<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1996
Commission File Number 2-76543
SUPER 8 MOTELS NORTHWEST II,
A Washington limited partnership
------------------------------------------------------
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1172558
- ---------- ----------
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification Number
7515 Terminal St. S.W., Tumwater, WA 98501
- ------------------------------------ -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (360) 943-8000
Securities registered pursuant to section 12 (g) of the Act:
TITLE OF CLASS
--------------
Limited Partnership Units
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing 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 I0-K or any amendment to
this Form 10-K. (X)
<PAGE> 2
There has been no market for limited partnership units since the initial
offering of limited partnership units was completed in 1984, therefore the
market value of limited partnership units is unknown.
DOCUMENTS INCORPORATED BY REFERENCE
Partnership's Audited Financial Statements.
Partnership's January, 1997 newsletter to limited partners.
Also incorporated by reference are the partnership agreement, franchise
agreement and property management agreements to which the Partnership is a
party and which were included with and/or described in the original offering
materials for the Partnership, as well as all appropriate exhibits delineated
in Part III hereof.
PAGE 2
<PAGE> 3
PART I
ITEM 1.
Business
(a) General Development of Business
Super 8 Motels Northwest II, a Washington limited partnership (the
"Partnership"), was formed to invest in and operate three "economy" motels to
be located in the states of Washington and Oregon, as a franchise of Super 8
Motels, Inc. The Partnership does not own any interest in Super 8 Motels, Inc.,
the national franchiser, or in The Peninsula Group Incorporated, the regional
sub-franchiser and one of the General Partners of the Partnership. The other
General Partner is Gerald L. Whitcomb.
The Partnership was formed in March, 1982. The Limited Partnership Units of the
Partnership (the "Units") were offered and sold by selected broker-dealers on a
best efforts basis in the states of Washington, Oregon, Montana, Idaho, Alaska,
Wisconsin, Illinois and Georgia.
Sale of the Units began on May 8, 1982. Funds were released from impound on
January 12, 1983, when gross sales of the Units reached $950,000. The
Partnership Agreement was amended in May 1983 to provide for a gross offering
of $6,602,000. At December 31, 1983, the Partnership had raised a total of
$2,710,000. On May 8, 1984, the offering was closed. In the period January 1,
1984, through May 8, 1984, the Partnership raised $1,342,000 in additional
limited partnership subscriptions. The final results of the offering were 4,052
Units sold yielding gross offering proceeds of $4,052,000. This was $2,550,000
under the initially intended subscription amount.
To achieve the Partnership's objective of developing three Super 8 Motel
properties, long-term mortgage financing in the amount of $2,200,000 was
arranged through Sterling Savings and Association of Chehalis, Washington
(formerly Central Evergreen Savings and Loan). This debt is secured by the
Portland property and assignment of the Union Gap (Yakima) land lease (see Item
2a).
(b) Financial Information About Industry Segments.
Not applicable as the registrant operates in a single industry (motels) and
within that industry only in the economy category. For financial information
generally, see "Financial Statements."
(c) Narrative Description of Business.
The motel properties were developed and are being operated as economy motels in
the locations indicated below. The motel properties are franchisees of the
national "Super 8" motel chain. The economy motel concept provides for a clean,
comfortable average-size motel room that has all the basic amenities required
by the traveling public at a price lower than that of most surrounding motel
properties of equal quality.
PAGE 3
<PAGE> 4
All guest rooms are equipped with direct-dial telephone, color television and
tub/shower combination, and are fully carpeted, sound proofed and insulated.
Guests are allowed to use major national credit cards and cash checks with
V.I.P. Club membership. Vending machines are also available.
Each property has interior hallways, a lobby with a manager's office, an
employee lounge, an in-house laundry, a guest laundry facility and conference
room and a manager's apartment. No restaurants are located on any of the
properties,
The 77 room Bremerton property services the military-based City of Bremerton,
Washington.
The 80 room Portland property's proximity to the Portland International Airport
allows it to provide free transportation to and from the airport, courtesy
telephone and long term parking privileges. The property has one mini-suite and
a small conference room available.
The 95 room Union Gap property features a year-round indoor swimming pool, one
mini-suite, a medium-size conference room, guest laundry facilities and special
parking for commercial trucks.
Each of the properties historically experiences seasonal fluctuations in
occupancy, the low point occurring in the winter months and peaking in the late
summer.
The motels provide full or part-time employment for approximately 56 people
(Bremerton 14, Portland 21, Union Gap 21).
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
The Partnership operates only in one geographic area, the Pacific Northwest
(Washington and Oregon states). For financial information generally, see
"Financial Statements."
ITEM 2.
Properties
(a) Location and General Characteristics
In 1983, the Partnership leased the Bremerton, Washington 1.75 acre site
located on State Road 3 and Kitsap Way. The lease has a 37 year term. Adjacent
to the site is a 24 hour family restaurant.
In 1983, the Partnership purchased the Portland, Oregon site for a purchase
price of $720,000. This site is at the interchange of Interstate 205 and
Airport Way, approximately one mile east of the Portland International Airport.
In 1983, the Partnership leased the Union Gap, Washington site located at the
intersection of I-82 and Rudkin Road just south of Yakima, Washington. The
lease is for a term of 30 years.
PAGE 4
<PAGE> 5
The Bremerton motel opened on October 23, 1983, the Portland motel on May 25,
1984 and the Union Gap motel on September 14, 1984.
The motels are of frame construction with stucco exteriors and tile roofs and
have full fire alarm systems. In addition, the Portland motel is fully equipped
with a fire protection sprinkler system. Heating and cooling is by individual
room through the wall heat pumps.
