FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-31905, eff 10/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996, or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from.............to.............
Commission file number 0-15347
GROWTH HOTEL INVESTORS
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2964750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 239-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
No established trading market for the Limited Partnership Units exists and
therefore a current market value for such Units cannot be readily determined.
DOCUMENTS INCORPORATED HEREIN BY REFERENCE:
(1) Prospectus of the Registrant dated August 14, 1985, and thereafter
supplemented, incorporated in Parts I and IV.
(2) Items 2-4 and 8 of the Schedule 14D-9 of the Registrant, as filed with the
Securities and Exchange Commission on February 29, 1996, as amended by Amendment
No. 1 thereto filed with the Securities and Exchange Commission on March 7, 1996
and as further amended by Amendment No. 2 thereto filed with the Securities and
Exchange Commission on March 14, 1996 incorporated in Parts I and II.
GROWTH HOTEL INVESTORS
a California Limited Partnership
PART I
Item 1. Business
Growth Hotel Investors, a California Limited Partnership (the "Registrant" or
the "Partnership"), was organized in 1984 under the California Uniform Limited
Partnership Act. The managing general partner of the Registrant is Montgomery
Realty Company-85 ("MRC-85" or the "Managing General Partner"), a California
general partnership of which NPI Realty Management Corp. ("NPI Realty"), a
Florida corporation, is the managing general partner, and Fox Realty Investors
("FRI"), a California general partnership, is the co-general partner. On
November 15, 1995, Montgomery Realty Corporation, a California corporation,
withdrew as a general partner of MRC-85 and NPI Realty was admitted as a general
partner. In February 1996, NPI Realty became the managing general partner of
MRC-85. Prior to February 1996, FRI was the managing general partner of MRC-85.
NPI Realty and the managing general partner of FRI are wholly-owned subsidiaries
of National Property Investors, Inc., a Delaware corporation ("NPI, Inc.").
The Registrant's Registration Statement on Form S-11 (No. 2-97836) filed
pursuant to the Securities Act of 1933, as amended (the "Act"), was declared
effective by the Securities and Exchange Commission (the "Commission") on August
14, 1985. The Registrant marketed its securities pursuant to its Prospectus
dated August 14, 1985 and thereafter supplemented (hereinafter the
"Prospectus"). The Prospectus was filed with the Commission pursuant to Rule
424(b) of the Act.
The principal business of the Registrant is to acquire, primarily through joint
ventures, hold for investment, and ultimately sell hotels. The Registrant is a
"closed" limited partnership real estate syndicate of the unspecified asset
type. For a further description of the Registrant's business, see the sections
entitled "Risk Factors" and "Investment Objectives and Policies" in the
Prospectus.
Beginning in October 1985 through May 15, 1986, the Registrant offered and sold
$36,932,000 in Limited Partnership Assignee Units ("Units" or "Limited
Partnership Assignee Units"). The net proceeds of this offering were used to
purchase initially, through joint ventures, interests in twenty-three hotels,
including eighteen acquired through a joint venture, Growth Hotel Investors
Combined Fund No. 1, a California Limited Partnership ("Combined Fund"), with
Growth Hotel Investors II, a California limited partnership ("GHI II")
affiliated with the Registrant's managing general partner. See Item 2 below for
a description of the Registrant's properties. The Combined Fund has a
controlling interest in the eighteen hotels acquired. The acquisition
activities of the Registrant were completed on September 15, 1988, and since
that time the principal activity of the Registrant has been managing its
portfolio. The Registrant's original property portfolio was geographically
diversified with properties located in twelve states. In 1988, Mariner/GHI
Associates No. 1, a 50 percent owned joint venture, which joint venture owned
the Hampton Inn-Albuquerque North, was terminated and the Registrant was
assigned the joint venture partner's interest in the property. In 1990 the
Registrant purchased its joint venture partner's 50 percent interest in the
Hampton Inn-Brentwood. In 1991, the Registrant converted its joint venture
partner's 48 percent general partnership interest in the Hampton Inn Syracuse
joint venture into a limited partnership interest. In 1994, the joint venture
which owned the Hampton Inn-Elk Grove lost its property through foreclosure.
On October 2, 1995, the Registrant was granted the option to acquire its joint
venture partner's interest in Aurora/GHI Associates No. 1, the joint venture
which owns the Hampton Inn-Aurora for $150,000. The Registrant has not yet
acquired such interest. It is expected that such interest will be acquired prior
to the sale of the Registrant's properties.
The Registrant is involved in only one industry segment, as described above.
The Registrant does not engage in any foreign operations or derive revenues from
foreign sources.
Both the income and the expenses of operating the properties in which the
Registrant has an ownership interest are subject to factors outside of the
Registrant's control, such as oversupply of similar properties resulting from
overbuilding, increases in unemployment or population shifts or changes in
patterns or needs of users. In addition, there are risks inherent in owning and
operating hotels and other lodging facilities. Owning and operating hotels and
other lodging facilities involves a high degree of risk because such properties
are management and labor intensive and especially susceptible to the impact of
economic and other conditions outside the control of the Registrant.
Expenses, such as local real estate taxes and management expenses, are subject
to change and cannot always be reflected in room rate increases due to market
conditions. The profitability and marketability of developed real property may
be adversely affected by changes in general and local economic conditions and in
prevailing interest rates, and favorable changes in such factors will not
necessarily enhance the profitability or marketability of such property. Even
under the most favorable market conditions there is no guarantee that any
property owned by the Registrant can be sold or, if sold, that such sale can be
made upon favorable terms.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Managing General Partner is unable to predict the extent, if
any, to which such new legislation or regulations might occur and the degree to
which such existing or new legislation or regulations might adversely affect the
properties owned by the Registrant.
The Registrant monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases environmental testing has been performed, which resulted in no material
adverse conditions or liabilities. In no case has the Registrant received
notice that it is a potentially responsible party with respect to an
environmental clean up site.
The Registrant and the hotel management companies maintain property and
liability insurance on the properties. The Registrant believes such coverage to
be adequate.
The Registrant is affected by and subject to the general competitive conditions
of the lodging industry. In addition, each of the Registrant's properties
competes in an area which normally contains numerous other properties. In 1996,
markets in many areas remained depressed due in part to overbuilding and a
general reduction in travel which continues to depress lodging rental rates.
However, the moderately priced, limited service segment of the lodging industry,
which the Registrant's properties are part of, has strengthened due to travelers
economizing, allowing occupancy and rates, in general, to increase. An over-
supply of lodging properties, including those held by banks, savings
institutions, the Federal Deposit Insurance Corporation and the Resolution Trust
Corporation, may affect the ability of the Registrant to sell its properties and
their sales prices.
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates administration of all partnership activities. The
Partnership Agreement provides for reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
The Registrant's affairs were managed by Metric Management, Inc. ("MMI") or its
predecessor from March 1988 to December 1993. On December 16, 1993, the
services agreement with MMI was modified and, as a result thereof, the
Registrant's general partner assumed responsibility for the cash management of
the Registrant as of December 23, 1993, and for investor relations services as
of April 1, 1994.
On December 6, 1993, NPI Equity Investments II, Inc., a Florida corporation
("NPI Equity II"), became the managing partner of FRI. NPI Equity II is a
wholly-owned subsidiary of NPI, Inc. The individuals who had served previously
as partners of FRI contributed their general partnership interests in FRI to a
newly formed limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in
exchange for limited partnership interests in PRA. In the foregoing capacity,
such partners continue to hold indirectly certain economic interests in the
Registrant and such other investment partnerships, but ceased to be responsible
for the operation and management of the Registrant and such other partnerships.
On October 12, 1994, NPI, Inc. sold one-third of the stock of NPI, Inc. to an
affiliate of Apollo Real Estate Advisors, L.P. ("Apollo"). On August 17, 1995,
the stockholders of NPI, Inc. entered into an agreement to sell all of the
issued and outstanding common stock of NPI, Inc. to IFGP Corporation, an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The transaction was
consummated on January 19, 1996. All of the funds used by Insignia and its
affiliates in consummating such transaction were drawn under a revolving credit
facility established for the benefit of Insignia with First Union National Bank
of South Carolina as Administrative Agent and Lehman Commercial Paper, Inc. as
Syndication Agent. Upon the Closing, the officers and directors of NPI, Inc.,
NPI Equity II and NPI Realty resigned and Insignia caused new officers and
directors of each of those entities to be elected. See "Item 10, Directors and
Executive Officers of the Registrant."
Each of NPI Realty and FRI are general partners of MRC-85. Pursuant to a Letter
Agreement dated November 15, 1995, NPI Realty was admitted, and Montgomery
Realty Corporation withdrew, as a general partner of MRC-85. NPI Realty is a
wholly-owned subsidiary of NPI, Inc. Pursuant to the Second Amended and
Restated Partnership Agreement of MRC-85, made and entered into effective as of
November 15, 1995, FRI, at the time a general partner of MRC-85, was then the
managing general partner of MRC-85. Pursuant to the Third Amended and Restated
General Partnership Agreement of MRC-85, dated as of February 15, 1996, NPI
Realty became the managing general partner of MRC-85, and thereby the indirect
managing general partner of the Registrant.
On February 15, 1996, Devon Associates, a New York general partnership,
commenced a tender offer (the "Offer") for up to 15,000 of the outstanding Units
at a purchase price of $705.00 per Unit. Due to the participation in the tender
offer by affiliates of NPI Realty, and the Managing General Partner's related,
existing and potential conflicts of interest, the Partnership, in its Schedule
14D-9 filed with the Securities and Exchange Commission and sent to limited
partners, expressed no opinion and made no recommendation as to whether limited
partners should tender their Units pursuant to the Offer. The expiration of the
tender offers described above was midnight, New York time, on March 25, 1996.
See Items 2-4 of the Schedule 14D-9 of the Partnership, as filed with the
Commission on February 29, 1996, as amended by "Amendment No. 1" thereto, as
filed with the Commission on March 7, 1996, and as further amended by "Amendment
No. 2" thereto, as filed with the Commission on March 14, 1996 (collectively,
the "Schedule 14D-9"), for additional information with respect to the Offer and
the current and potential conflicts of interest of MRC-85, which Items 2-4 are
incorporated herein by reference. Devon Associates acquired 13,396 units with
respect to this offer.
On March 13, 1996, the Partnership received a letter advising that the
Partnership's and GHI II's joint venture partner in certain of the hotel
properties was offering $147,000,000 in cash for all 28 hotel properties
directly or indirectly owned by the Partnership and GHI II. See "Amendment No.
2" to the Partnership's Statement on Schedule 14D-9, as filed with the
Commission on March 14, 1996, for a more complete description of this offer,
which "Amendment No. 2" is hereby incorporated by reference herein. By the
terms of the offer, the offer expired on March 31, 1996. The Managing General
Partner determined that before the offer could be recommended, if at all, to the
Partnership's limited partners, further analysis of the hotel properties and
their value was needed.
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed above, the Partnership and GHI
II, the Partnership's joint venture partner in the Combined Fund properties,
marketed all of their properties for sale. In this regard, the Partnership and
GHI II retained Bear, Stearns & Co. Inc. to assist in the marketing of such
properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint
ventures in which the Partnership has a controlling interest, GHI II, and the
joint ventures in which GHI II has a controlling interest, and Equity Inns
Partnership, L.P. (the "Buyer") entered into certain purchase and sale
agreements pursuant to which the Buyer agreed to purchase from these entities
the twenty-two hotels described herein as well as six additional hotels owned
directly or indirectly by GHI II for an aggregate purchase price of $182
million, subject to adjustment. The closing of these sales, which is
anticipated to occur during the second quarter of 1997, is subject to many
conditions including, favorable completion by the Buyer of its due diligence
review and the Partnership and GHI II receiving consent to the sale from their
respective limited partners holding a majority of the outstanding limited
partnership interests in the Partnership and GHI II. Accordingly, there can be
no assurance that the sale will be consummated with the Buyer or any other
potential buyer.
Item 2. Properties
The following table sets forth the Partnership's investments in properties:
<TABLE>
<CAPTION>
Date of
Property Purchase Use
<S> <C> <C>
Growth Hotel Investors
Hampton Inn-Syracuse (1) (2) 12/85 Hotel / 117 rooms
East Syracuse, New York
Hampton Inn - Brentwood (3) 12/85 Hotel / 114 rooms
Nashville, Tennessee
Hampton Inn - Aurora (1) 12/86 Hotel / 132 rooms
Aurora, Colorado
Hampton Inn - Albuquerque North (4) 04/87 Hotel / 125 rooms
Albuquerque, New Mexico
Growth Hotel Investors
Combined Fund No. 1 (5)
Hampton Inn-Memphis-I-40 East(6) 12/86 Hotel / 117 rooms
Memphis, Tennessee
Hampton Inn-Columbia-West 12/86 Hotel / 121 rooms
West Columbia, South Carolina
Hampton Inn-Spartanburg 12/86 Hotel / 112 rooms
Spartanburg, South Carolina
Hampton Inn-Little Rock-North 12/86 Hotel / 123 rooms
North Little Rock, Arkansas
Hampton Inn-Amarillo 12/86 Hotel / 116 rooms
Amarillo, Texas
Hampton Inn-Greenville 12/86 Hotel / 123 rooms
Greenville, South Carolina
Hampton Inn-Charleston-Airport 12/86 Hotel / 125 rooms
North Charleston, South Carolina
Hampton Inn-Memphis-Poplar 12/86 Hotel / 126 rooms
Memphis, Tennessee
Hampton Inn-Greensboro 12/86 Hotel / 121 rooms
Greensboro, North Carolina
</TABLE>
<TABLE>
<CAPTION>
Date of
Property Purchase Use
<S> <C> <C>
Growth Hotel Investors
Combined Fund No. 1(5) (continued)
Hampton Inn-Birmingham 12/86 Hotel / 123 rooms
Birmingham, Alabama
Hampton Inn-Atlanta-Roswell 03/87 Hotel / 129 rooms
Roswell, Georgia
Hampton Inn-Chapel Hill 03/87 Hotel / 122 rooms
Chapel Hill, North Carolina
Hampton Inn-Dallas-Richardson 03/87 Hotel / 130 rooms
Richardson, Texas
Hampton Inn-Nashville
-Briley Parkway(6) 03/87 Hotel / 120 rooms
Nashville, Tennessee
Hampton Inn-San Antonio-Northwest 06/87 Hotel / 123 rooms
San Antonio, Texas
Hampton Inn-Madison Heights 12/87 Hotel / 126 rooms
Madison Heights, Michigan
Hampton Inn-Mountain Brook(6) 12/87 Hotel / 131 rooms
Birmingham, Alabama
Hampton Inn-Northlake(6) 09/88 Hotel / 130 rooms
Atlanta, Georgia
<FN>
(1) Property is owned by a joint venture in which the Registrant has a
controlling interest.
