Texas limited partnership (the
"Partnership") was organized in September 1979 for the purpose of
developing and operating "budget" hotels in Texas. The initial
general partners of the Partnership were Michael G. Guhin, William
E. Hauck, Dennis A. Brown and William E. Wells (the "Original General
Partners").
The Partnership was initially capitalized through a public offering
and sale of 2,437 Units of Limited Partnership interest (the
"Interests"). The Interests were sold for a purchase price of $500
per Interest. The initial offering terminated in October 1980.
A second public offering of 7,563 Interests was completed in March 1982.
The total capitalization of the Partnership was 10,000 Interests for
an aggregate of $5,000,000.
The proceeds of both offerings were used to acquire 3.5 acres of land,
develop, and operate a 126 room hotel near the Houston Intercontinental
Airport in Harris, County, Texas. The land which is located at the
corner of Drummet (John F. Kennedy) and North Belt streets was purchased
for approximately $990,000 cash. Construction of the hotel facility
cost approximately $2,000,000. The Partnership paid the Original
General Partners an Acquisition Fee in the amount of $203,350 for the
acquisition and development of the property. In addition the
Partnership paid $265,000 to construct a 23,000 square feet restaurant
which was leased to a Kopper Kettle franchisee who purchased the
restaurant during 1990.
The Partnership entered into a franchise agreement with a basic term
of 20 years with Super 8 Motels, Inc. and paid a franchise fee of $15,000
plus $100 for each guest room over 120. Under the terms of the franchise
agreement the Partnership paid monthly franchise fees equal to 4% of
gross room revenue and an additional 1% of gross room revenues to a
Super 8 advertising fund managed by the franchisor. One-half of the
franchise fees for the first five years and three-fourths of such fees
since that time were retained by Super 8 Motels, Inc. The balance of
such fees were paid to the Original General Partners.
In September 1993, Super 8 Motels, Inc. (Super 8) and the Partnership
agreed to terminate the Super 8 System Franchise agreement (Franchise
Agreement) dated November 13, 1980. The Partnership executed an agreement
with Super 8's affiliate, Ramada Franchise Systems, Inc. (Ramada) to
convert the hotel to a Ramada Limited facility. The conversion was
effective June 30, 1994. Under the new agreement, the Partnership pays
to the franchisor monthly, fees equal to 3.5% of its gross room
revenues through June 29, 1995 and 4% thereafter, and contributes
4.5% of its gross room revenues to a fund administrated by the
franchisor for advertising, promotion, training, reservation and
other related services and programs.
From 1983 through 1985 the Partnership's hotel was managed by Super 8
Management, Inc. a subsidiary of Super 8 Motels, Inc., an affiliate of
the Original General Partners. From 1986 through May 31, 1989 the
hotel was managed by Brown, Brosche Financial, Inc., an affiliate of
the Original General Partners. On June 1, 1989 Westbrooke Hospitality
Corporation ("WHC") became manager of the Partnership property (the
"Property Manager"). See Item 3. Legal Proceedings.
Narrative Description of Partnership's Business
On June 1, 1989 Martin J. Cohen and Two-Two-Two Hotel, Inc. ("TWO")
became the new general partners of the Partnership. TWO is wholly
owned by the Property Manager. For its property management services
the Property Manager receives a base management fee equal to the greater
of: three percent (3%) of the gross revenue of the hotel or $36,000.
The Property Manager is also entitled to receive an incentive
management fee equal to ten percent (10%) of the gross operating profit.
For the year ended December 29, 1995, the Property Manager received
aggregate fees of $60,619.
The Property Manager employs five (5) desk clerks, twelve (12)
housekeepers, two (2) houseman, one (1) laundry worker, one (1)
bellmen/van driver, one (1) hospitality attendant, two (2) maintenance
men, one (1) sales director and one (1) hotel manager. Ten (10) of
such employees are part-time.