The approximate size of the buildings is as follows:
<TABLE>
<S> <C>
Bremerton 29,740 square feet
Portland 31,900 square feet
Union Gap 39,190 square feet
</TABLE>
Additionally, significant environmental contamination including ground water
contamination, has been discovered within the Airport Way Urban Renewal Area at
the former ICN site, a medical manufacturing firm. ICN, which is no longer in
existence, potentially discharged hazardous substances into wells which have
contaminated the ground water. Such contamination may or may not have affected
the Partnership's property. POC has orally advised the Partnership that it
believes it is unlikely that the Partnership's property is contaminated.
A 33 room addition to the Union Gap property opened for occupancy on January
15, 1991. Total cost of the addition (including furniture and fixtures) was
$875,000. For utilization of these properties see Item 7.
See Item 1 (c) for further information on each property.
ITEM 3.
Legal Proceedings
The Partnership is not party to any material legal proceedings.
ITEM 4.
Submission of matters for a Vote of Security Holders
None.
PAGE 5
<PAGE> 6
PART II
ITEM 5.
Market for the Registrant's Common Stock
Related Security Holder Matters
The units are owned by approximately 850 investors.
There is no established public trading market for the units and no significant
transactions in units between a willing buyer and a willing seller have
occurred since the original offering of limited partnership units. Because of
this, the Partnership is unable to ascertain a fair market value for the units.
Distributions of cash to the Limited Partners made during 1996 totaled
$616,281. This was an decrease of $557,745 from the $1,174,026 cash
distribution made to the Limited Partners in 1995.
ITEM 6.
Selected Financial Data*
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Room Sales $3,500,148 $3,277,174 $3,236,567 $2,938,505 $2,877,705
Net Income (Loss)* $1,006,899 $705,904 $771,673 $368,234 $184,726
Net Income (Loss)* per Unit $211.22 $172.47 $188.54 $89.99 $45.13
Total Assets** $3,986,972 $4,391,793 $4,657,736 $4,492,431 $4,626,608
Long-Term Debt* $3,181,870 $3,988,018 $3,825,986 $3,719,527 $3,639,590
Cash Distribution Per Unit $152.09 $289.74 $187.50 $137.50 $125.00
</TABLE>
*In filings prior to the year ended December 31, 1994 with the United States
Securities and Exchange Commission (the "SEC"), and in the Partnership's prior
years' financial statements, the Partnership did not accrue unpaid property
management fees due to the uncertainty of payment. During the year ended
December 31, 1994, the partnership changed its method of accounting for such
fees and the above information was restated for 1993 and 1992 to account for
such fees so that Net Income, Long Term Debt and Net Income Per Unit was
revised to accrue the expense when incurred and reflect the associated
liability on the balance sheet.
**Net of amortization and depreciation
PAGE 6
<PAGE> 7
Detailed financial data is provided in the form of audited financial statements
as of December 31, 1996 and 1995 and for each of the three years ended December
31, 1996, 1995, and 1994. These statements show the results of operations,
changes in partners' equity, cash flows and additional financial disclosures.
ITEM 7.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity of the Partnership continued to be strong for the year ended December
31, 1996. The current ratio at December 31, 1996, was 1.56:1 and working
capital totaled $229,578.
The interest rate on the Partnership's long term debt is tied to a treasury
bill index plus 3.5%. The effective rate at December 31, 1996 is 9.38%. The
long term interest rate on debt encumbering the Portland property is variable
at 1% plus the Lenders Prime Rate. The effective interest rate on this debt at
December 31, 1996 is 9.25%.
Interest rate on the long term loan funding the Yakima addition is variable
based on the treasury bill index plus 2.5% per annum, but was fixed through
December 31, 1996 at 10.25% per annum.
The economic growth occurring throughout the regional economy resulted in
stable occupancy at each of the Partnership's three properties.
<TABLE>
<CAPTION>
Balance Sheet data 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current Assets $641,740 $885,576 $974,499
Current Liabilities $412,162 $344,668 $292,663
Current Ratio 1.56:1 2.57:1 3.32:1
</TABLE>
At December 31, 1996, the Bremerton motel had completed its thirteenth full
year of operation, Portland and Yakima their twelfth full year of operations.
PAGE 7
<PAGE> 8
Comparative operational statistics:
<TABLE>
<CAPTION>
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Bremerton
Occupancy 84% 64% 65% 58%
Rented rooms 23,671 18,028 18,304 16,248
Gross room rate* $42.00 $44.22 $42.20 $44.07
Portland
Occupancy 86% 82% 80% 76%
Rented rooms 25,055 23,649 23,376 22,011
Gross room rate* $56.80 $55.66 $53.26 $54.50
Yakima
Occupancy 64% 72% 78% 73%
Rented rooms 22,115 24,860 27,142 25,131
Gross room rate* $48.15 $46.81 $44.94 $47.52
Total
Occupancy 77% 73% 75% 69%
Rented rooms 70,841 66,537 68,822 63,390
Gross room rate* $49.41 $49.25 $47.03 $49.05
</TABLE>
* "Gross Room Rate" is defined as total room revenue divided by total rooms
sold.
Total 1996 Room sales revenue increased $222,974 to $3,500,148 up from
$3,277,174 in 1995. A contract with the U.S. Navy at the Bremerton motel
through September 1996, and a more aggressive marketing campaign, contributed
to the increase in revenues. These factors played a role in increasing rented
rooms to 70,841 in 1996, an increase of 4,304 rented rooms from the previous
year figure of 66,537. Gross room rates remained stable at $49.41 per room in
1996 compared to $49.25 in 1995.
Net income in 1996 increased $300,995 to $1,006,899 up from $705,904 in 1995.
The increase was primarily due to the increase in room revenue combined with
decreases in direct and indirect operating expenses.
Direct operating expenses in 1996 decreased $53,365 to $1,115,668 down from
$1,169,033 in 1995. The decrease was due to a planned maintenance program for
the properties which was started in 1995 and continued through 1996. The
planned upgrades to the properties should be fully completed in the first
quarter of 1997.
