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 III, Ltd., a California limited partnership
(Name of Registrant as Specified In Its Charter)
- - -------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction
applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
Purchase price for registrant's property
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4) Proposed maximum aggregate value of transaction:
$2,900,000
5) Total fee paid:
$580
[ ] 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 III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
May ____, 1998
SOLICITATION OF CONSENTS
The limited partners (the "Limited Partners") of SUPER 8 MOTELS III,
LTD., a California limited partnership (the "Partnership"), are being asked to
consider and approve by written consent the proposed sale of all of the
Partnership's interests in real property and related personal property (the
"Properties"), which proposal is described hereinafter. 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 GENERAL PARTNER OF THE PARTNERSHIP (THE "GENERAL PARTNER").
This Information Statement and the enclosed Consent were first sent to the
Limited Partners on or about May __, 1998.
Units of limited partnership interest in the Partnership (the "Units")
represented by Consents duly executed and returned to the Partnership on or
before July __, 1998 (unless extended by the General Partner pursuant to notice
mailed to the Limited Partners) will be voted or not voted in accordance with
the instructions contained therein. If no instructions for the proposal are
given on an executed and returned Consent, Units so represented will be voted in
favor of the proposal. The 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 General Partner,
either in person or by telephone or telegram.
REASONS FOR THE PROPOSAL
The Partnership was formed in 1980 and its two motel properties located
in San Bernardino and Bakersfield, California opened for business in 1982.
This Information Statement has been prepared to ask the Limited
Partners to approve the sale of the Properties for cash in the amount of the
aggregate appraised fair market values of $2,900,000.
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It has always been the intention of the Partnership to liquidate the
Properties when it became apparent that the best interests of the Limited
Partners would be served by doing so. The General Partner has received inquiries
over the years as to when the Properties were to be sold and the Partnership
liquidated. Its response, until recently, has been that because of overbuilt and
depressed motel market conditions, the time was not right for a sale of the
Properties. Conditions have changed, and the General Partner believes that the
Properties should be sold now and the Partnership liquidated.
During September and October 1997, Everest Property 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 Properties and
the motel properties of four other California limited partnerships as to which
the General Partner serves as general partner (the "GMS Partnerships"). The
purchase price for the Properties set forth in the October offer was $1,418,595,
a price far below $2,900,000, the recent appraised value and the price offered
in the current proposal. The General Partner rejected the prior offer, and a
conflict between the Everest Group and the Partnership arising out of the
rejection resulted in lawsuits. Inasmuch as the General Partner agreed with the
Everest Group in principle that the Properties should be sold, a settlement was
reached whereby, among other things, the General Partner agreed to take steps to
sell the Properties, and the lawsuits were dismissed.
As discussed more fully below under "Appraisal of the Properties," the
Properties have been appraised by PKF Consulting, a highly-respected national
hospitality industry specialist. Its conclusion is that the aggregate fair
market value of the Properties is $2,900,000, which is the proposed purchase
price of the Properties. The purchase price is to be paid in cash, and the net
proceeds thereof will be distributed in accordance with the Partnership
Agreement upon the close of the sales transactions and the concomitant
dissolution of the Partnership. Termination of the Partnership will occur as
soon as the winding up process can be completed.
The General Partner is recommending the approval of the transaction by
the Limited Partners for the following reasons:
The General Partner believes that the sale value of the Properties is now
at the crest of a seller's market which may not last much longer. Although
there can be no assurance that the Properties' value will not increase over
time, the General Partner believes that within the next five years only
modest increases in the Properties' value can be expected to occur. This
belief is substantiated by the appraisals. The General Partner believes
that now is the time to sell the Properties.
Although the motels are in good condition, they are 16 years old and have
never been refurbished. If the Properties are to be retained, it would be
necessary for the Partnership to spend large sums for their refurbishment
and modernization. The General Partner believes that the funds for such
expenditures would not be available from cash flow without reducing future
distributions.
The Partnership's intention has always been to sell the Properties when
the market conditions warranted sale. It was never an investment objective
of the Partnership to hold the Properties permanently.
The General Partner understands that the circumstances of many of the
Limited Partners have changed over the life of the Partnership and believes
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that the Limited Partners should be presented with an opportunity to
liquidate their investments. In this regard, the 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 Properties are proposed to be sold to the Buyer for $2,900,000,
approximately $1,481,000 more than was offered for the Properties in
October 1997 by the Everest Group. The sales price is equal to the
appraised value of the Properties as determined by PKF Consulting, an
independent real estate advisory firm specializing in the valuation of
lodging properties. The proposed sale will be for all cash. PKF Consulting
has rendered to the Partnership a fairness opinion, stating its opinion
that the sales price is fair to the Partnership. The contract of sale
between the Partnership and the Buyer provides for a closing of the sale on
July 15, 1998 or within 30 days after approval of the sale by the limited
partners of the Partnership, whichever occurs later. For these reasons, and
because of the length of time that widespread marketing of the Properties
might take, the General Partner has not actively marketed the Properties
for sale. There can, therefore, be no assurance that the proposed sale of
the Properties to the Buyer is at the highest price attainable for the
Properties.
