SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission file number 0-10134
SUPER 8 MOTELS III, LTD.
(Exact name of registrant as specified in its charter)
California 94-2664921
(State or other jurisdiction of (I.R.S. Employer Iden-
incorporation or organization) tification No.)
2030 J Street, Sacramento, California 95814
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 442-9183
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant has
been required to file such reports) and (2) has been subject to the filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.(X)
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Inapplicable.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. BUSINESS
General Development of Business
Super 8 Motels III, Ltd. (the "Partnership") is a limited partnership which was
organized under the Uniform Limited Partnership Act of the State of California
on June 2, 1980.
The General Partner of the Partnership is Grotewohl Management Services, Inc., a
California corporation which is 50% owned by Philip B. Grotewohl.
Through two public offerings of units of limited partnership interest in the
Partnership (the "Units"), the Partnership sold 5,941 Units at a price of $1,000
per Unit.
The net proceeds of the offerings have been expended for the acquisition in fee
and development of properties located in San Bernardino, California and
Bakersfield, California. Motel operations commenced on March 6, 1982 at the San
Bernardino property, and on September 20, 1982 at the Bakersfield property.
Narrative Description of Business
(a) Franchise Agreements
The Partnership operates each of its motel properties as a franchisee of Super 8
Motels, Inc. through sub-franchises obtained from Super 8 Management
Corporation. In March 1988, Brown & Grotewohl, a California general partnership
which is an affiliate of the General Partner (the "Manager"), became
sub-franchisor in the stead of Super 8 Management Corporation. 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.
The objective of the Super 8 Motel chain is to maintain a competitive position
in the motel industry by offering to the public comfortable, no-frills
accommodations at a budget price. Each Super 8 Motel provides its guests with
attractively decorated rooms, free color television, direct dial telephone and
other basic amenities, but eliminates or modifies other items to provide
substantial cost reduction without seriously affecting comfort or convenience.
Some of these savings are accomplished by reductions in room size, elimination
of expensive lobbies, and by substantial economies in building construction.
By the terms of each franchise agreement with Super 8 Motels, Inc., the
Partnership pays monthly franchise fees equal to 4% of its gross room revenues
(half of which is paid to the sub-franchisor) and contributes an additional 1%
of its gross room revenues to a fund administered by Super 8 Motels, Inc. to
finance the national reservation and promotions program.
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(b) Operation of the Motels
The Manager manages and operates the Partnership's motels. The Manager's
responsibilities include, but are not limited to, supervision and direction of
the Partnership's employees having direct responsibility for the operation of
each motel, establishment of room rates and direction of the promotional
activities of the Partnership's employees. In addition, the 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 activities are performed by the individual motel
staffs and a centralized accounting staff, all of which work under the direction
of the Manager. Together, these staffs perform all bookkeeping duties in
connection with each motel, including all collections and all disbursements to
be paid out of funds generated by motel operations or otherwise supplied by the
Partnership.
As of December 31, 1997, the Partnership employed a total of 39 persons, either
full or part-time at its two motel properties, including ten desk clerks, 24
housekeeping and laundry personnel, three maintenance personnel and two motel
managers.
In addition, and as of the same date, the Partnership employed 11 persons in
administrative positions at its central office in Sacramento, California, all of
whom worked for the Partnership on a part-time basis. They included accounting,
investor service, sales and marketing personnel, motel supervisory personnel,
secretarial personnel, and purchasing personnel. Employed by the Partnership on
a part-time basis are David and Mark Grotewohl, relatives of Philip Grotewohl,
chairman of the General Partner. David Grotewohl, an attorney, is the
Partnership's general counsel and is the Director of Operations. Mark Grotewohl
is the Director of Marketing and Sales.
(c) Property Acquisition and Development
The net proceeds of the offering of the Units, and financing in the amount of
$870,000 (which has since been repaid), was expended in connection with the
acquisition and development of two properties located in San Bernardino and
Bakersfield, California, respectively.
It is the present intention of the General Partner that the proceeds of any sale
or refinancing be distributed to the Limited Partners rather than reinvested.
(d) Competition
As discussed in greater detail below, in each area in which its motel properties
are located the Partnership faces intense competition from motels of varying
quality and size, including other budget motels which are part of nationwide
chains and which have access to nationwide reservation systems.
Super 8 Motels offer accommodations at the upper end, in terms of facilities and
prices, of the budget segment of the lodging industry. Generally, Super 8 Motels
offer larger rooms and higher quality furnishings at higher rates than motels
franchised under the trade-names Motel 6, Western 6, Econolodge, Red Roof Inns
and E-Z 8.
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Item 2. Properties
(a) San Bernardino, California
The San Bernardino motel, which consists of 81 guest rooms on approximately 1.87
acres of land, commenced operations on March 6, 1982. The average monthly
occupancy rates and average monthly room rates during the three most recent
years are as follows:
Annual Averages
1997 1996 1995
------------------------------------
Average Occupancy Rate 53.8% 49.9% 55.3%
Average Room Rate $43.57 $40.23 $40.29
The Partnership's San Bernardino motel provides accommodations to no one
customer, the loss of which could materially affect the Partnership's
operations.
The following lodging facilities provide direct and indirect competition to the
Partnership's San Bernardino motel:
APPROXIMATE
NUMBER DISTANCE
FACILITY OF ROOMS FROM MOTEL
--------------- -------- -------------
Comfort Inn 50 Adjacent
Hilton Inn 200 Across street
La Quinta Motel 154 200 yards
TraveLodge 90 200 yards
EZ-8 Motel 117 0.13 miles
(b) Bakersfield, California
The Bakersfield motel, which consists of 90 guestrooms on approximately 2.32
acres of land, commenced operations on September 20, 1982. The average monthly
occupancy rate and average monthly room rate for the three most recent years are
as follows:
Annual Averages
1997 1996 1995
------------------------------------
Average Occupancy Rate 84.6% 87.2% 85.6%
Average Room Rate $32.35 $30.28 $30.87
4
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From October 1, 1982 to January 31, 1993, an agreement was in effect granting
the Partnership the first opportunity to provide rooms to employees of Santa Fe
Railroad at a room rate of $20.00. Though expired according to its terms, the
contract continues to be observed by both parties, except that the agreed rate
is now $23.00 per room night. Revenue attributable to this agreement constituted
approximately 32%, 31%, and 32% of the motel's total guest revenues during 1997,
1996 and 1995, respectively.