PAGE 8
<PAGE> 9
As discussed in Item 1, the partnership operates the motels as a franchise of
Super 8 Motels, Inc. Nationwide the Super 8 motel chain continues to grow,
increasing the name familiarity of the chain.
<TABLE>
<CAPTION>
Number of Super 8 Motels Increase
------------------------ --------
<S> <C> <C> <C>
As of December 31, 1996 1,492 92
1995 1,400 180
1994 1,220 159
1993 1,060 119
1992 941 78
1991 863 78
</TABLE>
The Super 8 "Superline" national reservation system and "VIP Club"
(approximately 4,300,000 members) continue to be improved.
Distributions paid to the partners in 1995 aggregated $1,174,026, which equaled
a per-unit amount necessary to pay to the limited partners a 10% cumulative
return on their investment from the final closing of the offering of units on
May 5, 1984. Subsequently, on January 31, 1996, the limited partners were paid
amounts, which varied by partner, necessary to pay that partner a 10% return on
their investment from the date of their investment (or, if later, the initial
breaking of the escrow established in connection with the offering on January
12, 1983) until the closing of the offering on May 5, 1984.
Prior to 1985, the Partnership had been accruing the Motels' property
management fees. Even though the obligation to pay those fees exists, the terms
of the partnership agreement of the Partnership did not allow them to be paid
until such time as the limited partners have received a cumulative annual 10%
return on their adjusted capital investment. In previous filings with the
United States Securities and Exchange Commission (the "SEC"), and in the
Partnership's prior years' financial statements, the Partnership's accounting
policy regarding these fees was to expense them when paid (instead of when
earned) and to not accrue unpaid property management fees as a liability on the
face of the balance sheet.
In 1994, the Partnership changed its accounting policy for property management
fees to reflect, on the Partnership's income statement, the expense when the
obligation to pay the fee was incurred and to accrue the corresponding
liability on the face of the Partnership's balance sheet. Thus, the financial
information contained in this report conforms with that reporting position.
Previously, incurred but unpaid management fees totaled $1,367,000 on December
31, 1995. Subsequently, the Partnership paid in1996, management fees accrued
and unpaid of $668,112. Attention is directed to Note 6 in the "Financial
Statements," for a discussion of property management fees. Additionally, see
the discussion in Part II, Item 6, "Selected Financial Data" of this report.
PAGE 9
<PAGE> 10
ITEM 8.
Financial Statements and Supplementary Data
See Independent Auditor's Report and Financial Statements, pages 2 through 13,
for financial statements incorporated by reference; and Item 14 for a list of
the Financial Statement Schedules filed as a part of this report.
ITEM 9.
Disagreements on Accounting and Financial Disclosure
None.
PAGE 10
<PAGE> 11
PART III
ITEM 10.
Directors and Executive Officers of the Registrant
The General Partners of the Partnership are The Peninsula Group Incorporated
and Gerald L. Whitcomb.
Gerald L. Whitcomb, age 53, was educated at the University of Nebraska with
majors in economics and business finance and obtained a JD. in Law. He
practiced law in Shelton, Washington from 1969 to 1979. Since 1979, he has been
involved in the management of The Peninsula Group, Inc., (formerly known as
Super 8 Motels Northwest, Inc.) and its affiliates.
Mr. Whitcomb is the principal organizer and stockholder of The Peninsula
Group Incorporated and its subsidiaries. Mr. Whitcomb is the general partner of
Super 8 Motels Northwest I, a limited partnership whose limited partnership
units were registered under the Securities Act of 1933. He is also a partner
in Super 8 Motel Developers, which is General Partner of Super 8 Motels of
Lacey Associates, a General Partner of Super 8 Motels Northwest II, Juneau
Motel Associates, Anchorage Motel Associates and Peninsula Motel Associates,
all Washington limited partnerships. Mr. Whitcomb is the Managing Partner of
Tongass Motel Associates, an Alaska general partnership, Mr. Whitcomb is a
partner in Peninsula Properties Partnership, a Washington general partnership.
The Peninsula Group Incorporated is a privately owned Washington corporation.
It owns franchise rights for Super 8 Motels in Washington, Oregon and selected
sites in Alaska.
The officers and directors of The Peninsula Group Incorporated are as follows:
<TABLE>
<CAPTION>
Age Office
--- ------
<S> <C> <C> <C>
Gerald L. Whitcomb 53 Director, Treasurer and President
Maryanne Whitcomb 49 Chairman, Secretary, and Executive Vice
President
Lawrence Knudsen 56 Director and Executive Vice President
H. Samuel Polack 56 Executive Vice President
Mark P. Munson 40 Executive Vice President
Cortnae del Valle 25 Director
Kelly M. Ervin 23 Director
</TABLE>
Due to a change in management of the Partnership's General Partner's offices
where the individual responsible for ensuring that appropriate filings are made
with the SEC, some recently required filings on Forms 3, 4 or 5 appear not to
have been timely made. The Partnership is working closely with its counsel to
promptly rectify any such delinquent filings.
PAGE 11
<PAGE> 12
ITEM 11.
Executive Compensation
The General Partners received no salary or bonus compensation from the
Partnership during fiscal year ended December 31, 1996. See Item 13.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management
<TABLE>
<CAPTION>
Title Name Percent
<S> <C> <C>
General Partner Gerald L. Whitcomb .1
The Peninsula Group, Inc. .9
Limited Partners Various 99.0
-------
100.0
=======
</TABLE>
100.0
Gerald L. Whitcomb and Maryanne Whitcomb are the beneficial owners of all of
the stock of The Peninsula Group Incorporated and also own four Units
individually and four units in trust for their children in addition to his
General Partner interest. Kelly Ervin owns two Units individually.
See Note 3 of Notes to the "Financial Statements" for a discussion of
distributions and allocations of profits and losses.
ITEM 13.
Certain Relationships and Related Transactions
See the Notes to the partnership's "Financial Statements."
