FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period.........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
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
(Issuer's phone number) (864) 239-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) GROWTH HOTEL INVESTORS
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
June 30, December 31,
1997 1996
(Unaudited) (Note)
Assets
Cash and cash equivalents $37,095 $ 4,644
Restricted cash -- 268
Deferred costs -- 652
Receivables and other assets 461 189
Investment in unconsolidated joint venture 4,374 7,767
Investment properties:
Land -- 3,098
Buildings and related personal property -- 21,479
-- 24,577
Less accumulated depreciation -- (9,675)
-- 14,902
Total assets $41,930 $28,422
Liabilities and Partners' Equity (Deficit)
Accounts payable and other liabilities $ 272 $ 523
Accrued litigation settlement 583 --
Notes payable -- 5,412
Minority interest in joint ventures -- 42
Partners' Equity (Deficit):
General partner -- (965)
Limited partners' (36,932 units outstanding
at June 30, 1997 and December 31, 1996) 41,075 23,410
Total partners' equity 41,075 22,445
Total liabilities and partners' equity $41,930 $28,422
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Consolidated Financial Statements
b) GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues:
Hotel operations $ 1,980 $ 2,099 $ 3,669 $ 3,723
Equity in unconsolidated
joint venture operations 15,803 659 16,024 1,145
Interest income 36 36 83 68
Gain on sale of investment
properties 3,794 -- 3,794 --
Total revenues 21,613 2,794 23,570 4,936
Expenses:
Hotel operations 1,296 1,280 2,462 2,421
Interest 131 176 280 345
Depreciation 297 224 562 432
General and administrative 188 206 301 381
Litigation settlement 583 -- 583 --
Total expenses 2,495 1,886 4,188 3,579
Net income before minority
interest in joint ventures'
operations 19,118 908 19,382 1,357
Minority interest in joint
ventures' operations 28 6 42 9
Net income $19,146 $ 914 $19,424 $ 1,366
Net income allocated to
general partners $ 1,001 $ 64 $ 1,020 $ 96
Net income allocated to
limited partners 18,145 850 18,404 1,270
Net income $19,146 $ 914 $19,424 $ 1,366
Net income per limited
partnership unit $491.32 $ 23.02 $498.32 $ 34.39
See Notes to Consolidated Financial Statements
c) GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENT OF PARTNERS' (DEFICIT) EQUITY
(Unaudited)
(in thousands, except unit data)
Limited General Limited
Partnership Partner's Partners' Total
Units Deficit Equity Equity
Original capital contributions 36,932 $ -- $36,932 $36,932
Partners' (deficit) equity at
December 31, 1996 36,932 $ (965) $23,410 $22,445
Net income for the six months
ended June 30, 1997 -- 1,020 18,404 19,424
Cash distributions for the six
months ended June 30, 1997 -- (55) (739) (794)
Partners' (deficit) equity at
June 30, 1997 36,932 $ -- $41,075 $41,075
See Notes to Consolidated Financial Statements
d) GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Net income $ 19,424 $ 1,366
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 604 474
Equity in unconsolidated joint venture
operations (16,024) (1,145)
Minority interest in joint ventures' operations (42) (9)
Gain on sale of investment properties (3,794) --
Change in accounts:
Accounts receivables and other assets (298) (34)
Accounts payable and other liabilities (251) 21
Accrued litigation settlement 583 --
Net cash provided by operating
activities 202 673
Cash flows from investing activities:
Property improvements and replacements (1,201) (478)
Unconsolidated joint venture distributions 19,416 799
Restricted cash decrease (increase) 268 (9)
Net proceeds from sale of investment properties 19,972 --
Net cash provided by investing
activities 38,455 312
Cash flows from financing activities:
Cash distributions to partners (794) (794)
Notes payable principal payments (13) (11)
Repayment of notes payable (5,399) --
Net cash used in financing activities (6,206) (805)
Net increase in cash and cash equivalents 32,451 180
Cash and cash equivalents at beginning of period 4,644 3,600
Cash and cash equivalents at end of period $ 37,095 $ 3,780
Supplemental information:
Interest paid $ 317 $ 308
See Notes to Consolidated Financial Statements
e) GROWTH HOTEL INVESTORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Growth Hotel
Investors (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of NPI
Realty Management Corp. the ("Managing General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 1997, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1997. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-K for the year ended December 31,
1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and 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 1997 and 1996:
For the Six Months Ended
June 30,
1997 1996
(in thousands)
Reimbursement for services of affiliates (primarily
included in general and administrative expenses) $ 62 $130
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 periods ended June 30, 1997 and
1996 are as follows:
1997 1996
(in thousands)
Partnership management incentive $ 40 $ 40
Continuing interest 15 15
Total $ 55 $ 55
NOTE C - DISTRIBUTIONS
The Partnership made distributions in May 1997 and June 1996, of approximately
$794,000, including $739,000 distributed to the limited partners ($20 per
limited partnership unit) and $55,000 to the general partner. A cash
distribution of approximately $35,906,000 was made in July 1997 from sales
proceeds. Approximately $34,992,000 was distributed to the limited partners and
approximately $914,000 was distributed to the general partner.