(2) In January 1991, the Registrant allowed its joint venture partner to convert
its 48 percent general partnership interest into a limited partnership
interest.
(3) In July 1990, the Registrant purchased its joint venture partner's 50
percent interest in the joint venture.
(4) In July 1988, the joint venture which owned this property was terminated and
the Registrant was assigned the joint venture partner's interest in the
property.
(5) The Registrant and an affiliated partnership have invested in a joint
venture, Growth Hotel Investors Combined Fund No. 1 ("Combined Fund"), which
has the majority interest in the properties listed. The affiliated
partnership has the majority interest in the Combined Fund.
(6 )The property is subject to a land lease extending as follows:
</TABLE>
Year Option
Lease Period
Property Expires (Years)
Hampton Inn - Memphis-I-40 East 2004 20
Hampton Inn - Nashville-Briley Parkway 2006 20
Hampton Inn - Mountain Brook 2007 50
Hampton Inn - Northlake 2008 40
Schedule of Properties:
(dollar amounts in thousands)
Growth Hotel Investors:
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
<S> <C> <C> <C> <C> <C>
Hampton Inn - Syracuse $ 5,307 $ 2,127 5-39 yrs S/L $ 2,173
Hampton Inn - Brentwood 5,879 2,270 5-39 yrs S/L 3,177
Hampton Inn - Aurora 7,458 3,237 5-39 yrs S/L 3,052
Hampton Inn - Albuquerque North 5,933 2,041 5-39 yrs S/L 4,024
Total $24,577 $ 9,675 $12,426
</TABLE>
<TABLE>
<CAPTION>
Growth Hotel Investors Combined
Fund No. 1:
<S> <C> <C> <C> <C> <C>
Hampton Inn - Memphis-I-40 East $ 4,379 $ 1,769 5-30 yrs S/L $ 2,130
Hampton Inn - Columbia-West 4,807 1,845 5-30 yrs S/L 2,377
Hampton Inn - Spartanburg 4,177 1,616 5-39 yrs S/L 2,058
Hampton Inn - Little Rock-North 4,701 1,600 5-39 yrs S/L 2,496
Hampton Inn - Amarillo 2,707 919 5-39 yrs S/L 1,388
Hampton Inn - Greenville 4,587 1,608 5-30 yrs S/L 2,401
Hampton Inn - Charleston-Airport 5,023 1,808 5-39 yrs S/L 2,577
Hampton Inn - Memphis-Poplar 6,300 2,006 5-30 yrs S/L 3,643
Hampton Inn - Greensboro 4,559 1,600 5-39 yrs S/L 2,422
Hampton Inn - Birmingham 5,269 1,757 5-30 yrs S/L 2,835
Hampton Inn - Atlanta-Roswell 5,734 1,621 5-30 yrs S/L 4,097
Hampton Inn - Chapel Hill 4,851 1,445 5-30 yrs S/L 3,433
Hampton Inn - Dallas-Richardson 5,826 1,542 5-30 yrs S/L 4,264
Hampton Inn - Nashville-Briley Parkway 4,773 1,728 5-30 yrs S/L 2,982
Hampton Inn - San Antonio-Northwest 5,198 1,523 5-30 yrs S/L 3,594
Hampton Inn - Madison Heights 6,939 2,454 5-30 yrs S/L 4,421
Hampton Inn - Mountain Brook 5,481 2,380 5-30 yrs S/L 3,051
Hampton Inn - Northlake 4,949 2,179 5-30 yrs S/L 2,835
Total $90,260 $31,400 $53,004
<FN>
See "Note A" of the financial statements included in "Item 8." for a description of
the Partnership's depreciation policy.
</TABLE>
Schedule of Mortgages:
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Growth Hotel Investors:
Principal
Balance at Principal
December 31, Interest Period Maturity Balance Due
Property 1996 Rate Amortized Date At Maturity
<S> <C> <C> <C> <C> <C>
Hampton Inn -
Syracuse $ -- N/A N/A N/A $ --
Hampton Inn -
Brentwood -- N/A N/A N/A --
Hampton Inn -
Aurora 3,037 10.5% 30 yrs 1/98 3,037
Hampton Inn -
Albuquerque North 2,375 10% None 8/97 2,375
Total $ 5,412 $ 5,412
</TABLE>
<TABLE>
<CAPTION>
Growth Hotel Investors Combined
Fund No. 1
<S> <C> <C> <C> <C> <C>
Hampton Inn -
Memphis-I-40 East (1) $ 1,771 10.00% 30 yrs 7/97 $ 1,757
Hampton Inn -
Columbia-West (1) 2,062 10.00% 30 yrs 7/97 2,045
Hampton Inn -
Spartanburg (1) 1,767 10.00% 30 yrs 7/97 1,753
Hampton Inn -
Little Rock-North (1) 2,015 10.00% 30 yrs 7/97 1,999
Hampton Inn -
Amarillo (1) 1,120 10.00% 30 yrs 7/97 1,112
Hampton Inn -
Greenville (1) 2,054 10.00% 30 yrs 7/97 2,037
Hampton Inn -
Charleston-Airport (1) 2,144 10.00% 30 yrs 7/97 2,127
Hampton Inn -
Memphis-Poplar (1) 2,798 10.00% 30 yrs 7/97 2,775
Hampton Inn -
Greensboro (1) 1,982 10.00% 30 yrs 7/97 1,966
Hampton Inn -
Birmingham (1) 2,426 10.00% 30 yrs 7/97 2,406
Hampton Inn -
Atlanta-Roswell (1) 2,643 10.00% 30 yrs 7/97 2,622
Hampton Inn -
Chapel Hill (1) 2,257 10.00% 30 yrs 7/97 2,238
Hampton Inn -
Dallas-Richardson (1) 2,769 10.00% 30 yrs 7/97 2,746
Hampton Inn -
Nashville-Briley Parkway (1) 2,183 10.00% 30 yrs 7/97 2,165
Hampton Inn -
San Antonio-Northwest (1) 2,451 10.00% 30 yrs 7/97 2,432
Hampton Inn -
Madison Heights (1) 2,834 10.00% 30 yrs 7/97 2,811
Hampton Inn -
Mountain Brook 2,543 7.63% 30 yrs 8/97 2,516
Hampton Inn -
Northlake 2,366 7.63% 30 yrs 8/97 2,340
Total $40,185 $39,847
<FN>
(1) The Partnership mortgages encumbering these hotels are cross collateralized.
The principal balance due at maturity is approximately $34,991,000.
</TABLE>
The following chart sets forth the occupancy rate at the Registrant's
properties for years ended December 31, 1996, 1995 and 1994:
Average
Occupancy Rate (%)
for the Year Ended
December 31,
1996 1995 1994
Property:
Growth Hotel Investors:
Hampton Inn-Syracuse 57% 60% 71%
Hampton Inn-Brentwood 78% 82% 86%
Hampton Inn-Aurora 71% 79% 78%
Hampton Inn-Albuquerque North 73% 80% 85%
Growth Hotel Investors Combined
Fund No. 1:
Hampton Inn-Memphis-I-40 East 77% 80% 82%
Hampton Inn-Columbia-West 76% 81% 84%
Hampton Inn-Spartanburg 63% 69% 70%
Hampton Inn Little Rock-North 78% 79% 78%
Hampton Inn-Amarillo 66% 75% 77%
Hampton Inn-Greenville 77% 81% 80%
Hampton Inn-Charleston-Airport 75% 76% 80%
Hampton Inn-Memphis-Poplar 83% 84% 87%
Hampton Inn-Greensboro 80% 86% 87%
Hampton Inn-Birmingham 76% 82% 83%
Hampton Inn-Atlanta-Roswell 73% 82% 82%
Hampton Inn-Chapel Hill 85% 87% 82%
Hampton Inn-Dallas-Richardson 76% 78% 76%
Hampton Inn-Nashville-Briley Parkway 81% 87% 88%
Hampton Inn-San Antonio-Northwest 63% 62% 72%
Hampton Inn-Madison Heights 73% 71% 72%
Hampton Inn-Mountain Brook 78% 79% 80%
Hampton Inn-Northlake 74% 81% 76%
The following chart sets forth the average daily room rates at the Registrant's
properties for the years ended December 31, 1996, 1995 and 1994:
Average
Daily Room Rates (%)
for the Year Ended
December 31,
1996 1995 1994
Property:
Growth Hotel Investors:
Hampton Inn-Syracuse $59.99 $54.76 $50.61
Hampton Inn-Brentwood 69.09 62.26 54.42
Hampton Inn-Aurora 59.24 56.04 52.00
Hampton Inn-Albuquerque North 57.26 54.97 52.37
Growth Hotel Investors Combined
Fund No. 1:
Hampton Inn-Memphis-I-40 East $54.40 $53.49 $50.32
Hampton Inn-Columbia-West 59.13 54.42 51.17
Hampton Inn-Spartanburg 54.15 47.83 42.89
Hampton Inn Little Rock-North 52.59 48.79 45.52
Hampton Inn-Amarillo 53.39 50.55 47.12
Hampton Inn-Greenville 59.19 52.30 47.62
Hampton Inn-Charleston-Airport 56.14 53.48 50.16
Hampton Inn-Memphis-Poplar 67.46 64.64 60.18
Hampton Inn-Greensboro 64.12 57.99 51.50
Hampton Inn-Birmingham 61.12 58.65 55.01
Hampton Inn-Atlanta-Roswell 66.70 58.54 54.17
Hampton Inn-Chapel Hill 62.30 56.14 50.95
Hampton Inn-Dallas-Richardson 57.15 50.82 46.63
Hampton Inn-Nashville-Briley Parkway 67.33 62.03 56.98
Hampton Inn-San Antonio-Northwest 57.87 57.67 57.19
Hampton Inn-Madison Heights 59.58 54.04 51.21
Hampton Inn-Mountain Brook 63.02 58.17 54.92
Hampton Inn-Northlake 61.84 54.86 52.33
Real estate taxes and rates in 1996 for each property were:
1996 1996
Billing Rate
Growth Hotel Investors :
Hampton Inn-Syracuse $144,463 23.39%
Hampton Inn-Brentwood 46,048 4.50%
Hampton Inn-Aurora 80,767 9.79%
Hampton Inn-Albuquerque North 37,755 4.24%
Growth Hotel Investors Combined
Fund No. 1:
Hampton Inn-Memphis-I-40 East $ 92,604 3.18%
Hampton Inn-Columbia-West 32,373 26.85%
Hampton Inn-Spartanburg 29,274 26.83%
Hampton Inn Little Rock-North 22,600 5.95%
Hampton Inn-Amarillo 68,224 2.16%
Hampton Inn-Greenville 75,943 29.67%
Hampton Inn-Charleston-Airport 55,684 22.66%
Hampton Inn-Memphis-Poplar 125,349 3.18%
Hampton Inn-Greensboro 39,791 1.24%
Hampton Inn-Birmingham 64,361 9.26%
Hampton Inn-Atlanta-Roswell 60,950 3.55%
Hampton Inn-Chapel Hill 76,512 1.78%
Hampton Inn-Dallas-Richardson 98,719 1.57%
Hampton Inn-Nashville-Briley Parkway 55,433 4.50%
Hampton Inn-San Antonio-Northwest 74,163 2.15%
Hampton Inn-Madison Heights 83,993 2.65%
Hampton Inn-Mountain Brook 71,562 9.90%
Hampton Inn-Northlake 52,909 4.15%
Item 3. Legal Proceedings
William Wallace, Mildred Wallace, Edith G. Martin, Paul Allemang and Gwen
Allemang, on behalf of themselves and all others similarly situated, and
derivatively on behalf of Growth Hotel Investors, a California limited
partnership and Growth Hotel Investors II, a California limited partnership
("GHI II"), Plaintiff v. Devon Associates, Montgomery Realty-85, GHI Associates,
Cayuga Associates L.P., Cayuga Capital Corp., Insignia Financial Group, Inc.,
L.P., and Fleetwood Corp., Defendants and Growth Hotel Investors, a California
limited partnership, and Growth Hotel Investors II, a California limited
partnership, Nominal Defendant, Supreme Court of the State of New York, County
of New York, Case No. 9600866.