The occupancy percentages and average daily room rates at the hotel
and the annual cost of operations for the past five years are set forth
below:
Year Percent Average Annual Annual
Annual Daily Operating Operating
Occupancy Room Revenue Expenses
Rate Less Depreciation
and Amortization
1995 76% $34.74 $1,266,281 $1,186,347
1994 69% $32.42 $1,071,174 $1,059,372
1993 58% $30.96 $ 876,428 $ 818,591
1992 47% $30.01 $ 730,977 $ 878,017
1991 64% $25.94 $ 837,810 $ 805,017
In addition to the operating expenses paid in 1995, 1994 and 1993, the
Partnership spent $6,606, $451,256 and $5,925, respectively, on capital
additions.
The hotel is located in a highly competitive market area. There are
approximately 5,600 hotel rooms in the general vicinity of the hotel.
Many of these hotels have much greater financial resources and more
experienced personnel than that of the Partnership. Most are a part
of national chains with high consumer name recognition. There has and
continues to be an over supply of hotel rooms in the area
surrounding the location of the Partnership's hotel.
Set forth below is a comparison of certain hotels that compete with
the Partnership.
Property Number Average Published Special Percent
of Rooms Percent Single Airline Airline
Annual Room Rate Business
Occupancy Rate
# % $ $ %
Holiday Inn
Express 200 55 58 28 20
Sheraton 420 69 120 60 15
Doubletree 309 79 143 85 5
Holiday Inn 306 77 89 35 25
La Quinta 122 71 63 N/A N/A
Clarion 220 60 71 29 35
The foregoing information was obtained by the hotel manager in March
1996 in telephone conversations with personnel of the other properties.
The information has not been verified by any third party. Therefore,
there can be no assurance that the information represents the actual
rates or operations of such properties.
Employees of the various airlines which service the Houston
Intercontinental Airport provided approximately 31% of the room rentals
at the hotel during 1995 and approximately 20% to 26% in 1993 and 1994.
Airline employees currently pay a daily single rate of $28 for lodging
at the Partnership's hotel. The Property Manager anticipates that
airline employee lodging will result in daily room rentals of
approximately 30% of the hotel's 126 rooms in 1996.
Because competition is so intense in the area and the number of room
rentals by airline employees and airline contract business, the
Partnership's hotel average room rate of $34.74 is below the current
published room rates. Set forth below are the Partnership's current
published room rates.
<PAGE>
Published
Daily
Room
Rate
Number of Occupants and Room Type
One person, one bed $58.00
Two persons, one bed $65.00
Two persons, two beds $65.00
Three persons, two beds $72.00
Four persons, two beds $79.00
<PAGE>
Item 2. Properties.
The Partnership owns in fee simple approximately 2.72 gross acres of
real property at the northeast corner of the intersection of Drummet
(John F. Kennedy) and North Belt streets in Harris County Texas. The
property is approximately 15 miles north of downtown Houston. It is a
part of the World Houston International Business Center. The Partnership
owns a building that is located on the real property. The building is a
three story 126 hotel that rents rooms on a daily basis. The hotel also
has one hospitality room, two rooms rented as offices, an exercise room
and a swimming pool with a spa and sauna. The hotel building is
constructed of stucco over a wood frame in a pseudo-Tudor design. The
guest rooms contain approximately 220 square feet and can accommodate
one to four occupants. In addition to the sleeping area which contains
one or two beds, there are clothing storage and dressing areas and
bathroom with a tub/shower combination in each guest room. All the
guest rooms are fully carpeted and decorated in a similar fashion.
In September, 1990, the Partnership sold its 23,000 square foot
restaurant building and approximately .78 acres of land for $500,000.
Item 3. Legal Proceedings.
On January 9, 1989, a Limited Partner filed a law suit in the District
Court of Dallas County, Texas for the benefit of the majority of Limited
Partners naming the Original Limited Partners as defendants and seeking
to enjoin the sale of the Partnership's property and dissolution of the
Partnership; requesting the court to remove the Original General
Partners and Appoint the Current General Partners; and, enforce
the provisions of the limited partnership agreement relating to
dissolution, removal of General Partners and amendment of the
Partnership agreement. On March 24, 1989 the court signed an agreed
order of summary judgment in favor of the Limited Partners.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the fiscal year
ended December 29, 1995 to a vote of the limited partners.