As of February 15, 1998, the Limited Partners had already received, over
the life of the Partnership, the sum of $663.98 per Unit in the form of
quarterly distributions. Upon the sale of the Properties pursuant to the
proposed transaction, the Limited Partners would receive total additional
pretax distributions in the estimated amount of $496.58 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 5,941 Units outstanding and a total of 929 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 216 Units 3.64%
Everest Madison Investors, LLC 280 Units 4.71%
KM Investments 50 Units 0.84%
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Total 546 Units 9.19%
Neither the General Partner nor any of its affiliates are the beneficial owners
of any Units.
No meeting will be held with regard to this solicitation of the Limited
Partners. Voting may be accomplished by completing and returning to the offices
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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 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 Certificate and
Agreement of Limited Partnership (the "Partnership Agreement"), a
majority-in-interest of the Limited Partners must approve or disapprove the sale
of all or substantially all of the Partnership's assets. Because the Properties
constitute substantially all of the Partnership's assets (as discussed below
under "The Properties and the Partnership's Business"), the General Partner and
the Partnership are seeking the approval of the proposed sale of the Properties
by a majority-in-interest of the Limited Partners. If the proposals are approved
by the Limited Partners but the proposed sale of the Properties described herein
is not consummated because one or more of the conditions precedent to the sale
(see "Purchase Agreement") is not satisfied (excluding the condition precedent
that the Limited Partners approve the proposed sale), the General Partner will
consider the Limited Partners' approval of the proposal set forth herein to
constitute approval of any purchase offer for the Properties (or for an
individual motel, including the related personal property) if such purchase
offer is reflected in an executed purchase agreement no later than January 31,
1999, is consummated no later than June 30, 1999, is for "all cash," and is for
an amount equal to or greater than $1,600,000 for the San Bernardino motel and
$1,300,000 for the Bakersfield motel. If the General Partner should receive more
than one such purchase offer, it would accept the best offer, unless the General
Partner had already entered into a binding contract for a less favorable offer.
However, notwithstanding the preceding, if prior to entering into a binding
contract the General Partner should receive one or more "all cash" purchase
offers and also should receive one or more purchase offers in an amount greater
than that set forth in the highest "all cash" offer but entailing the receipt by
the Partnership of a promissory note for part of the purchase price, the
Partnership would present all such offers to the Limited Partners for approval.
In the event the Limited Partners do not approve the proposal, the
Partnership will not proceed to implement the proposed sale of the Properties.
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THE PROPERTIES AND THE PARTNERSHIP'S BUSINESS
The Properties consist of fee interests in land located in San
Bernardino and Bakersfield, California, the motel properties constructed
thereon, and the related personal property. The two motels are managed and
operated by the Partnership under the name "Super 8 Motel."
Narrative Description of Business
(a) Franchise Agreements
The Partnership operates each of its motel properties as a franchisee
of Super 8 Motels, Inc. through sub-franchises obtained from Super 8 Management
Corporation. In March 1988, Brown & Grotewohl, a California general partnership
that is an Affiliate of the General Partner (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 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 Motels
The Manager manages and operates the Partnership's motels. 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 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 accounting
activities are performed by the individual motel staffs and a centralized
accounting staff, all of which work under the direction of the General Partner
or 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
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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 and motel
supervisory personnel, secretarial personnel, and purchasing personnel.
(c) Competition
As discussed in greater detail below, in the areas in which its motel
properties are located the Partnership faces intense competition from motels of
varying quality and size, including other budget motels which are part of
nationwide chains and which have access to nationwide reservation systems.
Super 8 Motels offer accommodations at the upper end, in terms of
facilities and prices, of the budget segment of the lodging industry.
Properties
The net proceeds of the Partnership's offering of Units (and financing
in the amount of $870,000 which has since been repaid) were expended for the
acquisition in fee and development of two properties located in San Bernardino
and Bakersfield, California.
