SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Super 8 Motels II, Ltd., a California limited partnership
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction
applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
Purchase price for registrant's property
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4) Proposed maximum aggregate value of transaction:
$2,200,000
5) Total fee paid:
$440
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Dated Filed:
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PRELIMINARY COPY
INFORMATION STATEMENT
PROPOSED ACTION BY WRITTEN CONSENT
OF LIMITED PARTNERS
OF
SUPER 8 MOTELS II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
May ____, 1998
SOLICITATION OF CONSENTS
The limited partners (the "Limited Partners") of SUPER 8 MOTELS II,
LTD., a California limited partnership (the "Partnership"), are being asked to
consider and approve by written consent the proposed sale of all of the
Partnership's interests in real property and related personal property (the
"Property"), for an aggregate purchase price of $2,200,000, and the dissolution
of the Partnership, which proposal is described hereinafter. It is estimated
that the sale of the Property on the proposed terms would result in
distributions to the Limited Partners in the approximate amount of $______ per
each original Unit of limited partnership interest. If the proposal is approved
and the proposed sale is consummated, among other things, all of the
Partnership's assets will be liquidated and the Partnership will be dissolved.
(See "Effects of Approval of the Proposal" below.)
THE ENCLOSED FORM OF ACTION BY WRITTEN CONSENT OF LIMITED PARTNERS (THE
"CONSENT") IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND GROTEWOHL MANAGEMENT
SERVICES, INC., THE MANAGING GENERAL PARTNER OF THE PARTNERSHIP (THE "MANAGING
GENERAL PARTNER"). This Information Statement and the enclosed Consent were
first sent to the Limited Partners on or about May __, 1998.
Units of limited partnership interest in the Partnership (the "Units")
represented by Consents duly executed and returned to the Partnership on or
before July __, 1998 (unless extended by the Managing General Partner pursuant
to notice mailed to the Limited Partners) will be voted or not voted in
accordance with the instructions contained therein. If no instructions for the
proposal are given on an executed and returned Consent, Units so represented
will be voted in favor of the proposal. The Managing General Partner will take
no action with respect to the proposal addressed herein except as specified in
the duly executed and returned Consents.
The cost of this solicitation of Consents is being borne by the
Partnership. Such solicitation is being made by mail and, in addition, may be
made by officers and employees of the Partnership and the Managing General
Partner, either in person or by telephone or telegram.
REASONS FOR THE PROPOSAL
The Partnership was formed in 1979 and its motel property located in
Santa Rosa, California opened for business during 1980.
This Information Statement has been prepared to ask the Limited
Partners to approve the sale of the Property for cash in the amount of the
appraised fair market value of $2,200,000.
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It has always been the intention of the Partnership to liquidate the
Property when it became apparent that the best interests of the Limited Partners
would be served by doing so. The Managing General Partner has received inquiries
over the years as to when the Property was to be sold and the Partnership
liquidated. Its response, until recently, has been that because of overbuilt and
depressed motel market conditions, the time was not right for a sale of the
Property. Conditions have changed, and the Managing General Partner believes
that the Property should be sold now and the Partnership liquidated.
During September and October 1997, Everest Properties II, LLC, a member
of an affiliated group of entities which is the largest investor in the
Partnership (the "Everest Group"), made an offer to purchase the Property and
the motel properties of four other California limited partnerships as to which
the Managing General Partner serves as general partner (the "GMS Partnerships").
The purchase price set forth in the October offer was $1,173,990, a price far
below $2,200,000, the recent appraised value and the price offered in the
current proposal. The General Partner rejected the prior offer, and a conflict
between the Everest Group and the Partnership arising out of the rejection
resulted in lawsuits. Inasmuch as the General Partner agreed with the Everest
Group in principle that the Property should be sold, a settlement was reached
whereby, among other things, the General Partner agreed to take steps to sell
the Property, and the lawsuits were dismissed.
As discussed more fully below under "Appraisal of the Property," the
Property has been appraised by PKF Consulting, a highly-respected national
hospitality industry specialist. Its conclusion is that the aggregate fair
market value of the Property is $2,200,000, which is the proposed purchase price
of the Property. The purchase price is to be paid in cash, and the net proceeds
thereof will be distributed in accordance with the Partnership Agreement upon
the close of the sales transaction and the concomitant dissolution of the
Partnership. Termination of the Partnership will occur as soon as the winding up
process can be completed.
The Managing General Partner is recommending the approval of the
transaction by the Limited Partners for the following reasons:
The Managing General Partner believes that the sale value of the Property
is now at the crest of a seller's market which may not last much longer.
Although there can be no assurance that the Property's value will not
increase over time, the Managing General Partner believes that within the
next five years only modest increases in the Property's value can be
expected to occur. This belief is substantiated by the appraisal. The
Managing General Partner believes that now is the time to sell the
Property.
Although the motel is in good condition, it is almost 20 years old and has
never been refurbished. If the Property is to be retained, it would be
necessary for the Partnership to spend large sums for its refurbishment and
modernization. The Managing General Partner believes that the funds for
such expenditures would not be available from cash flow without reducing
future distributions.
The Partnership's intention has always been to sell the Property when the
market conditions warranted sale. It was never an investment objective of
the Partnership to hold the Property permanently.
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The Managing General Partner understands that the circumstances of many of
the Limited Partners have changed over the life of the Partnership and
believes that the Limited Partners should be presented with an opportunity
to liquidate their investments. In this regard, the Managing General
Partner believes it is important to understand that no true market exists
for the sale of Units. Heretofore, to dispose of their Units, Limited
Partners have had to arrange private sales or accept tender offers, at
prices well below the correlative value of the underlying assets.
The Property is proposed to be sold to the Buyer for $2,200,000,
approximately $1,026,000 more than was offered for the Property in October
1997 by the Everest Group. The sales price is equal to the appraised value
of the Property as determined by PKF Consulting, an independent real estate
advisory firm specializing in the valuation of lodging properties. The
proposed sale will be for all cash. PKF Consulting has rendered to the
Partnership a fairness opinion, stating its opinion that the sales price is
fair to the Partnership. The contract of sale between the Partnership and
the Buyer provides for a closing of the sale on July 15, 1998 or within 30
days after approval of the sale by the limited partners of the Partnership,
whichever occurs later. For these reasons, and because of the length of
time that widespread marketing of the Properties might take, the General
Partner has not actively marketed the Properties for sale. There can,
therefore, be no assurance that the proposed sale of the Properties to the
Buyer is at the highest price attainable for the Properties.
As of February 15, 1998, the Limited Partners had already received, over
the life of the Partnership, the sum of $924.69 per Unit in the form of
quarterly distributions. Upon the sale of the Property pursuant to the
proposed transaction, the Limited Partners would receive total additional
pretax distributions in the estimated amount of $322.31 per Unit.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The only outstanding class of voting securities of the Partnership is
the Units. Each Unit entitles its holder to one vote on the proposal.
All Limited Partners as of the date action is taken on the proposal
(the "Record Date") are entitled to notice of and to vote on the proposal. As of
April 13, 1998 there were 7,000 Units outstanding and a total of 1009 Limited
Partners entitled to vote such Units. With respect to the proposal to be voted
upon, the favorable vote of Limited Partners holding in excess of 50% of the
Units outstanding as of the Record Date will be required for approval. There are
no rights of appraisal or similar rights of dissenters with regard to the
proposal to be voted upon.
As of April 13, 1998 no person or group of related persons was known by
the Partnership to be the beneficial owner of more than 5% of the Units, except
the following group of related Unit holders:
Everest Lodging Investors, LLC 261 Units 3.73%
Everest Madison Investors, LLC 343 Units 4.90%
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Total 604 Units 8.63%
Neither the Managing General Partner nor any of its affiliates are the
beneficial owners of any Units.
No meeting will be held with regard to this solicitation of the Limited
Partners. Voting may be accomplished by completing and returning to the offices
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of the Partnership, at 2030 J Street, Sacramento, California 95814, telephone:
(916) 442-9183, the form of Consent included herewith. Only Consents received
prior to the close of business on the date (the "Action Date") which is the
earlier of (i) the date on which the Partnership receives approval of the
proposal by a majority-in-interest of the Limited Partners, or (ii) July __,
1998 (unless extended by the Managing General Partner pursuant to notice mailed
to the Limited Partners), will be counted toward the vote on the proposal.