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<PAGE>
PART II
Item 5. Market for registrant's Common Equity and Related Stockholder
Matters.
Market Information
There is no trading market for the Interests of the Partnership and none is
expected to develop.
Holders
As of December 29, 1995, approximately 720 persons held Interests of the
Partnership.
Dividends
The Partnership does not make dividend distributions. Under the terms
of the Limited Partnership Agreement the Limited and General Partners
are entitled to receive cash distributions, if any, from the Partnership.
Effective June 1, 1989, the Limited Partners are entitled to receive pro
rata, based on the number of the Interests held by a person bears to
the total Interests outstanding, 99% of such cash distribution. The
General Partner is entitled to 1% of such distribution.
The Partnership has not made any cash distributions since the first
quarter of 1984. The General Partners do not anticipate that the
Partnership will have any cash available for distribution to the
Partners in 1996.
Item 6. Selected Financial Data.
Set forth below is selected financial data of the Partnership for the
past five years. This financial data should be read in conjunction with
the financial statements and related notes included elsewhere in this
report.
Fiscal Year Ended
1995 1994 1993 1992 1991
Gross Revenues $ 1,266,281 1,071,174 876,428 730,977 837,810
Net Income (Loss) $ (60,276) 32,729 (40,566) (231,346) (40,306)
Net Income (Loss)
Per Unit $ (5.97) 3.24 (4.02) (22.90) (4.03)
Total Assets $ 2,847,672 2,944,914 2,611,092 2,667,036 2,871,656
Long-Term
Obligations $ 326,838 371,838 134,012 134,012 134,012
Cash Distributed
Per Interest $ 0.00 0.00 0.00 0.00 0.00
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
1995 Versus 1994
Total revenues from the Partnership's hotel operations increased by
$195,107 from $1,071,174 in 1994 to $1,266,281 in 1995. The hotel's
change in room revenues was a result of a 7.2% increase in the average
daily rate from $32.42 in 1994 to $34.74 in 1995, while occupancy
increased from 69% in 1994 to 76% in 1995. Management attributes the
increase in occupancy to improved economic conditions in the area,
increased marketing efforts of the facility, change to the Ramada
Limited franchise and the favorable guest response to the renovation
completed in 1994. Other revenues (primarily consisting of telephone
revenues, interest income and other hotel guest charges) increased 12.4%
or $6,578 between 1995 and 1994. The major increase in other revenues
was the result of increase in telephone revenues.
The net loss from operations decreased from $101,283 in 1994 to $60,276
in 1995. The decrease in net losses resulted from the increase in
operating revenues in excess of the increase in operating expenses as
further described below. The partnership recognized an unusual item
for the reduction of deferred management fees of $134,012
in 1994, resulting in net income for 1994 of $32,729.
Operating expenses increased by $154,100 from $1,172,457 in 1994 to
$1,326,557 in 1995. Substantial increases in room expenses were
incurred as a result of additional costs associated with the increase
in the number of rooms occupied in 1995 over 1994. Depreciation and
amortization expenses increased by $27,125 in 1995 as a result of the
depreciation expense incurred on the capital improvements placed in
service in June 1994. Interest expense increased by $20,387 in 1995
as a result of the financing costs incurred to fund the capital
improvements required for the conversion. Franchise fees increased
by $33,977 in 1995 as a result of the increase in room revenue and the
higher fees charged by Ramada.
1994 Versus 1993
Total revenues from the Partnership's hotel operations increased by
$194,746 from $876,428 in 1993 to $1,071,174 in 1994. The hotel's change
in room revenues was a result of a 4.7% increase in the average daily
rate from $30.96 in 1993 to $32.42 in 1994, while occupancy increased
from 58% in 1993 to 69% in 1994. Management attributes the increase in
occupancy to improved economic conditions in the area, increased
marketing efforts of the facility, change to the Ramada Limited
franchise and the favorable guest response to the renovation completed
this past year. Other revenues (primarily consisting of telephone
revenues, interest income and other hotel guest charges) increased 26.2%
or $11,015 between 1994 and 1993. The major increase in other revenues
was the result of increase in guaranteed no show revenues.