(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:
1997 1996 1995
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Average Occupancy 53.8% 49.9% 55.3%
Rate
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 Mile
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(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:
1997 1996 1995
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Average Occupancy 84.6% 87.2% 85.6%
Rate
Average Room Rate $32.35 $30.28 $30.87
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 per night. 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 guest room
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 per night, 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
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California Inn 74 Adjacent
Motel 6 160 0.50 Mile
EZ-8 Motel 100 0.50 Mile
TraveLodge Plaza 61 0.75 Mile
Comfort Inn South 80 0.75 Mile
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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PURCHASE AGREEMENT
On _______________, the Partnership entered into an agreement to sell
the Properties to Tiburon Capital Corporation, San Francisco, California, or a
nominee of Tiburon Capital Corporation (the "Buyer"), for the sum of $2,900,000,
payable in cash at the close of escrow. Escrow was opened at Chicago Title
Company, San Francisco, California on _______________ 1998.
The Buyer is a California corporation. It is anticipated that the
nominee of the Buyer, which would ultimately own the Properties, would be a
limited liability company in which Mark Grotewohl would be involved as a member
and, as such, Mark Grotewohl would be entitled to 50% of the profits of that
company. He would also be the manager of the motels owned by the company. Mark
Grotewohl is the son of Philip Grotewohl, the owner of 50% of the stock of the
General Partner. He was employed until recently as the 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 of 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
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 Properties from the Partnership, even if the Limited Partners
approve this sale. In this regard, the Partnership has not solicited any offers
to purchase the Properties or the motel properties of the other GMS
Partnerships, has not listed the Properties or the motel properties of the other
GMS Partnerships for sale with independent brokers, and has not otherwise
actively sought competing offers for the Properties or the motel properties of
the other GMS Partnerships. Consequently, the offer presented by the Buyer is
the only offer that the General Partner has received for the Properties or the
motel properties of the other GMS Partnerships other than those presented by the
Everest Group.
There are a number of significant conditions to the consummation of the
proposed sale of the Properties; therefore, there can be no assurance as to
whether, or when, such transaction will be consummated. Among these conditions
are the Partnership's receipt of the approval of the Limited Partners; the
Buyer's receipt (at the Partnership's expense) and approval of an ALTA Survey
and preliminary title report for the Properties; the absence of any damage or
loss to the Properties prior to the closing date in excess of $50,000; the
decision by the Buyer, in its unfettered discretion, to terminate the proposed
purchase prior to June 30, 1998, provided that this deadline may be extended
upon request of the Buyer for up to 15 days; the Buyer's receipt prior to June
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30, 1998 of a loan commitment for financing in an amount of not less than 90% of
the purchase price of the Properties, provided that the deadline may be extended
upon request of the Buyer for up to 15 days; and receipt by the Partnership of
any necessary approvals of the sale by, among others, the franchisor. The
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 $15,000 into escrow on the later of
the expiration of the Buyer's inspection period referred to above or the date
the Partnership notifies the Buyer that the Limited Partners have approved the
proposed sale of the Properties. Should the Buyer default in the performance of
its obligations under the purchase agreement, the Partnership will be entitled
to retain said deposit as its only damages.
The Partnership and the Buyer will share closing costs. The General
Partner anticipates that the Partnership's share of aggregate closing costs,
including real estate brokerage commissions, will be approximately $108,750.
Included therein is a real estate brokerage commission payable to Everest
Financial, Inc., a member of the Everest Group, in an amount equal to 2.75% of
the purchase price. Everest Financial, Inc. has agreed to reallow 1.25% of the
purchase price to the Buyer's broker or, at the Buyer's option, the Buyer will
be entitled to a credit against the purchase price in the amount of 1.25% of the
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 Properties and the
concomitant dissolution of the Partnership should result in the following
consequences for the Partnership, the Limited Partners and the General Partner:
(i) The Limited Partners are expected to receive the distributions of net cash
proceeds from the sale of the Properties as described below.
(ii) The Limited Partners and General Partner are expected to realize the
Federal income tax consequences as described below.
(iii) All of the Partnership's assets will be liquidated and the Partnership
will be dissolved and terminated.
The consequences stated above are discussed in more detail in the
subsections which follow. Those subsections, in part, include computations as to
the cash proceeds to be received and distributed by the Partnership, and the
taxable gain and allocations thereof to be made by the Partnership, in the event
the proposed sale is consummated. HOWEVER, THIS INFORMATION IS PRESENTED SOLELY
FOR THE PURPOSES OF EVALUATING THE PROPOSAL. ALL AMOUNTS ARE ESTIMATES ONLY. ALL
COMPUTATIONS ARE BASED ON ASSUMPTIONS (SUCH AS THE DATE OF SALE, THE EXPENSES OF
THE SALE, AND THE RESULTS OF PARTNERSHIP OPERATIONS THROUGH THE DATE OF SALE)
WHICH MAY OR MAY NOT PROVE TO BE ACCURATE AND SHOULD NOT BE RELIED UPON TO
INDICATE THE ACTUAL RESULTS WHICH MAY BE ATTAINED.