On December 31, 1992, the Partnership entered into a written agreement with the
National Railroad Passenger Corporation (Amtrak) for the provision of lodging
services to its employees at a room rate of $25.75, which included a
transportation credit of $1.75 per room night payable to the Partnership for
providing transportation from the train terminal. Due to competitive bids, the
rate was lowered to $24.00 per room night effective October 1, 1994. Amtrak
provided approximately 24%, 22% and 26% of the motel's guest room revenue in
1997, 1996 and 1995, respectively.
Except as set forth above, the Bakersfield motel provides accommodations to no
one customer, the loss of which could materially affect the Partnership's
operations.
The following lodging facilities provide direct or indirect competition to the
Partnership's Bakersfield motel:
APPROXIMATE
NUMBER DISTANCE
FACILITY OF ROOMS FROM MOTEL
---------------------------------- -------- -----------
California Inn 74 Adjacent
Motel 6 160 0.50 miles
EZ-8 Motel 100 0.50 miles
TraveLodge Plaza 61 0.75 miles
Comfort Inn South 80 0.75 miles
Four Points Inn 199 1.00 mile
Best Western Kern River Motor Inn 200 1.00 mile
La Quinta Inn 150 1.00 mile
Days Inn 120 1.00 mile
Roderunner 49 1.50 miles
Economy Motels of America 140 1.50 miles
Rio Mirada 209 2.00 miles
Comfort Inn 60 2.00 miles
Econo Lodge 100 2.00 miles
Holiday Inn Express 100 6.00 miles
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Item 3. LEGAL PROCEEDINGS
On October 27, 1997 a complaint was filed in the United States District Court,
Eastern District of California by the registrant, the Managing General Partner,
and four other limited partnerships (together with the registrant, the
"Partnerships") as to which the Managing General Partner serves as general
partner (i.e., Super 8 Motels, Ltd., Super 8 Motels II, Ltd., Super 8 Economy
Lodging IV, Ltd., and Famous Host Lodging V, L.P.), as plaintiffs. The complaint
named as defendants Everest/Madison Investors, LLC, Everest Lodging Investors,
LLC, Everest Properties, LLC, Everest Partners, LLC, Everest Properties II, LLC,
Everest Properties, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre
Capital Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citron,
Ronald J. Kravit, and Stephen P. Enquist (the "Everest Defendants"). The factual
basis underlying the plaintiffs' causes of actions pertained 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 Partnerships. The complaint requested the following relief:
(i) a declaration that each of the defendants had violated Sections 13(d), 14(d)
and 14(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder; (ii) a declaration that certain of the defendants had violated
Section 15(a) of the Exchange Act and the rules and regulations thereunder;
(iii) an order permanently enjoining the defendants from (a) soliciting tenders
of or accepting for purchase securities of the Partnerships, (b) exercising any
voting rights attendant to the securities already acquired, (c) soliciting
proxies, and (d) violating Sections 13 or 14 of the Exchange Act or the rules
and regulations promulgated thereunder; (iv) an order enjoining certain of the
defendants from violating Section 15(a) of the Exchange Act and the rules and
regulations promulgated thereunder; (v) an order directing certain of the
defendants to offer to each person who sold securities to such defendants the
right to rescind such sale; and (vi) a declaration that the Partnerships need
not provide to the defendants a list of limited partners in the Partnerships or
any other information respecting the Partnerships which is not publicly
available.
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 Partnerships, as
nominal defendants. The factual basis underlying the causes of action pertained
to the receipt by the defendants of franchise fees and reimbursement of
expenses, the indications of interest made by the plaintiffs in purchasing the
properties of the nominal defendants, and the alleged refusal of the defendants
to provide information required by the terms of the Partnerships' partnership
agreements and California law. The complaint requested the following relief: (i)
a declaration that the action has a proper derivative action; (ii) an order
requiring the defendants to discharge their fiduciary duties to the Partnerships
and to enjoin them from breaching their fiduciary duties; (iii) disgorgement of
certain profits; (iv) appointment of a receiver; and (v) an award for damages in
an amount to be determined.
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On February 20, 1998, the parties entered into a settlement agreement and both
of the above complaints were dismissed. Pursuant to the terms of the settlement
agreement, among other things, the General Partner has agreed to proceed with
the marketing for sale of the properties of the Partnerships, if by June 30,
1998, it receives an offer to purchase one or more properties for a cash price
equal to 75% or more of the appraised value. In addition, the General Partner
has agreed to submit the offer for approval to the limited partners and other
procedures as required by the partnership agreements and applicable law. The
General Partner has also agreed that upon the sale of one or more properties, to
distribute promptly the proceeds of the sale after payment of payables and
retention of reserves to pay anticipated expenses. The Everest Defendants agreed
not to generally solicit the acquisition of any additional units of the
Partnerships without first filing necessary documents with the SEC. Under the
terms of the settlement agreement, the Partnerships have agreed to reimburse the
Everest Defendants for certain costs not to exceed $60,000, to be allocated
among the Partnerships. Of this amount, the Partnership will pay approximately
$12,000 during the year ending December 31, 1998.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
7
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Units are not freely transferable and no public market for the Units has
developed or is expected to develop.
Holders
As of December 31, 1997 a total of 994 individuals (the "Limited Partners") held
Units in the Partnership.
Distributions
Cash distributions are made on a quarterly basis from Cash Available for
Distribution, defined in the Partnership's Certificate and Agreement of Limited
Partnership (the "Partnership Agreement") as Cash Flow, less adequate cash
reserves for obligations of the Partnership for which there is no provision.