NOTE D - INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
The following are the condensed balance sheets as of June 30, 1997, and December
31, 1996, and condensed statements of operations for the three and six month
periods ended June 30, 1997 and 1996, for the Partnership's investment in Growth
Hotel Investors Combined Fund No. 1 (the "Combined Fund"), which is reported
under the equity method of accounting.
GROWTH HOTEL INVESTORS COMBINED FUND NO. I
CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
1997 1996
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 6,960 $ 2,228
Restricted cash -- 3
Deferred costs and other assets 296 1,108
Investment Properties
Land -- 10,369
Buildings and related personal property 5,491 79,891
5,491 90,260
Less accumulated depreciation (2,509) (31,400)
2,982 58,860
Total assets $ 10,238 $ 62,199
Liabilities and Partners' Equity
Liabilities
Accounts payable and other liabilities $ 4,021 $ 1,337
Due to an affiliate of the joint
venture partner 271 827
Notes payable 2,524 40,185
Minority interest in consolidated
joint venture (8,199) (5,268)
Partners' Equity
GHI 4,374 7,767
GHI II 7,247 17,351
Total partners' equity 11,621 25,118
Total Liabilities and Partners' Equity $ 10,238 $ 62,199
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues $ 9,578 $ 10,408 $ 18,144 $ 19,186
Gain on sale of investment
properties 48,753 -- 48,753 --
Expenses (8,279) (8,526) (16,014) (15,967)
Income before minority
interest in joint
venture's operations 50,052 1,882 50,883 3,219
Minority interest in joint
venture's operations (252) 194 (419) 389
Net income $ 49,800 $ 2,076 $ 50,464 $ 3,608
Allocation of income:
GHI $ 15,803 $ 659 $ 16,024 $ 1,145
GHI II 33,997 1,417 34,440 2,463
Net income $ 49,800 $ 2,076 $ 50,464 $ 3,608
NOTE E - SALE OF PROPERTIES
On June 24, 1997, the Partnership sold all of its investment properties,
consisting of the Hampton Inn-Brentwood, and Hampton Inn-Albuquerque for a sales
price of approximately $13,213,000. The Partnership has a controlling interest
in two joint venture partnerships, Aurora/GHI Associates No. 1, and North Coast
Syracuse Limited Partnership. The Partnership has a non-controlling interest in
the joint venture Growth Hotel Investors Combined Fund No. 1. On June 24, 1997,
Aurora/GHI Associates No. 1 sold its investment property, Hampton Inn-Aurora for
a purchase price of approximately $4,546,000. Additionally, North Coast
Syracuse Limited Partnership sold its investment property, Hampton Inn-Syracuse
for a sales price of approximately $1,953,000. Finally, on June 24, 1997,
Hampton/GHI Associates No. 1 ("Hampton/GHI"), a joint venture in which Growth
Hotel Investors Combined Fund No. 1 owns 80% sold 17 of its 18 investment
properties, Hampton Inn-Memphis-I-40, Hampton Inn-Columbia West, Hampton
Inn-Spartanburg, Hampton Inn-Little Rock, Hampton Inn-Amarillo,Hampton
Inn-Greenville, Hampton Inn-Charleston, Hampton Inn-Memphis-Poplar, Hampton
Inn-Greensboro, Hampton Inn-Birmingham, Hampton Inn-Atlanta, Hampton Inn-Chapel
Hill, Hampton Inn-Dallas, Hampton Inn-Nashville, Hampton Inn-San Antonio,
Hampton Inn-Madison Heights, Hampton Inn-Northlake for a purchase price of
approximately $105,936,000. The investment properties were sold to an
unrelated third party, Equity Inns Partnership, L.P., a Tennessee limited
partnership. The properties were sold in accordance with the settlement of
the class action lawsuit brought in connection with the tender offer made by
Devon Associates (discussed in Item 3 of the Partnership's Annual Report on Form
10-K for the period ending December 31, 1996). Hampton/GHI's last hotel
property, the Hampton Inn-Mountain Brook, was sold on August 1, 1997 for a sales
price of $8,651,000.