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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 Properties are sold for a gross sales
price of $2,900,000. This summary has been prepared by the General Partner.
If the proposed transaction is consummated on September 30, 1998, it is
estimated that the Partnership would receive the following net proceeds:
Gross sales price $2,900,000
Less: Real estate commission (79,750)
Estimated escrow and closing costs (29,000)
-----------
Net proceeds of sale $2,791,250
The Partnership's real property taxes are payable twice yearly on April
10 and December 10, partially in arrears, in the current amount of $27,746.54
each. Accordingly, if the proposed transaction is consummated, the actual date
of consummation will determine whether there is 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 $2,791,250 estimated to be received by the
Partnership from the proposed transaction, in the estimated amount of $469.83
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
incurred to that date or expected to be incurred in connection with the
operation of the Properties through the date of sale and the operation and
winding-up of the Partnership through its termination, and the balance,
estimated to be $159,000 or $26.75 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 Properties for an indeterminate
period pending receipt of another purchase offer which is acceptable to the
Limited Partners. The General Partner estimates that if the Properties are not
sold the Partnership will make average annual distributions to the Limited
Partners of from zero to $297,000 ($50.00 per Unit) for the foreseeable future.
However, there can be no assurance that the General Partner's estimate in this
regard will be borne out.
Federal Income Tax Consequences
(a) General. The following is a summary of the Federal income tax
consequences expected to result from consummation of the proposed transaction
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing
laws, judicial decisions and administrative regulations, rulings and practices.
This summary is general in content and does not include considerations which
might affect certain Limited Partners, such as Limited Partners which are
trusts, corporations or tax-exempt entities, or Limited Partners who must pay an
alternative minimum tax. Except as otherwise specifically indicated, this
summary does not address any state or local tax consequences.
Tax counsel to the Partnership, Derenthal & Dannhauser, has delivered
an opinion to the Partnership which states that the following summary has been
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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 Properties should constitute "Section 1231 property" (i.e., real
property and depreciable assets used in a trade or business which are held for
more than one year) rather than "dealer" property (i.e., property which is held
primarily for sale to customers in the ordinary course of business). While it is
possible that the Internal Revenue Service will argue that the Properties is
"dealer" property, gain upon the sale of which would be taxed entirely as
ordinary income, tax counsel to the Partnership is of the opinion that it is
more likely than not that such an assertion would not be sustained by a court.
A Limited Partner's allocable share of Section 1231 gain from the sale
of the Properties would be combined with any other Section 1231 gains or losses
incurred by him in the year of sale, and his net Section 1231 gains or losses
would be taxed as long-term capital gains or constitute ordinary losses, as the
case may be, except that a Limited Partner's net Section 1231 gains will be
treated as ordinary income to the extent of net Section 1231 losses for the five
most recent years which have not previously been offset against net Section 1231
gains.
Long-term gain on sale of Section 1231 property is taxed as follows:
(i) the excess of accelerated depreciation over straight-line depreciation is
taxed as ordinary income rates, (ii) to the extent that any other gain would be
treated as ordinary income if the property were depreciable personal property
rather than depreciable real property, at a maximum rate of 25%, and (iii) the
balance at a maximum rate of 20%.
Set forth below are the General Partner's estimates of the total
taxable gain for Federal income tax purposes, and the allocations thereof, which
will result if the proposed sale of the Properties is consummated, based on an
assumed closing date of September 30, 1998. These estimates do not include any
amounts relating to Partnership operations prior to the sale of the Properties
or relating to dissolution of the Partnership. These estimates are not the
subject of an opinion of counsel.
Portion
Total Taxed As Portion Portion
Estimated Ordinary Taxed At Taxed At
Gain Income 25% Rate 20% Rate
-----------------------------------------------------------
Limited Partners $2,667,000 $ 0 $2,667,000 $ 0
General Partner 27,000 0 27,000 0
------ ----- ------ -----
Total $2,694,000 $ 0 $2,694,000 $ 0
========= ===== ========= =====
Per Unit $448.91 $ 0 $448.91 $ 0
====== ===== ====== =====
11
<PAGE>
Because of different methods of depreciation used for California income
tax purposes than for Federal income tax purposes, the General Partner
anticipates that consummation of the proposed transaction would produce a gain
for California income tax purposes in the amount of approximately $1,814,000, of
which approximately $18,000 and $1,796,000 would be allocated to the General
Partner 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 motel properties or any
interest therein 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 Properties is consummated, the net
cash proceeds received by the Partnership upon close of escrow for the proposed
transaction will be distributed in accordance with the provisions of the
Partnership Agreement. Thereupon the Partnership will be dissolved, the General
Partner will commence to wind up the business of the Partnership, and after
payment of all expenses of the Partnership (including the expense of a final
accounting for the Partnership) the remaining cash reserves of the Partnership
will be distributed in accordance with the provisions of the Partnership
Agreement. The General Partner will then take all necessary steps toward
termination of the Partnership's Certificate of Limited Partnership.