On February 21, 1996, William and Mildred Wallace, holders of Units of the
Registrant and Edith G. Martin and Paul and Gwen Allemang, holders of Units of
GHI II, commenced an action on behalf of themselves and others similarly
situated, and derivatively on behalf of the Registrant and GHI II, in the
Supreme Court of the Sate of New York, County of New York, against, among
others, MRC-85 and certain of its affiliates pertaining to the tender offer for
up to 15,000 partnership Units of the Registrant and up to 21,000 partnership
Units of GHI II which commenced February 15, 1996. The action alleged, among
other things, that the tender offers constitute (a) a breach of fiduciary duty
owed to limited partners of the partnerships, and (b) a breach of the provisions
of the partnership agreements of such partnerships. The action, which sought to
be brought as a class action on behalf of all limited partners, sought to enjoin
the tender offers as well as monetary damages in an unspecified amount. In
connection with the settlement discussed below, this action has been
discontinued.
R&S Asset Partners, a Florida general partnership, and Jessie B. Small, on their
own behalves, on behalf of all others similarly situated, and derivatively on
behalf of the Nominal Defendants, Plaintiffs, v. Devon Associates, Cayuga
Associates, L.P., Cayuga Capital Corp., Fleetwood Corp., Carl C. Icahn, Michael
L. Ashner, Martin Lifton, Arthur N. Queler, Insignia Financial Group, Inc.,
IFGP, Corp., National Properties Investors, Inc., NPI Equity Investments II,
Inc., Fox Realty Investors, Portfolio Realty Associates, L.P., Emmet J. Cashin,
Jr., Jarold A. Evans, W. Patrick McDowell, Apollo Real Estate Advisors, L.P.,
and Montgomery Realty Company-85, Defendants, and Growth Hotel Investors, a
California Limited Partnership, and Growth Hotel Investors II, a California
Limited Partnership, Nominal Defendants, Superior Court of the State of
California, County of Los Angeles, Case No. BC145220.
On February 28, 1996, R&S Asset Partners, holders of Units of the Registrant,
and Jesse B. Small, holder of Units of GHI II, commenced an action on behalf of
themselves and others similarly situated, and derivatively on behalf of the
Registrant and GHI II, in the Superior Court of the State of California, County
of Los Angeles, against, among others, MRC-85 and certain of its affiliates
pertaining to the tender offer for up to 15,000 partnership Units of the
Registrant and up to 21,000 partnership Units of GHI II which commenced February
15, 1996. The action alleges, among other things, that the tender offers
constitute (a) a breach of fiduciary duty owed to limited partners of the
partnerships, (b) negligent misrepresentation pertaining to the disclosure set
forth in the offer to purchase, (c) common law fraud, and (d) a breach of the
provisions of the partnership agreements of such partnerships. The action,
which is sought to brought as a class action on behalf of all limited partners,
seeks to enjoin the tender offers as well as monetary damages in an unspecified
amount.
On March 15, 1996, counsel for the plaintiffs and defendants in the Wallace and
the R&S Partners Actions agreed in principle to settle these actions, which
settlement has subsequently received final court approval. In connection with
the settlement MRC-85 agreed to take such actions as are reasonably necessary
and consistent with its fiduciary duties to procure offers for the purchase of
the Partnership's and GHI II's assets which maximize the value of the limited
partner assignee units. MRC-85 further agreed to deal fairly and in good faith
with persons expressing an interest in making a bona fide offer to purchase such
assets and, subject to its fiduciary duty, provide such bona fide offers with
access to the Partnership's and GHI II's books and records for due diligence
purposes. MRC-85 also agreed that if it determined that an offer to purchase
its assets is acceptable, MRC-85 will prepare a plan of liquidation and submit
such plan to the Partnership's partners for approval. Also in connection with
the settlement, the plaintiffs will release all claims they may have arising out
of the tender offers. As required by the settlement, the Partnership and GHI II
are coordinating with class counsel with respect to the sale of such assets and
consent of limited partners. See "Item 1, Business" for information relating to
the terms of the proposed sale of the Partnership and GHI II's assets.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of unit holders during the period covered by
this Report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Limited Partnership Assignee Unit holders are entitled to certain
distributions as provided in the Partnership Agreement. No established trading
market for Limited Partnership Assignee Units exists, nor is any expected to
develop.
During the years ended December 31, 1996 and 1995, the Registrant has made the
following cash distributions with respect to the Units to holders thereof as of
the dates set forth below in the amounts set forth opposite such dates:
Distribution with Amount of Distribution
Respect to Quarter Ended Per Unit (*)
1996 1995
March 31 $ 0 $ 0
June 30 $ 20 $ 20
September 30 $ 0 $ 0
December 31 $ 20 $ 20
(*) The amounts listed represent distributions of cash from operations and cash
from sales. (See "Item 7, Management's Discussion and Analysis or Plan of
Operation", for information relating to the Partnership's future
distributions.)
As of December 31, 1996, there were 1,918 holders of record owning an aggregate
of 36,932 Units.
Item 6. Selected Financial Data
The following represents selected financial data for the Registrant for the
years ended December 31, 1996, 1995, 1994, 1993, and 1992. The data should be
read in conjunction with "Item 8, Consolidated Financial Statements." This data
is not covered by the independent auditors' report.
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994 1993 1992
(Amounts in thousands except per unit data)
<S> <C> <C> <C> <C> <C>
Total Revenues $ 9,831 $10,341 $10,049 $10,895 $ 8,798
Income (Loss) Before Minority
Interest in Joint Ventures'
Operations and Extraordinary Item $ 2,558 $ 3,556 $ 2,920 $ 2,716 $ (1,893)
Minority Interest In Joint Ventures'
Operations 35 (28) (36) (36) 34
Extraordinary Item - Gain On
Extinguishment Of Debt -- -- 606 -- --
Net Income (Loss) $ 2,593 $ 3,528 $ 3,490 $ 2,680 $ (1,859)
Net Income (Loss) Per Limited
Partnership Assignee Unit (1):
Income (Loss) Before Extraordinary Item $ 65 $ 89 $ 73 $ 68 (44)
Extraordinary Item - Gain On
Extinguishment of Debt -- -- 15 -- --
Net Income (Loss) $ 65 $ 89 $ 88 $ 68 $ 44
Total Assets $28,422 $27,510 $27,898 $ 31,672 $ 29,908
Notes Payable $ 5,412 $ 5,433 $ 7,655 $ 12,488 $ 12,518
Cash Distributions Per Limited
Partnership Assignee Unit (actual
amount based on admission to
partnership) $ 40 $ 40 $ 40 $ 35 $ 20
<FN>
(1) $1,000 original contribution per unit, based on weighted average limited
partnership assignee units outstanding during the period after allocation
to the general partner.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Liquidity and Capital Resources
All of the Registrant's properties are hotels. The Registrant receives hotel
operating revenues and is responsible for operating expenses, administrative
expenses, capital improvements and debt service payments. The Registrant uses
working capital reserves provided from any undistributed cash flow from
operations as its primary source of liquidity. During 1996, the Registrant
distributed $39.99 per unit to the holders of limited partnership units
($1,477,000 in total) and $110,000 to the general partner.
At December 31, 1996, the Partnership held unrestricted cash of approximately
$4,644,000 compared to approximately $3,600,000 at December 31, 1995. Net cash
provided by operating activities increased due to the payment of $775,000 during
the first quarter of 1995 relating to a buyout agreement with the supervisory
managing agent. Partially offsetting the increase in operating activities was
the decrease in net income as discussed below. Net cash provided by investing
activities decreased due to an increase in restricted cash. Net cash used in
financing activities decreased due to the satisfaction of the note payable
encumbering the Partnership's Hampton Inn-Brentwood property in 1995.
On December 1, 1995, the Registrant satisfied the first mortgage encumbering its
Hampton Inn-Brentwood property in the amount of $2,186,000. The Note was due to
mature in January 1996.
The mortgage on Partnership's Hampton Inn-Aurora property matured in January
1997. The Managing General Partner has obtained a one year extension. The
mortgage on the Partnership's Hampton Inn-Albuquerque property matures in May
1997. The Managing General Partner will try to sell the property or refinance
the debt of the property if the property is not sold.
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed below, the Partnership and GHI
II, the Partnership's joint venture partner in the Combined Fund properties,
marketed all of their properties for sale. In this regard, the Partnership and
GHI II retained Bear, Stearns & Co. Inc. to assist in the marketing of such
properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint
ventures in which the Partnership has a controlling interest, GHI II, and the
joint ventures in which GHI II has a controlling interest, and Equity Inns
Partnership, L.P. (the "Buyer") entered into certain purchase and sale
agreements pursuant to the Buyer agreed to purchase from these entities the
twenty-two hotels described herein as well as six additional hotels owned
directly or indirectly by GHI II for an aggregate purchase price of $182
million, subject to adjustment. The closing of these sales, which is
anticipated to occur during the second quarter of 1997, is subject to many
conditions including, favorable completion by the Buyer of its due diligence
review and the Partnership and GHI II receiving consent to the sale from their
respective limited partners holding a majority of the outstanding limited
partnership interest in the Partnership and GHI II. Accordingly, there can be
no assurance that the sale will be consummated with the Buyer or any other
potential buyer.
The Managing General Partner plans to liquidate the partnership upon the sale of
the investment properties, which include payment of debt. If the sale does not
consummate as planned, the Managing General Partner plans to negotiate
extensions for those encumbrances which will mature in 1997.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. The mortgage indebtedness
of approximately $5,412,000 includes mortgages with maturity dates in 1997. The
Partnership's Hampton Inn-Albuquerque has a balloon payment due in August 1997,
in the amount of approximately $2,375,000. The mortgages encumbering the
Partnership's unconsolidated joint venture, total approximately $40,185,000 at
December 31, 1996. Two of the mortgages, Hampton Inn-Mountain Brook and Hampton
Inn-Northlake, matured on August 1, 1996. The Managing General Partner has been
successful in extending these mortgages to August 1, 1997. The unconsolidated
joint venture's remaining mortgages of approximately $35,276,000 matured on
December 1, 1996. The Managing General Partner has been successful in extending
these loans until July 1, 1997. Cash distributions were made in the second and
fourth quarters of 1996 and 1995 totaling $1,587,000, of which $1,477,000 was
distributed to the limited partners and $110,000 was distributed to the general
partner. Future cash distributions will depend on the levels of cash generated
from operations, property sales and the availability of cash reserves.
The Partnership is currently working on a product improvement plan (PIP) which
is being coordinated with Hampton Inns, Inc. Under this plan capital
expenditures and maintenance expenses may result in a material capital program
during 1997, but no amount is available at this time. There are also certain
routine capital expenditures and maintenance expenses which have been budgeted.
These capital expenditures and maintenance expenses will be incurred with cash
available from operations or from the capital reserve account.
On February 15, 1996, Devon Associates, a New York general partnership,
commenced a tender offer (the "Offer") for up to 15,000 of the outstanding Units
at a purchase price of $705.00 per Unit. Devon Associates acquired 13,396 units
with respect to this offer.
On March 13, 1996, the Partnership received a letter advising that the
Partnership's and Growth Hotel Investors II ("GHI II") joint venture partner in
certain of the hotel properties was offering $147,000,000 in cash for all 28
hotel properties directly or indirectly owned by the Partnership and GHI II.
See "Amendment No. 2" to the Partnership's Statement on Schedule 14D-9, as filed
with the Commission on March 14, 1996, for a more complete description of this
offer, which "Amendment No. 2" is hereby incorporated by reference herein. By
the terms of the offer, the offer expired on March 31, 1996. The Managing
General Partner determined that before the offer could be recommended, if at
all, to the Partnership's limited partners, further analysis of the hotel
properties and their value was needed.
Results of Operations
1996 Compared to 1995
The Partnership's net income as reported in the financial statements for the
year ended December 31, 1996, was approximately $2,593,000 compared to net
income of approximately $3,528,000 for the corresponding period of 1995 (see
"Note I" of the financial statements for a reconciliation of these amounts to
the Partnership's federal taxable income). The decrease in net income is
attributable to a decrease in hotel operating revenue, equity from
unconsolidated joint ventures and interest revenue and an increase in hotel
operations expenses, general and administrative expenses and depreciation
expense. The decrease in hotel operations revenue is due to decreases in
occupancy at the Partnership's Aurora and Albuquerque properties. The decrease
in occupancy at the properties was partially offset by increases in average
daily room rates. The decrease in occupancy at Aurora was due to rooms being
out of service for renovations. The decrease in occupancy at the Albuquerque
property is related to the construction of new hotels in the area. The decrease
in interest revenue is due to a decrease in the average working capital
available for investment. The increase in general and administrative expenses
is due to an increase in professional fees, cost reimbursements and additional
administrative costs associated with the potential sale of the properties and
the liquidation of the Partnership. The increase in expense reimbursements
during the year ended December 31, 1996, is directly attributable to the
combined transition efforts of the Greenville, South Carolina, and Atlanta,
Georgia administrative offices during the year-end close, preparation of the
1995 10-K and tax return (including the limited partners K-1's), filing of the
first two quarterly reports and transition of asset management responsibilities
to the new administration. The increase in depreciation expense in 1996 is due
to additions to property and improvements during the third and fourth quarters
of 1995, as well as the purchase of assets in 1996 related to renovations at the
Partnership's properties. Offsetting the items noted above is a decrease in
interest expense due to the repayment of the mortgage encumbering the Hampton
Inn-Brentwood property on December 1, 1995.