PAGE 12
<PAGE> 13
PART IV
ITEM 14.
Exhibits Financial Statement Schedules, and Report on Form 8-K
Exhibits incorporated by reference
<TABLE>
<S> <C>
1.1 Wholesaler's Agreement
1.2 Selected Dealer's Agreement
4.1 Subscription Agreement (filed as Exhibit "B" to the prospectus).
4.2 Limited Partnership Agreement (filed as Exhibit "A" to the Prospectus).
5.1 Opinion of counsel to the Partnership on the legality of Units being issued.
8.1 Tax Opinion - set forth in full in the Amended Prospectus.
10.1 Territorial Agreement
10.2(a) State of Washington Franchise Agreement
10.2(b) State of Oregon Franchise Agreement
10.3 Management Agreement
10.4 Ground Sublease and amendment thereto for Bremerton site.
10.5 Option to Purchase Portland site.
10.6 Option to Lease Union Gap (Yakima) site.
16.1 Consent to use of Accountant's name in Registration Statement.
16.2 Letter re change in certifying accountant.
</TABLE>
Exhibits filed herewith.
Financial Statements of the Registrant for the year ended December 31, 1996.
Financial Statements and supplemental schedules include:
Report of Independent Public Accountants
Balance Sheet
Statement of Income
Statement of Changes in Partners' Equity
Statement of Cash Flows
Notes to Financial Statements
January, 1997 Partnership newsletter mailed to limited partners.
There were no reports on Form 8-K during 1996.
Financial Data Schedule for the year ended December 31, 1996
PAGE 13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 of 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:
Gerald L. Whitcomb
- -----------------------------------------
GERALD L. WHITCOMB
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the persons below on behalf of the registrant
and in the capacities and on the dates indicated.
Gerald L. Whitcomb
- -----------------------------------------
GERALD L. WHITCOMB
Director, Treasurer and President
The Peninsula Group Incorporated
Maryanne Whitcomb
- -----------------------------------------
MARYANNE WHITCOMB, Chairman
Secretary and Executive Vice President
The Peninsula Group Incorporated
Mark P. Munson
- -----------------------------------------
MARK P. MUNSON, Executive Vice President
The Peninsula Group Incorporated
Lawrence P. Knudsen
- -----------------------------------------
LAWRENCE P. KNUDSEN, Director and
Executive Vice President
The Peninsula Group Incorporated
H. Samuel Polack
- -----------------------------------------
H. SAMUEL POLACK
Executive Vice President
The Peninsula Group Incorporated
PAGE 14
<PAGE> 15
SUPER 8 MOTELS NORTHWEST II
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
<PAGE> 16
CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance sheet 2-3
Statement of income 4
Statement of changes in partners' equity 5
Statement of cash flows 6-7
Notes to financial statements 8-13
</TABLE>
<PAGE> 17
INDEPENDENT AUDITOR'S REPORT
To the General and Limited Partners
Super 8 Motels Northwest II
We have audited the accompanying balance sheets of Super 8 Motels Northwest II
as of December 31, 1996 and 1995, and the related statements of income, changes
in partners' equity, and cash flows for the three years ended December 31, 1996,
1995 and 1994. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Super 8 Motels Northwest II as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the three years ended December 31, 1996, 1995 and 1994, in conformity
with generally accepted accounting principles.
Tacoma, Washington
February 5, 1997
<PAGE> 18
SUPER 8 MOTELS NORTHWEST II
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 551,202 $ 733,916
Accounts receivable, trade 17,457 76,718
Accounts receivable, affiliates 3,149 2,089
Inventory 58,319 57,853
Prepaid expenses 11,613 15,000
---------- ----------
Total current assets 641,740 885,576
---------- ----------
PROPERTY AND EQUIPMENT, at cost
Land 714,301 714,301
Buildings 4,097,107 4,097,107
Equipment, furniture and fixtures 1,241,326 1,239,937
---------- ----------
6,052,734 6,051,345
Less accumulated depreciation (2,738,663) (2,581,127)
---------- ----------
Total property and equipment 3,314,071 3,470,218
---------- ----------
OTHER ASSETS
Loan fees 26,375 26,375
Franchise fees 45,000 45,000
Lease option costs 6,000 6,000
---------- ----------
77,375 77,375
Less accumulated amortization (46,214) (41,376)
---------- ----------
Total other assets 31,161 35,999
---------- ----------
$3,986,972 $4,391,793
========== ==========
</TABLE>
2 The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE> 19
SUPER 8 MOTELS NORTHWEST II
BALANCE SHEET
- --------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade $ 47,021 $ 43,098
Accounts payable, affiliates 83,663 43,694
Accrued expenses 126,478 115,876
Current portion of long-term debt 155,000 142,000
---------- ----------
Total current liabilities 412,162 344,668
---------- ----------
NONCURRENT LIABILITIES
Long-term debt, net of current portion shown above 2,345,801 2,499,820
Accrued rent under lease agreements 137,021 121,038
---------- ----------
2,482,822 2,620,858
---------- ----------
ACCRUED PROPERTY MANAGEMENT FEES 699,048 1,367,160
---------- ----------
PARTNERS' EQUITY
General partners' equity (deficiency) 63,632 (30,618)
Limited partners' equity (authorized, issued and
outstanding 4,052 units) 329,308 89,725
---------- ----------
392,940 59,107
---------- ----------
$3,986,972 $4,391,793
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements. 3
- --------------------------------------------------------------------------------
<PAGE> 20
SUPER 8 MOTELS NORTHWEST II
STATEMENT OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
SALES
Rooms $3,500,148 $3,277,174 $3,236,567
Other 99,682 85,069 99,146
---------- ---------- ----------
3,599,830 3,362,243 3,335,713
---------- ---------- ----------
DIRECT OPERATING EXPENSES
Payroll and related expenses 660,323 654,913 648,586
Supplies and maintenance 224,116 292,489 242,450
Utilities 195,160 187,831 172,591
Other 36,069 33,800 36,159
---------- ---------- ----------
1,115,668 1,169,033 1,099,786
---------- ---------- ----------
INDIRECT OPERATING EXPENSES