Cash Flow means cash funds provided from operations of the Partnership, without
deduction for depreciation, but after deducting cash funds used to pay or
provide for the payment of debt service, capital improvements and replacements
and the operating expenses of the Partnership's property. Of the Cash Available
for Distribution in any year, the General Partner will receive 10% thereof, of
which 9% will constitute a fee for managing the Partnership and 1% will be
attributable to its interest in the profits of the Partnership. The balance will
be distributed to the Limited Partners. Notwithstanding the preceding, the
General Partner will not receive distributions of Cash Available for
Distribution in any year in which the Limited Partners do not receive
distributions of Cash Available for Distribution in an amount at least equal to
10% per annum cumulative on their adjusted capital contributions.
In addition, the Partnership will promptly distribute net proceeds of the sale
and refinancing of its motel properties to the General Partner and the Limited
Partners, to the extent such proceeds are not reinvested in the acquisition of
additional properties. Of the sale or refinancing proceeds available for
distribution in any year, the General Partner will receive 15% thereof, and the
balance will be distributed to the Limited Partners. Notwithstanding the
preceding, the General Partner will not receive distributions of Sale or
Refinancing Proceeds until each Limited Partner has received from all sources
distributions equal to 100% of his capital contributions plus 10% per annum
cumulative on his adjusted capital contribution.
8
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The following distributions of Cash Available for Distribution were made to the
Limited Partners during the years 1996 and 1997:
Total Amount
Date Distribution Per Unit
-------- ------------ --------
8/15/97 $74,263 $12.50
11/15/97 $74,262 $12.50
No distributions of Cash Available for Distribution were made to the General
Partners.
Item 6. SELECTED FINANCIAL DATA
Following are selected financial data of the Partnership for its last five
fiscal years ended December 31, 1997, 1996, 1995, 1994 and 1993.
9
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SUPER 8 MOTELS III, LTD.
Item 6. Selected Financial Data
Years Ended December 31:
-----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
Guest Room
Income $1,592,209 $1,464,850 $1,526,742 $1,625,581 $1,734,535 $1,622,825
Net Income(Loss)$117,093 $1,116 $68,750 $33,851 $49,083 $(31,203)
Per Partnership Unit:
Cash
distributions $148,525 $ - $ - $ - $ - $25.00
Net income(loss) $19.52 $.19 $11.46 $5.64 $8.18 $(5.20)
December 31:
-----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
Total Assets $3,259,069 $3,237,869 $3,411,456 $3,632,719 $3,793,456 $3,852,557
Long-Term Debt $ - $ - $75,493 $390,484 $595,214 $724,636
10
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity
The General Partner believes that the Partnership's liquidity, defined as its
ability to generate cash to satisfy its cash needs, is adequate. The
Partnership's primary source of liquidity is its cash flow from operations. As
of December 31, 1997 the Partnership had current assets of $471,628 and current
liabilities of $116,417, providing an operating reserve of $355,211. This
reserve is greater than the $297,050 reserve target required by the Partnership
Agreement.
The liquidity of the Partnership is enhanced by the fact that both the San
Bernardino and Bakersfield motels are presently unencumbered. Although the
General Partner knows of no trend likely to create a material deficiency in the
Partnership's liquidity, if the need arises, leveraging the properties
constitutes a potential source of liquidity.
The properties may be sold pursuant to Item 3 above.
Capital Resources
The Partnership has no material commitments for capital expenditures. However,
the General Partner anticipates that, if the Partnership retains its properties,
during 1998 the Partnership will spend an as yet undetermined amount for the
refurbishment of its motels and their furnishings. In particular, the
Bakersfield motel needs painting and roof repairs.
During the fiscal year covered by this report, the Partnership expended $66,721
for renovations and replacements of which $36,441 was capitalized. This amount
included $18,629 for guestroom carpets, $8,021 for two ice machines, $4,255 for
tub refurbishing, $5,099 for replacement bedspreads, $6,323 for replacement air
conditioners and $4,524 for replacement televisions.
During the fiscal year ended December 31, 1996, the Partnership expended $70,718
of which $24,711 was capitalized. This amount included $21,900 for parking lot
resurfacing at the Bakersfield motel, $15,348 for computer systems, $7,345 for
guest room carpets, $6,218 for re-keying, $5,365 for tub refurbishing, $5,006
for replacement bedspreads and $3,702 for replacement televisions.
The General Partner knows of no material trends likely to affect or to require a
change in the mix of its capital resources except as discussed in Part III
below.
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Results of Operations
Combined Financial Results
The following tables summarize the operating results of the Partnership for the
fiscal years ended December 31, 1997, 1996 and 1995 on a combined basis. The
results of the individual properties follow in separate subsections. The income
and expense numbers in the following table are shown on an accrual basis and
other payments on a cash basis.
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
------------------ --------- -------
December 31, 1995 71.3% $34.33
December 31, 1996 69.5% $33.66
December 31, 1997 70.0% $36.43
Total
Expenditures Partnership
Total and Cash Flow
Fiscal Year Ended: Revenues Debt Service (1)
- ------------------ ---------- ------------ ------------
December 31, 1995 $1,571,111 $1,671,151 $(100,040)
December 31, 1996 $1,510,262 $1,515,375 $(5,113)
December 31, 1997 $1,641,860 $1,408,696 $233,164
(1) While Partnership Cash Flow as it is used here is not an amount found in the
financial statements, this amount is the best indicator of the annual change in
the amount, if any, available for distribution to the Limited Partners. This
calculation is reconciled to the financial statement in the following table.
Reconciliation of Partnership Cash Flow (included in the chart above) to Net
Income as shown on the Statements of Operations (in the financial statements) is
as follows:
1997 1996 1995
---------- --------- ----------
Partnership Cash Flow $233,164 $(5,113) $(100,040)
Principal Payments on Financial Obligations 0 153,456 285,133
Additions to Fixed Assets 36,441 24,711 45,880
Depreciation and Amortization (151,769) (162,569) (164,599)
Other Items (743) (9,369) 2,376
---------- --------- ----------
Net Income $117,093 $1,116 $68,750
========== ========= ==========
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Following is a reconciliation of the Partnership Cash Flow (shown above) to the
aggregate total of Cash Flow from Property Operations for the Partnership's two
motels which are segregated in the tables below under the captions "San
Bernardino Motel" and "Bakersfield Motel".