The net loss from operations increased from $40,566 in 1993 to $101,283
in 1994. The increase in net losses resulted from the increase in
operating expenses in excess of the increase in room revenue as further
described below. The partnership recognized an unusual item for the
reduction of deferred management fees of $134,012 in 1994, resulting in
net income for 1994 of $32,729.
Operating expenses increased by $255,463 from $916,994 in 1993 to
$1,172,457 in 1994. Substantial increases in operating expenses were
incurred as a result of additional costs associated with the conversion
of the hotel to the Ramada Limited franchise. Additional rooms
department supplies and other items were purchased to stock the hotel
with Ramada Limited logo items and the additional cost of providing
guests complimentary breakfast required by Ramada. Maintenance and
repairs expenses increased by $54,334 to improve the overall condition
of the facility to conform with the standards of the new franchise.
Interest expense increased by $25,000 as a result of the financing costs
incurred to fund the capital improvements required for the conversion.
Franchise fees increased by $25,312 as a result of the increase in room
revenue and the higher fees charged by Ramada.
Inflation
The Partnership's costs of operations, including labor, supplies,
utilities, insurance and real estate taxes are significantly affected
by inflationary factors. The Partnership pays many of its hourly
employees at or slightly above the federal mandated minimum wage
requirements. The increases in the federal minimum wage rates
effective in April 1990 and April 1991 resulted in higher costs to
the Partnership.
Financial Conditions, Liquidity and Capital Resources
At December 29, 1995, the Partnership's current liabilities of $206,336
exceeded its current assets of $129,469 by $76,867. The Partnership's
current assets increased by $30,173 and its current liabilities
increased by $8,034. The increase in current assets and increase in
current liabilities is principally the result of the improvement in cash
flow from operations in 1995 over 1994.
Management attributes the Partnership's present lack of liquidity, as
reflected by the above numbers, to negative cash flow from operations
in previous years and major capital expenditures in 1992 and 1994.
Whereas in earlier years the Partnership had offset negative cash flow
from operations through the sale of the restaurant building, no
such source is possible to offset future operating losses or capital
expenditures.
<PAGE>
Outlook
In previous years the hotel has relied on contract airline business
to provide a substantial portion of the hotel's annual room revenue.
The hotel experienced a substantial decline in the contract airline
business in 1992, resulting in decreased room revenues for the year.
In 1993, the hotel replaced most of the contract airline business
with higher rated corporate business as a result of the renovated
guest rooms. In 1994 and 1995, the hotel experienced an increase in
contract airline business and airline employee commuter business.
In order to offset the lost airline business, the hotel spent $240,478
in 1992 and $451,256 in 1994 on capital expenditures to upgrade the
guest rooms to improve the marketability of the hotel. As a result of
these expenditures, the increased marketing efforts at the hotel and
the change to the Ramada Limited franchise, management anticipates the
1996 occupancy level to approach 75%, with average daily rates in the
range of $36.00 to $38.00 for the year.
Item 8. Financial Statements and Supplementary Data.
See Financial statements and Notes to Financial Statements attached here at
pages F-1 through F-10.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
(THIS SPACE INTENTIONALLY LEFT BLANK)
<PAGE>
PART III
Item 10. Directors and Executive Officer of Registrant.
The Partnership Agreement was Amended and Restated effective June 1,
1989 to admit Martin J. Cohen and Two-Two-Two Hotel, Inc., a Texas
corporation, the General Partners of the Partnership.
Martin J. Cohen, age 60, is the Managing General Partner of the
Partnership. Mr. Cohen has since June 1987 owned and operated Martin J.
Cohen Financial Services, a financial planning and investment services
company. Prior to forming his present company Mr. Cohen was from 1978
a principal with Balanced Financial Corporation which was also a
financial planning and investment services company. Between 1960
and 1978, he was a registered representative with Eppler, Guerin &
Turner a Dallas, Texas based New York Stock Exchange brokerage firm.
Mr. Cohen has not previously managed a limited partnership.