Taxes (principally property taxes) and fees 147,424 144,931 149,445
Advertising and promotion 81,551 125,870 124,255
Bank and credit card charges 44,493 47,000 45,686
Insurance 37,721 38,604 48,705
Other 15,657 23,904 11,193
---------- ---------- ----------
326,846 380,309 379,284
---------- ---------- ----------
ADMINISTRATIVE AND GENERAL EXPENSES
Administrative service fees 191,324 182,277 175,852
Property management fees 179,999 168,112 166,786
Franchise fees 139,654 131,938 129,176
Professional services 42,279 36,956 33,035
Other 26,309 24,693 20,521
---------- ---------- ----------
579,565 543,976 525,370
---------- ---------- ----------
FIXED CHARGES
Interest expense 244,594 246,505 222,255
Depreciation 170,833 174,683 187,263
Lease expense - current 143,153 137,591 133,590
Lease expense - deferred 15,983 18,251 20,030
Amortization 4,838 4,838 4,837
---------- ---------- ----------
579,401 581,868 567,975
---------- ---------- ----------
INCOME FROM OPERATIONS 998,350 687,057 763,298
OTHER INCOME 8,549 18,847 8,375
---------- ---------- ----------
NET INCOME $1,006,899 $ 705,904 $ 771,673
========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 211.22 $ 172.47 $ 188.54
---------- ---------- ----------
</TABLE>
4 The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------
<PAGE> 21
SUPER 8 MOTELS NORTHWEST II
STATEMENT OF CHANGES IN PARTNERS' EQUITY
YEAR ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- ----------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1993 as restated $(25,861) $ 560,699 $ 534,838
Distributions paid (7,674) (759,750) (767,424)
Net income 7,716 763,957 771,673
-------- ----------- -----------
BALANCE, December 31, 1994 (25,819) 564,906 539,087
Distributions paid (11,858) (1,174,026) (1,185,884)
Net income 7,059 698,845 705,904
-------- ----------- -----------
BALANCE, December 31, 1995 (30,618) 89,725 59,107
Distributions paid (56,785) (616,281) (673,066)
Net income 151,035 855,864 1,006,899
-------- ----------- -----------
BALANCE, December 31, 1996 $ 63,632 $ 329,308 $ 392,940
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements. 5
- --------------------------------------------------------------------------------
<PAGE> 22
SUPER 8 MOTELS NORTHWEST II
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Revenues and other income
received in cash $ 3,666,580 $ 3,349,353 $ 3,325,707
Operating expenses paid
in cash (2,770,299) (2,039,115) (1,902,453)
Interest paid (244,360) (244,550) (222,255)
----------- ----------- -----------
Net cash provided by
operating activities 651,921 1,065,688 1,200,999
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of property
and equipment (23,550) -- (9,214)
Proceeds from sale of
asset 3,000 -- --
----------- ----------- -----------
Net cash used in
investing activities (20,500) -- (9,214)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from loan -- 129,580 --
Principal payments on
long-term debt (141,019) (95,912) (85,357)
Payment of loan fees -- (2,500) --
Distributions to:
Limited partners (616,281) (1,174,026) (759,750)
General partners (56,785) (11,858) (7,674)
----------- ----------- -----------
Net cash used in
financing activities (814,085) (1,154,716) (852,781)
----------- ----------- -----------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (182,714) (89,028) 339,004
CASH AND CASH EQUIVALENTS,
beginning of year 733,916 822,944 483,940
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $ 551,202 $ 733,916 $ 822,944
=========== =========== ===========
</TABLE>
6 The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE> 23
SUPER 8 MOTELS NORTHWEST II
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net income $1,006,899 $ 705,904 $ 771,673
---------- ---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 175,671 179,521 192,100
Lease expense - deferred 15,983 18,251 20,030
Loss on sale of asset 5,864 -- --
Change in assets and liabilities
Accounts receivable 58,201 (31,737) (18,381)
Inventory (466) 13,049 7,670
Prepaid expenses 3,387 18,583 1,273
Deposits and loan fees -- -- 251
Accounts payable 43,892 (15,454) 47,368
Accrued expenses 10,602 9,459 12,229
Accrued management fees (668,112) 168,112 166,786
---------- ---------- ----------
(354,978) 359,784 429,326
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 651,921 $1,065,688 $1,200,999
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements. 7
- --------------------------------------------------------------------------------
<PAGE> 24
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 1 - PARTNERSHIP OPERATIONS
Super 8 Motels Northwest II is a Washington limited partnership. The
partnership owns and operates three motels: one in Bremerton, Washington;
one in Portland, Oregon; and one in Yakima, Washington.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS - Cash equivalents are investments with maturity at date
of purchase of three months or less.
INVENTORY - Inventory consists of various operating supplies which have
been valued at cost.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and are
depreciated using straight-line and accelerated methods over estimated
useful lives as follows:
<TABLE>
<CAPTION>
Years
-------------
<S> <C>
Buildings 7, 15, and 30
Equipment, furniture and fixtures 5 and 7
</TABLE>
LOAN FEES - Loan fees incurred in connection with financing for the Yakima
property are amortized over the term of the loan of 10 years.
FRANCHISE FEES AND LEASE OPTION COSTS - The initial franchise fees and
lease option costs are stated at cost; amortization of these amounts is
being provided using the straight-line method over 20 and 30 years,
respectively.
ACCRUED VACATION - It is the partnership's policy to expense vacation pay
as paid rather than as earned as required by generally accepted accounting
principles. The effect upon the financial statements is not significant.
INCOME TAXES - No provision has been made in the accompanying financial
statements for federal or state income taxes as taxable income or loss of
the partnership is allocated to and included in the taxable income of the
partners. See Note 5 for additional discussion.