However, Limited Partners are urged to return their Consents at the earliest
practicable date.
If a Limited Partner has delivered an executed Consent to the
Partnership, the Limited Partner may revoke such Consent not later than the
close of business on the date immediately prior to the Action Date. As of the
Action Date, the action which is the subject of this solicitation will either be
effective (if the requisite number of executed Consents have been received by
the Partnership) or the solicitation period will have expired without approval
of the proposal. The only method for revoking a Consent once it has been
delivered to the Partnership is by the delivery to the Partnership prior to the
Action Date of a written instrument executed by the Limited Partner who executed
the Consent which states that the Consent previously executed and delivered is
thereby revoked. Other than the substance of the revocation described above, no
specific form is required for such revocation. An instrument of revocation will
be effective only upon its actual receipt prior to the Action Date by the
Partnership or its authorized agent at the Partnership's place of business as
set forth in the foregoing paragraph.
CONSENT UNDER PARTNERSHIP AGREEMENT
Pursuant to Section 14.1(e) of the Partnership's Agreement of Limited
Partnership (the "Partnership Agreement"), a majority-in-interest of the Limited
Partners must approve or disapprove the sale in a single transaction of all or
substantially all of the Partnership's assets. Because the Property constitutes
substantially all of the Partnership's assets (as discussed below under "The
Property and the Partnership's Business"), the Managing General Partner and the
Partnership are seeking the approval of the proposed sale of the Property by a
majority-in-interest of the Limited Partners. If the proposal is approved by the
Limited Partners but the proposed sale of the Property described herein is not
consummated because one or more of the conditions precedent to the sale (see
"Purchase Agreement") is not satisfied (excluding the condition precedent that
the Limited Partners approve the proposed sale), the Managing General Partner
will consider the Limited Partners' approval of the proposal set forth herein to
constitute approval of any purchase offer for the Property if such purchase
offer is reflected in an executed purchase agreement no later than January 31,
1999, is consummated no later than June 30, 1999, is for "all cash," and is for
an amount equal to or greater than $2,200,000. If the Managing General Partner
should receive more than one such purchase offer, it would accept the best
offer, unless the Managing General Partner had already entered into a binding
contract for a less favorable offer. However, notwithstanding the preceding, if
prior to entering into a binding contract the Managing General Partner should
receive one or more "all cash" purchase offers and also should receive one or
more purchase offers in an amount greater than that set forth in the highest
"all cash" offer but entailing the receipt by the Partnership of a promissory
note for part of the purchase price, the Partnership would present all such
offers to the Limited Partners for approval.
In the event the Limited Partners do not approve the proposal, the
Partnership will not proceed to implement the proposed sale of the Property.
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THE PROPERTY AND THE PARTNERSHIP'S BUSINESS
The Property consists of a leasehold interest in land located in Santa
Rosa, California, the motel property constructed thereon by the Partnership, and
the related personal property.
Narrative Description of Business
(a) Franchise Agreements
The Partnership operates its motel property as a franchisee of Super 8
Motels, Inc. through a sub-franchise obtained from Super 8 Management
Corporation. In March 1988, Brown & Grotewohl, a California general partnership
that is an Affiliate of the General Partner (the "Manager"), became
sub-franchisor in the stead of Super 8 Management Corporation, another Affiliate
of the General Partner. As of November 10, 1997, Super 8 Motels, Inc. had
franchised a total of 1,619 motels having an aggregate of 98,000 guestrooms in
operation. Super 8 Motels, Inc. is a wholly-owned subsidiary of Hospitality
Franchise Systems, Inc. Neither the Partnership nor the Managing General Partner
has any interest in Hospitality Franchise Systems, Inc.
The objective of the Super 8 Motel chain is to maintain a competitive
position in the motel industry by offering to the public comfortable, no-frills
accommodations at a budget price. Each Super 8 Motel provides its guests with
attractively decorated rooms, free color television, direct dial telephone and
other basic amenities, but eliminates or modifies other items to provide
substantial cost reduction without seriously affecting comfort or convenience.
Some of these savings are accomplished by reductions in room size, elimination
of expensive lobbies, and by substantial economies in building construction.
By the terms of each franchise agreement with Super 8 Motels, Inc., the
Partnership pays monthly franchise fees equal to 4% of its gross room revenues
(half of which is paid to the sub-franchisor) and contributes an additional 1%
of its gross room revenues to a fund administered by Super 8 Motels, Inc. to
finance the national reservation and promotions program.
(b) Operation of the Motel
Brown & Grotewohl, a California general partnership which is an
affiliate of the Managing General Partner (the "Manager"), manages and operates
the Partnership's motel. The Manager's management responsibilities include, but
are not limited to, supervision and direction of the Partnership's employees
having direct responsibility for the operation of the motel, establishment of
room rates and direction of the promotional activities of the Partnership's
employees. In addition, the Manager directs the purchase of replacement
equipment and supplies, maintenance activity and the engagement or selection of
all vendors, suppliers and independent contractors. The Partnership's financial
accounting activities are performed by the motel staff and a centralized
accounting staff, all of which work under the direction of the Managing General
Partner or the Manager. Together, these staffs perform all bookkeeping duties in
connection with the motel, including all collections and all disbursements to be
paid out of funds generated by motel operations or otherwise supplied by the
Partnership.
As of December 31, 1997, the Partnership employed a total of 18
persons, either full or part-time, at its motel, including five desk clerks, ten
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housekeeping and laundry personnel, two maintenance personnel, and one general
manager. In addition, and as of the same date, the Partnership employed 11
persons in administrative positions at its central office in Sacramento,
California, all of whom worked for the Partnership on a part-time basis. They
included accounting, investor service, sales and marketing and motel supervisory
personnel, secretarial personnel, and purchasing personnel.
(c) Competition
As discussed in greater detail below, the Partnership faces intense
competition from motels of varying quality and size, including other budget
motels which are part of nationwide chains and which have access to nationwide
reservation systems.
Properties
On January 8, 1980, the Partnership acquired by long-term lease a
parcel of approximately three acres of unimproved land located at 2632 N.
Cleveland Avenue, Santa Rosa, California, adjacent to U.S. Highway 101.
Effective May 1, 1981, the lease was amended to delete an area comprising
approximately 32,600 square feet from the lease. A restaurant facility was
subsequently built on this deleted portion.
The term of the lease extends until August 31, 2015, with a possible
extension of the term for up to an additional 15 years through exercise by the
Partnership of three five-year renewal options. Base rental payments are subject
to adjustment at three-year intervals to reflect changes in the Consumer Price
Index. The base rent is $8,398 per month from September 1, 1997 through August
31, 2000. Such rent is net to the lessor of property taxes and assessments,
utilities and other expenses relating to the land.
In April 1980, construction of the Partnership's 100-room motel was
commenced on the site. The motel opened for operations immediately after
construction was completed on November 12, 1980.
The lease provides that the improvements constructed by the Partnership
on the leased premises will remain the property of the Partnership during the
lease term but that upon expiration of the lease, title to any such improvements
will pass to the lessor.
The Partnership's motel achieved the following average occupancy rates
and average room rates during the fiscal years ended September 30, 1997, 1996
and 1995:
1994 - 1995 1995 - 1996 1996 - 1997
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Average Occupancy Rate 54% 53% 60%
Average Room Rate $42.33 $44.49 $45.65
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The following existing lodging facilities provide direct or indirect
competition to the Partnership's Santa Rosa motel:
Approximate
Distance From
Number Of Partnership's
Facility Rooms Motel
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Motel 6 100 Adjacent
Motel 6 119 0.5 Mile
Los Robles Inn 90 0.5 Mile
Sandman Motel 112 0.5 Mile
Ramada Inn 50 0.5 Mile
Holiday Inn Express 95 1.0 Mile
Days Inn 160 1.5 Miles
TraveLodge 60 2.0 Miles
Best Western Garden Inn 100 3.0 Miles
The Santa Rosa motel draws its business from a variety of sources,
including corporate travelers, vacationers and tourists, convention attendees
and sports teams. The Santa Rosa motel has no single customer the loss of which
would have a materially adverse effect on the motel's operations.