Two-Two-Two Hotel, Inc. is a wholly owned subsidiary of WHC. WHC
effective June 1, 1989 became the Property Manager of the Partnership
property, a 126 room hotel near the Houston Intercontinental Airport.
WHC is located at 4441 West Airport Frwy, Irving, TX 75062, phone number
(214) 258-0900.
Peter A. Gerard, age 50 is President, Treasurer and Director of TWO.
Mr. Gerard has been Chairman of WHC since January 1993. From May 1984
until January 1993, he served as Executive Vice President for the
Company. Prior to joining WHC he was a senior vice-president for
corporate finance with Schneider, Bernet & Hickman, a Dallas based
stock brokerage company. Mr. Gerard holds a bachelor's degree from Yale
and a MBA from Harvard.
Albert E. Stevens, age 43, is Vice-President, Secretary and Director
of TWO. Mr. Stevens has served as President of WHC since January 1993.
Prior to assuming this position he had since 1972 served in several
operating positions with WHC. Mr. Stevens holds a bachelor's degree
from the University of Texas at Arlington and a MBA from Southern
Methodist University.
The principals of WHC have managed hotels since 1972. WHC currently has
six hotel facilities under management in four states. WHC has been
involved in "turnaround" management of troubled hotel properties. WHC
utilizes computerized accounting and control systems that track each
property and generates daily management reports. WHC has an in house
training program and a planned marketing and sales program for each
property it manages.
Item 11. Executive Compensation
Managing General Partner Fee.
Under the terms of the Amended Partnership Agreement Martin J. Cohen is
entitled to receive a fee of $50.00 per hour plus expenses for the time
he spends conducting the affairs of the Partnership. Under this
provision Mr. Cohen received $8,600, 9,800 and $8,800 for 1995, 1994
and 1993, respectively.
Property Management Fee.
Under the terms of the management contract between the Partnership
and WHC, WHC shall be entitled to receive a base management fee equal
to the greater of: three percent (3%) of the Gross Revenue of the
Partnership property or $36,000 per year. Management fees were $37,979
for the year ended 1995 and $36,000 for the years ended 1994 and 1993.
In addition to the base management fee, WHC is entitled to an incentive
management fee equal to ten percent (10%) of the gross operating profit,
as defined. Incentive management fees were $22,640 and $11,267 for 1995
and 1994, respectively.
Accounting Service Fee.
Under the terms of the management contract, Westbrooke Financial
Services Corporation, a wholly owned subsidiary of WHC, provides
accounting, data processing and internal auditing to the property.
Service fees of $26,346, $13,000 and $15,750 were paid for 1995, 1994
and 1993, respectively.
General Partners' Interest in Cash Available for Distribution.
Under the terms of the Amended Partnership Agreement the General
Partners will receive 1% of cash distributions from the Partnership.
General Partners' Interest In Net Proceeds of Sales and Financing of
Partnership Property.
After the Limited Partners have received 100% of their capital
contribution from all sources, any remaining proceeds of sale of the
property or financing shall be distributed 85% and 15% respectively to
the Limited Partners and the General Partners.
Sharing Among the General Partners.
The Current General Partners have entered into an agreement among
General Partners which provides for Mr. Cohen to approve WHC's operating
budget for the Partnership property. The agreement also provides that
the General Partners shall each receive fifty percent (50%) of any
General Partner cash distributions from the Partnership.
<PAGE>
General Partners' Option to Purchase Partnership Interest.
The amended and restated Partnership agreement provides that the General
Partners have an option for 120 months to acquire a 20% interest in the
revenues (losses) of the partnership upon the payment of $500,000 to the
Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners.
No person is known by the Partnership to be the beneficial owner of
more than 5% of the Interest.
Equity Ownership of Management.
Neither of the General Partners own any Limited Partner Interests of the
Partnership.
Changes In Control.
The Partnership agreement provides that the General Partners may be
removed and a successor General Partner appointed by a majority vote of
the Limited Partners.
There are no arrangements, known to the Partnership, including any
pledge by any person of Interests of the Partnership, the operation
of which may at a subsequent date result in a change of control of the
Partnership.