1997 1996 1995
---------- ---------- ----------
San Bernardino Motel $82,590 $20,090 $41,110
Bakersfield Motel 134,412 (34,512) (159,959)
---------- ---------- ----------
Aggregate Cash Flow from Property Operations $217,002 ($14,422) (118,849)
Interest on Cash Reserves 13,116 8,288 10,071
Other Partnership Income (net of Other
Expenses) not allocated to the properties 3,046 1,019 8,738
---------- ---------- ----------
Partnership Cash Flow $233,164 $(5,113) $(100,040)
========== ========== ==========
The Partnership achieved a $131,598 or 8.7% increase in total revenues during
the fiscal year covered by this report as compared to the previous fiscal year.
The increase in revenue is due to the net effect of slightly increased room
rates at both motels and significantly reduced occupancy rates at the
Bakersfield motel. The San Bernardino market has improved in 1997 as compared to
the previous fiscal year.
The Partnership experienced a $60,849 or 3.9% decrease in total revenues during
the fiscal year ended December 31, 1996 as compared to the previous fiscal year.
The decrease in revenue is due to slightly reduced room rates at both motels and
to significantly reduced occupancy at the San Bernardino motel. These conditions
are related to the high level of competition in the Bakersfield market and to
poor economic conditions in the San Bernardino market.
The Partnership achieved a $106,679 or 7.0% decrease in the total expenditures
and debt service during the fiscal year covered by this report as compared to
the previous fiscal year. This increase is due primarily to the liquidation of
the Bakersfield motel's loan during 1996.
The Partnership achieved a $155,776 or 9.3% reduction in the total expenditures
and debt service during the fiscal year ended December 31, 1996 as compared to
the previous fiscal year. This reduction is due primarily to the comparatively
smaller payments necessary to liquidate the Bakersfield motel's loan and to
lower payments for renovations and replacements.
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San Bernardino Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
------------------ --------- -------
December 31, 1995 55.3% $40.29
December 31, 1996 49.9% $40.23
December 31, 1997 53.8% $43.57
Total Cash Flow
Expenditures from
Total and Property
Fiscal Year Ended: Revenues Debt Service Operations
------------------ ---------- ------------ ----------
December 31, 1995 $678,561 $637,451 $41,110
December 31, 1996 $615,471 $595,381 $20,090
December 31, 1997 $717,895 $635,305 $82,590
The Partnership's San Bernardino motel achieved a $102,424 or 16.6% increase in
total revenues during the fiscal year covered by this report as compared to the
previous fiscal year. The increased revenue was primarily in guestroom revenue
and was realized by increased business in the corporate market segment.
The Partnership's San Bernardino motel experienced a $63,090 or 9.3% decrease in
total revenues during the fiscal year ended December 31, 1996 as compared to the
previous fiscal year. Guestroom revenue from the leisure market segment
decreased approximately $68,000 while the revenue from the other market segments
remained substantially unchanged.
The San Bernardino motel experienced a $39,924 or 6.7% increase in total
expenditures during the fiscal year covered by this report as compared to the
previous fiscal year. These expenditure increases included $14,184 in increased
resident manager costs reflecting a management change, $9,987 in increased
franchise and management fees costs associated with the increased guestroom
revenue and $6,808 in increased renovation expenses.
The San Bernardino motel achieved a $42,070 or 6.6% reduction in total
expenditures during the fiscal year ended December 31, 1996 as compared to the
previous fiscal year. These expenditure reductions included $13,573 in reduced
property taxes from a property tax appeal, $14,602 in reduced resident manager
costs, $6,054 in lower housekeeping wages and $9,861 in reduced renovation
expenses. These reductions were partially offset by $7,250 in increased
appraisal costs and by $7,609 of increased workers' compensation insurance.
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Bakersfield Motel
Average Average
Occupancy Room
Fiscal Year Ended: Rate Rate
------------------ --------- --------
December 31, 1995 85.6% $30.87
December 31, 1996 87.2% $30.28
December 31, 1997 84.6% $32.35
Total Cash Flow
Expenditures from
Total and Property
Fiscal Year Ended: Revenues Debt Service Operations
----------------- ---------- ------------ -----------
December 31, 1995 $882,261 $1,042,220 $(159,959)
December 31, 1996 $885,403 $919,915 $(34,512)
December 31, 1997 $910,849 $776,437 $134,412
The Bakersfield motel achieved a $25,446 or 2.9% increase in total revenues
during the fiscal year covered by this report as compared to the previous fiscal
year. Guestroom revenue increased $30,045 due to increased average daily rates
from $30.28 in 1996 to $32.35 in 1997. This increased revenue was partially
offset by a decrease in occupancy from 87.2% in 1996 to 84.6% in 1997. The
railroad contracts were essentially unchanged, while rate increases were
achieved in other market segments with a slight decline in rooms sold.
The Bakersfield motel achieved a $3,142 (0.4%) increase in total revenues during
the fiscal year ended December 31, 1996 as compared to the previous fiscal year.
Guestroom revenue was substantially unchanged as the increase in occupancy was
mostly offset by the decrease in average room rate. Decreased corporate and
leisure market segment business was offset by increased contract rooms to the
Santa Fe Railroad and to Amtrak.
The Partnership's Bakersfield motel experienced a $143,478 or 15.6% decrease in
total expenses and debt service during the fiscal year covered by this report as
compared to the previous fiscal year. The loan that was secured by the
Bakersfield property was liquidated in 1996.
The Partnership's Bakersfield motel experienced a $122,305 (11.7%) decrease in
total expenses and debt service during the fiscal year ended December 31, 1996
as compared to the previous fiscal year. The $152,300 reduction in mortgage
payments was partially offset by increased expenditures of $7,250 for appraisal
fees, of $5,460 for workers' compensation insurance and $5,329 for increased
supplies.
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Future Trends
The General Partner believes that competitive conditions in the San Bernardino
and Bakersfield markets are such as to prevent the Partnership from reflecting
inflation in increased room rates at its motels. Accordingly, an increase in the
inflation rate could have a deleterious effect on Partnership operations.
The properties may be sold pursuant to Item 3 above.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements attached hereto at
pages F-1 through F-12.
16
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ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS
SUPER 8 MOTELS III, LTD.