INCOME PER LIMITED PARTNERSHIP UNIT - Net income per limited partnership
unit is computed by dividing the limited partners' share of net income by
the limited partners' units outstanding for each year.
CONCENTRATION OF CREDIT RISK - The partnership has bank deposits in excess
of federal
8
<PAGE> 25
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deposit insurance limits. The partnership's management does not
anticipate any adverse effect on its financial position resulting from the
credit risk.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
NOTE 3 - DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES
DISTRIBUTIONS - Under the partnership agreement, on a quarterly basis, the
managing general partner determines the amount, if any, of cash available
for distribution and distributes cash as follows:
- 1% to the general partners and 99% to the limited partners until
the limited partners have received a cumulative pretax return on
their adjusted capital investment equal to 10% per year through
the end of the partnership year for which the distribution is
being made, then
- Any remaining cash will be distributed 15% to the general
partners and 85% to the limited partners.
Distributions paid to the limited partners in 1995 aggregated $1,174,026,
which equaled a per-unit amount necessary to pay to the limited partners a
10% cumulative return on their investment from the final closing of the
offering of units on May 5, 1984. Subsequently, the limited partners were
paid amounts, which varied by partner, necessary to pay that partner a 10%
return on their investment from the date of their investment (or, if
later, the initial breaking of the escrow established in connection with
the offering on January 12, 1983) until the closing of the offering on May
5, 1985.
PROFIT AND LOSSES - Profits and losses are allocated 1% to the general
partners and 99% to the limited partners until the limited partners have
received a cumulative pretax return of 10% per year on their adjusted
capital investment; and thereafter, 15% to the general partners and 85% to
the limited partners.
9
<PAGE> 26
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 4 - LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Note payable to bank, collateralized by assignment of land lease and other
property; interest rate is variable and is adjusted annually based on a
treasury bill index plus 3.5%; payable in variable monthly installments
which is currently $18,803 including interest; due August 2009.
The interest rate at December 31, 1996 is 9.38%. $1,708,349 $1,776,274
Note payable to bank, collateralized by assignment of land lease and other
property; interest rate is variable and is adjusted annually based upon
a treasury bill index plus 2.5%; payable in monthly installments of
$8,308, including interest; due February 2001. The interest rate at
December 31, 1996 is 10.25%. 725,377 748,467
Line of credit, collateralized by real property; interest rate is variable
at 1% plus lender's prime rate, currently payable in monthly
installments of $4,167 plus interest, due January 2000.
The interest rate at December 31, 1996 is 9.25%. 67,075 117,079
---------- ------------
2,500,801 2,641,820
Less current portion 155,000 142,000
---------- ------------
$2,345,801 $2,499,820
========== ============
</TABLE>
Based on the December 31, 1996 interest rates, principal payments required
on these notes during each of the next five years and thereafter are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 155,000
1998 122,000
1999 121,000
2000 132,000
2001 152,000
Thereafter 1,818,801
-----------
$ 2,500,801
===========
</TABLE>
10
<PAGE> 27
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 5 - INCOME TAXES
The cost of certain assets and the amount of certain expenses reported for
federal income tax purposes are different from the amounts reported under
generally accepted accounting principles in the accompanying financial
statements. The differences arise primarily from:
- Depreciating the buildings for financial reporting purposes using
the straight-line method over a 30 year life, and for federal income
tax purposes using the straight-line method over a 15, 18, or 31.5
year life.
- Depreciating furniture and equipment for financial reporting
purposes using accelerated and straight-line methods over a 5 or 7
year life, and for federal income tax purposes using the accelerated
cost recovery method or the modified accelerated cost recovery
method over a 5 or 7 year life.
- Amortizing capitalized interest for federal income tax purposes
using a 10 year life and for financial reporting purposes amortizing
it over the life of the building.
- Deducting sales tax incurred prior to 1987 on property and equipment
acquisitions as an expense for federal income tax purposes and
capitalizing it for financial reporting purposes.
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax reporting purposes:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income as shown in the statement of
income $1,006,899 $ 705,904 $ 771,673
Additional depreciation and amortization
for income tax purposes (38,785) (41,488) (41,722)
Accrued (paid) property management fees (668,112) 168,112 166,786
Lease expense - deferred 15,983 18,251 20,030
Other 6,652 7,569 86
---------- ---------- ----------
Net income for federal income tax
reporting purposes $ 322,637 $ 858,348 $ 916,853
========== ========== ==========
</TABLE>
11
- --------------------------------------------------------------------------------
<PAGE> 28
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 6 - RELATED-PARTY TRANSACTIONS
Transactions between the partnership and the general partners, The
Peninsula Group, Inc. (formerly named Super 8 Motels Northwest, Inc.)
and Gerald L. Whitcomb and between affiliates of the general partners
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Purchases of supplies and equipment $148,935 $266,673 $214,823
Administrative service fee $191,324 $182,277 $175,852
Property management fees $179,999 $168,112 $166,786
</TABLE>
The partnership has a management agreement with an affiliate of the
general partners to employ the affiliate for a period of 20 years as
manager of the motels owned by the partnership. The agreement provides for
payment of a property management fee to the affiliate equal to 5% of the
partnership's gross revenues from motel operations in addition to
reimbursement of certain out-of-pocket costs incurred by the affiliate in
connection with management of the property. The 5% base fees are recorded
as property management fees. The reimbursements of out-of-pocket costs are
recorded as administrative service fees.
Payment of property management fees is subordinated to receipt by the
limited partners of a cumulative, pretax return on their adjusted capital
investment of 10% per annum. This 10% return was achieved during 1996.
Accordingly, current year management fees of $179,999 and prior years'
management fees totaling $668,112 were paid in 1996. The balance of unpaid
management fees of $699,048 will be paid only as sufficient operational
cash flow is experienced. In 1994 all management fees were accrued with
restatement of prior years' information. See Note 9 for further
discussion.