APPRAISAL OF THE PROPERTIES/FAIRNESS OPINION
The appraisals of the two motel properties, dated February 20, 1998,
were prepared by PKF Consulting, San Francisco, California, and indicate that
the aggregate current fair market value as of January 1, 1998 was $2,900,000.
PKF Consulting was selected by the General Partner based on its expertise in
appraising motel properties in the State of California. PKF Consulting also
prepared appraisals of the motel properties of the other Plaintiff Partnerships.
The appraised value of the Properties was determined through the use of two
methodologies: the sales comparison approach and the income capitalization
approach.
No limitations were imposed by the General Partner on the appraiser's
investigation.
Upon request the Partnership will furnish to a Limited Partner, without
charge, a copy of each appraisal. In this regard Limited Partners are cautioned
to refer to the entire appraisal reports, inasmuch as the opinions of value
stated therein are subject to the assumptions and limiting conditions stated
therein. Furthermore, Limited Partners should be aware that appraised values are
opinions and, as such, may not represent the realizable value of the Properties.
Neither the appraiser, nor any of its affiliates, has had any prior
relationship with the Partnership, the General Partner or any of their
affiliates other than as an appraiser of the Properties and the properties of
the other GMS Partnerships and no future relationship other than as an appraiser
is contemplated.
The Partnership has also received an opinion from PKF Consulting to the
effect that the terms of the proposed sale are fair to the Partnership.
12
<PAGE>
FINANCIAL INFORMATION
Selected Partnership Financial Data
Following are selected financial data of the Partnership for the period
from January 1, 1993 to December 31, 1997.
<TABLE>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Guest room income $1,592,209 $1,464,850 $1,526,742 $1,625,581 $1,734,535
Net income $117,093 $1,116 $68,750 $33,851 $49,083
Per Partnership Unit:
Cash distributions $25.00 ---- ---- ---- ----
Net income $19.52 $0.19 $11.46 $5.64 $8.18
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
Total assets $3,259,069 $3,237,869 $3,411,456 $3,632,719 $3,793,456
Long-term debt ---- ---- $75,493 $390,484 $595,214
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
I. Fiscal Year Financial Statements
(a) Liquidity and Capital Resources
The General Partner believes that the Partnership's liquidity, defined
as its ability to generate sufficient cash to meet its cash needs, is adequate.
The Partnership's primary source of internal liquidity is its revenues from
motel operations. The Partnership had, as of December 31, 1997, current assets
of $471,628, current liabilities of $116,417 and, therefore, an operating
reserve of $355,211. The General Partner's reserves target is 5% of adjusted
capital contributions, or $297,050.
The Partnership's properties are currently unencumbered. Although no
assurance can be had in this regard, the General Partner believes that the
Partnership's equity in its properties provides a potential source of external
liquidity (through financing) in the event the Partnership's internal liquidity
is impaired.
During 1997, 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 1996, the Partnership expended $70,718 for renovations and
replacements, 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 Partnership currently has no material commitments for capital
expenditures, except that the Bakersfield motel requires painting and roof
repairs. Its two motel properties are in full operation and no further property
13
<PAGE>
acquisitions or extraordinary capital expenditures are planned. If the
properties are not sold the General Partner is aware of no material trends or
changes with respect to the mix or relative cost of the Partnership's capital
resources. If the properties are retained adequate working capital is expected
to be generated by motel operations.
(b) Results of Operations
(i) Combined Financial Results
The following tables summarize the operating results of the Partnership
for 1997, 1996 and 1995 on a combined basis. The results of the individual motel
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. These calculations are 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:
1997 1996 1995
-----------------------------------------------
Partnership Cash Flow $233,164 $ (5,113) $(100,040)
Principal Payments on Financial 0 153,456 285,133
Obligations
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
=================================================
14
<PAGE>
Following is a reconciliation of Partnership Cash Flow (shown above) to
the aggregate total of Cash Flow from Properties Operations for the
Partnership's two motels which are segregated in the tables below:
1997 1996 1995
-------------------------------------------------
San Bernardino Motel $82,590 $20,090 $41,110
Bakersfield Motel 134,412 (34,512) (159,959)
--------------------------------------------------
Aggregate Cash Flow from $217,002 ($14,422) (118,849)
Propertis Options
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 1997 as compared to 1996. The increase in revenue primarily is due to
increased room rates at both motels. The San Bernardino market improved in 1997
as compared to 1996.