SACRAMENTO, CALIFORNIA
DECEMBER 31, 1997
F-1
<PAGE>
Item 8: Financial Statements
SUPER 8 MOTELS III, LTD.
INDEX OF FINANCIAL STATEMENTS
Pages
-----
Report of Independent Certified Public Accountants F-3
Balance Sheets, December 31, 1997 and 1996 F-4
Statements of Operations for the years ended December 31, 1997,
1996 and 1995 F-5
Statements of Partners' Equity for the years ended December 31,
1997, 1996 and 1995 F-6
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 F-7 to
F-8
Notes to Financial Statements F-9 to
F-12
Note: All schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedules or because the information required is included in the financial
statements or notes thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Super 8 Motels III, Ltd.
We have audited the accompanying balance sheets of Super 8 Motels III, Ltd., a
California limited partnership, as of December 31, 1997 and 1996, and the
related statements of operations, partners' equity, and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Super 8 Motels III, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
February 26, 1998
San Mateo, California
F-3
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
---------- ----------
Current Assets:
Cash and temporary investments (Notes 1, 3 and 6) $ 362,215 $ 254,782
Accounts receivable 100,184 68,114
Prepaid expenses 9,229 11,341
---------- ----------
Total Current Assets 471,628 334,237
---------- ----------
Property and Equipment (Note 2):
Land 1,670,129 1,670,129
Capital improvements 26,175 26,175
Buildings 3,276,870 3,276,870
Furniture and equipment 782,439 756,837
---------- ----------
5,755,613 5,730,011
Accumulated depreciation and amortization (2,968,172) (2,826,379)
---------- ----------
Property and Equipment, Net 2,787,441 2,903,632
---------- ----------
Total Assets $3,259,069 $3,237,869
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 105,668 $ 62,020
Due to related parties 10,749 1,765
---------- ----------
Total Current Liabilities 116,417 63,785
---------- ----------
Total Liabilities 116,417 63,785
---------- ----------
Partners' Equity:
General Partner 20,376 19,205
Limited Partners 3,122,276 3,154,879
---------- ----------
Total Partners' Equity 3,142,652 3,174,084
---------- ----------
Total Liabilities and Partners' Equity $3,259,069 $3,237,869
========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended December 31:
------------------------------------
1997 1996 1995
---------- ---------- ----------
Income:
Guest room $1,592,209 $1,464,850 $1,526,742
Telephone and vending 33,356 34,128 32,654
Interest 13,116 8,288 10,071
Other 3,178 2,996 1,644
---------- ---------- ----------
Total Income 1,641,859 1,510,262 1,571,111
---------- ---------- ----------
Expenses:
Motel operations (Notes 4 and 5) 1,164,112 1,189,294 1,174,475
General and administrative (Note 4) 127,448 74,474 57,956
Depreciation and amortization (Note 2) 151,769 162,569 164,599
Interest - 7,765 27,290
Property management fees (Note 4) 81,437 75,044 78,041
---------- ---------- ----------
Total Expenses 1,524,766 1,509,146 1,502,361
---------- ---------- ----------
Net Income $ 117,093 $ 1,116 $ 68,750
========== ========== ==========
Net Income Allocable to General Partner $1,171 $11 $688
======== ======== ========
Net Income Allocable to Limited Partners $115,922 $1,105 $68,062
======== ======== ========
Net Income Per Partnership Unit (Note 1) $19.52 $.19 $11.46
======== ======== ========
Distributions to Limited Partners Per
Partnership Unit (Note 1) $25.00 $ - $ -
======== ======== ========
See accompanying notes to financial statements.
F-5
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31:
------------------------------------
1997 1996 1995
---------- ---------- ----------
General Partner:
Balance, beginning of year $ 19,205 $ 19,194 $ 18,506
Net income 1,171 11 688
---------- ---------- ----------
Balance, End of Year 20,376 19,205 19,194
---------- ---------- ----------
Limited Partners:
Balance, beginning of year 3,154,879 3,153,774 3,085,712
Net Income 115,922 1,105 68,062
Cash Distributions (148,525) - -
---------- ---------- ----------
Balance, End of Year 3,122,276 3,154,879 3,153,774
---------- ---------- ----------
Total Partners' Equity $3,142,652 $3,174,084 $3,172,968
========== ========== ==========
See accompanying notes to financial statements.
F-6
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31:
------------------------------------
1997 1996 1995
---------- ---------- ----------
Cash Flows From Operating Activities:
Received from motel operations $1,596,674 $1,505,571 $1,575,015
Expended for motel operations and
general and administrative expenses (1,317,510) (1,359,033) (1,313,408)
Interest received 13,115 9,401 9,154
Interest paid - (9,044) (29,666)
---------- ---------- ----------
Net Cash Provided by
Operating Activities 292,279 146,895 241,095
---------- ---------- ----------
Cash Flows From Investing Activities:
Proceeds from sale of equipment 120 500 5,366
Purchases of property and equipment (36,441) (24,711) (45,880)
---------- ---------- ----------
Net Cash Used by Investing Activities (36,321) (24,211) (40,514)
---------- ---------- ----------
Cash Flows From Financing Activities:
Distributions paid to limited partners (148,525) - -
Payments on notes payable - (153,456) (285,134)
---------- ---------- ----------
Net Cash Used by Financing Activities (148,525) (153,456) (285,134)
---------- ---------- ----------
Net Increase (Decrease) in Cash and
Temporary Investments 107,433 (30,772) (84,553)
Cash and Temporary Investments:
Beginning of year 254,782 285,554 370,107
---------- ---------- ----------
End of Year $ 362,215 $ 254,782 $ 285,554
========== ========== ==========
See accompanying notes to financial statements.
F-7
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31:
------------------------------------
1997 1996 1995
---------- ---------- ----------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $117,093 $ 1,116 $ 68,750
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 151,769 162,569 164,599
(Gain) loss on disposition of
property and equipment 743 (500) 433
Decrease in accounts receivable (32,070) 4,710 13,058
(Increase) decrease in prepaid expenses 2,112 247 (866)
Increase (decrease) in accounts payable
and accrued liabilities 43,648 (23,012) 3,033
Increase (decrease) in due to
related parties 8,984 1,765 (7,912)
---------- ---------- ----------
Total Adjustments 175,186 145,779 172,345
---------- ---------- ----------
Net Cash Provided by
Operating Activities $292,279 $146,895 $241,095
========== ========== ==========
See accompanying notes to financial statements.