1995 Compared to 1994
Operating results, before minority interest in joint ventures and the
extraordinary item, improved by $636,000 for the year ended December 31, 1995,
as compared to 1994, due to an increase in revenues of $292,000 and a decrease
in expenses of $344,000. Operating results improved at all of the Registrant's
properties except for the Hampton Inn - Syracuse. In addition, the Registrant's
Hampton Inn - Elk Grove property, which had been generating losses, was lost to
foreclosure during the 1994 period. With respect to the remaining properties,
operating results, before minority interest in joint ventures, improved by
$289,000 due to an increase in revenues of $446,000, and an increase in expenses
of $157,000.
With respect to the remaining properties, revenues from hotel operations
increased by $446,000, for the year ended December 31, 1995, as compared to
1994, due to increased average daily room rates at all of the Registrant's
hotels, which were partially offset by decreased occupancy at the Registrant's
Hampton Inn - Syracuse, Albuquerque and Brentwood properties. Occupancy at the
Registrant's Hampton Inn - Aurora property remained relatively constant. Equity
in unconsolidated joint venture operations improved by $51,000 during the year
ended December 31, 1995, as compared to 1994, due to improved hotel operating
revenues at all the joint venture properties, except the San Antonio property,
which was partially offset by joint venture income being allocated in different
proportions (under the terms of the joint venture agreement). Interest and other
revenues remained relatively constant.
Expenses declined by $344,000 for the year ended December 31, 1995, as compared
to 1994, due to the disposition of the Registrant's Hampton Inn - Elk Grove
property during 1994. With respect to the remaining properties, expenses
increased by $157,000, due to increases in hotel operating expenses of $157,000
and depreciation expense of $113,000, which was partially offset by a decrease
in interest expense of $113,000. In addition, general and administrative
expenses declined by $207,000.
Hotel operating expenses increased primarily due to increased room expenses at
all of the Registrant's properties, repairs and maintenance at the Registrant's
Hampton Inn - Brentwood property and a slight increase in marketing expenses at
the Registrant's Hampton Inn - Aurora property. Depreciation expense increased
due to fixed asset additions. Interest expense declined due to the satisfaction
of the notes encumbering the Registrant's Syracuse property in May 1994,
Brentwood property in December 1995 and amortization of mortgage principal
balances. General and administrative expenses declined due to a decrease in
asset management costs associated with the amendment of the Registrant's
services agreement in January 1995 and a decrease in reimbursed expenses, which
were partially offset by amortization of the cost of the buy-out of the services
agreement.
Unconsolidated Joint Venture Operations
(Growth Hotel Investors Combined Fund No. 1)
1996 Compared to 1995
Operating results, prior to minority interest in joint venture operations,
declined by approximately $977,000 for the year ended December 31, 1996, as
compared to 1995, due to an increase in expenses of approximately $2,148,000
which was partially offset by an increase in revenues of approximately
$1,171,000. Expenses increased at all of the joint venture properties except
for the Hampton Inn-Atlanta Roswell property, primarily due to higher
maintenance expense at all of the properties. The maintenance expense increase
is largely due to exterior painting projects at the Hampton Inn-Sycamore, Chapel
Hill, Charleston, Birmingham, Nashville and Memphis properties. The increase in
revenues is due to higher average daily room rates at all of the joint venture
properties which was partially offset by a decline in occupancy.
1995 Compared to 1994
Operating results, prior to minority interests in joint venture operations,
improved by $886,000 for the year ended December 31, 1995, as compared to 1994,
due to an increase in revenues of $2,290,000 which was partially offset by an
increase in expenses of $1,404,000. Revenues increased at all of the joint
venture properties, except for the Hampton Inn - San Antonio property, due to
higher average daily room rates. Occupancy remained relatively stable on an
overall basis throughout the portfolio. The largest increases in revenues were
at the Registrant's Hampton Inn - Chapel Hill, North-Lake, Greensboro,
Greenville and Atlanta Roswell properties.
Under the terms of the joint venture agreement, the income from the Combined
Fund was allocated in different proportions during the year ended December 31,
1995, as compared to 1994.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the hotel market environment of its investment properties to
assess the feasibility of increasing rates, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rates and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of room rate reductions to offset
softening market conditions, there is no guarantee that the Managing General
Partner will be able to sustain such a plan.
Item 8. Consolidated Financial Statements
GROWTH HOTEL INVESTORS
List of Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Operations-Years ended December 31, 1996, 1995
and 1994
Consolidated Statements of Changes in Partners' Capital (Deficit)-Years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows-Years ended December 31, 1996, 1995
and 1994
Notes to Consolidated Financial Statements
To the Partners
Growth Hotel Investors,
a California Limited Partnership
Greenville, South Carolina
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Growth Hotel
Investors, a California Limited Partnership, (the "Partnership") as of December
31, 1996 and 1995, and the related consolidated statements of operations,
partners' equity and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Growth
Hotel Investors, a California Limited Partnership, as of December 31, 1996 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Imowitz Koenig & Co., LLP
Certified Public Accountants
New York, N.Y.
February 28, 1997 except for Note N,
which is dated March 14, 1997.
GROWTH HOTEL INVESTORS
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
1996 1995
Assets
Cash and cash equivalents $ 4,644 $ 3,600
Restricted cash 268 189
Deferred costs 652 739
Accounts receivables and other assets 189 231
Investment in unconsolidated joint venture 7,767 8,153
Investment properties:
Land 3,098 3,098
Buildings and related personal property 21,479 20,234
24,577 23,332
Less accumulated depreciation (9,675) (8,734)
14,902 14,598
Total assets $ 28,422 $ 27,510
Liabilities and Partners' Equity
Liabilities
Accounts payable and other liabilities $ 523 $ 562
Notes payable 5,412 5,433
Minority interest in joint ventures 42 76
Partners' Equity (Deficit):
General partner (965) (1,034)
Limited partners' (36,932 units outstanding
at December 31, 1996 and 1995) 23,410 22,473
Total partners' equity 22,445 21,439
Total liabilities and partners' equity $ 28,422 $ 27,510
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1996 1995 1994
Revenues:
Hotel operations $7,830 $ 8,091 $ 7,868
Equity in unconsolidated
joint venture operations 1,851 2,021 1,970
Interest revenue 150 229 211
Total revenues 9,831 10,341 10,049
Expenses (including $201, $140, and $171
paid to the general partner and
affiliates in 1996, 1995 and 1994):
Hotel operations 5,107 4,839 4,930
Interest 594 798 960
Depreciation 941 750 634
General and administrative 631 398 605
Total expenses 7,273 6,785 7,129
Net income before minority
interest in joint ventures'
operations and extraordinary item 2,558 3,556 2,920
Minority interest in joint
ventures' operations 35 (28) (36)
Income before extraordinary item 2,593 3,528 2,884
Extraordinary item:
Gain on extinguishment of debt -- -- 606
Net income $2,593 $ 3,528 $ 3,490
Net income allocated to general partners $ 179 $ 247 $ 241
Net income allocated to limited partners 2,414 3,281 3,249
Net income $2,593 $ 3,528 $ 3,490
Net income per limited partnership unit:
Income before extraordinary item $65.36 $ 88.84 $ 72.70
Extraordinary item - gain on
extinguishment of debt -- -- 15.27
Net income per limited
partnership unit $65.36 $ 88.84 $ 87.97
Cash distributions per
limited partnership unit $39.99 $ 39.99 $ 39.99
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
Limited General Limited
Partnership Partners' Partners' Total
Units Deficit Equity Equity
Original capital contributions 36,932 $ -- $36,932 $36,932
Partners' (deficit) capital at
December 31, 1993 36,932 $(1,302) $18,897 $17,595
Net income for the year ended
December 31, 1994 241 3,249 3,490
Distributions (110) (1,477) (1,587)
Partners' (deficit) capital at
December 31, 1994 36,932 (1,171) 20,669 19,498
Net income for the year ended
December 31, 1995 247 3,281 3,528
Distributions (110) (1,477) (1,587)
Partners' (deficit) capital
December 31, 1995 36,932 (1,034) 22,473 21,439
Net income for the year ended
December 31, 1996 179 2,414 2,593
Distributions (110) (1,477) (1,587)
Partners' (deficit) capital at
December 31, 1996 36,932 $ (965) $23,410 $22,445
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,593 $ 3,528 $ 3,490
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,028 838 651
Equity in unconsolidated joint venture
operations (1,851) (2,021) (1,970)
Minority interest in joint ventures' operations (35) 28 36
Deferred income -- (40) (55)
Deferred costs paid -- (775) --
Extraordinary gain on extinguishment of debt -- -- (606)
Change in accounts:
Accounts receivable and other assets 43 (26) (6)
Accounts payable and other liabilities (39) (95) (65)
Net cash provided by operating activities 1,739 1,437 1,475
Cash Flows From Investing Activities:
Cash surrendered upon foreclosure of Elk Grove -- -- (33)
Property improvements and replacements (1,245) (1,428) (411)
Unconsolidated joint venture distributions 2,237 2,355 2,182
Restricted cash (increase) decrease (79) 146 43
Proceeds from maturity of cash investments -- -- 3,169
Net cash provided by investing activities 913 1,073 4,950
Cash Flows From Financing Activities:
Cash distributions to partners (1,587) (1,587) (1,587)
Notes payable principal payments (21) (36) (31)
Satisfaction of note payable -- (2,186) (2,030)
Net cash used in financing activities (1,608) (3,809) (3,648)
Increase (Decrease) in Cash and Cash Equivalents 1,044 (1,299) 2,777
Cash and Cash Equivalents at Beginning of Year 3,600 4,899 2,122
Cash and Cash Equivalents at End of Year $ 4,644 $ 3,600 $ 4,899
Supplemental disclosure of cash flow information:
Interest paid in cash during the year $ 556 $ 813 $ 997
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
Gain on Extinguishment of Debt in
1994 - Note G.
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
GROWTH HOTEL INVESTORS,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Significant Accounting Policies
Organization
Growth Hotel Investors, (the "Partnership" or the "Registrant"), is a limited
partnership organized in 1984 under the laws of the State of California to
acquire, primarily through joint ventures, hold for investment, and ultimately
sell limited service hotels which are franchised by Hampton Inns, Inc.
("Hampton"), a wholly owned subsidiary of the Promus Companies, Inc. ("Promus").
The Partnership owns properties in Albuquerque, New Mexico, and Nashville,
Tennessee, and has 50 percent joint venture interests in two partnerships which
own properties in Syracuse, New York, and Aurora, Colorado, respectively. The
Partnership also has an investment in another joint venture in which the
Partnership does not have a controlling interest. The properties owned by this
joint venture are located in Alabama, Arkansas, Georgia, Michigan, North
Carolina, South Carolina, Tennessee and Texas. The general partner is
Montgomery Realty Company-85 ("MRC-85"), a California general partnership. The
general partners of MRC-85 are Fox Realty Investors ("FRI"), a California
general partnership, and NPI Realty Management Corp. ("NPI Realty"), a Florida
corporation. On February 13, 1996 NPI Realty, which acquired its interest in
MRC-85 from Montgomery Realty Corporation on November 15, 1995 became the
managing general partner of MRC-85. Capital contributions of $36,932,000
($1,000 per unit) were made by the limited partners.
On December 6, 1993, NPI Equity Investments II, Inc. ("NPI Equity" or the
"Managing General Partner") became the managing partner of FRI and assumed
operational control over Fox Capital Management Corporation ("FCMC"), an
affiliate of FRI. As a result, NPI Equity became responsible for the operation
and management of the business and affairs of the Partnership and the other
investment partnerships sponsored by FRI and/or FCMC. The individuals who had
served previously as partners of FRI and as officers and directors of FCMC
contributed their general partnership interest in FRI to a newly formed limited
partnership, Portfolio Realty Associates, L.P. ("PRA"), in exchange for limited
partnership interests in PRA. In the foregoing capacity, such partners continue
to hold indirectly certain economic interest in the Partnership and such other
investment partnerships, but ceased to be responsible for the operation and
management of the Partnership and such other partnerships. NPI Equity and NPI
Realty are wholly-owned subsidiaries of National Property Investors, Inc. ("NPI
or NPI Inc.").
On January 19, 1996, the stockholders of NPI, Inc., the sole shareholder of NPI
Equity, sold all of the issued and outstanding stock of NPI, Inc. to an
affiliate of Insignia Financial Group Inc. ("Insignia").
On February 15, 1996, Devon Associates, a New York general partnership,
commenced a tender offer (the "Offer") for up to 15,000 of the outstanding Units
at a purchase price of $705.00 per Unit. An affiliate of the Managing General
Partner has an interest in Devon Associates. Devon Associates acquired 13,395
Units with respect to this offer.
Principles of Consolidation
The consolidated financial statements include the Partnership and the three
joint ventures in which the Partnership has or has had a controlling interest.
In April 1994, the Hampton Inn - Elk Grove Village was disposed of through
foreclosure, see "Note G." All significant intercompany transactions and
balances have been eliminated.
The investment in another joint venture in which the Partnership does not have a
controlling interest is accounted for under the equity method of accounting (see
"Note H").
Use of Estimates
The preparation of 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.
Advertising
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $400,000 and $530,000
for the years ended December 31, 1996 and 1995, respectively.
Fair Value
In 1995, the Partnership implemented "Statement of Financial Accounting
Standards No. 107, Disclosure about Fair Value of Financial Instruments," as
amended by "SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments," which requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
fair value. The carrying amount of the Partnership's cash and cash equivalents
approximates fair value due to short-term maturities. The Partnership estimates
the fair value of its fixed rate mortgage by discounted cash flow analysis,
based on estimated borrowing rates currently available to the Partnership.