The Partnership experienced a $60,849 or 3.9% decrease in total revenues
during 1996 as compared to 1995. 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 total
expenditures and debt service during 1997 as compared to 1996. This decrease 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 total
expenditures and debt service during 1996 as compared to 1995. 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.
(ii) 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 Properties
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
15
<PAGE>
The Partnership's San Bernardino motel achieved a $102,424 or 16.6%
increase in total revenues during 1997 as compared to 1996. 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 1996 as compared to 1995. 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 1997 as compared to 1996. 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 1996 as compared to 1995. 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.
(iii) 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 Properties
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 1997 as compared to 1996. Guestroom revenue increased $30,045
due to increased average room rates. 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 or 0.4% increase in total
revenues during 1996 as compared to 1995. Guestroom revenue was substantially
unchanged as the increase in occupancy was mostly offset by the decrease in
average room rate. Decreased corporate and leisure business segments were offset
by increased contract rooms to the Santa Fe Railroad and to Amtrak.
16
<PAGE>
The Partnership's Bakersfield motel experienced a $143,478 or 15.6%
decrease in total expenditures and debt service during 1997 as compared to 1996.
The loan that was secured by the Bakersfield property was liquidated in 1996.
The Partnership's Bakersfield motel experienced a $122,305 or 11.7%
decrease in total expenditures and debt service during 1996 as compared to 1995.
The $152,300 reduction in mortgage payments was partially offset by increased
expenditures of $7,250 for appraisal fees, $5,460 for workers' compensation
insurance and $5,329 for increased supplies.
II. Interim Financial Statements
(a) Liquidity and Capital Resources
As of March 31, 1998, the Partnership's current assets of $498,813
exceeded current liabilities of $153,934, providing an operating reserve of
$344,879. The General Partner's reserves target is 5% of adjusted capital
contributions, or $297,050.
The Partnership expended $13,090 on renovations and replacements during
the three months ended March 31, 1998, of which $7,140 was capitalized. The
expenditures included $7,140 for guestroom carpets.
(b) Results of Operations
Total Partnership income increased $5,886 or 1.4% for the first quarter
of 1998 as compared to the first quarter of 1997. The decrease in the average
occupancy rate from 74.3% in 1997 to 72.4% in 1998 was more than offset by an
increase in the average room rate from $35.25 in 1997 to $36.73 in 1998. The
decreased occupancy was due to a reduction in corporate business at the San
Bernardino motel.
Total Partnership expenses increased $23,412 or 6.5% primarily due to
increases in the minimum wage and to increases in legal, appraisal and other
costs associated with the proposed sale of the Properties and the liquidation of
the Partnership.
Other Financial Information
Items 304 and 305 of Regulation S-K promulgated by the Securities and
Exchange Commission are not applicable to the Partnership. Moreover, the General
Partner is unaware of any "Year 2000" problems which could impact the
Partnership's operations.
17
<PAGE>
FINANCIAL STATEMENTS
for
INFORMATION STATEMENT
of
SUPER 8 MOTELS III, LTD.
May __, 1998
F-i
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SUPER 8 MOTELS III, LTD. Page
INDEPENDENT AUDITORS' REPORT ........................................... F-1
FINANCIAL STATEMENTS:
Balance Sheets, December 31, 1997 and 1996.............................. F-2
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995................................... F-3
Statements of Partners' Equity for the Years
Ended December 31, 1997, 1996 and 1995............................. F-4
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995................................... F-5
Notes to Financial Statements........................................... F-7
Balance Sheets, March 31, 1998 and December 31, 1997 (Unaudited)........ F- 11
Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 (Unaudited)......................... F-12
Statements of Partners' Equity for the Three Months
Ended March 31, 1998 and 1997 (Unaudited)......................... F-13
Statement of Cash Flows for the Three Months
Ended March 31, 1998 (Unaudited).................................. F-14
Notes to Financial Statements........................................... F-15
F-ii
<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
e-super8/s8397fs.wp8.wpd
F-1
<PAGE>
<TABLE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
------------ --------
Current Assets:
<S> <C> <C>
Cash and temporary investments (Notes 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
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended December 31:
1997 1996 1995
---------- ---------- ---------
Income:
<S> <C> <C> <C>
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 $ - $ -
====== ======== =====
</TABLE>
See accompanying notes to financial statements.