PURCHASE AGREEMENT
On _______________, the Partnership entered into an agreement to sell
the Property to Tiburon Capital Corporation, San Francisco, California, or a
nominee of Tiburon Capital Corporation (the "Buyer"), for the sum of $2,200,000,
payable in cash at the close of escrow. Escrow was opened at Chicago Title
Company, San Francisco, California on _______________ 1998.
The Buyer is a California corporation. It is anticipated that the
nominee of the Buyer, which would ultimately own the Property, would be a
limited liability company in which Mark Grotewohl would be involved as a member
and, as such, Mark Grotewohl would be entitled to 50% of the profits of that
company. He would also be the manager of the motels owned by the company. Mark
Grotewohl is the son of Philip Grotewohl, the owner of 50% of the stock of the
Managing General Partner. He was employed until recently as the marketing and
sales director for the five GMS Partnerships. It might be contended that Mark
Grotewohl is, by virtue of his past relationship with the Partnership, an
Affiliate of the Partnership as defined in its Partnership Agreement. Under
Section 11.2 of the Partnership Agreement, the Partnership is not permitted to
sell its real property to "Affiliates" of the General Partner. The General
Partner believes that, based on the facts and circumstances, Mark Grotewohl is
not an Affiliate of the Partnership or General Partner. (The Partnership
Agreement defines "Affiliate" as (i) any person directly or indirectly
controlling, controlled by, or under common control with another person, (ii)
any person owning or controlling 10% or more of the outstanding voting
securities or another person, (iii) any officer, director or partner of any
person, and (iv) if the person is an officer, director or partner, any company
for which such person acts in any such capacity.
The Buyer has made a contemporaneous offer to purchase the motel
properties of the four other GMS Partnerships. The offers made by the Buyer for
the properties of each of the GMS Partnerships have been evaluated independently
by the General Partner. Other than with respect to the purchase price of each
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motel, the offers are on identical terms. If the limited partners of the other
partnerships do not approve the sale of their respective properties to the
Buyer, the Buyer has the right and option not to proceed with the proposed
purchase of the Property from the Partnership, even if the Limited Partners
approve this sale. In this regard, the Partnership has not solicited any offers
to purchase the Property or the motel properties of the other GMS Partnerships,
has not listed the Property or the motel properties of the other GMS
Partnerships for sale with independent brokers, and has not otherwise actively
sought competing offers for the Property or the motel properties of the other
GMS Partnerships. Consequently, the offer presented by the Buyer is the only
offer that the General Partner has received for the Properties or the motel
properties of the other GMS Partnerships other than those presented by the
Everest Group.
There are a number of significant conditions to the consummation of the
proposed sale of the Property; therefore, there can be no assurance as to
whether, or when, such transaction will be consummated. Among these conditions
are the Partnership's receipt of the approval of the Limited Partners; the
Buyer's receipt (at the Partnership's expense) and approval of an ALTA Survey
and preliminary title report for the Property; the absence of any damage or loss
to the Property prior to the closing date in excess of $50,000; the decision by
the Buyer, in its unfettered discretion, to terminate the proposed purchase
prior to June 30, 1998, provided that this deadline may be extended upon request
of the Buyer for up to 15 days; the Buyer's receipt prior to June 30, 1998 of a
loan commitment for financing in an amount of not less than 90% of the purchase
price of the Property, provided that the deadline may be extended upon request
of the Buyer for up to 15 days; and receipt by the Partnership of any necessary
approvals of the sale by, among others, the franchisor. The Managing General
Partner expects that such conditions will be satisfied; however, there can be no
assurances in this regard. No federal or state regulatory requirements must be
complied with, or approvals obtained, in connection with the transaction.
The Buyer will deposit the sum of $11,000 into escrow on the later of
the expiration of the Buyer's inspection period referred to above or the date
the Partnership notifies the Buyer that the Limited Partners have approved the
proposed sale of the Property. Should the Buyer default in the performance of
its obligations under the purchase agreement, the Partnership will be entitled
to retain said deposit as its only damages.
The Partnership and the Buyer will share closing costs. The Managing
General Partner anticipates that the Partnership's share of aggregate closing
costs, including real estate brokerage commissions, will be approximately
$82,500. Included therein is a real estate brokerage commission payable to
Everest Financial, Inc., a member of the Everest Group, in an amount equal to
2.75% of the purchase price. Everest Financial, Inc. has agreed to reallow 1.25%
of the purchase price to the Buyer's broker or, at the Buyer's option, the Buyer
will be entitled to a credit against the purchase price in the amount of 1.25%
of the purchase price. It is possible that Everest Financial, Inc. may also
receive a loan brokerage fee from the Buyer.
EFFECTS OF APPROVAL OF THE PROPOSAL
General
The consummation of the proposed sale of the Property and the
concomitant dissolution of the Partnership should result in the following
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consequences for the Partnership, the Limited Partners and the General Partners:
(i) The Limited Partners are expected to receive the distributions of net cash
proceeds from the sale of the Property as described below.
(ii) The Limited Partners and the General Partners are expected to realize the
Federal income tax consequences as described below.
(iii) All of the Partnership's assets will be liquidated and the Partnership
will be dissolved and terminated.
The consequences stated above are discussed in more detail in the
subsections which follow. Those subsections, in part, include computations as to
the cash proceeds to be received and distributed by the Partnership, and the
taxable gain and allocations thereof to be made by the Partnership, in the event
the proposed sale is consummated. HOWEVER, THIS INFORMATION IS PRESENTED SOLELY
FOR THE PURPOSES OF EVALUATING THE PROPOSAL. ALL AMOUNTS ARE ESTIMATES ONLY. ALL
COMPUTATIONS ARE BASED ON ASSUMPTIONS (SUCH AS THE DATE OF SALE, THE EXPENSES OF
THE SALE, AND THE RESULTS OF PARTNERSHIP OPERATIONS THROUGH THE DATE OF SALE)
WHICH MAY OR MAY NOT PROVE TO BE ACCURATE AND SHOULD NOT BE RELIED UPON TO
INDICATE THE ACTUAL RESULTS WHICH MAY BE ATTAINED.
Determination and Use of Net Proceeds
The following is a summary of the projected amount of cash to be
received by the Partnership and the projected amount of cash to be distributed
to the Limited Partners, assuming the Property is sold for a gross sales price
of $2,200,000. This summary has been prepared by the Managing General Partner.
If the proposed transaction is consummated on September 30, 1998, it is
estimated that the Partnership would receive the following net proceeds:
Gross sales price $2,200,000
Less: Real estate commission (60,500)
Estimated escrow and closing costs (22,000)
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Net proceeds of sale $2,117,500
The Partnership's real property taxes are payable twice yearly on April
10 and December 10, partially in arrears, in the current amount of $7,935.43
each. The Partnership's minimum lease payment for its leasehold interest is
$8,398 per month. Accordingly, if the proposed transaction is consummated, the
actual date of consummation will determine whether there is a credit to the
Partnership for prorated lease payments and/or a credit to the Buyer for
prorated real property taxes. Similarly, the amount indicated below as the
estimate of reserves available for distribution on dissolution of the
Partnership will vary depending on the actual date of consummation of the
proposed transaction.
The net proceeds of $2,117,500 estimated to be received by the
Partnership from the proposed transaction, in the estimated amount of $302.50
per Unit based on a closing date of September 30, 1998, would be distributed
entirely to the Limited Partners. The Partnership's cash reserves would be
retained for the payment of accounts payable and other liabilities and expenses
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incurred to that date or expected to be incurred in connection with the
operation of the Property through the date of sale and the operation and
winding-up of the Partnership through its termination, and the balance,
estimated to be $139,000 or $19.81 per Unit, also would be distributed entirely
to the Limited Partners. Alternatively, if the proposed sale is not approved,
the Partnership would continue to operate the Property for an indeterminate
period pending receipt of another purchase offer which is acceptable to the
Limited Partners. The Managing General Partner estimates that if the Property is
not sold the Partnership will make average annual distributions to the Limited
Partners of from zero to $210,000 ($30.00 per Unit) for the foreseeable future.