Investment Properties
In 1995 the Partnership adopted "FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The effect of adoption had no effect on the
Partnerships financial statements.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity, when
purchased, of three months or less to be cash equivalents. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Depreciation
Depreciation is computed using the straight-line method based on estimated
useful lives ranging from 5 to 39 years.
Deferred Costs
Deferred costs represent the buyout of a services agreement, deferred financing
costs and deferred franchise fees. The buyout of the services agreement is
being amortized over the remaining term of the services agreement which is 8
years. Financing costs are deferred and amortized, as interest expense, over
the lives of the related loans, or expensed, if financing is not obtained.
Franchise fees paid in connection with the acquisition of the hotels are
deferred and are amortized over the lives of the franchise agreements, which
range from ten to twenty years. Land lease costs paid in connection with
acquisition of certain hotels are deferred and amortized over the lives of the
lease agreements.
Net Income (Loss) Per Limited Partnership Assignee Unit
Net income (loss) per limited partnership assignee unit is computed by dividing
net income (loss) allocated to the limited partners by 36,932 assignee units
outstanding.
Income Taxes
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
Reclassification
Certain reclassifications have been made to the 1995 and 1994 balances to
conform to the 1996 presentation.
Note B - Transactions With The General Partner and Affiliates
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the administration of all partnership activities.
The Partnership Agreement provides for payments to affiliates for services and
as reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The following transactions with affiliates of the Managing General Partner were
charged to expense in 1996, 1995, and 1994:
1996 1995 1994
(in thousands)
Reimbursement for services of affiliates (primarily
included in general and administrative expenses) $ 201 $ 140 $ 166
Reimbursed expenses are primarily included in general and administrative
expenses. In addition, an affiliate of Managing General Partner was paid $5,000
relating to a successful real estate tax appeal on a Partnership property during
1994.
In accordance with the partnership agreement, the general partner receives cash
distributions as follows: (a) a partnership management incentive not to exceed
ten percent, determined on a cumulative, noncompounded basis, of cash from
operations available for distribution (as defined in the partnership agreement)
distributed to partners, and (b) a continuing interest representing a two
percent share of cash distributions, after allocation of the partnership
management incentive. A portion of the partnership management incentive is
subordinated to certain cash distributions to the limited partners. Cash
distributions to the general partner for the years ended December 31, 1996, 1995
and 1994 are as follows:
1996 1995 1994
(in thousands)
Partnership management incentive $ 79 $ 79 $ 79
Continuing interest 31 31 31
Total $110 $110 $110
In accordance with the partnership agreement, the general partner received an
allocation of net income and taxable income of seven percent and net losses of
twelve percent.
Note C - Related Party Transactions
In addition to the fees paid to the general partner and affiliates as set forth
above, the Partnership has agreements with affiliates of its joint venture
partners, which provide for the management and operations of the joint venture
properties and services provided under each property's franchise agreement.
Fees paid pursuant to these agreements are generally based on a percentage of
gross revenues from operations of the property and for the years ended December
31, 1996, 1995 and 1994 were approximately $40,000, $76,000 and $75,000,
respectively.
Note D - Restricted Cash
Restricted cash at December 31, 1996, represents funds provided for and
maintained by certain properties, pursuant to the related notes payable
agreements, to meet future capital requirements and debt service payments.
Note E - Deferred Costs
The Partnership paid $775,000 in January 1995 to Metric Management, Inc. ("MMI")
amending their services agreement to provide for a reduction in the monthly
asset management fee from $29,750 to $5,500. This amendment eliminated fees
payable to MMI for its assistance in refinancings and sales of properties owned
by the Partnership and provides the Partnership with the ability to terminate
MMI's services at will.
The cost of the amendment is being amortized over the remaining term of the
service agreement of 8 years. For the year ended December 31, 1996 and 1995,
approximately $78,000 and $77,000, respectively, has been amortized and is
included in general and administrative expenses.
At December 31, 1996 and 1995, accumulated amortization of the service
agreement's deferred costs totaled approximately $155,000 and $77,000,
respectively.
At December 31, 1996 and 1995, accumulated amortization of the franchise fees
deferred costs totaled approximately $30,000 and $74,000, respectively. The
fully amortized cost have been written off during 1996.
Note F - Notes Payable
Two of the Partnership's properties are pledged as collateral for related notes
payable. The notes bear interest at 10 and 10.50 percent. The note encumbering
the Partnership's consolidated Hampton Inn - Syracuse (50% owned joint venture)
property was satisfied on May 31, 1994, with the proceeds of a $2,048,000 loan
from the Partnership. The loan's interest rate was at prime plus 2% and was due
on demand. Approximately $2,352,000 and $2,048,000 at December 31, 1996 and
1995, respectively, of loan and accrued interest were eliminated in
consolidation. On December 1, 1995, the Partnership satisfied the first
mortgage encumbering its Hampton Inn-Brentwood property in the amount of
$2,186,000. The note was due to mature in January 1996. At December 31, 1996
and 1995, accumulated amortization of deferred financing costs totaled
approximately $49,000 and $59,000, respectively. The fully amortized cost have
been written off during 1996.
The estimated fair values of the Partnership's aggregate debt is approximately
$5,412,000. This estimate is not necessarily indicative of the amounts the
Partnership may pay in actual market transactions.
Scheduled principal payments subsequent to December 31, 1996, are as follows (in
thousands):
1997 $2,401
1998 3,011
Total $5,412
The mortgage on Partnership's Hampton Inn-Aurora property matured in January
1997. The Managing General Partner has obtained a one year extension. The
mortgage on the Partnership's Hampton Inn-Albuquerque property matures in May
1997. The Managing General Partnership will try to sell the property or
refinance the debt of the property if the property is not sold.
Note G - Extraordinary Item - Gain On Extinguishment of Debt
On April 4, 1994, the Hampton Inn - Elk Grove Village was disposed of through
foreclosure for $3,550,000 to the holder of the deed of trust on the property.
The disposition value is comprised of the note payable of $2,772,000, plus
$778,000 of net liabilities, consisting of $260,000 of accrued interest,
$444,000 of accrued property taxes and $74,000 of other liabilities. As a
result of the disposition of this property through foreclosure, the Partnership
recognized an extraordinary gain on extinguishment of debt of $606,000 in the
second quarter of 1994. The results of operations for Elk Grove included in
the financial statements are through February 4, 1994.
Note H - Investment in Unconsolidated Joint Venture
On December 9, 1986, the Partnership acquired an ownership interest in Growth
Hotel Investors Combined Fund No. 1, a California Limited Partnership,
("Combined Fund"), a joint venture with Growth Hotel Investors II, a California
Limited Partnership, ("GHI II") affiliated with the Partnership's general
partner. The Partnership's ownership interest in the Combined Fund is
approximately 32 percent.
The Combined Fund acquired an 80% interest in a separate joint venture,
Hampton/GHI Associates No. 1, which was formed to acquire and has acquired
eighteen Hampton Inn hotels. Hampton Inns owns a 20% subordinated interest.
The Partnership's interest in the Combined Fund is reported under the equity
method of accounting.
Summary financial information for Growth Hotel Investors Combined Fund No. 1
Joint Venture is as follows (in thousands):
December 31,
1996 1995
Total assets $ 62,199 $ 65,414
Total liabilities (37,081) (39,107)
Total ventures' equity $ 25,118 $ 26,307
December 31,
1996 1995
Total revenues $ 38,327 $ 37,156
Total expenses (32,858) (30,710)
Minority interest 393 (76)
Net income $ 5,862 $ 6,370
Allocation of income:
GHI $ 1,851 $ 2,021
GHI II 4,011 4,349
Net income $ 5,862 $ 6,370
In 1996 and 1995 the Partnership received distributions of approximately
$2,237,000 and $2,355,000, respectively, from the Joint Venture.
Note I - Reconciliation To Income Tax Method of Accounting
The differences between the method of accounting for income tax reporting and
the accrual method of accounting used in the consolidated financial statements
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands, except unit data)
<S> <C> <C> <C>
Net income - financial statements $ 2,593 $ 3,528 $ 3,490
Differences resulted from:
Deferred costs -- (775) --
Depreciation and amortization (120) (141) (266)
Equity in unconsolidated joint venture operations (180) (200) (178)
Minority interest 21 8 (130)
Other 15 30 (36)
Loss of property disposition -- -- (1,216)
Net income - income tax method $ 2,329 $ 2,450 $ 1,664
Taxable income per limited partnership
assignee unit after giving effect to the
allocation to the general partner $ 59 $ 62 $ 42
Partner's equity-financial statements $22,445 $21,439 19,498
Differences resulted from:
Deferred sales commissions and organization
costs 4,946 4,946 4,946
Commission reduction reimbursed to investors 43 43 43
Depreciation and amortization (1,744) (1,624) (1,483)
Deferred costs (775) (775) --
Equity in unconsolidated joint venture operations (1,019) (839) (639)
Minority interest 1,455 1,434 1,426
Other (295) (310) (340)
Partners' equity-income tax method $25,056 $24,314 $23,451
</TABLE>
Note J - Commitment and Contingencies
William Wallace, Mildred Wallace, Edith G. Martin, Paul Allemang and Gwen
Allemang, on behalf of themselves and all others similarly situated, and
derivatively on behalf of Growth Hotel Investors, a California limited
partnership and Growth Hotel Investors II, a California limited partnership
("GHI II"), Plaintiff v. Devon Associates, Montgomery Realty-85, GHI Associates,
Cayuga Associates L.P., Cayuga Capital Corp., Insignia Financial Group, Inc.,
L.P., and Fleetwood Corp., Defendants and Growth Hotel Investors, a California
limited partnership, and Growth Hotel Investors II, a California limited
partnership, Nominal Defendant, Supreme Court of the State of New York, County
of New York, Case No. 9600866.
On February 21, 1996, William and Mildred Wallace, holders of Units of the
Registrant and Edith G. Martin and Paul and Gwen Allemang, holders of Units of
GHI II, commenced an action on behalf of themselves and others similarly
situated, and derivatively on behalf of the Partnership and GHI II, in the
Supreme Court of the State of New York, County of New York, against, among
others, MRC-85 and certain of its affiliates pertaining to the tender offer for
up to 15,000 partnership Units of the Partnership and up to 21,000 partnership
Units of GHI II which commenced February 15, 1996. The action alleged, among
other things, that the tender offers constitute (a) a breach of fiduciary duty
owed to limited partners of the partnerships, and (b) a breach of the provisions
of the partnership agreements of such partnerships. The action, which sought to
be brought as a class action on behalf of all limited partners, sought to enjoin
the tender offers as well as monetary damages in an unspecified amount. In
connection with the settlement discussed below, this action has been
discontinued.
R&S Asset Partners, a Florida general partnership, and Jessie B. Small, on their
own behalves, on behalf of all others similarly situated, and derivatively on
behalf of the Nominal Defendants, Plaintiffs, v. Devon Associates, Cayuga
Associates, L.P., Cayuga Capital Corp., Fleetwood Corp., Carl C. Icahn, Michael
L. Ashner, Martin Lifton, Arthur N. Queler, Insignia Financial Group, Inc.,
IFGP, Corp., National Properties Investors, Inc., NPI Equity Investments II,
Inc., Fox Realty Investors, Portfolio Realty Associates, L.P., Emmet J. Cashin,
Jr., Jarold A. Evans, W. Patrick McDowell, Apollo Real Estate Advisors, L.P.,
and Montgomery Realty Company-85, Defendants, and Growth Hotel Investors, a
California Limited Partnership, and Growth Hotel Investors II, a California
Limited Partnership, Nominal Defendants, Superior Court of the State of
California, County of Los Angeles, Case No. BC145220.
On February 28, 1996, R&S Asset Partners, holders of Units of the Partnership,
and Jesse B. Small, holder of Units of GHI II, commenced an action on behalf of
themselves and others similarly situated, and derivatively on behalf of the
Partnership and GHI II, in the Superior Court of the State of California, County
of Los Angeles, against, among others, MRC-85 and certain of its affiliates
pertaining to the tender offer for up to 15,000 partnership Units of the
Partnership and up to 21,000 partnership Units of GHI II which commenced
February 15, 1996. The action alleges, among other things, that the tender
offers constitute (a) a breach of fiduciary duty owed to limited partners of the
partnerships, (b) negligent misrepresentation pertaining to the disclosure set
forth in the offer to purchase, (c) common law fraud, and (d) a breach of the
provisions of the partnership agreements of such partnerships. The action,
which is sought to brought as a class action on behalf of all limited partners,
seeks to enjoin the tender offers as well as monetary damages in an unspecified
amount.
On March 15, 1996, counsel for the plaintiffs and defendants in the Wallace and
the R&S Partners Actions agreed in principle to settle these actions, which
settlement has subsequently received final court approval. In connection with
the settlement MRC-85 agreed to take such actions as are reasonably necessary
and consistent with its fiduciary duties to procure offers for the purchase of
the Partnership's and GHI II's assets which maximize the value of the limited
partner assignee units. MRC-85 further agreed to deal fairly and in good faith
with persons expressing an interest in making a bona fide offer to purchase such
assets and, subject to its fiduciary duty, provide such bona fide offers with
access to the Partnership's and GHI II's books and records for due diligence
purposes. MRC-85 also agreed that if it determined that an offer to purchase
its assets is acceptable, MRC-85 will prepare a plan of liquidation and submit
such plan to the Partnership's partners for approval. Also in connection with
the settlement, the plaintiffs will release all claims they may have arising out
of the tender offers. As required by the settlement, the Partnership and GHI II
are coordinating with class counsel with respect to the sale of such assets and
consent of limited partners.