NOTE 7 - COMMITMENTS
FRANCHISE AGREEMENTS - The partnership has purchased franchise rights to
provide motel services to the general public using a system commonly known
as Super 8 Motels. An initial franchise fee of $15,000 was paid for each
motel and the partnership is committed to pay additional fees equal to 4%
of gross room revenue for the 20 year term of the respective agreements.
In addition, 1% of gross room revenue is remitted to Super 8 Motels for
advertising and participation in the national reservation system. This
amount is included in advertising and promotion.
12
<PAGE> 29
SUPER 8 MOTELS NORTHWEST II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS (CONTINUED)
LEASE COMMITMENTS - The partnership leases the land upon which the
Bremerton and Yakima motels are located under three operating leases with
initial lease terms of 36, 30, and 24 years.
The Bremerton and one of the Yakima land leases provide for adjustment of
the minimum rent ranging from one to three years by a factor based on
changes in the consumer price index.
The remaining Yakima land lease provides for adjustment of the minimum
rent annually by a factor of 5%. This lease requires fixed minimum payment
escalations over the lease term. Generally accepted accounting principles
require the partnership to recognize lease expense on a straight-line
basis over the term of each lease. As a result, lease expense is presently
greater than cash lease payments. Cash lease payments are captioned "lease
expense--current" in the statement of operations. Noncash lease expense is
captioned "lease expense--deferred" in the statement of operations. In the
balance sheet under noncurrent liabilities, "accrued rent under lease
agreements" reflects the accrual of noncash lease expense. This accrued
rent will not begin to be paid until 2004.
Minimum lease payments based on current rents are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 139,056
1998 141,116
1999 143,280
2000 145,551
2001 147,937
Thereafter 2,325,261
-----------
$ 3,042,201
===========
</TABLE>
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS - The carrying amount approximates fair value
because of the short-term maturity of those instruments.
LONG-TERM DEBT - The carrying amounts of the partnership's borrowings
under its long-term revolving credit agreement and notes payable
approximate fair value.
NOTE 9 - PRIOR-PERIOD ADJUSTMENT
As discussed in Note 6, management did not previously accrue unpaid
property management fees because management then believed that such fees
were not probable of payment. In 1994, the partnership adopted the accrual
method of accounting for unpaid property management fees. Accordingly, the
December 31, 1993, financial statements were restated to record unpaid
property management fees totaling $1,032,262.
13
<PAGE> 30
SUPER 8 MOTELS NORTHWEST II
FOURTH QUARTER 1996
VOL. 16 NO. 4/JANUARY 31, 1997
NATIONAL NEWS
NEW RESERVATION SYSTEM GOES ONLINE
On December 1, 1996, Superline began operations of its new reservation
system featuring enhancements for both front desk agents at individual motels
and the reservation agents at Superline. These features will allow Super 8 to
provide better service to guests in several ways. The new reservation system
will allow Superline to book rooms up to twelve months in advance, provide a
more effective room inventory management system for individual properties, and
contribute to the addition of individual property pages for each motel through
the Super 8 Motel Home Page on the Internet.
Super 8 President Bob Weller recently thanked all those involved in
completing the upgrade process and stated, "For something that was initiated
just 18 months ago, we've come a long way in a relatively short period of
time."
BEDMAKING CHAMPIONSHIPS
Every other year Super 8 Motels, Inc. holds an International Bedmaking
Competition in which housekeepers from all over the United States and Canada
compete for a new car, cash and other great prizes. In previous years the
final competition has taken place during the Super 8 Motels International
Convention. However, this year Super 8 has decided not to hold an
international convention, but did not want to miss a year of the bedmaking
competition, so the finals will instead be held at the Mall of America in
Bloomington, Minnesota, on May 17, 1997. This is the first time that the
finals will be held in a public venue, and it will provide, even more
excitement for the contestants and great media exposure for Super 8, with a
large public audience sure to attend. This will put Super 8 in the public
spotlight and provide public recognition for the outstanding work and
enthusiasm of our housekeepers.
Regional competitions are already underway all across the United
States and Canada. Peninsula Management Northwest held its regional
competition in late November. Eighteen housekeepers from properties managed by
Peninsula Management Northwest have qualified for the next round of competition
to be held at the Super 8 Regional Meetings in Spokane, Washington, in March.
We wish them all luck.
1
<PAGE> 31
REGIONAL NEWS
ANNUAL MEETING
The Peninsula Management Northwest Annual Managers' Meeting was held
the first week of December at the corporate office in Tumwater, Washington.
The General Managers and Assistant Managers from each property attended the
three-day meeting, which included general sessions with CEO Gerald Whitcomb and
COO Sam Polack, as well as working meetings with the Regional Directors,
Marketing Director, and Human Resources Director to complete work on the
property budgets and organizational planning for 1997.
The meeting culminated with the annual dinner and awards presentation,
which this year was held at the Olympia Golf and Country Club. The award for
Manager of the Year went to Tom Zett, General Manager of the Portland Super 8.
Jean Gesh, Night Auditor at the Lacey Super 8 Motel was awarded Employee of the
Year. The Taul Watanabe Award for Excellence in Service was awarded by Gerald
and Maryanne Whitcomb to Larry Knudsen, Executive Vice President of The
Peninsula Group.
Awards for Highest Occupancy, Highest Average Daily Rate, Highest VIP
Sales, Highest GOP $, and Highest GOP % were presented to Bremerton, Anchorage,
Port Angeles, Sea Tac and Bremerton, respectively. Best Quality Assurance
Score went to Corvallis, Oregon. Lowest Turnover %, and Lowest Expenses (as a
percentage of total revenue) were awarded to Portland and Bremerton,
respectively. And finally, Wilsonville and Klamath Falls tied as the
properties with the lowest guest concerns for 1996.