However, there can be no assurance that the Managing General Partner's estimate
in this regard will be borne out.
Federal Income Tax Consequences
(a) General. The following is a summary of the Federal income tax
consequences expected to result from consummation of the proposed transaction
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing
laws, judicial decisions and administrative regulations, rulings and practices.
This summary is general in content and does not include considerations which
might affect certain Limited Partners, such as Limited Partners which are
trusts, corporations or tax-exempt entities, or Limited Partners who must pay an
alternative minimum tax. Except as otherwise specifically indicated, this
summary does not address any state or local tax consequences.
Tax counsel to the Partnership, Derenthal & Dannhauser, has delivered
an opinion to the Partnership which states that the following summary has been
reviewed by it and, to the extent the summary involves matters of law,
represents its opinion, subject to the assumptions, qualifications, limitations
and uncertainties set forth therein.
(b) Characterization of Gain. Upon the sale of property, the owner
thereof measures his gain or loss by the difference between the amount of
consideration received in connection with the sale and the owner's adjusted
basis in the property. A gain will be recognized for Federal income tax
purposes. This is so because the depreciation used for Federal income tax
purposes, which decreases adjusted basis, was greater than that used for book
purposes.
The Property should constitute "Section 1231 property" (i.e., real
property and depreciable assets used in a trade or business which are held for
more than one year) rather than "dealer" property (i.e., property which is held
primarily for sale to customers in the ordinary course of business). While it is
possible that the Internal Revenue Service will argue that the Property is
"dealer" property, gain upon the sale of which would be taxed entirely as
ordinary income, tax counsel to the Partnership is of the opinion that it is
more likely than not that such an assertion would not be sustained by a court.
A Limited Partner's allocable share of Section 1231 gain from the sale
of the Property would be combined with any other Section 1231 gains or losses
incurred by him in the year of sale, and his net Section 1231 gains or losses
would be taxed as long-term capital gains or constitute ordinary losses, as the
case may be, except that a Limited Partner's net Section 1231 gains will be
treated as ordinary income to the extent of net Section 1231 losses for the five
most recent years which have not previously been offset against net Section 1231
gains.
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Long-term gain on sale of Section 1231 property is taxed as follows:
(i) the excess of accelerated depreciation over straight-line depreciation is
taxed at ordinary income rates, (ii) to the extent that any other gain would be
treated as ordinary income if the property were depreciable personal property
rather than depreciable real property, at a maximum rate of 25%, and (iii) the
balance at a maximum rate of 20%.
Set forth below are the Managing General Partner's estimates of the
total taxable gain for Federal income tax purposes, and the allocations thereof,
which will result if the proposed sale of the Property is consummated, based on
an assumed closing date of September 30, 1998. These estimates do not include
any amounts relating to Partnership operations prior to the sale of the Property
or relating to dissolution of the Partnership. These estimates are not the
subject of an opinion of counsel.
11
<PAGE>
Portion
Total Taxed As Portion Portion
Estimated Ordinary Taxed At Taxed At
Gain Income 25% Rate 20% Rate
--------------------------------------------------------
Limited Partners $1,628,000 $27,000 $1,294,000 $307,000
General Partner 16,000 0 13,000 3,000
------ ---- ------ -----
Total $1,644,000 $27,000 $1,307,000 $310,000
========= ====== ========= =======
Per Unit $232.57 $3.86 $184.86 $43.86
====== ==== ====== =====
Because of different methods of depreciation used for California income
tax purposes than for Federal income tax purposes, the Managing General Partner
anticipates that consummation of the proposed transaction would produce a gain
for California income tax purposes in the amount of approximately $1,641,000, of
which approximately $16,000 and $1,625,000 would be allocated to the General
Partners and to the Limited Partners, respectively.
Dissolution of the Partnership
Section 18.1(e) of the Partnership Agreement provides that the
Partnership shall be dissolved upon the sale of all of the Partnership property
and the conversion into cash of any proceeds of sale originally received in a
form other than cash.
If the proposal is approved by a majority-in-interest of the Limited
Partners, and if the proposed sale of the Property is consummated, the
Partnership will be dissolved, the Managing General Partner will commence to
wind up the business of the Partnership, and after payment of all expenses of
the Partnership (including the expense of a final accounting for the
Partnership) the remaining cash reserves of the Partnership will be distributed
in accordance with the provisions of the Partnership Agreement. The Managing
General Partner will then take all necessary steps toward termination of the
Partnership's Certificate of Limited Partnership.
APPRAISAL OF THE PROPERTY/FAIRNESS OPINION
The appraisal of the Property, dated February 20, 1998, was prepared by
PKF Consulting, San Francisco, California, and indicates that the aggregate
current fair market value as of January 1, 1998 was $2,200,000. PKF Consulting
was selected by the Managing General Partner based on its expertise in
appraising hotel and motel properties in the State of California. PKF Consulting
also prepared appraisals of the motel properties of the other Plaintiff
Partnerships.
The appraised value of the Property was determined through the use of two
methodologies: the sales comparison approach and the income capitalization
approach.
No limitations were imposed by the Managing General Partner on the
appraiser's investigation.
12
<PAGE>
Upon request the Partnership will furnish to a Limited Partner, without
charge, a copy of the appraisal. In this regard Limited Partners are cautioned
to refer to the entire appraisal report, inasmuch as the opinion of value stated
therein is subject to the assumptions and limiting conditions stated therein.
Furthermore, Limited Partners should be aware that appraised values are opinions
and, as such, may not represent the realizable value of the Property.
Neither the appraiser, nor any of its affiliates, has had any prior
relationship with the Partnership, the Managing General Partner or any of their
affiliates other than as an appraiser of the Property and the properties of the
other GMS Partnerships and no future relationship other than as an appraiser is
contemplated.
The Partnership has also received an opinion from PKF Consulting to the
effect that the terms of the proposed sale are fair to the Partnership.
13
<PAGE>
FINANCIAL INFORMATION
Selected Partnership Financial Data
Following are selected financial data of the Partnership for the period
from October 1, 1992 to September 31, 1997.
<TABLE>
Year Ended Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30, September 30,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Guest room income $995,707 $856,246 $829,326 $808,505 $828,804
Net income (loss) $213,399 $101,430 $31,089 $(31,564) $(88,213)
Per Partnership Unit:
Cash distributions $60.50 $3.00 ---- ---- ----
Net income (loss) $30.18 $14.35 $4.40 $(4.46) $(12.48)
September 31, September 31, September 31, September 31, September 31,
1997 1996 1995 1994 1993
Total assets $1,067,776 $1,268,224 $1,172,917 $31,122,106 $1,158,408
Long-term debt ---- ---- ---- ---- ----
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
I. Fiscal Year Financial Statements
(a) Liquidity and Capital Resources
The Managing General Partner believes that the Partnership's liquidity,
defined as its ability to generate sufficient cash to satisfy its cash needs, is
adequate. The Partnership's primary source of liquidity is its cash flow from
operations. The Partnership had, as of September 30, 1997, current assets of
$486,052, current liabilities of $108,806 and, therefore, an operating reserve
of $377,246. The Managing General Partner's reserves target is 5% of the
adjusted capital contributions, which are approximately $3,494,317. Current
reserves are above this $174,716 required reserve.
The Partnership's motel property is unencumbered. Although no assurance
can be had in this regard, the Managing General Partner believes that the
Partnership's equity in its property provides a potential source of external
liquidity (through financing) in the event the Partnership's internal liquidity
is impaired.
During fiscal year 1997, the Partnership expended $61,087 on
renovations and replacements, $43,159 of which was capitalized. Included in
these amounts was $28,669 for guest room and corridor carpeting, $8,024 for a
replacement washing machine, $4,459 for six replacement room air-conditioning
units and $3,660 for furniture refurbishment.