Note K - Investment Properties and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost To Partners
Cost
Buildings And (Removed
Related Subsequent To
Description Encumbrances Land Property Acquisition
(Amounts in thousands)
Growth Hotel Investors:
<S> <C> <C> <C> <C>
Hampton Inn - Albuquerque North
Albuquerque, New Mexico $ 2,375 $ 824 $ 4,140 $ 969
Hampton Inn - Brentwood
Nashville, Tennessee -- 514 4,236 1,129
Hampton Inn - Syracuse
East Syracuse, New York -- 388 3,723 1,196
Hampton Inn - Aurora
Aurora, Colorado 3,037 1,392 5,053 1,013
Total $ 5,412 $ 3,118 $17,152 $4,307
Growth Hotel Investors
Combined Fund No. 1:
Hampton Inn - Memphis I40 East
Memphis, Tennessee $ 1,771 $ -- $ 3,838 $ 541
Hampton Inn - Columbia-West
West Columbia, South Carolina 2,062 350 4,133 324
Hampton Inn - Spartanburg
Spartanburg, South Carolina 1,767 275 3,545 357
Hampton Inn - Little Rock-North
North Little Rock, Arkansas 2,015 524 3,862 315
Hampton Inn - Amarillo
Amarillo, Texas 1,120 501 1,810 396
Hampton Inn - Greenville
Greenville, South Carolina 2,054 539 3,942 106
Hampton Inn - Charleston Airport
North Charleston, South Carolina 2,144 495 4,205 323
Hampton Inn - Memphis-Poplar
Memphis, Tennessee 2,798 1,236 4,993 71
Hampton Inn - Greensboro
Greensboro, North Carolina 1,982 439 3,866 254
Hampton Inn - Birmingham
Birmingham, Alabama 2,426 758 4,447 64
Hampton Inn - Atlanta-Roswell
Roswell, Georgia 2,643 1,207 4,668 (141)
Hampton Inn - Chapel Hill
Chapel Hill, North Carolina 2,257 930 3,926 (5)
Hampton Inn - Dallas-Richardson
Richardson, Texas 2,769 1,371 4,766 (311)
Hampton Inn - Nashville-Briley Parkway
Nashville, Tennessee 2,183 -- 4,796 (23)
Hampton Inn - San Antonio-Northwest
San Antonio, Texas 2,451 781 4,475 (58)
Hampton Inn - Madison Heights
Madison Heights, Michigan 2,834 963 5,323 653
Hampton Inn - Mountain Brook
Birmingham, Alabama 2,543 -- 4,782 699
Hampton Inn - Northlake
Atlanta, Georgia 2,366 -- 4,439 510
TOTAL $40,185 $10,369 $75,816 $4,075
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
at December 31, 1996
Building And Accumulated Year of Date of Depreciable
Description Land Improvements Total Depreciation Construction Acquisition Life-Years
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Hotel Investors:
Hampton Inn - Albuquerque North
Albuquerque, New Mexico $ 824 $ 5,109 $ 5,933 $ 2,041 1987 04/24/87 5-39 Yrs
Hampton Inn - Brentwood
Nashville, Tennessee 514 5,365 5,879 2,270 1985 12/23/85 5-39 Yrs
Hampton Inn - Syracuse
East Syracuse, New York 368 4,939 5,307 2,127 1985 12/20/85 5-39 Yrs
Hampton Inn - Aurora
Aurora, Colorado 1,392 6,066 7,458 3,237 1985 12/11/86 5-39 Yrs
Total $ 3,098 $21,479 $24,577 $ 9,675
Growth Hotel Investors
Combined Fund No. 1:
Hampton Inn - Memphis I40 East
Memphis, Tennessee $ -- $ 4,379 $ 4,379 $ 1,769 1984 12/19/86 5-30 Yrs
Hampton Inn - Columbia-West
West Columbia, South Carolina 350 4,457 4,807 1,845 1985 12/19/86 5-30 Yrs
Hampton Inn - Spartanburg
Spartanburg, South Carolina 275 3,902 4,177 1,616 1984 12/19/86 5-39 Yrs
Hampton Inn - Little Rock-North
North Little Rock, Arkansas 524 4,177 4,701 1,600 1985 12/19/86 5-39 Yrs
Hampton Inn - Amarillo
Amarillo, Texas 501 2,206 2,707 919 1985 12/19/86 5-39 Yrs
Hampton Inn - Greenville
Greenville, South Carolina 539 4,048 4,587 1,608 1985 12/19/86 5-30 Yrs
Hampton Inn - Charleston Airport
North Charleston, South Carolina 495 4,528 5,023 1,808 1985 12/19/86 5-39 Yrs
Hampton Inn - Memphis-Poplar
Memphis, Tennessee 1,236 5,064 6,300 2,006 1985 12/19/86 5-30 Yrs
Hampton Inn - Greensboro
Greensboro, North Carolina 439 4,120 4,559 1,600 1986 12/19/86 5-39 Yrs
Hampton Inn - Birmingham
Birmingham, Alabama 758 4,511 5,269 1,757 1987 12/19/86 5-30 Yrs
Hampton Inn - Atlanta-Roswell
Roswell, Georgia 1,207 4,527 5,734 1,621 1987 03/04/87 5-30 Yrs
Hampton Inn - Chapel Hill
Chapel Hill, North Carolina 930 3,921 4,851 1,445 1987 03/04/87 5-30 Yrs
Hampton Inn - Dallas-Richardson
Richardson, Texas 1,371 4,455 5,826 1,542 1987 03/04/87 5-30 Yrs
Hampton Inn - Nashville Briley
Parkway
Nashville, Tennessee -- 4,773 4,773 1,728 1987 03/04/87 5-30 Yrs
Hampton Inn - San Antonio-Northwest
San Antonio, Texas 781 4,417 5,198 1,523 1987 06/23/87 5-30 Yrs
Hampton Inn - Madison Heights
Madison Heights, Michigan 963 5,976 6,939 2,454 1987 12/29/87 5-30 Yrs
Hampton Inn - Mountain Brook
Birmingham, Alabama -- 5,481 5,481 2,380 1988 12/19/87 5-30 Yrs
Hampton Inn - Northlake
Atlanta, Georgia -- 4,949 4,949 2,179 1988 09/15/88 5-30 Yrs
$10,369 $79,891 $90,260 $31,400
</TABLE>
Reconciliation of Investment Properties and Accumulated Depreciation:
Years Ended December 31,
1996 1995 1994
(in thousands)
Balance at beginning of year $23,332 $ 21,904 $ 27,471
Property improvements 1,245 1,428 411
Retirement of assets -- -- (5,978)
Balance at end of year $24,577 $ 23,332 $ 21,904
Accumulated Depreciation
Balance at beginning of year $ 8,734 $ 7,984 $ 10,498
Additions charged to expense 941 750 634
Retirement of assets -- -- (3,148)
$ 9,675 $ 8,734 $ 7,984
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1996, 1995 and 1994 respectively is approximately $23,742,000,
$22,482,000 and approximately $21,809,000. The accumulated depreciation
taken for Federal income tax purposes at December 31, 1996, 1995, and 1994,
respectively is approximately $11,316,000, $10,165,000 and $9,187,000.
Note L - Option to Acquire Joint Venture Partner's Interest
On October 2, 1995, the Registrant was granted the option to acquire its joint
venture partner's interest in Aurora/GHI Associates No. 1, the joint venture
which owns the Hampton Inn-Aurora for $150,000. The Registrant has not yet
acquired such interest. It is expected that such interest will be acquired prior
to the sale of the Registrant's properties.
Note M - Tender Offers
On February 15, 1996, Devon Associates ("Devon") offered to purchase up to
21,000 and 15,000 limited partnership outstanding units (the "Units") of GHI II,
and the Partnership, respectively. Devon Associates acquired 17,287 and 13,396
units, with respect to these offers, respectively. The offer for the
Partnerships Units was at a purchase price of $750 and $705, respectively, per
unit, net to the seller in cash, without interest, upon the terms and conditions
set forth in the offer to purchase. Certain beneficial owners of Devon are
affiliated with the general partners of GHI II and the Partnership. In
addition, an affiliate of Insignia is both a shareholder in the general partner
of Cayuga Associates, LP, the controlling general partner in Devon, and a
limited partner in Devon.
Note N - Subsequent Event
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed in "Note M", the Partnership and
GHI II, the Partnership's joint venture partner in the Combined Fund properties,
marketed all of their properties for sale. In this regard, the Partnership and
GHI II retained Bear, Stearns & Co. Inc. to assist in the marketing of such
properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint
ventures in which the Partnership has a controlling interest, GHI II, and the
joint ventures in which GHI II has a controlling interest, and Equity Inns
Partnership, L.P. (the "Buyer") entered into certain purchase and sale
agreements pursuant to which the Buyer agreed to purchase from these entities
the twenty-two hotels described herein as well as six additional hotels owned
directly or indirectly by GHI II for an aggregate purchase price of $182
million, subject to adjustment. The closing of these sales, which is
anticipated to occur during the second quarter of 1997, is subject to many
conditions including, favorable completion by the Buyer of its due diligence
review and the Partnership and GHI II receiving consent to the sale from their
respective limited partners holding a majority of the outstanding limited
partnership interests in the Partnership and GHI II. Accordingly, there can be
no assurance that the sale will be consummated with the Buyer or any other
potential buyer.
Item 9. Changes in and Disagreements with Accountant on Accounting and
Financial Disclosures
None
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Neither the Registrant nor Montgomery Realty Company-85 ("MRC"), the general
partner of the Registrant has any officers or directors. NPI Realty Management
Corp. ("NPI Realty"), the managing general partner of MRC, manages and controls
substantially all of the Registrant's affairs and has general responsibility and
ultimate authority in all matters affecting its business. NPI Realty is a
wholly owned subsidiary of National Property Investors, Inc. ("NPI, Inc."),
which in turn is wholly owned by Insignia.
As of March 1, 1997, the names and positions held by the officers and directors
of NPI Realty are as follows:
Name Age Position
William H. Jarrard, Jr. 50 President and Director
Ronald Uretta 40 Vice President and
Treasurer
John K. Lines, Esq. 37 Vice President and
Secretary
Kelley M. Buechler 39 Assistant Secretary
William H. Jarrard, Jr. has been Managing Director - Partnership Administration
of Insignia since January 1991. Mr. Jarrard served as Managing Director -
Partnership Administration & Asset Management from July 1994 until January 1996.
Ronald Uretta has been Insignia's Treasurer since January 1992. Since August
1996, he has also served as Chief Operating Officer. He also served as
Secretary from January 1992 to June 1994 and as Chief Financial Officer from
January 1992 to August 1996. Since September 1990, Mr. Uretta has also served as
the Chief Financial officer and controller of MAG.
John K. Lines, Esq. has been Vice President and Secretary of the Managing
General Partner since January 1996, Insignia's General Counsel since June 1994,
and General Counsel and Secretary since July 1994. From May 1993 until June
1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen
Financial Corporation, West Palm Beach, Florida. From October 1991 until May
1993, Mr. Lines was a Senior Attorney with Banc One Corporation, Columbus, Ohio.
From May 1984 until October 1992, Mr. Lines was an attorney with Squire Sanders
& Dempsey, Columbus, Ohio.
Kelley M. Buechler has been Assistant Secretary of the Managing General Partner
and Assistant Secretary of Insignia since 1991. During the five years prior to
joining Insignia in 1991, she served in similar capacities with U. S Shelter.
Item 11. Executive Compensation:
The Registrant is not required to and did not pay any compensation to the
officers or directors of NPI Realty or NPI Equity Investments II, Inc., the
managing general partner of Fox Realty Investors, a general partner of MRC. NPI
Realty does not presently pay any compensation to any of its officers or
directors. (See Item 13, "Certain Relationships and Related Transactions").
Item 12. Security Ownership of Certain Beneficial Owners and Management:
The following table sets forth certain information regarding limited partnership
units of the Registrant owned by each person who is known by the Registrant to
own beneficially or exercise voting or dispositive control over more than 5% of
the Registrant's limited partnership units, by each of the directors and by all
directors and executive officers of the Managing General Partner as a group as
of March 1, 1997.
Name and address of Amount and nature of
Beneficial Owner Beneficial Owner % of Class
Devon Associates (1) (2) 13,396 36.27
All directors and executive
officers as a group
(four persons)
(1) The business address for Devon Associates is 100 Jericho Quadrangle,
Suite 214, Jericho, New York 11753.
(2) Based upon information supplied to the Registrant by Devon Associates.
The Registrant is a limited partnership and has no officers or directors. The
managing general partner has discretionary control over most of the decisions
made by or for the Registrant in accordance with the terms of the Partnership
Agreement. Affiliates of the Registrant's general partner own less than one
percent of the Registrant's voting securities.
There are no arrangements known to the Registrant, the operation of which may,
at a subsequent date, result in a change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions:
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the administration of all partnership activities.
The Partnership Agreement provides for payments to affiliates for services and
as reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The general partner of the Partnership is MRC-85. The general partners of MRC-
85 are FRI, and NPI Realty. On February 13, 1996, NPI Realty, which acquired
its interest in MRC-85 from Montgomery Realty Corporation on November 15, 1995,
became the managing general partner of MRC-85.