NORTHWEST CONSTRUCTION
Construction is underway on an 85-room property in Redmond, Oregon.
This property is located on Highway 97, 16 miles north of the existing Bend
Super 8 Motel and Grand Opening is planned for June 27, 1997.
On January 27, 1997, The Peninsula Group held the long-awaited
ground-breaking for the Woodburn, Oregon, Super 8 Motel. The construction of
this property has been repeatedly delayed due to development fee escalation, as
discussed in the third quarter Update. However, months of negotiations have
produced the desired results and construction is now underway. The grand
opening is slated for late summer 1997.
As stated in the third quarter Update, a site in Roseburg, Oregon, has
also been acquired. Located on a new 1-5 interchange at the north end of
Roseburg, development of this site is due to begin in summer 1997 and will
include not only a 100-room Super 8 Motel, but also restaurants and a gas
station/convenience store.
2
<PAGE> 32
SUPER 8 MOTELS NORTHWEST II
OPERATIONS
During 1996, the three properties owned by the Super 8 Motels
Northwest II limited partnership rented 70,841 rooms, for a consolidated
occupancy of 76.81 %. This represented an increase of 4.47 occupancy points
over 1995. The average daily rate (ADR) of the properties decreased from
$49.31 to $49.15 per rented room. This resulted in the partnership completing
1996 operations with total revenue of $3,605,487 as compared to 1995 total
revenues of $3,362,243, for an increase in sales of seven percent.
Comparative occupancy charts and average daily room rate comparisons
for the fourth quarter are enclosed, as well as the unaudited year-end
financial statements. The enclosed unaudited consolidated financial statements
show that Direct Operating Expenses were well controlled, with payroll and
related expenses remaining level even though there were increases in occupancy.
Lower expenses in Supplies and Maintenance in 1996 are primarily due to the
fact that some of the planned upgrades in the properties were only partially
completed by year end, and property upgrades will be completed during the first
quarter of 1997. Indirect Operating Expenses were also well controlled, while
Administrative and General Expenses rose primarily because franchise and
management fees are tied to revenues. Overall, with increased sales of
$243,244, Net Income increased by $319,000 representing a 45% increase over
last year.
At Bremerton, occupancy and ADR were highly affected by the Navy
contract which continued into September. The contract boosted annual occupancy
to 84%, while lowering the ADR by $2.20. The result was an increase in revenues
of $197,000 or about 25% over 1995. Occupancy for the fourth quarter remained
in line with 1995 numbers without the Navy contract. To date there have been
no new contracts awarded.
In Yakima, occupancy dropped from 72% in 1995 to 64% in 1996. Average
daily rate climbed $1.29 per rented room. However, the room rate increase
could not offset the drop of eight occupancy points, and the net result was a
drop in net room sales of about 9%. The good news is that 1996 fourth quarter
results were better than the fourth quarter of 1995, reversing the downward
trend of the rest of the year.
Under the leadership of Peninsula Management Northwest's Manager of
the Year, Tom Zett, Portland had another very good year. The property ended
the year with an average occupancy of almost 86% which, compared to 81 % in
1995, resulted in an approximate increase of 6%. In addition, the average
daily rate went from $55.77 to $58.60, for an increase of just under 2%. These
increases pushed the net room sales to an all time high of over $1.48 million,
an increase of almost 9% over 1995.
The Certified Public Accounting firm of Moss Adams is currently
performing the 1996 year-end audit of the partnership books. The audited
financial statement will be sent to you in April with the first quarter 1997
distribution packets.
3
<PAGE> 33
Your fourth quarter 1996 distribution is in the amount of $25.00 per
partnership unit. This distribution represents a 10% annualized distribution
for the quarter and brings total distribution for the year to $100.00 per
partnership unit, or 10% per annum.
TAX INFORMATION
Your 1996 income tax information will be mailed to you no later than
February 28, 1997, directly from the CPA firm. Please call the Corporate
Office at 360-943-8000 if you do not receive your tax information by March 5.
You only need to leave your name, current address, phone number, and
partnership interest with the receptionist and she will forward the information
to Investor Relations. Please do not call for the information before the above
date. The information is mailed directly from the CPA firm and is not
available before that date. If you have recently moved, please provide us with
your most current address before February 15 to avoid any delay in the receipt
of your tax information. Thank you for your patience in this matter.
ANNUAL PARTNERSHIP MEETINGS
Your attendance is welcomed at the Annual Partnership Meetings.
Meeting schedules are as follows:
Date: Wednesday, April 16, 1997
Location: Portland Super 8 Motel
11011 N.E. Holman
Portland, Oregon
Time: 7:00 p.m.
- or -
Date: Monday, April 14, 1997
Location: SeaTac Super 8 Motel
3100 South 192nd
SeaTac, Washington
Time: 8:00 p.m.
We appreciate your support of Super 8 Motels Northwest II. If you are planning
a spring or summer vacation, call Superline at 1-800-800-8000 to reserve your
room at any Super 8 Motel located in Canada and the U.S.
4
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 551,202
<SECURITIES> 0
<RECEIVABLES> 20,606
<ALLOWANCES> 0
<INVENTORY> 58,319
<CURRENT-ASSETS> 641,740
<PP&E> 6,052,734
<DEPRECIATION> 2,738,663
<TOTAL-ASSETS> 3,986,972
<CURRENT-LIABILITIES> 412,162
<BONDS> 3,181,870
0
0
<COMMON> 0
<OTHER-SE> 392,940
<TOTAL-LIABILITY-AND-EQUITY> 3,986,972
<SALES> 0
<TOTAL-REVENUES> 3,599,830
<CGS> 0
<TOTAL-COSTS> 1,115,668
<OTHER-EXPENSES> 1,241,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 244,594
<INCOME-PRETAX> 1,006,899
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,006,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,006,899
<EPS-PRIMARY> 211.22
<EPS-DILUTED> 211.22
</TABLE>