During fiscal year 1996, the Partnership expended $57,971 on
renovations and replacements, $36,984 of which was capitalized. Included in the
capitalized items were $11,148 for a replacement central office computer, $8,149
for a replacement washing machine, $6,817 for new backflow devices required by
the City of Santa Rosa under the EPA's administration of the Clean Water Act,
$6,088 for replacement room carpets, $2,577 for a replacement clothes dryer and
14
<PAGE>
$2,205 for replacement television sets. The non-capitalized renovations of
$20,988 included expenditures for lamps and light fixtures, drapes,
air-conditioning units, mattresses, chairs, outside building trim repairs and
landscaping.
The Partnership currently has no material commitments for capital
expenditures, other than parking lot repairs. The Property is in full operation
and no further property acquisitions or extraordinary capital expenditures are
planned. If the Property is not sold the Managing General Partner is aware of no
material trends or changes with respect to the mix or relative cost of the
Partnership's capital resources. If the Property is retained adequate working
capital is expected to be generated by motel operations.
(b) Results of Operations
(i) Overall Financial Results
During fiscal year 1997 as compared to fiscal year 1996, the
Partnership achieved a $143,084 or 16.1% increase in total income. This increase
was due primarily to a $139,461 or 16.3% increase in guest room revenue. The
increased room revenue is discussed under the Santa Rosa Motel caption below.
During fiscal year 1996 as compared to fiscal year 1995, the
Partnership achieved a $38,502 or 4.5% increase in total income, due primarily
to a $26,920 or 3.2% increase in guest room revenue. The increased room revenue
is discussed under the Santa Rosa Motel caption below.
During fiscal year 1997 as compared to fiscal year 1996, the
Partnership experienced a $31,115 or 3.9% increase in total expenses. This
increase is related to increased property occupancy and is discussed below.
During fiscal year 1996 as compared to fiscal year 1995, the Partnership
achieved a $31,839 or 3.9% reduction in total expenses, due primarily to the
$25,548 or 3.7% reduction in motel operating expenses. This decrease in motel
operating expenses is discussed below.
(ii) Santa Rosa Motel
The following is a comparison of operating results of the Partnership's
Santa Rosa motel for the fiscal years ended 1995, 1996 and 1997:
Average Average
Occupancy Room
Twelve months ended: Rate Rate
- - -----------------------------------------------------------------------
September 30, 1995 53.7% $42.33
September 30, 1996 52.6% $44.49
September 30, 1997 59.8% $45.65
Total
Expenditures Partnership
Total And Debt Cash
Twelve months ended: Revenues Service Flow (1)
- - -------------------------------------------------------------------------------
September 30, 1995 $850,781 $752,705 $98,076
September 30, 1996 $889,283 $733,042 $156,241
September 30, 1997 $1,032,367 $771,215 $261,152
(1) While Partnership Cash Flow as it is used here is not an amount
found in the financial statements, it is the best indicator of the annual change
in the amount, if any, available for distribution to the Limited Partners. This
15
<PAGE>
calculation is reconciled to the financial statements in the following table.
A reconciliation of Partnership Cash Flow (included in the chart above)
to Net Income as shown on the Statements of Operations (in the audited financial
statements) is as follows:
1995 1996 1997
----------------------------------------------
Partnership Cash Flow $98,076 $156,241 $261,152
Additions to Fixed Assets 28,974 36,964 43,159
Depreciation and Amortization (97,047) (91,815) (90,581)
Other Items 1,086 40 (331)
==============================================
Net Income $31,089 $101,430 $213,399
==============================================
During fiscal year 1997 as compared to fiscal year 1996, the
Partnership's motel achieved an increase in its guest room revenue through
increases in both its average room rate and its occupancy rate. The occupancy
rate increased from 52.6% to 59.8%. The average room rate increased from $44.49
to $45.65. These two increases resulted in the $143,084 or 16% increase in total
revenue. The Santa Rosa motel achieved its largest increased revenue from the
leisure-market segment with the next largest increase from the corporate
segment.
During fiscal year 1996 as compared to fiscal year 1995, the
Partnership's motel achieved an increase in total revenue of $38,502 or 4.5%
from an increase in its average daily room rate. This increase in revenue was
partially offset by a decrease in overall room demand. This result was achieved
by selling more rooms to the higher-priced leisure market segment and fewer
rooms to the corporate, government, group and discount-market segments.
During fiscal year 1997 as compared to fiscal year 1996, the
Partnership's motel experienced a $38,173 or 5.2% increase in total expenditures
which is due primarily to the increase in occupancy. The increased expenditures
included $14,411 in room attendant wages, $6,973 in increased franchise fees and
advertising costs and $7,250 in appraisal costs.
During fiscal year 1996 as compared to fiscal year 1995, the
Partnership's Santa Rosa motel achieved a reduction of $19,663 or 2.6% in total
expenditures and debt service. The Partnership's motel achieved reductions of
$20,880 in expenditures for renovations and additions to fixed assets, and
$5,241 in front desk wages and salaries, which were partially offset by a $7,264
increase in utility costs.
II. Interim Financial Statements
(a) Liquidity and Capital Resources
As of March 31, 1998 the Partnership's current assets of $308,117
exceeded its current liabilities of $145,086, providing an operating reserve of
$163,031. The Managing General Partner's reserves target is 5% of adjusted
capital contributions, or $174,716.
The Partnership expended $22,762 on renovations and replacements during
the six months ended March 31, 1998, of which $6,391 was capitalized. The
expenditures included $7,995 for exterior painting, $6,521 for guestroom carpet
and vinyl, $3,899 for replacement lamps and $1,919 for replacement televisions.
16
<PAGE>
(b) Results of Operations
Total Partnership income decreased $20,544 or 5.0% for the first two
quarters of fiscal year 1998 as compared to the first two quarters of fiscal
year 1997. Guest room revenue decreased $16,066 or 4.1% due to a decrease in the
average occupancy rate from 52.8% to 45.6%. Such decrease was partially offset
by an increase in the average room rate from $41.12 to $45.71. The motel
experienced decreased occupancy in the leisure and corporate market segments and
increased occupancy in the discount segment.
Total Partnership expenses increased $143,545 or 36.2% primarly due to
increases in the minimum wage, increases in franchise fees and management fees,
and increases in legal, appraisal and other costs associated with the proposed
sale of the Property and the liquidation of the Partnership.
Other Financial Information
Items 304 and 305 of Regulation S-K promulgated by the Securities and
Exchange Commission are not applicable to the Partnership. Moreover, the
Managing General Partner is unaware of any "Year 2000" problems which could
impact the Partnership's operations.
17
<PAGE>
FINANCIAL STATEMENTS
for
INFORMATION STATEMENT
of
SUPER 8 MOTELS II, LTD.
May __, 1998
F-i
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SUPER 8 MOTELS II, LTD. Page
INDEPENDENT AUDITORS' REPORT .........................................F-1
FINANCIAL STATEMENTS:
Balance Sheets, September 30, 1997 and 1996...........................F-2
Statements of Operations for the Years Ended
September 30, 1997, 1996 and 1995................................F-3
Statements of Partners' Equity for the Years
Ended September 30, 1997, 1996 and 1995..........................F-4
Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995................................F-5
Notes to Financial Statements.........................................F-7
Balance Sheets, March 31, 1998 and September 30, 1997 (Unaudited).....F-12
Statements of Operations for the Three Months and
Six Months Ended March 31, 1998 and 1997 (Unaudited).............F-13
Statement of Partners' Equity for the Six Months
Ended March 31, 1998 and 1997 (Unaudited)........................F-14
Statements of Cash Flows for the Six Months
Ended March 31, 1998 and 1997 (Unaudited)........................F-15
Notes to Financial Statements.........................................F-16
F-ii
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Super 8 Motels II, Ltd.