F-8
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Super 8 Motels III, Ltd. is a limited partnership organized under California law
on June 2, 1980 to acquire and operate motel properties in San Bernardino and
Bakersfield, California. The term of the Partnership expires December 31, 2030,
and may be dissolved earlier under certain circumstances. The San Bernardino
motel was opened in March, 1982, and the Bakersfield motel was opened in
September, 1982. The Partnership grants credit to customers, substantially all
of which are local businesses in San Bernardino or Bakersfield.
The general partner is Grotewohl Management Services, Inc., the fifty percent
stockholder and officer of which is Philip B. Grotewohl.
The net income or net loss of the Partnership is allocated 1% to the General
Partner and 99% to the Limited Partners. Net income and distributions per
Partnership unit are based on 5,941 units outstanding. All Partnership units are
owned by the Limited Partners.
The Partnership agreement requires that the Partnership maintain working capital
reserves for normal repairs, replacements, working capital and contingencies in
an amount of at least 5% of adjusted capital contributions ($297,050 at December
31, 1997). As of December 31, 1997 the Partnership had working capital of
$355,211.
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. At December 31, 1997, assets and liabilities on a tax basis were
approximately $1,000,000 lower than on a book basis due to accelerated
depreciation methods used for tax purposes.
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 150-200% declining balance 10-20 years
Buildings Straight-line and 10-25 years
150% declining balance
Furniture and equipment 200% declining balance 4-7 years
Costs incurred in connection with maintenance and repair are charged to expense.
Major renewals and betterments that materially prolong the lives of assets are
capitalized.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
F-9
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of December 31, 1997 and 1996 consists of the
following:
--1997-- --1996--
Cash in bank $ 44,675 $ 43,305
Money market accounts 317,540 211,477
-------- --------
Total Cash and Temporary Investments $362,215 $254,782
======== ========
Temporary investments are recorded at cost, which approximates market value. The
Partnership considers temporary investments and all highly liquid marketable
securities with original maturities of three months or less to be cash
equivalents for purposes of the statement of cash flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
Franchise Fees
Super 8 Motels, Inc., now a wholly-owned subsidiary of Hospitality Franchise
Systems, Inc., is franchisor of all Super 8 Motels. The Partnership pays to the
franchisor monthly fees equal to 4% of the gross room revenues of each motel and
contributes an additional 1% of its gross room revenues to an advertising fund
administered by the franchisor. In return, the franchisor provides the right to
use the name "Super 8," a national institutional advertising program, an advance
room reservation system, and inspection services. These costs ($79,610, $73,242
and $76,337 for the years ended December 31, 1997, 1996 and 1995, respectively)
are included in motel operations expense in the accompanying statements of
operations. The Partnership operates its motel properties as a franchisee of
Super 8 Motels, Inc., through a sub-franchise agreement with Brown & Grotewohl,
a California general partnership, of which Grotewohl Management Services, Inc.
(see Note 1) is a 50% owner. Under the sub-franchise agreement, Brown &
Grotewohl earned 40% of the above franchise fees, which amounted to $31,844,
$29,297 and $30,535 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Property Management Fees
The General Partner, or its affiliates, handles the management of the motel
properties of the Partnership. The fee for this service is 5% of the gross
revenues from Partnership operations, as defined in the Partnership agreement,
and amounted to $81,437, $75,044 and $78,041 for the years ended December 31,
1997, 1996 and 1995, respectively.
Subordinated Partnership Management Fees
During the Partnership's operational stage, the General Partner is to receive 9%
of cash available for distributions for Partnership management services, along
with an additional 1% of cash available for distributions on account of its
interest in the profit and losses subordinated in each case, however, to receipt
by the Limited Partners of a 10% per annum cumulative pre-tax return on their
adjusted capital contributions. At December 31, 1997, the Limited Partners had
not received the 10% cumulative return, and accordingly, no Partnership
management fees are presently payable and therefore are not reflected in these
financial statements. Management believes it is not likely that these fees will
become payable in the future. 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 a refinancing. As of December 31, 1997, the cumulative amount of these
fees was $438,290. F-10
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
Subordinated Incentive Distributions
Under the terms of the Partnership agreement, the General Partner is to receive
15% of distributions of net proceeds from the sale or refinancing of Partnership
properties remaining after distribution to the Limited Partners of any portion
thereof required to cause distributions to the Limited Partners from all sources
to be equal to their capital contributions plus a cumulative 10% per annum
pre-tax return on their adjusted capital contributions. Through December 31,
1997, there had been no such sales or refinancings.
Administrative Expenses Shared by the Partnership and Its Affiliates There are
certain administrative expenses allocated between the Partnership and other
partnerships managed by the General Partner and its affiliates. These expenses,
which are allocated based on usage are telephone, data processing, rent of the
administrative office, and administrative salaries. The administrative expenses
allocated to the Partnership were approximately $230,000, $225,000 and $223,000
during the years ended December 31, 1997, 1996 and 1995, respectively, and are
included in general and administrative and motel operating expenses in the
accompanying statements of operations. Included in administrative salaries are
allocated amounts paid to two employees who are related to Philip B. Grotewohl,
the fifty percent stockholder of Grotewohl Management Services, Inc., the
General Partner.
NOTE 5 - MOTEL OPERATING EXPENSES
The following table summarizes the major components of motel operating costs for
the following years:
1997 1996 1995
---------- ---------- ----------
Salaries and related costs $ 454,635 $ 447,181 $ 441,334
Franchise and advertising fees 79,610 73,242 76,337
Utilities 111,274 111,366 121,969
Allocated costs, mainly
indirect salaries 186,004 184,064 181,607
Renovations and replacements 30,280 46,007 35,740
Other operating expenses 302,309 327,434 317,488
---------- ---------- ----------
Total motel operating expenses $1,164,112 $1,189,294 $1,174,475
========== ========== ==========
NOTE 6 - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash accounts in four commercial banks located in
California. Accounts at each bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000 per bank. A summary of the total
insured and uninsured cash balances (not reduced by outstanding checks) as of
December 31, 1997 follows:
F-11
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 - CONCENTRATION OF CREDIT RISK (Continued)
Total cash in all California banks $406,606
Portion insured by the FDIC (359,665)
--------
Uninsured cash balances $ 46,941
========
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and temporary investments approximates fair value
because of the short-term maturity of those investments.