On January 19, 1996, all of the issued and outstanding shares of stock of
National Property Investors, Inc. ("NPI"), the sole shareholder of both NPI
Equity Investments II, Inc. ("NPI Equity"), the managing general partner of FRI,
and NPI Realty was acquired by an affiliate of Insignia Financial Group, Inc.
("Insignia"). In connection with these transactions, affiliates of Insignia
appointed new officers and directors of NPI Equity and NPI Realty. The
following transactions with affiliates of the Managing General Partner were
charged to expense in 1996, 1995, and 1994:
1996 1995 1994
(in thousands)
Reimbursement for services of affiliates (included
in general and administrative expenses) $ 201 $ 140 $ 166
Reimbursed expenses are primarily included in general and administrative
expenses. In addition, an affiliate of Managing General Partner was paid $5,000
relating to a successful real estate tax appeal on a Partnership property during
1994.
In accordance with the partnership agreement, the general partner receives cash
distributions as follows: (a) a partnership management incentive not to exceed
ten percent, determined on a cumulative, noncompounded basis, of cash from
operations available for distribution (as defined in the partnership agreement)
distributed to partners, and (b) a continuing interest representing a two
percent share of cash distributions, after allocation of the partnership
management incentive. A portion of the partnership management incentive is
subordinated to certain cash distributions to the limited partners. Cash
distributions to the general partner for the years ended December 31, 1996, 1995
and 1994 are as follows:
1996 1995 1994
(in thousands)
Partnership management incentive $ 79 $ 79 $ 79
Continuing interest 31 31 31
Total $110 $110 $110
In accordance with the partnership agreement, the general partner received an
allocation of net income and taxable income of seven percent and net losses of
twelve percent.
In addition to the fees paid to the general partner and affiliates as set forth
above, the Partnership has agreements with affiliates of its joint venture
partners, which provide for the management and operations of the joint venture
properties and services provided under each property's franchise agreement.
Fees paid pursuant to these agreements are generally based on a percentage of
gross revenues from operations of the property and for the years ended December
31, 1996, 1995 and 1994 were $40,000, $76,000 and $75,000, respectively.
On March 13, 1996, the Partnership received a letter advising that the
Partnership's and GHI II's joint venture partner in certain of the hotel
properties was offering $147,000,000 in cash for all 28 hotel properties
directly or indirectly owned by the Partnership and GHI II. See "Amendment No.
2" to the Partnership's Statement on Schedule 14D-9, as filed with the
Commission on March 14, 1996, for a more complete description of this offer,
which "Amendment No. 2" is hereby incorporated by reference herein. By the
terms of the offer, the offer expired on March 31, 1996. The Managing General
Partner determined that before the offer could be recommended, if at all, to the
Partnership's limited partners, further analysis of the hotel properties and
their value was needed.
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed above, the Partnership and GHI
II, the Partnership's joint venture partner in the Combined Fund properties,
marketed all of their properties for sale. In this regard, the Partnership and
GHI II retained Bear, Stearns & Co. Inc. to assist in the marketing of such
properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint
ventures in which the Partnership has a controlling interest, GHI II, and the
joint ventures in which GHI II has a controlling interest, and Equity Inns
Partnership, L.P. (the "Buyer") entered into certain purchase and sale
agreements pursuant to the Buyer agreed to purchase from these entities the
twenty-two hotels described herein as well as six additional hotels owned
directly or indirectly by GHI II for an aggregate purchase price of $182
million, subject to adjustment. The closing of these sales, which is
anticipated to occur during the second quarter of 1997, is subject to many
conditions including, favorable completion by the Buyer of its due diligence
review and the Partnership and GHI II receiving consent to the sale from their
respective limited partners holding a majority of the outstanding limited
partnership interests in the Partnership and GHI II. Accordingly, there can be
no assurance that the sale will be consummated with the Buyer or any other
potential buyer.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a) (3) Exhibits
(a)(1)(2) Financial Statements and Financial Statement Schedules
See Item 8 of this Form 10-K for Consolidated Financial Statements for
the Registrant, Notes thereto, and Financial Statement Schedules. (A
table of contents to Consolidated Financial Statements and Financial
Statement Schedules is included in Item 8 and incorporated herein by
reference.)
2. NPI, Inc. Stock Purchase Agreement, dated as of August 17, 1995,
incorporated by reference to the Registrant's Current Report on Form 8-K
dated August 17, 1995.
3.4. Agreement of Limited Partnership, incorporated by reference to Exhibit A
to the Prospectus of the Registrant dated October 10, 1986, and
thereafter supplemented, included in the Registrant's Registration
Statement on Form S-11 (Reg. No. 33-4566).
16. Letter dated April 27, 1994, from the Registrant's Former Independent
Auditors incorporated by reference to the Registrant's Current Report on
Form 8-K dated April 22, 1994.
20 Letter, dated February 29, 1996, from the Registrant to its limited
partners, incorporated by reference to the Schedule 14D-9 of Registrant
filed with the Commission on February 29, 1996.
27 Financial Data Schedule
99(a) Schedule 14D-9 of the Registrant, as filed with the Commission on
February 29, 1996.
99(b) Amendment No. 1 to Schedule 14D-9 of Registrant, as filed with the
Commission on March 7, 1996.
99(c) Amendment No. 2 to Schedule 14D-9 of Registrant, as filed with the
Commission on March 14, 1996.
99(d) Letter Agreement, dated November 15, 1995, between Montgomery Realty
Corporation, Fox Realty Investors, NPI Equity Investments II, Inc., and
NPI Realty Management Corp. incorporated by reference to the Schedule
14D-9 of Registrant filed with the Commission on February 29, 1996.
99(e) Second Amended and Restated Partnership Agreement of Montgomery Realty
Company 85, made and entered into to be effective as of November 15,
1995, by and between NPI Realty Management Corp. and Fox Realty Investors
incorporated by reference to the Schedule 14D-9 of Registrant filed with
the Commission on February 29, 1996.
99(f) Third Amended and Restated General Partnership Agreement of Montgomery
Realty Company-85, effective as of February 13, 1996, by and between NPI
Realty Management Corp. and Fox Realty Investors incorporated by
reference to the Schedule 14D-9 of Registrant filed with the Commission
on February 29, 1996.
99(g) Growth Hotel Investors Combined Fund No. 1, a California Limited
Partnership, audited financial statements for the years ended December
31, 1996 and 1995.
(b) No reports on Form 8-K were filed during the last quarter covered by this
Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized this 26th of March 1997.
GROWTH HOTEL INVESTORS
By: MONTGOMERY REALTY COMPANY-85
Its General Partner
By: NPI Realty Management Corp.,
Its Managing General Partner
By: /s/ William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Signature/Name Title Date
/s/ William H. Jarrard, Jr. President and March 14, 1997
William H. Jarrard, Jr. Director
/s/ Ronald Uretta Principal Financial March 14, 1997
Ronald Uretta Officer and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Growth Hotel
Investors 1996 Year-End 10-K and is qualified in its entirety by reference to
such 10-K filing.
</LEGEND>
<CIK> 0000769129
<NAME> GROWTH HOTEL INVESTORS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,644
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,577
<DEPRECIATION> (9,675)
<TOTAL-ASSETS> 28,422
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,412
0
0
<COMMON> 0
<OTHER-SE> 22,445
<TOTAL-LIABILITY-AND-EQUITY> 28,422
<SALES> 0
<TOTAL-REVENUES> 9,831
<CGS> 0
<TOTAL-COSTS> 7,273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 594
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,593
<EPS-PRIMARY> 65.36<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Mutliplier is 1.
</FN>
</TABLE>
EXHIBIT 99(g)
GROWTH HOTEL INVESTORS COMBINED FUND NO 1.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995 and 1994
December 31, 1996
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Operations - Years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Changes in Partners' Capital (Deficit) - Years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
To the Partners
Growth Hotel Investors Combined Fund No. 1,
Greenville, South Carolina
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Growth Hotel
Investors Combined Fund No. 1, (the "Partnership"), as of December 31, 1996 and
1995, and the related consolidated statements of operations, partners' equity
and cash flows for each of the three years in the period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. Au audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Growth
Hotel Investors Combined Fund No. 1, as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Imowitz Koeniz & Co., LLP
Certified Public Accountants
New York, N.Y.
February 28, 1997 except for Note I.
which is dated March 14, 1997.
CONSOLIDATED BALANCE SHEETS
(in thousands)
YEARS ENDED DECEMBER 31, 1996 AND 1995
DECEMBER 31,
Assets 1996 1995
Cash and cash equivalents $ 2,228 $ 3,657
Restricted cash 3 570
Deferred costs and other assets 1,108 1,100
Investment properties
Land 10,369 10,369
Buildings and related personal property 79,891 77,031
90,260 87,400
Less accumulated depreciation (31,400) (27,313)
58,860 60,087
Total assets $ 62,199 $ 65,414
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 1,337 $ 1,552
Due to an affiliate of the joint venture
partner 827 756
Notes payable 40,185 40,836
Total liabilities 42,349 43,144
Minority interest in consolidated joint venture (5,268) (4,037)
Commitments
Partners' Equity:
GHI 7,767 8,153
GHI II 17,351 18,154
Total partners' equity 25,118 26,307
Total liabilities and partners' equity $ 62,199 $ 65,414
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
Revenues:
Hotel operations $ 38,154 $ 36,934 $ 34,583
Interest revenue 173 222 283
Total revenues $ 38,327 $ 37,156 $ 34,866
Expenses (including $5,602, $5,545 and
$5,305 paid to an affiliate of the joint
venture partner in 1996, 1995, and 1994)
Hotel operations 24,274 22,811 21,749
Interest 4,227 4,139 4,169
Depreciation 4,088 3,751 3,376
General and administrative 269 9 12
Total expenses 32,858 30,710 29,306
Income before minority interest in
joint venture's operations 5,469 6,446 5,560
Minority interest in joint venture's operations 393 (76) 648
Net income $ 5,862 $ 6,370 $ 6,208
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Growth Growth
Hotel Hotel
Investors Investors II Total
Balance - December 31, 1993 $ 8,699 $19,329 $28,028
Net income 1,970 4,238 6,208
Cash distributions (2,182) (4,695) (6,877)
Balance - December 31, 1994 8,487 18,872 27,359
Net income 2,021 4,349 6,370
Cash distributions (2,355) (5,067) (7,422)
Balance - December 31, 1995 8,153 18,154 26,307
Net income 1,851 4,011 5,862
Cash distributions (2,237) (4,814) (7,051)
Balance - December 31, 1996 $ 7,767 $17,351 $25,118
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
FOR THE YEARS ENDED DECEMBER 31,
Cash flows from operating activities: 1996 1995 1994
Net income $ 5,862 $ 6,370 $ 6,208
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,201 3,916 3,539
Minority interest in joint venture's operations (393) 76 (648)
Change in operating assets and liabilities:
Deferred costs and other assets (122) (20) (1)
Accounts payable, other liabilities and due
to an affiliate of the joint venture partner (144) 412 (120)
Net cash provided by operating activities 9,404 10,754 8,978
Cash flows from investing activities:
Additions to real estate (2,860) (3,154) (1,627)
Restricted cash decrease (increase) 567 1,418 (327)
Net cash used in investing activities (2,293) (1,736) (1,954)
Cash flows from financing activities:
Notes payable principal payments (651) (525) (500)
Joint venture partner distributions (838) (367) --
Cash distributions to partners (7,051) (7,422) (6,877)
Net cash used in financing activities (8,540) (8,314) (7,377)
(Decrease) Increase in Cash and Cash Equivalents (1,429) 704 (353)
Cash and cash equivalents at beginning of year 3,657 2,953 3,306
Cash and cash equivalents at end of year $ 2,228 $ 3,657 $ 2,953
Supplemental disclosure of cash flow information:
Interest paid in cash during the year $ 4,218 $ 3,716 $ 4,045
See Accompanying Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Significant Accounting Policies
Organization
Growth Hotel Investors, Combined Fund No. 1, (the "Partnership"), is a general
partnership organized in 1986 under the laws of the State of California to
acquire a majority interest in a joint venture, Hampton/GHI Associates No. 1,
which was formed to acquire, manage and ultimately sell eighteen hotels which
are franchised by Hampton Inns, Inc. ("Hampton"), a wholly owned subsidiary of
the Promus Hotels, Inc. ("Promus"). The properties owned by the joint venture
are located in Alabama, Arkansas, Georgia, Michigan, North Carolina, South
Carolina, Tennessee and Texas.
The general partners are Growth Hotel Investors ("GHI") and Growth Hotel
Investors II ("GHI II"); both are California limited partnerships which are
affiliated through their general partners.
Cash is distributed first to the Partnership as a priority return on its
invested capital prior to any distributions to Hampton. Income before
depreciation and amortization is allocated between the Partnership and Hampton
in the same ratio as their respective cash distributions. Depreciation and
amortization are allocated on the basis of residual interests except for the
expenses related to acquisition and loan fees paid by the Partnership which are
allocated 100 percent to the Partnership. The residual interests in Hampton/GHI
Associates No. 1 are 80 percent for the Partnership and 20 percent for Hampton.
Principles of Consolidation
The consolidated financial statements include the accounts of the Partnership
and its majority owned joint venture. All significant intercompany transactions
and balances have been eliminated. Losses in excess of capital contributions
have been allocated to the minority interest as it is considered probable by the
managing general partner that such losses will be recovered through gains from
the eventual sale of the Partnership's properties.
Use of Estimates
The preparation of 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.
Advertising
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $1,995,000 and
$1,911,000 for the years ended December 31, 1996 and 1995, respectively.