Item 13. Certain Relationships and Related Transactions.
See: Item 11. Executive Compensation.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1, 2, d. The financial statements and related schedules are listed
in the Index to Financial Statements and Schedules in item 8 of this
Report and are incorporated herein by reference in answer to this Item
14a and 1, 2, and d.
3. Exhibits
(10) Material Contracts
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 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.
March 27, 1996 SUPER 8 MOTELS TEXAS, LTD.
/s/ Martin J. Cohen
Martin J. Cohen, Managing
General Partner
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.
/s/ Martin J. Cohen
Martin J. Cohen, Managing
General Partner, principal
executive officer of
Registrant
March 27, 1996
Two-Two-Two Hotel, Inc.,
General Partner, principal
executive officer of
Registrant
/s/ Peter A. Gerard
Peter A. Gerard, President
March 27, 1996
<PAGE>
INDEX OF EXHIBITS
ITEM DESCRIPTION PAGE
(3) & (4) Second Amended and Restated Certificate of
Limited Partnership*
(10)
10.1 Super 8 Franchise Agreement*
10.2 Restaurant Lease*
10.3 Property Management Agreement*
10.4 Contract of Sale of Restaurant and Related Land**
10.5 Ramada Limited Franchise Agreement***
_______________________________
* Incorporated by reference from Registrants Form 10-K for the year
ended December 29, 1989.
**Incorporated by reference from Registrants Form 10-K for the year
ended December 28, 1990.
***Incorporated by reference from Registrants Form 10-K for the year
ended December 31. 1993.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SUPER 8 MOTELS TEXAS, LTD.
(A Limited Partnership)
December 29, 1995 and December 30, 1994
<PAGE>
Report of Independent Certified Public Accountants
To the Partners
Super 8 Motels Texas, Ltd.
We have audited the accompanying balance sheets of Super 8 Motels Texas,
Ltd. as of December 29, 1995 and December 30, 1994, and the related
statements of operations, partners' equity (deficit), and cash flows for
each of the three years in the period ended December 30, 1995. 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 audit
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 Texas,
Ltd. as of December 29, 1995 and December 30, 1994, and the results of its
operations and its cash flows for each of the three years in the period
ended December 29, 1995, in conformity with generally accepted accounting
principles.
We have also audited Schedule II of Super 8 Motels Texas, Ltd. for each of
the three years in the period ended December 29, 1995. In our opinion,
these schedules present fairly, in all material respects, the information
required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
January 19, 1996
<PAGE>
Super 8 Motels Texas, Ltd.
BALANCE SHEETS
December 29, December 30,
ASSETS 1995 1994
CURRENT ASSETS
Cash $ 48,744 $ 803
Accounts receivable, net of
allowance for doubtful accounts
of $3,898 and $2,423 in 1995 and
1994, respectively 59,923 70,027
Current portion of note receivable - 10,010
Prepaid insurance 20,802 18,456
Total current assets 129,469 99,296
PROPERTY AND EQUIPMENT
Land 769,800 769,800
Building and improvements 2,539,443 2,534,615
Furniture and equipment 408,990 407,212
3,718,233 3,711,627
Accumulated depreciation (1,038,302) (900,903)
2,679,931 2,810,724
OTHER ASSETS 38,272 34,894
$ 2,847,672 $2,944,914
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Current portion of note payable $ 45,000 $ 45,000
Accounts payable 64,701 62,702
Sales taxes payable 34,953 30,761
Property taxes payable 37,060 33,940
Accrued compensation 22,735 23,889
Accrued interest 1,887 2,010
Total current liabilities 206,336 198,302
NOTE PAYABLE, less current portion 326,838 371,838
533,174 570,140
COMMITMENTS - -
PARTNERS' EQUITY 2,314,498 2,374,774
$ 2,847,672 $2,944,914
<PAGE>
Super 8 Motels Texas, Ltd.