We have audited the accompanying balance sheets of Super 8 Motels II, Ltd., a
California limited partnership, as of September 30, 1997 and 1996 and the
related statements of operations, partners' equity and cash flows for each of
the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 II, Ltd. as of
September 30, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
December 4, 1997
San Mateo, California
e-super6/s8297fs.wp8.wpd
F-1
<PAGE>
<TABLE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1997 and 1996
ASSETS
1997 1996
------------ ---------
Current Assets:
<S> <C> <C>
Cash and temporary investments (Notes 1 and 3) $459,098 $614,405
Accounts receivable 17,937 9,323
Prepaid expenses 9,017 21,662
--------- -----------
Total Current Assets 486,052 645,390
-------- -----------
Property and Equipment (Notes 2 and 7):
Capital improvements 34,947 34,947
Building 1,845,878 1,845,878
Furniture and equipment 524,159 497,661
---------- -----------
2,404,984 2,378,486
Accumulated depreciation and amortization (1,834,078) (1,759,327)
--------- ----------
Property and Equipment, Net 570,906 619,159
---------- -----------
Other Assets (Note 2):
Deposit of federal income tax 10,818 3,675
----------- ------------
Total Assets $1,067,776 $1,268,224
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 105,071 $ 97,413
Due to related parties (Note 4) 3,735 1,740
------------ ------------
Total Liabilities 108,806 99,153
----------- -----------
Contingent Liabilities and Lease Commitment (Notes 4 and 5) - -
Partners' Equity:
General Partners 49,493 47,359
Limited Partners 909,477 1,121,712
-------- ----------
Total Partners' Equity 958,970 1,169,071
-------- ----------
Total Liabilities and Partners' Equity $1,067,776 $1,268,224
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
<TABLE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended September 30:
1997 1996 1995
------------ ------------ --------
Income:
<S> <C> <C> <C>
Motel room $995,707 $856,246 $829,326
Telephone and vending 14,913 14,721 10,260
Interest 16,818 17,236 10,068
Other 4,929 1,080 1,127
---------- --------- ---------
Total Income 1,032,367 889,283 850,781
--------- -------- --------
Expenses:
Motel operations (exclusive of depreciation
shown separately below) (Notes 4 and 6) 684,677 662,519 688,067
General and administrative (exclusive of
depreciation shown separately below) (Note 4) 43,710 33,519 34,578
Depreciation and amortization (Note 2) 90,581 91,815 97,047
-------- -------- --------
Total Expenses 818,968 787,853 819,692
-------- -------- --------
Net Income $213,399 $101,430 $31,089
======== ======== =======
Net Income Allocable to General Partners $2,134 $1,014 $311
====== ====== ====
Net Income Allocable to Limited Partners $211,265 $100,416 $30,778
======== ======== =======
Net Income Per Partnership Unit (Note 1) $30.18 $14.35 $4.40
====== ====== =====
Distributions to Limited Partners
Per Partnership Unit (Note 1) $60.50 $3.00 $ -
====== ===== ======
The accompanying notes are an integral part of these financial statements
F-3
</TABLE>
<PAGE>
<TABLE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended September 30:
1997 1996 1995
---------- ---------- -------
General Partners:
<S> <C> <C> <C>
Balance, beginning of year $ 47,359 $ 46,345 $ 46,034
Net income 2,134 1,014 311
------------ --------- ------------
Balance, End of Year 49,493 47,359 46,345
------------ -------- -----------
Limited Partners:
Balance, beginning of year 1,121,712 1,042,296 1,011,518
Net income 211,265 100,416 30,778
Distributions to limited partners (423,500) (21,000) -
------------ ----------- -----------
Balance, End of Year 909,477 1,121,712 1,042,296
------------ ---------- ----------
Total Partners' Equity $958,970 $1,169,071 $1,088,641
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
<TABLE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended September 30:
1997 1996 1995
------------ ------------- ---------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Received from motel operations $1,007,202 $880,407 $840,465
Expended for motel operations and
general and administrative expenses (712,901) (679,215) (704,198)
Interest received 16,551 17,338 8,172
--------- --------- ---------
Net Cash Provided by
Operating Activities 310,852 218,530 144,439
-------- -------- --------
Cash Flows From Investing Activities:
Purchases of property and equipment (43,159) (36,984) (28,974)
Proceeds from sale of equipment 500 20 -
---------- ---------- --------
Net Cash Used by
Investing Activities (42,659) (36,964) (28,974)
--------- --------- ---------
Cash Flows From Financing Activities:
Distributions paid to limited partners (423,500) (21,000) -
---------- --------- --------
Net Cash Used by Financing Activities (423,500) (21,000) -
---------- --------- --------
Net Increase (Decrease) in Cash and
Temporary Investments (155,307) 160,566 115,465
Cash and Temporary Investments:
Beginning of year 614,405 453,839 338,374
-------- -------- --------
End of Year $459,098 $614,405 $453,839
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
<TABLE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30:
1997 1996 1995
---------- ----------- -------
Reconciliation of Net Income (Loss) to Net Cash
Provided by Operating Activities:
<S> <C> <C> <C>
Net income (loss) $213,399 $101,430 $ 31,089
-------- -------- ---------
Adjustments to reconcile net income (loss)
to net cash provided (used) by
operating activities:
Depreciation and amortization 90,581 91,815 97,047
Loss (gain) on sale of property 331 (20) -
(Increase) decrease in accounts receivable (8,614) 8,462 (2,144)
(Increase) decrease in prepaid expenses 12,645 5,641 (1,276)
Increase in other assets (7,143) (3,675) -
Increase in accounts payable and accrued
liabilities 7,658 14,936 19,599
Increase (decrease) in due to related parties 1,995 (59) 124
--------- ---------- ----------
Total Adjustments 97,453 117,100 113,350
-------- -------- --------
Net Cash Provided by
Operating Activities: $310,852 $218,530 $144,439
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Super 8 Motels II, Ltd., is a limited partnership organized under California law
on May 7, 1979, to acquire and operate motel properties in Santa Rosa and
Ontario, California. The Santa Rosa Motel was opened in November, 1980, and the
Ontario Motel was opened in May, 1981. The Ontario Motel property was sold in
February, 1990. The Partnership grants credit to customers, substantially all of
which are local businesses in Santa Rosa.
The Managing General Partner of the Partnership is Grotewohl Management
Services, Inc., the sole shareholder and officer of which is Philip B.
Grotewohl. The Associate General Partner of the Partnership is Robert J. Dana.
The net income or net loss of the Partnership is allocated 1% to the General
Partners and 99% to the Limited Partners. Net income and distributions per
partnership unit are based upon 7,000 units outstanding. All partnership units
are owned by the Limited Partners.
The Partnership agreement requires that the Partnership maintain reserves for
normal repairs, replacements, working capital and contingencies in an amount of
at least 5% of adjusted capital contributions ($174,716 at September 30, 1997).
As of September 30, 1997, the Partnership had a combined balance in cash and
temporary investments of $459,098.
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. Since the Partnership has a fiscal year-end other than the majority
of the partners, the Partnership is required annually to make a payment to the
Internal Revenue Service based on the prior year's income.
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the following estimated useful lives and methods:
Description Methods Useful Lives
-------------------------- -------------------------- ------------
Capital improvements 200% declining balance 7-20 years
and straight-line
Buildings 150% declining balance 10-25 years
and straight-line
Furniture and equipment 200% declining balance 5-7 years
and straight-line
Costs incurred in connection with maintenance and repair are charged to expense.
Major renewals and betterments that materially prolong the life of assets are
capitalized.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
F-7
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of September 30, 1997 and 1996 consist of the
following:
1997 1996
-------- --------
Cash in bank, non-interest bearing $ 22,173 $ 35,070
Money market accounts 336,925 479,335
Certificates of deposit 100,000 100,000
--------- --------
Total Cash and Temporary Investments $459,098 $614,405
======== ========
Temporary investments are recorded at cost, which approximates market value. The
Partnership considers temporary investments with original maturities of six
months or less to be cash equivalents for purposes of the statement of cash
flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
Franchise Fees
Super 8 Motels, Inc., now a wholly-owned subsidiary of Hospitality Franchise
Systems, Inc., is franchisor of all Super 8 Motels. The Partnership pays to the
franchisor monthly fees equal to 4% of the gross room revenues of the 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 ($49,785 in 1997,
$42,812 in 1996 and $41,466 in 1995) are included in motel operations expense in
the accompanying statements of operations. The Partnership operates its motel
property 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 $19,914, $17,125 and $16,587 in 1997, 1996 and 1995,
respectively.