NOTE 8 - LEGAL PROCEEDINGS AND SUBSEQUENT EVENT
On October 27, 1997, a complaint was filed in the United States District Court
by the Managing General Partner naming as defendants Everest/Madison Investors,
LLC, Everest Lodging Investors, LLC, Everest Properties II, LLC, Everest
Properties, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre Capital
Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citron, Ronald J.
Kravit, and Stephen P. Enquist. The complaint alleged that the defendants
violated certain provisions of the Securities Exchange Act of 1934 and sought
injunctive and declarative relief.
On October 28, 1997, a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC as plaintiffs against the General Partners of the
Partnership and four other partnerships which have common general partners as
nominal defendants. The complaint pertained to the receipt by the defendants of
franchise fees and reimbursement of expenses, the indications of interest made
by the plaintiffs in purchasing the properties of the nominal defendants, and
the alleged refusal of the defendants to provide information required by the
terms of the Partnership's partnership agreement and California law.
On February 20, 1998, the parties entered into a settlement agreement and both
of the above complaints were dismissed. Pursuant to the terms of the settlement
agreement, the General Partner has agreed to proceed with the marketing for sale
of the properties of the Partnerships, among other things, if by June 30, 1998,
it receives an offer to purchase one or more properties for a cash price equal
to 75% or more of the appraised value. In addition, the General Partner has
agreed to submit the offer for approval to the limited partners as required by
the partnership agreements and applicable law. The General Partner has also
agreed that upon the sale of one or more properties, to distribute promptly the
proceeds of the sale after payment of payables and retention of reserves to pay
anticipated expenses. The Everest Defendants agreed not to generally solicit the
acquisition of any additional units of the Partnerships without first filing
necessary documents with the SEC. Under the terms of the settlement agreement,
the Partnerships have agreed to reimburse the Everest Defendants for certain
costs not to exceed $60,000, to be allocated among the Partnerships. Of this
amount, the Partnership will pay approximately $12,000 during the year ended
December 31, 1998.
F-12
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The original general partners of the Partnership were Dennis A. Brown and Philip
B. Grotewohl, as the managing general partners, and Borel Associates (a
partnership of which Robert J. Dana was a partner), as the associate general
partner. Upon Mr. Brown's death on February 25, 1988, Mr. Grotewohl and Borel
Associates elected to continue the Partnership. During March 1988, Mr. Grotewohl
appointed Grotewohl Management Services, Inc., a California corporation, his
successor as General Partner. Upon the liquidation of Borel Associates in April
1990, Grotewohl Management Services, Inc., as the sole remaining General
Partner, elected to continue the Partnership.
The General Partner was organized in 1981 to serve as a general partner of
limited partnerships to be formed for the purpose of investing in Super 8
Motels. Mr. Grotewohl is a 50% shareholder, the sole director and the sole
officer of the General Partner.
Mr. Grotewohl, age 79, is an attorney-at-law and was engaged in the private
practice of law in San Mateo County, California, between 1967 and 1978. Since
1978, Mr. Grotewohl's principal occupation has been as a promoter and general
partner of Super 8 Motels limited partnerships.
See Item 3, "Legal Proceedings."
Item 11. EXECUTIVE COMPENSATION
Although Mr. Brown ceased to be a general partner of the Partnership upon his
death, a trust of Mr. Brown shares in certain of the compensation otherwise
payable to the General Partner and its affiliates. Similarly, although Borel
Associates ceased to have any interest in the Partnership upon its dissolution,
Mr. Dana continues to share in such compensation.
The following is a description of the fees paid or payable to the General
Partner, the Brown trust and Mr. Dana.
Property Management Fees
The Manager is managing and will manage all motel properties of the Partnership.
The fee for this service is 5% of the gross proceeds from the operations of each
motel. This compensation is in addition to the cost of compensating the
Partnership's employees and the cost of goods and services acquired for the
Partnership from independent contractors.
The Partnership accrued and paid such fees to the Manager in the amount of
$81,437 during the year ended December 31, 1997.
17
<PAGE>
Franchise Fees and Advertising Fees
The Partnership operates its motels as a franchisee of Super 8 Motels, Inc.,
pursuant to sub-franchises from the Manager. In connection with the operation of
each of its motels, the Partnership, as franchisee, pays 4% of its gross room
revenues to the franchisor. One-half of the franchise fee is paid to the
Manager. In addition to the franchise fee, the Partnership pays 1% of its gross
room revenues to the franchisor as an advertising fee. No part of this fee is
paid to the Manager.
The total of franchise fees accrued during the year ended December 31, 1997 to
Super 8 Motels, Inc. was $63,688, of which $31,844 accrued to the Manager. The
total advertising fees paid to Super 8 Motels, Inc. was $15,922. All the above
amounts have been paid.
General Partner's Interest in Cash Available for Distribution
At quarterly intervals, the total amount of the Partnership's Cash Available for
Distribution is determined at the discretion of the General Partner. (See Item 5
above.) Distributions therefrom are made as follows: (1) 90% of such
distributions are paid to the Limited Partners; (2) 9% thereof is paid to the
General Partner as Partnership management fees; and (3) 1% thereof is paid to
the General Partner in accordance with its interest in the income and losses of
the Partnership.
Notwithstanding the foregoing, however, distributions of Cash Available for
Distribution which would otherwise be paid to the General Partner are deferred
and paid only after payment to the Limited Partners of distributions of Cash
Available for Distribution in an amount equal to a 10% per annum cumulative
return on their adjusted capital contributions.
No such cash distributions were paid by the Partnership to the General Partner
during the fiscal year ended December 31, 1997. A total of $438,290 has been
accrued to the General Partner since commencement of the Partnership, but is not
set forth as a liability in the Partnership's financial statements due to the
uncertainty of payment. In order for this amount to be payable the Limited
Partners must receive $5,636,161 in prior years' preference distributions and
$594,100 in each future year before any payments can be made to management.