STATEMENTS OF OPERATIONS
Fiscal year ended
1995 1994 1993
Revenues
Room rentals $1,206,678 $1,018,149 $834,418
Other 59,603 53,025 42,010
1,266,281 1,071,174 876,428
Expenses
Room expenses 393,627 348,055 283,896
General and administrative 230,020 199,133 154,721
Utilities 99,576 120,403 108,226
Maintenance and repairs 105,430 132,401 78,067
Depreciation and amortization 140,210 113,085 98,403
Property taxes 37,964 34,843 42,174
Management fees 60,619 47,267 51,066
Franchise fees 101,011 67,034 41,722
Insurance 36,813 34,218 35,585
Interest 45,387 25,000 -
Other 75,900 51,018 23,134
1,326,557 1,172,457 916,994
Loss from operations (60,276) (101,283) (40,566)
Unusual item - reduction
of deferred management fees - 134,012 -
NET INCOME (LOSS) $ (60,276) $ 32,729 $(40,566)
Net income (loss) per
limited partner unit -
10,000 limited partner units $(5.97) $3.24 $(4.02)
<PAGE>
Super 8 Motels Texas, Ltd.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
General Limited
Partners Partners Total
Balances at January 1, 1994 $(17,765) $2,400,376 $2,382,611
Net loss (406) (40,160) (40,566)
Balances at January 1, 1994 (18,171) 2,360,216 2,342,045
Net income 327 32,402 32,729
Balances at December 30, 1994 (17,844) 2,392,618 2,374,774
Net loss (602) (59,674) (60,276)
Balances at December 29, 1995 $(18,446) $2,332,944 $2,314,498
<PAGE>
Super 8 Motels Texas, Ltd.
STATEMENTS OF CASH FLOWS
Fiscal year ended
1995 1994 1993
Cash flows from operating
activities
Net income (loss) $(60,276) $ 32,729 $(40,566)
Adjustments to reconcile net income
(loss)to net cash provided by
(used in) operating activities
Depreciation and amortization 140,210 113,085 98,403
Reduction of deferred management fees - (134,012) -
Change in operating assets and
liabilities Accounts receivable 10,104 (53,146) (9,729)
Prepaid insurance (2,346) 10,167 22,108
Other assets (6,189) (18,072) (18,500)
Accounts payable 1,999 8,999 (25,705)
Sales taxes payable 4,192 4,201 2,625
Property taxes payable 3,120 (3,012) 1,792
Accrued compensation (1,154) 6,069 5,910
Accrued interest (123) 2,010 -
Net cash provided by (used in)
operating activities 89,537 (30,982) 36,338
Cash flows from financing activities
Proceeds from mortgage payable - 443,088 -
Payments made on notes payable (45,000) (26,250) -
Net cash provided by (used in)
financing activity (45,000) 416,838 -
Cash flows from investing activities
Property additions (6,606) (451,256) (5,925)
Collections on note receivable 10,010 8,340 9,857
Net cash provided by (used in)
investing activities 3,404 (442,916) 3,932
NET INCREASE (DECREASE) IN CASH 47,941 (57,060) 40,270
Cash at beginning of year 803 57,863 17,593
Cash at end of year $ 48,744 $ 803 $ 57,863
Interest paid during the year $ 45,510 $ 22,991 $ -
<PAGE>
Super 8 Motels Texas, Ltd.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies of Super 8 Motels
Texas, Ltd. (the Partnership) applied in the preparation of the accompanying
financial statements follows.
Nature of Operations
The Partnership's operations consist of hotel property near the Houston
Intercontinental Airport. Its' customers generally are passengers or
employees of the airlines which use the airport.
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives
by the straight-line method. Accelerated methods of depreciation are
used for tax purposes.
Federal Income Taxes
Federal income taxes are not reflected in the financial statements as
the partners individually report their distributive shares of taxable
income or loss of the Partnership.
Fiscal Year
The Partnership's fiscal year ends on the Friday nearest December 31.
Fiscal years 1995 and 1994 comprised fifty-two week periods. Fiscal year
1992 comprised a fifty-three week period.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE B - PARTNERSHIP AGREEMENT
The Partnership was formed under the laws of the State of Texas in
September 1979.