Property Management Fees
The General Partners or their affiliates handle the management of the motel
property 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 cash available for distribution of the
Partnership, defined as the total cash receipts from Partnership operations
during a given period of time less cash used during the same period to pay debt
service, capital improvements and replacements, operating expenses and reserves.
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. At September 30, 1997 the Limited Partners had
not received the 10% cumulative return, and as no property management fees are
payable, they are not reflected in these financial statements. Management
believes it is not likely that these fees will become payable in the future.
F-8
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
Subordinated Partnership Management Fees
During the Partnership's operational stage, the General Partners are to receive
9% of cash available for distribution for Partnership management services, along
with an additional 1% of cash available for distribution on account of their
interest in the income and losses, 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. Since the Limited Partners had not received the 10% cumulative return and
the property management fees had not been paid, no partnership management fees
are presently payable and therefore are not reflected in these financial
statements. Management expects these fees will never be paid. 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.
Subordinated Incentive Distributions
Under the terms of the Partnership agreement, the net proceeds of the sale of
any of the Partnership's motel properties and of any financing or refinancing of
any of the Partnership's motel properties, to the extent that such proceeds are
not to be reinvested in the acquisition of additional properties, shall promptly
be distributed to the General Partners and Limited Partners. Until the Limited
Partners have received distributions from all sources equal to their capital
contributions plus a cumulative 10% per annum pre-tax return on their adjusted
capital contributions, all of such proceeds shall be distributed to the Limited
Partners. Thereafter, 15% of the remainder of such proceeds shall be distributed
to the General Partners as cash incentive distributions and the balance shall be
distributed to the Limited Partners.
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, and
administrative salaries. The administrative expenses allocated to the
Partnership were approximately $112,000 in 1997, $113,000 in 1996 and $110,000
in 1995 and are included in motel operations expenses and general and
administrative 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 sole shareholder of Grotewohl Management
Services, Inc., a General Partner of the Partnership.
NOTE 5 - LEASE COMMITMENT
The Partnership has a long-term operating lease commitment on approximately
three acres of land in Santa Rosa, California, the site of the Santa Rosa motel.
The term of the lease runs through August 31, 2015, with an option to extend the
lease for three consecutive periods of five years each. The base monthly rent is
subject to adjustment at three year intervals to reflect changes in the Consumer
Price Index. The Partnership will pay all property taxes, assessments and
utilities. Rent expenses for the fiscal years ending September 30, 1997, 1996
and 1995 were $102,033, $101,354 and $101,679, respectively.
F-9
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - LEASE COMMITMENT (Continued)
The future lease commitment at September 30, 1997, using the minimum monthly
amounts, is as follows:
Years Ending
September 30: Amount
------------- ------
1998 $100,778
1999 100,778
2000 100,778
2001 100,778
2002 100,778
2003-2007 503,888
2008-2012 503,888
2013-2015 293,935
-----------
Total $1,805,601
==========
NOTE 6 - MOTEL OPERATING EXPENSES
The following table summarizes the major components of motel operating expenses
for the years ended September 30, 1997, 1996 and 1995.
<TABLE>
1997 1996 1995
---------- ---------- -------
<S> <C> <C> <C>
Salaries and related costs $211,215 $189,103 $191,794
Rent 94,025 93,395 94,016
Franchise and advertising fees 49,785 42,812 41,466
Utilities 71,893 74,632 73,824
Allocated costs, mainly indirect salaries 90,713 92,355 89,327
Repairs and minor renovations 17,928 20,987 33,863
Other operating expenses 149,118 149,235 163,777
-------- -------- --------
Total Motel Operating Expenses $684,677 $662,519 $688,067
======== ======== ========
</TABLE>
NOTE 7 - PROPERTY AND EQUIPMENT
The following is a summary of the accumulated depreciation and amortization of
property and equipment:
1997 1996
----------- -------
Capital improvements $ 34,947 $ 34,075
Building 1,353,486 1,292,582
Furniture and equipment 445,645 432,670
----------- ----------
Accumulated depreciation and amortization $1,834,078 $1,759,327
---------- ==========
F-10
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8 - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash accounts in six 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
September 30, 1997 follows:
Total cash in all California banks $469,982
Portion insured by FDIC (329,181)
--------
Uninsured cash balances $140,801
=======
NOTE 9 - SUBSEQUENT EVENTS
On October 27, 1997 a complaint was filed in the United States District Court by
Grotewohl Management Services, Inc. (a general partner of the Partnership)
naming as defendants Everest/Madison Investors, LLC, Everest Lodging Investors,
LLC, Everest Properties II, LLC, Everest Properties, Inc., W. Robert Kohorst,
David I. Lesser, The Blackacre Capital Group, L.P., Blackacre Capital Management
Corp., Jeffrey B. Citron, Ronald J. Kravit, and Stephen B. Enquist. The
complaint pertains to tender offers directed by certain of the defendants to
limited partners of the Partnerships, and to indications of interest made by
certain of the defendants in purchasing the property of the Partnership. The
complaint alleges that the defendants violated certain provisions of the
Security and Exchange Act of 1934 and seeks injunctive and declarative relief.
Defendants have yet to respond to the complaint.
On October 28, 1997 a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC as plaintiffs against Philip B. Grotewohl,
Grotewohl Management Services, Inc., Kenneth M. Sanders, Robert J. Dana, Borel
Associates, and BWC Incorporated, as defendants, and the Partnership, along with
four other partnerships of which have common general partners, as nominal
defendants. The complaint pertains to the receipt by the defendants of franchise
fees and reimbursement of expenses, the indications of interest made by the
plaintiffs in purchasing the properties of the nominal defendants, and the
alleged refusal of the defendants to provide information required by the terms
of the Partnership's partnership agreement and California law. The complaint
requests the follow relief: a declaration that the action is a proper derivative
action; an order requiring the defendants to discharge their fiduciary duties to
the Partnerships and to enjoin them from breaching their fiduciary duties;
return of certain profits; appointment of a receiver; and an award for damages
in an amount to be determined. The defendants and nominal defendants have
recently been served and are formulating their response to the complaint.