F-3
<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-4
<PAGE>
<TABLE>
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:
<S> <C> <C> <C>
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
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
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:
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-6
<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-7
<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-8
<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
========== ========== ==========
F-9
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
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:
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 General Partner naming as defendants Everest/Madison Investors, LLC,
Everest Lodging Investors, LLC, Everest Properties II, LLC, Everest Properties,
Inc., W. Robert Kohorst, David I. Lesser, The Blackacre Capital Group, L.P.,
Blackacre Capital Management Corp., Jeffrey B. Citron, Ronald J. Kravit, and
Stephen P. Enquist. The complaint alleged that the defendants violated certain
provisions of the Security and Exchange Act of 1934 and sought injunctive and
declarative relief.
On October 28, 1997, a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC as plaintiffs against the General Partners of the
Partnership and four other partnerships which have common general partners as
nominal defendants. The complaint pertained to the receipt by the defendants of
franchise fees and reimbursement of expenses, the indications of interest made
by the plaintiffs in purchasing the properties of the nominal defendants, and
the alleged refusal of the defendants to provide information required by the
terms of the Partnership's partnership agreement and California law.
On February 20, 1998, the parties entered into a settlement agreement and both
of the above complaints were dismissed. Pursuant to the terms of the settlement
agreement, the General Partner has agreed to proceed with the marketing for sale
of the properties of the Partnerships, among other things, if by June 30, 1998,
it receives an offer to purchase one or more properties for a cash price equal
to 75% or more of the appraised value. In addition, the General Partner has
agreed to submit the offer for approval to the limited partners 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-10
<PAGE>
<TABLE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Balance Sheet
March 31, 1998 and December 31, 1997
3/31/98 12/31/97
----------------- ---------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and temporary investments $ 374,860 $ 362,215
Accounts receivable 123,430 100,184
Prepaid expenses 523 9,229
----------------- ---------------------
Total current assets 498,813 471,628
----------------- ---------------------
Property and Equipment:
Land 1,670,129 1,670,129
Capital improvements 26,175 26,175
Buildings 3,276,870 3,276,870
Furniture and equipment 789,579 782,439
----------------- ---------------------
5,762,753 5,755,613
Accumulated depreciation (3,003,882) (2,968,172)
----------------- ---------------------
Property and equipment, net 2,758,871 2,787,441
----------------- ---------------------
Total Assets $ 3,257,684 $ 3,259,069
================= =====================
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities 153,934 116,417
----------------- ---------------------
Total current liabilities 153,934 116,417
----------------- ---------------------
Total liabilities 153,934 116,417
----------------- ---------------------
Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 20,730 20,376
Limited Partners 3,083,020 3,122,276
----------------- ---------------------
Total partners' equity 3,103,750 3,142,652
----------------- ---------------------
Total Liabilities and Partners' Equity $ 3,257,684 $ 3,259,069
================= =====================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
<TABLE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Statement of Operations
For the three Months Ended March 31, 1998 and 1997
Three Months Three Months
Ended Ended
3/31/98 3/31/97
----------------- ---------------------
Income:
<S> <C> <C>
Guest room $ 409,194 $ 403,295
Telephone and vending 7,241 8,408
Interest 2,615 1,362
Other 820 919
----------------- ---------------------
Total Income 419,870 413,984
----------------- ---------------------
Expenses:
Motel operating expenses (Note 2) 278,553 279,414
General and administrative 49,383 22,461
Depreciation and amortization 35,710 38,576
Property management fees 20,863 20,646
----------------- ---------------------
Total Expenses 384,509 361,097
----------------- ---------------------
Net Income (Loss) $ 35,361 $ 52,887
================= =====================
Net Income (Loss) Allocable
to General Partners $354 $529
================= =====================
Net Income (Loss) Allocable
to Limited Partners $35,007 $52,358
================= =====================
Net Income (Loss)
per Partnership Unit $5.89 $8.81
================= =====================
Distribution to Limited Partners
per Partnership Unit $12.50 $0.00
================= =====================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Statement of Partners' Equity
For the three Months Ended March 31, 1998 and 1997
1997 1997
----------------- ---------------------
General Partners:
Balance at beginning of year $ 20,376 $ 19,205
Net income (loss) 354 529
----------------- ---------------------
Balance at end of period 20,730 19,734
----------------- ---------------------
Limited Partners:
Balance at beginning of year 3,122,276 3,154,879
Net income (loss) 35,007 52,358
Less: Cash distributions (74,263) -