Allocations of cash distributions and income (losses) are 99% and 1%,
respectively, to limited partners and general partners.
<PAGE>
Super 8 Motels Texas, Ltd.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - PARTNERSHIP AGREEMENT - Continued
The general partners have an option which expires in 1999 to purchase
a special 20% limited partner interest for $500,000.
Franchise Fees
Super 8 Motels, Inc., a company affiliated with former general partners of
the Partnership, is franchisor for all Super 8 Motels. Through June 29,
1994, the Partnership paid monthly fees to the franchisor equal to 4% of
its gross room revenues and contributed an additional 1% of its gross room
revenues to an advertising fund administered by the franchisor. In
September 1993, Super 8 Motels, Inc. (Super 8) and the Partnership agreed
to terminate the Super 8 System Franchise agreement (Franchise Agreement)
dated November 13, 1980. The Partnership executed an agreement with
Super 8's affiliate, Ramada Franchise Systems, Inc. (Ramada) to
convert the hotel to a Ramada facility. The conversion was effective
June 30, 1994. Under the new agreement, the Partnership pays monthly fees
to the franchisor equal to 3.5% of its gross room revenues through June 29,
1995 and 4% thereafter. The Partnership contributes an additional 4.5% of
its gross room revenues to a fund administered by the franchisor for
advertising, promotion, training, reservations, and other related services
and programs.
NOTE C - RELATED PARTY TRANSACTIONS
Management Fees
An affiliate of a former general partner managed the Partnership's motel
until May 31, 1989. The fee for this service was 5% of gross operating
revenues from Partnership operations. Three-fifths of the management fee
was deferred until receipt by the limited partners of a cumulative 10% per
annum pre-tax return of their adjusted capital contributions, as defined.
As of December 31, 1993, the amount of deferred management fees
was $134,012. During 1994, this obligation was written off because it was
determined that it was unlikely to require payment in the future.
On June 1, 1989, an affiliate of a new general partner assumed management
of the motel. For its services, the management company receives a base
management fee equal to the greater of three percent (3%) of the gross
revenues of the hotel or $36,000 per year. Management fees were $37,979
for the year ended 1995 and $36,000 for the years ended 1994 and 1993. In
addition to the base management fee, the management company receives an
incentive management fee equal to ten percent (10%) of gross operating
profit, as defined. During 1995 and 1994, incentive management fees were
$22,640 and $11,267, respectively. Additionally, accounting service fees
paid to another affiliate of a general partner were $26,346, $13,000,
and $15,750 for 1995, 1994, and 1993, respectively. Expense reimbursements
to a general partner for expenses incurred were approximately
$8,600, $9,800, and $8,800 in 1995, 1994, and 1993, respectively.
<PAGE>
Super 8 Motels Texas, Ltd.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - SIGNIFICANT CUSTOMER
The Partnership's revenues for fiscal 1995, 1994, and 1993 include amounts
from a single customer of $100,620, $58,203, and $105,969, respectively.
NOTE E - NOTE PAYABLE
Note payable consist of the following:
1995 1994
Mortgage note, due in monthly principal
installments of $3,750 plus interest,
at prime plus 2% (10.5% at December 31,
1995) collateralized by property and
cash, with unpaid principal due in 2004. $371,838 $416,838
Less current portion 45,000 45,000
$326,838 $371,838
Annual maturities of the notes payable during the next five years are as
follows:
1995 $ 45,000
1996 45,000
1997 45,000
1998 45,000
1999 45,000
Thereafter 146,838
$ 371,838
<PAGE>
Super 8 Motels Texas, Ltd.
SCHEDULE II - VALUATION AND QUALIFYING AMOUNTS AND RESERVES
Additions
Balance at charged to Balance at
beginning cost and end of
Description of period expenses period
Allowance for doubtful accounts
deducted from accounts receivable
in the balance sheet
Year ended
December 31, 1993 $1,002 $ - $ 828 $ 174
December 30, 1994 $ 174 $ - $ - $2,423
December 29, 1995 $2,423 $3,728 $ 2,253 $3,898
<PAGE>
</TABLE>