F-11
<PAGE>
<TABLE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Balance Sheet
March 31, 1998 and September 30, 1997
3/31/98 9/30/97
------------------- --------------------
ASSETS
<S> <C> <C>
Cash and temporary investments $ 292,672 $ 459,098
Accounts receivable 11,995 17,937
Prepaid expenses 3,450 9,017
------------------- --------------------
Total current assets 308,117 486,052
------------------- --------------------
Property and Equipment:
Capital improvements 34,947 34,947
Buildings 1,845,878 1,845,878
Furniture and equipment 526,802 524,159
------------------- --------------------
2,407,627 2,404,984
Accumulated depreciation (1,874,449) (1,834,078)
------------------- --------------------
Property and equipment, net 533,178 570,906
------------------- --------------------
Other Assets: 10,818 10,818
------------------- --------------------
Total Assets $ 852,113 $ 1,067,776
=================== ====================
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 145,086 $ 108,806
------------------- --------------------
Total current liabilities 145,086 108,806
------------------- --------------------
Total liabilities 145,086 108,806
------------------- --------------------
Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 48,024 49,493
Limited Partners 659,003 909,477
------------------- --------------------
Total partners' equity 707,027 958,970
------------------- --------------------
Total Liabilities and Partners' Equity $ 852,113 $ 1,067,776
=================== ====================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
<TABLE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Statement of Operations
For the Three Months and Six Months Ended March 31, 1998 and 1997
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
3/31/98 3/31/98 3/31/97 3/31/97
----------------- ------------------ ------------------ ------------------
Income:
<S> <C> <C> <C> <C>
Guest room $ 178,484 $ 379,417 $ 190,620 $ 395,483
Telephone and vending 3,025 6,268 3,312 7,552
Interest 2,888 6,797 4,551 10,051
Other 698 1,190 606 1,130
----------------- ------------------ ------------------ ------------------
Total Income 185,095 393,672 199,089 414,216
----------------- ------------------ ------------------ ------------------
Expenses:
Motel operating expenses (Note 2) 176,430 368,172 159,019 317,542
General and administrative 96,277 129,149 8,685 34,874
Depreciation and amortization 21,713 43,294 22,498 44,654
----------------- ------------------ ------------------ ------------------
Total Expenses 294,420 540,615 190,202 397,070
----------------- ------------------ ------------------ ------------------
Net Income (Loss) $ (109,325) $ (146,943) $ 8,887 $ 17,146
================= ================== ================== ==================
Net Income (Loss) Allocable
to General Partners ($1,093) ($1,469) $89 $171
================= ================== ================== ==================
Net Income (Loss) Allocable
to Limited Partners ($108,232) ($145,474) $8,798 $16,975
================= ================== ================== ==================
Net Income (Loss)
per Partnership Unit ($15.46) ($20.78) $1.26 $2.43
================= ================== ================== ==================
Distribution to Limited Partners
per Partnership Unit $7.50 $15.00 $45.00 $48.00
================= ================== ================== ==================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Statement of Partners' Equity
For the Six Months Ended March 31, 1998 and 1997
3/31/98 3/31/97
----------------- ----------------
General Partners:
Balance, beginning of year $ 49,493 $ 47,359
Net income (loss) (1,469) 171
----------------- ----------------
Balance, End of period 48,024 47,530
----------------- ----------------
Limited Partners:
Balance, beginning of year 909,477 1,121,712
Net income (loss) (145,474) 16,975
Distributions to Limited Partners (105,000) (336,000)
----------------- ----------------
Balance, End of Period 659,003 802,687
----------------- ----------------
Total Partners' Equity $ 707,027 $ 850,217
================= ================
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
<TABLE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Statement of Cash Flows
For the Six Months Ended March 31, 1998 and 1997
3/31/98 3/31/97
----------------- ----------------
Cash Flows from Operating Activities:
<S> <C> <C>
Received from motel revenues $ 392,802 $ 396,925
Expended for motel operations and
general and administrative expenses (454,649) (364,391)
Interest received 6,812 9,894
----------------- ----------------
Net Cash Provided (Used) by Operating Activities (55,035) 42,428
----------------- ----------------
Cash Flows from Investing Activities:
Purchases of property and equipment (6,391) (14,695)
Proceeds from sale of land - 500
----------------- ----------------
Net Cash Provided (Used) by Investing Activities (6,391) (14,195)
----------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (105,000) (336,000)
----------------- ----------------
Net Cash Provided (Used) by Financing Activities (105,000) (336,000)
----------------- ----------------
Net Increase (Decrease) in Cash and Temporary Investments (166,426) (307,767)
Cash and Temporary Investments:
Beginning of period 459,098 614,405
----------------- ----------------
End of period $ 292,672 $ 306,638
================= ================
Reconciliation of Net Income (Loss) to Net Cash Provided (Used) by
Operating Activities:
Net Income (Loss) $ (146,943) $ 17,146
----------------- ----------------
Adjustments to reconcile net income to net cash used by operating
activities:
Depreciation and amortization 43,294 44,654
(Gain) loss on disposition of property and equipment 825 331
(Increase) decrease in accounts receivable 5,942 (7,397)
(Increase) decrease in prepaid expenses 5,567 16,606
(Increase) decrease in other assets - (7,143)
Increase (decrease) in accounts payable 36,280 (21,769)
----------------- ----------------
Total Adjustments 91,908 25,282
----------------- ----------------
Net Cash Provided (Used) by Operating Activities $ (55,035) $ 42,428
================= ================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
Notes to Financial Statements
For the Six Months Ended March 31, 1998 and 1997
Note 1:
The attached interim financial statements include all adjustments
(consisting of only normal recurring adjustments) which are, in the opinion of
Management, necessary to a fair statement of the results for the period
presented.
Users of these interim financial statements should refer to the audited
financial statements for the year ended September 30, 1997 for a complete
disclosure of significant accounting policies and practices and other detail
necessary for a fair presentation of the financial statements.
In accordance with the partnership agreement, the following information is
presented related to fees paid to the General Partners or affiliates for the
period.
Franchise Fees $ 7,594
Upon the sale of the Ontario Motel property in February, 1990,
management felt that the payment of the property management fees and partnership
management fees became remote. Therefore, no property management fees or
partnership management fees have been accrued.
Note 2:
The following table summarizes the major components of motel operating
expenses for the periods Reported:
<TABLE>
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
3/31/98 3/31/98 3/31/97 3/31/97
---------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Salaries and related costs $ 54,698 $ 110,413 $ 48,218 $ 96,968
Rent 25,194 50,388 23,349 46,713
Franchise and advertising fees 8,924 18,985 9,536 19,793
Utilities 17,549 35,018 16,056 32,719
Allocated costs,
Mainly indirect salaries 24,881 51,718 22,055 46,602
Replacements and renovations 5,260 16,371 1,538 5,278
Other operating expenses 39,924 85,279 38,267 69,469
---------------- --------------- ----------------- ----------------
Total motel operating expenses $ 176,430 $ 368,172 $ 159,019 $ 317,542
================ =============== ================= ================
</TABLE>
The following additional material contingencies are required to be restated
in interim reports under Federal securities law: None.
F-16
<PAGE>
APPENDIX 1
PRELIMINARY COPY
SUPER 8 MOTELS II, LTD.,
a California limited partnership
Notice of Proposed Action By Written Consent
TO THE LIMITED PARTNERS OF
SUPER 8 MOTELS II, LTD.:
The Limited Partners of SUPER 8 MOTELS II, LTD., a California limited
partnership (the "Partnership"), are being asked by the Partnership and the
Managing General Partner to consider and approve by written consent the proposed
sale of substantially all of the Partnership's assets.
The Limited Partners of the Partnership are entitled to vote on the proposal by
completing, executing and returning to the Partnership the enclosed form of
Action by Written Consent of Limited Partners.
PLEASE FILL IN, DATE AND SIGN THE ENCLOSED POSTPAID CONSENT CARD AND RETURN IT
PROMPTLY. ONLY CONSENTS RECEIVED ON OR BEFORE JULY ____, 1998 (UNLESS EXTENDED
BY THE MANAGING GENERAL PARTNER PURSUANT TO NOTICE MAILED TO THE LIMITED
PARTNERS) WILL BE COUNTED TO DETERMINE WHETHER THE PROPOSAL IS APPROVED.
May ___, 1998
Grotewohl Management Services, Inc.,
a California corporation,
Managing General Partner
<PAGE>
APPENDIX 2
PRELIMINARY COPY
ACTION BY WRITTEN CONSENT OF LIMITED PARTNERS
SUPER 8 MOTELS II, LTD.,
a California limited partnership
2030 J Street
Sacramento, California 95814
(916) 442-9183
THIS CONSENT IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND THE MANAGING GENERAL
PARTNER.
The undersigned votes all the units of limited partnership interest of Super 8
Motels II, Ltd., a California limited partnership, of record by him, her or it
as follows:
PROPOSAL TO APPROVE THE SALE OF SUBSTANTIALLY ALL OF THE
PARTNERSHIP'S ASSETS, as described in the Information
Statement dated May ___, 1998. Please mark one of the
following:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This Consent, when properly executed and returned to the Partnership, will be
voted in the manner directed herein by the undersigned limited partner.
IF NO DIRECTION IS MADE, THIS CONSENT, IF SO EXECUTED AND RETURNED, WILL BE
VOTED FOR THE PROPOSAL SET FORTH ABOVE.
Please sign exactly as name When Units are held by joint tenants, both should
appears below: sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please sign
in full corporate name by president or other
authorized office. If a partnership, please sign
in partnership name by authorized person.
DATED: , 1998 ----------------------------------------
Signature
----------------------------------------
Additional signature, if held jointly
PLEASE MARK, SIGN, DATE AND
RETURN THIS
POSTPAID CONSENT CARD.