----------------- ---------------------
Balance at end of period 3,083,020 3,207,237
----------------- ---------------------
Total balance at end of period $ 3,103,750 $ 3,226,971
================= =====================
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
<TABLE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Statement of Cash Flows
For the three Months Ended March 31, 1998 and 1997
1998 1997
----------------- ---------------------
Cash Flows From Operating Activities:
<S> <C> <C>
Received from motel revenues $ 394,009 $ 410,194
Expended for motel operations
and general and administrative expenses (302,576) (282,831)
Interest received 2,615 1,362
----------------- ---------------------
Net cash provided (used) by operating activities 94,048 128,725
----------------- ---------------------
Cash Flows From Investing Activities:
Purchases of property and equipment (7,140) -
Proceeds from sale of equipment - 120
----------------- ---------------------
Net cash provided (used) by investing activities (7,140) 120
----------------- ---------------------
Cash Flows From Financing Activities:
Distributions paid to Limited Partners (74,263) -
----------------- ---------------------
Net cash provided (used) by financing activities (74,263) -
----------------- ---------------------
Net increase in cash and temporary investments 12,645 128,845
Cash and temporary investments:
Beginning of year 362,215 254,782
================= =====================
End of period $ 374,860 $ 383,627
================= =====================
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Net income (loss) $ 35,361 $ 52,887
----------------- ---------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 35,710 38,576
Gain on disposition of property - (120)
(Increase) decrease in accounts receivable (23,246) (2,428)
(Increase) decrease in prepaid expenses 8,706 9,239
Increase (decrease) in accounts payable
and accrued liabilities 37,517 30,571
----------------- ---------------------
Total adjustments 58,687 75,838
----------------- ---------------------
Net cash provided by operating activities $ 94,048 $ 128,725
================= =====================
</TABLE>
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
SUPER 8 MOTELS III, LTD.
(A California Limited Partnership)
Notes to Financial Statements
March 31, 1998
Note 1:
The attached interim financial statements include all adjustments (consisting of
only normal recurring adjustments) which are, in the opinion of management,
necessary to a fair statement of the results for the period presented.
Users of these interim financial statements should refer to the audited
financial statements for the year ended December 31, 1997 for a complete
disclosure of significant accounting policies and practices and other detail
necessary for a fair presentation of the financial statements.
In accordance with the partnership agreement, the following information is
presented related to fees paid or accrued to the General Partner or affiliates
for the period.
Property Management Fees $20,863
Franchise Fees $8,184
Note 2:
The following table summarizes the major components of motel operating expenses
for the periods reported:
Three Months Three
Months
Ended Ended
3/31/98 3/31/97
----------------- ---------------------
Salaries and related costs $ 115,284 $ 109,729
Franchise and advertising 20,460 20,171
Utilities 21,235 22,665
Allocated costs,
mainly indirect salaries 49,761 44,110
Replacements and renovations 5,950 12,040
Other operating expenses 65,863 70,699
----------------- ---------------------
Total motel operating expenses $ 278,553 $ 279,414
================= =====================
The following additional material contingencies are required to be restated
in interim reports under federal securities law: None.
F-15
<PAGE>
APPENDIX 1
PRELIMINARY COPY
SUPER 8 MOTELS III, LTD.,
a California limited partnership
Notice of Proposed Action By Written Consent
TO THE LIMITED PARTNERS OF
SUPER 8 MOTELS III, LTD.:
The Limited Partners of SUPER 8 MOTELS III, LTD., a California limited
partnership (the "Partnership"), are being asked by the Partnership and the
General Partner to consider and approve by written consent the proposed sale of
substantially all of the Partnership's assets.
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 GENERAL PARTNER PURSUANT TO NOTICE MAILED TO THE LIMITED PARTNERS) WILL
BE COUNTED TO DETERMINE WHETHER THE PROPOSAL IS APPROVED.
May ___, 1998
Grotewohl Management Services, Inc.,
a California corporation,
General Partner
<PAGE>
APPENDIX 2
PRELIMINARY COPY
ACTION BY WRITTEN CONSENT OF LIMITED PARTNERS
SUPER 8 MOTELS III, LTD.,
a California limited partnership
2030 J Street
Sacramento, California 95814
(916) 442-9183
THIS CONSENT IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND THE GENERAL PARTNER.
The undersigned votes all the units of limited partnership interest of Super 8
Motels III, Ltd., a California limited partnership, held of record by him, her
or it as follows:
PROPOSAL TO APPROVE THE SALE OF SUBSTANTIALLY ALL OF THE
PARTNERSHIP'S ASSETS, as described in the Information
Statement dated May ___, 1998. Please mark one of the
following:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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
appears below: should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please
sign in full corporate name by president or
other authorized officer. If a partnership,
please sign in partnership name by authorized
person.
DATED: ________________, 1998 --------------------------------------
Signature
-------------------------------------
Additional signature, if held jointly