General Partner's Interest in Net Proceeds of Sales, Financing and Refinancing
of Partnership Properties
The proceeds from the sale or refinancing of properties not reinvested are to be
distributed first to the Limited Partners until they have received cumulative
payments from all distribution sources equal to 100% of their original capital
contributions and a cumulative 10% per annum return on their adjusted capital
contributions. When the foregoing requirement has been satisfied, any remaining
funds from the sale or refinancing of properties is to be distributed 15% to the
General Partner and 85% to the Limited Partners.
No such distributions were paid or accrued for the account of the General
Partner during the fiscal year covered by this report.
18
<PAGE>
Allocation of General Partners' Interest
Compensation to the General Partners and their affiliates in the form of
franchise fees and property management fees is allocated 1/3 each to the Brown
trust, the General Partner and Robert J. Dana.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
AMOUNT AND
TITLE NATURE OF
OF BENEFICIAL PERCENT
CLASS NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
-----------------------------------------------------------------------
Units Everest Lodging Investors, LLC 216 Units 3.64%
Units Everest Madison Investors, LLC 280 Units 4.71%
Units KM Investments 50 Units .84%
------
Total 496 Units 9.19%
======
Security Ownership of Management
The General Partner is not the beneficial owner of any Units.
Changes in Control
With the consent of all other General Partners and Limited Partners holding more
than 50% of the Units, a General Partner may designate a successor or additional
general partner, in each case with such participation in such General Partner's
interest as such General Partner and successor or additional general partner may
agree upon, provided that the interests of the Limited Partners are not affected
thereby.
A General Partner may withdraw from the Partnership at any time upon 60 days'
prior written notice to the Limited Partners and any other General Partners, or
may transfer his interest to an entity controlled by him; provided, however,
that in either such event, if it is determined that the Partnership business is
to be continued rather than dissolved and liquidated upon the happening thereof,
the withdrawal or transfer will be effective only after receipt by the
Partnership of an opinion of counsel to the effect that such withdrawal or
transfer will not cause the Partnership to be classified as an association
taxable as a corporation rather than as a partnership for federal income tax
purposes.
19
<PAGE>
The Limited Partners shall take no part in the management of the Partnership's
business; however, a majority in interest of the Limited Partners, without the
concurrence of the General Partner, shall have the right to amend the
Partnership Agreement, dissolve the Partnership, remove a General Partner or any
successor general partner, elect a new general partner or general partners upon
the removal, retirement, death, insanity, insolvency or bankruptcy of a General
Partner, and approve or disapprove the sale, exchange or pledge in a single
transaction of all or substantially all of the properties acquired by the
Partnership.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative Expenses Shared by the Partnership and its Affiliates
There are certain administrative expenses allocated between the Partnership and
other partnerships managed by the General Partner and its affiliates. These
expenses, which are allocated based on usage, are telephone, data processing,
rent of administrative offices and administrative salaries. The administrative
expenses allocated to the Partnership were approximately $230,000 in 1997 are
included in general and administrative expenses and motel operations expenses in
the Partnership's financial statements. Included in administrative salaries are
allocated amounts paid to two employees who are related to Philip B. Grotewohl,
the 50% shareholder of the General Partner.
20
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements Included in Part II of this Report
Report of Independent Certified Public Accountants
Balance Sheets, December 31, 1997 and 1996
Statements of Operations for the Years Ended December 31, 1997,
1996 and 1995 Statements of Partners' Equity for the Years Ended
December 31, 1997, 1996 and 1995 Statements of Cash Flow for the
Years Ended December 31, 1997, 1996 and 1995 Notes to Financial
Statements
2. Financial Statement Schedules Included in this Report
None
3. Exhibits
3.1 and 4.1 The Partnership Agreement filed as Exhibits 3.1 and 4.1
to the annual report on Form 10-K for the fiscal year ended December
31, 1994 is incorporated herein by reference.
3.2 & 4.2 The Amendment to Partnership Agreement, included as
Exhibit 3.2 & 4.2 to the annual report on Form 10-K for the fiscal
year ended December 31, 1989 is incorporated herein by reference.
Exhibits 10.1 through 10.4, filed as Exhibits 10.1 through 10.4,
respectively, to the annual report on Form 10-K for the fiscal year
ended December 31, 1989 are hereby incorporated herein by reference.
10.1 Santa Fe Railway Agreement with the Partnership's Bakersfield
Motel.
10.2 Amtrak Contract with the Partnership's Bakersfield Motel.
10.3 Franchise Agreement for the Bakersfield Property.
10.4 Franchise Agreement for the San Bernardino Property.
10.5 Amtrak Contract Amendment filed as Exhibit 10.5 to the annual
report on Form 10-K for the fiscal year ended December 31, 1994 is
incorporated herein by reference. 10.5 Amtrak Contract Amendment
filed as Exhibit 10.5 to the annual report on Form 10-K for the
fiscal year ended December 31, 1994 is incorporated herein by
reference.
(b) Reports on Form 8-K
A current report on form 8-K dated November 13, 1997 was filed reporting an
"Other Event" under Item 5. No financial statements were included therein.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant) SUPER 8 MOTELS III, LTD.
By (Signature and Title) /s/ Philp B. Grotewohl
------------------------
Philip B. Grotewohl,
Chairman of Grotewohl Management Services, Inc.,
General Partner
Date March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By (Signature and Title) /s/ Philp B. Grotewohl
------------------------
Philip B. Grotewohl,
Chief financial officer, chief accounting
officer and sole director of Grotewohl
Management Services, Inc.,
General Partner
Date March 27, 1998
22
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 362,215
<SECURITIES> 0
<RECEIVABLES> 100,184
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 471,628
<PP&E> 5,755,613
<DEPRECIATION> 2,968,172
<TOTAL-ASSETS> 3,259,069
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0
0
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<CGS> 1,164,112
<TOTAL-COSTS> 1,164,112
<OTHER-EXPENSES> 360,654
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</TABLE>