Fair Value of Financial Instruments
In 1995, the Partnership implemented "Statement of Financial Accounting
Standards No. 107," "Disclosure about Fair Value of Financial Instruments," as
amended by "SFAS No. 119," "Disclosures about Derivative Financial Instruments
and Fair Value of Financial Instruments," which requires disclosure of fair
value information about financial instruments for which it is practicable to
estimate fair value. The carrying amount of the Partnership's cash and cash
equivalents approximates fair value due to short-term maturities. The
Partnership estimates the fair value of its fixed rate mortgage by discounted
cash flow analysis, based on estimated borrowing rates currently available to
the Partnership.
Investment Properties
In 1995 the Partnership adopted "FASB Statement No. 121," "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The effect of adoption was not material.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity, when
purchased, of three months or less to be cash equivalents. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Depreciation
Depreciation is computed using the straight-line method based on estimated
useful lives ranging from 5 to 39 years.
Deferred Costs
Deferred costs represent financing costs, franchise fees and land lease cost.
Financing costs are deferred and amortized, as interest expense, over the life
of the related loans, which range from eight to ten years, or expensed, if
financing is not obtained. Franchise fees paid in connection with the
acquisition of the hotels are deferred and amortized over the lives of the
franchise agreements, which are twenty years. Land lease costs paid in
connection with the acquisition of certain hotels are deferred and amortized
over the lives of the lease agreements, which are twenty years. At December 31,
1996 and 1995, accumulated amortization of deferred costs totaled $350,000 and
$1,347,000, respectively. The fully amortized costs have been written off
during 1996. Net deferred costs of $403,000 and $545,000 for 1996 and 1995,
respectively, are included in deferred costs and other assets.
Net Income Allocation
Net income is allocated between GHI and GHI II based on the ratio of each
partner's capital contribution to the Partnership.
Income Taxes
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
Reclassifications:
Certain reclassifications have been made to the 1995 and 1994 balances to
conform to the 1996 presentation.
Note B - Related Party Transactions
The Partnership has agreements with an affiliate of its joint venture partner,
which provide for the management and operation of the joint venture properties
and services provided under each property's franchise agreement. Fees paid
pursuant to these agreements are generally based on a percentage of gross
revenues from operations of the property and were $5,602,000 , $5,545,000 and
$5,295,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
In addition, an affiliate of the managing general partner of GHI and GHI II, was
paid fees of $10,000 relating to successful real estate tax appeals on certain
of the Partnership's properties during the year ended December 31, 1994.
Note C - Restricted Cash
Restricted cash at December 31, 1996 and 1995, represents funds provided for and
maintained by certain properties, pursuant to the related notes payable
agreements, to meet future capital requirements and debt service payments.
Note D - Notes Payable
Properties and improvements are pledged as collateral for the related notes
payable. The notes currently bear interest at rates ranging from 7.63 percent to
10 percent. The mortgages encumbering sixteen of the eighteen hotels that are
owned by the joint venture are cross collateralized. Amortization of deferred
financing costs totaled $103,000 for the year ended December 31, 1996, and
$124,000 for each of the years ended December 31, 1995 and 1994. The notes are
payable monthly and mature beginning in July 1997, through August 1997.
The mortgages encumbering the Partnership's Hampton Inn-Mountain Brook and
Hampton Inn-Northlake properties in the amounts of approximately $2,543,000 and
$2,366,000, respectively, matured on August 1, 1996. The Managing General
Partner has been successful in extending these loans until August 1, 1997. The
mortgage encumbering the remaining properties in the Combined Fund in the amount
of approximately $35,276,000 matured on December 1, 1996. The Managing General
Partner has been successful in extending these loans until July 1, 1997.
The Managing General Partner plans to liquidate the partnership upon the sale of
the investment properties, which include payment of debt. If the sale does not
consummate as planned, the Managing General Partner plans to negotiate
extensions for those encumbrances which will mature in 1997.
The estimated fair values of the Partnership's aggregate debt is approximately
$40,185,000. The estimate is not necessarily indicative of the amounts the
Partnership may pay in actual market transactions.
Principal payments at December 31, 1996, are required as follows (in thousands):
1997 $40,185
Total $40,185
Note E - Minimum Future Rental Commitments
Minimum future rental commitments on operating leases (including four land
leases) at December 31, 1996, are payable as follows (in thousands):
1997 $ 380
1998 380
1999 384
2000 390
2001 399
Thereafter 1,887
Total $3,820
The land leases extend through 2004, 2006, 2007 and 2008 and contain options to
extend the lease periods 20, 20, 50 and 40 years, respectively. Rental expense
for these leases was $448,000, $478,000 and $481,000 in 1996, 1995 and 1994,
respectively.
Note F - Legal Proceedings
On February 21 and February 28, 1996, certain holders of limited partnership
units in GHI and GHI II commenced separate actions against, among others, the
general partner of GHI and GHI II, pertaining to the tender offer. On March 15,
1996, the above actions were settled and the settlement has received final court
approval.
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed in "Note H", the Partnership,
GHI and GHI II ("the Sellers") marketed all of their properties for sale. In
this regard, the Sellers retained Bear, Sterns & Co. Inc. to assist in the
marketing of such properties. As of March 14, 1997, the Sellers and the joint
ventures in which the Sellers have a controlling interest and Equity Inns
Partnrship, L.P. (the "Buyer") entered into certain purchase and sale agreements
pursuant to which the Buyer agreed to purchase from these entities the twenty-
eight hotels owned directly or indirectly by these entities for an aggregate
purchase price of $182 million, subject to adjustment. The closing of these
sales, which is anticipated to occur during the second quarter of 1997, is
subject to many conditions including, favorable completion by the Buyer of its
due diligence review and GHI and GHI II receiving consents to the sale from
their respective limited partners holding a majorty of the outstanding limited
partnership interests in GHI and GHI II. Accordingly, there can be no assurance
that the sale will be consummated with the Buyer or any other potential buyer.
Note G - Investment Properties and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost To Partners
Cost
Buildings And (Removed
Related Subsequent To
Description Encumbrances Land Property Acquisition
(amounts in thousands)
Growth Hotel Investors
Combined Fund No. 1:
<S> <C> <C> <C> <C>
Hampton Inn - Memphis I40 East
Memphis, Tennessee $ 1,771 $ -- $ 3,838 $ 541
Hampton Inn - Columbia-West
West Columbia, South Carolina 2,062 350 4,133 324
Hampton Inn - Spartanburg
Spartanburg, South Carolina 1,767 275 3,545 357
Hampton Inn - Little Rock-North
North Little Rock, Arkansas 2,015 524 3,862 315
Hampton Inn - Amarillo
Amarillo, Texas 1,120 501 1,810 396
Hampton Inn - Greenville
Greenville, South Carolina 2,054 539 3,942 106
Hampton Inn - Charleston Airport
North Charleston, South Carolina 2,144 495 4,205 323
Hampton Inn - Memphis-Poplar
Memphis, Tennessee 2,798 1,236 4,993 71
Hampton Inn - Greensboro
Greensboro, North Carolina 1,982 439 3,866 254
Hampton Inn - Birmingham
Birmingham, Alabama 2,426 758 4,447 64
Hampton Inn - Atlanta-Roswell
Roswell, Georgia 2,643 1,207 4,668 (141)
Hampton Inn - Chapel Hill
Chapel Hill, North Carolina 2,257 930 3,926 (5)
Hampton Inn - Dallas-Richardson
Richardson, Texas 2,769 1,371 4,766 (311)
Hampton Inn - Nashville-Briley Parkway
Nashville, Tennessee 2,183 -- 4,796 (23)
Hampton Inn - San Antonio-Northwest
San Antonio, Texas 2,451 781 4,475 (58)
Hampton Inn - Madison Heights
Madison Heights, Michigan 2,834 963 5,323 653
Hampton Inn - Mountain Brook
Birmingham, Alabama 2,543 -- 4,782 699
Hampton Inn - Northlake
Atlanta, Georgia 2,366 -- 4,439 510
TOTAL $40,185 $10,369 $75,816 $4,075
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
at December 31, 1996
Building And Accumulated Year of Date of Depreciable
Description Land Improvements Total Depreciation Construction Acquisition Life-Years
Growth Hotel Investors
Combined Fund No. 1: (Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn - Memphis I40 East
Memphis, Tennessee $ -- $ 4,379 $ 4,379 $ 1,769 1984 12/19/86 5-30 Yrs
Hampton Inn - Columbia-West
West Columbia, South Carolina 350 4,457 4,807 1,845 1985 12/19/86 5-30 Yrs
Hampton Inn - Spartanburg
Spartanburg, South Carolina 275 3,902 4,177 1,616 1984 12/19/86 5-39 Yrs
Hampton Inn - Little Rock-North
North Little Rock, Arkansas 524 4,177 4,701 1,600 1985 12/19/86 5-39 Yrs
Hampton Inn - Amarillo
Amarillo, Texas 501 2,206 2,707 919 1985 12/19/86 5-39 Yrs
Hampton Inn - Greenville
Greenville, South Carolina 539 4,048 4,587 1,608 1985 12/19/86 5-30 Yrs
Hampton Inn - Charleston Airport
North Charleston, South Carolina 495 4,528 5,023 1,808 1985 12/19/86 5-39 Yrs
Hampton Inn - Memphis-Poplar
Memphis, Tennessee 1,236 5,064 6,300 2,006 1985 12/19/86 5-30 Yrs
Hampton Inn - Greensboro
Greensboro, North Carolina 439 4,120 4,559 1,600 1986 12/19/86 5-39 Yrs
Hampton Inn - Birmingham
Birmingham, Alabama 758 4,511 5,269 1,757 1987 12/19/86 5-30 Yrs
Hampton Inn - Atlanta-Roswell
Roswell, Georgia 1,207 4,527 5,734 1,621 1987 03/04/87 5-30 Yrs
Hampton Inn - Chapel Hill
Chapel Hill, North Carolina 930 3,921 4,851 1,445 1987 03/04/87 5-30 Yrs
Hampton Inn - Dallas-Richardson
Richardson, Texas 1,371 4,455 5,826 1,542 1987 03/04/87 5-30 Yrs
Hampton Inn - Nashville Briley
Parkway
Nashville, Tennessee -- 4,773 4,773 1,728 1987 03/04/87 5-30 Yrs
Hampton Inn - San Antonio-Northwest
San Antonio, Texas 781 4,417 5,198 1,523 1987 06/23/87 5-30 Yrs
Hampton Inn - Madison Heights
Madison Heights, Michigan 963 5,976 6,939 2,454 1987 12/29/87 5-30 Yrs
Hampton Inn - Mountain Brook
Birmingham, Alabama -- 5,481 5,481 2,380 1988 12/19/87 5-30 Yrs
Hampton Inn - Northlake
Atlanta, Georgia -- 4,949 4,949 2,179 1988 09/15/88 5-30 Yrs
$10,369 $79,891 $90,260 $31,400
</TABLE>
Reconciliation of Investment Properties and Accumulated Depreciation:
Years Ended December 31,
1996 1995 1994
(in thousands)
Balance at beginning of year $ 87,400 $ 94,793 $ 93,166
Property improvements 2,860 3,154 1,627
Retirement of assets -- (10,547) --
Balance at end of year $ 90,260 $ 87,400 $ 94,793
Accumulated Depreciation
Balance at beginning of year $ 27,313 $ 34,108 $ 30,732
Additions charged to expense 4,087 3,752 3,376
Retirement of assets -- (10,547) --
$ 31,400 $ 27,313 $ 34,108
The aggregate cost of the real estate for Federal income tax purposed at
December 31, 1996, 1995 and 1994, respectively is approximately $100,824,000,
$97,964,000 and approximately $94,803,000, respectively. The accumulated
depreciation taken for Federal income tax purposes at December 31, 1996, 1995
and 1994, is approximately $47,821,000, $43,650,000 and $39,142,000,
respectively.
Note H - Tender Offers
On February 15, 1996, Devon Associates ("Devon") offered to purchase up to
21,000 and 15,000 limited partnership outstanding units (the "Units") of GHI II,
and GHI, respectively. Devon Associates acquired 17,287 and 13,396 units, with
respect to these offers, respectively. The offer for the partnerships Units was
at a purchase price of $750 and $705, respectively, per unit, net to the seller
in cash, without interest, upon the terms and conditions set forth in the offer
to purchase. Certain beneficial owners of Devon are affiliated with the general
partners of GHI II and GHI. In addition, an affiliate of Insignia is both a
shareholder in the general partner of Cayuga Associates, LP, the controlling
general partner in Devon, and a limited partner in Devon.
Note I - Subsequent Event
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed in "Note H", the Partnership,
GHI and GHI II ("the Sellers") marketed all of their properties for sale. In
this regard, the Sellers retained Bear, Sterns & Co. Inc. to assist in the
marketing of such properties. As of March 14, 1997, the Sellers and the joint
ventures in which the Sellers have a controlling interest and Equity Inns
Partnrship, L.P. (the "Buyer") entered into certain purchase and sale agreements
pursuant to which the Buyer agreed to purchase from these entities the twenty-
eight hotels owned directly or indirectly by these entities for an aggregate
purchase price of $182 million, subject to adjustment. The closing of these
sales, which is anticipated to occur during the second quarter of 1997, is
subject to many conditions including, favorable completion by the Buyer of its
due diligence review and GHI and GHI II receiving consents to the sale from
their respective limited partners holding a majorty of the outstanding limited
partnership interests in GHI and GHI II. Accordingly, there can be no assurance
that the sale will be consummated with the Buyer or any other potential buyer.