The aggregate sale price for all 21 properties was approximately $125,649,000.
The Partnership received net proceeds, after satisfaction of outstanding
indebtedness and closing costs, from the sale of its investment properties of
approximately $14,447,000. In addition, the Partnership received approximately
$19,416,000 from its unconsolidated joint venture in distributions from the sale
of its properties. The Partnership made a distribution of $34,992,000 ($947.48
per unit) to its limited partners and approximately $914,000 to the General
Partners from these net proceeds in July 1997. It is anticipated that the
Partnership will be dissolved during the second half of 1997 and the remaining
proceeds, after establishment of sufficient reserves, will be distributed to the
partners.
In connection with the sale of Hampton/GHI of its properties, the Partnership's
joint venture partner, Hampton Inns, Inc. ("Hampton"), was to be distributed a
portion of the net sale proceeds. However, pursuant to the terms of the
Hampton/GHI Joint Venture Agreement, Hampton is obligated to contribute to
Hampton/GHI an amount equal to the deficit of its capital account, which amount
is in excess of the amount to be distributed to Hampton. As a result, the
Partnership has set aside as a reserve the amount which otherwise would have
been distributed to Hampton pending the payment by Hampton of its deficit
restoration obligation. The Partnership is hopeful that Hampton will make its
deficit restoration obligation payment during 1997.
The Partnership recognized a gain of approximately $3,794,000 due to the sale of
its investment properties and the properties in which the Partnership had a
controlling interest. In addition, the Partnership was allocated approximately
$15,474,000 from its unconsolidated joint venture, Growth Hotel Investors
Combined Fund No. 1, from the sale of seventeen of the joint venture's eighteen
properties.
Pursuant to the terms of the settlement agreement with respect to the class
actions brought by limited partners of the Partnership and Growth Hotel
Investors II ("GHI II"), an affiliated partnership, against among others, the
Partnership, GHI II and their general partners, the Partnership and GHI II were
required to pay the plaintiffs' attorneys' fees associated with such actions.
As a result, an aggregate of $1,800,000 ($583,000 of which is allocable to the
Partnership) was paid in the third quarter of 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On June 24, 1997 and August 1, 1997, the Partnership sold all of its investment
properties and all of its joint venture properties as discussed in "Note E -
Sale of Properties."
The Partnership's net income for the three and six month periods ended June 30,
1997, was approximately $19,146,000 and $19,424,000, respectively, compared to
net income of approximately $914,000 and $1,366,000, respectively, for the same
periods of 1996. The increase in net income is primarily attributable to the
increase in revenue from the Partnership's unconsolidated joint venture due to
the sale of seventeen of the eighteen properties in the joint venture. The
Partnership was allocated approximately $15,474,000 of the gain from the sale of
these properties. Also contributing to the increase in net income is the gain
on sale of investment properties due to the sale of the Partnership's investment
properties. The change in minority interest in joint ventures' operations is
due to the sale of the Hampton Inn- Aurora. (See "Note E- Sale of Properties"
for more information relating to these sales.) In addition, general and
administrative and interest expenses decreased and interest income increased.
The decrease in general and administrative expenses is due to a decrease in
expense reimbursements in 1997. Increased expense reimbursements in 1996 were
attributable to the combined transition efforts of the administrative offices
during the year-end close, preparation of the 1995 10-K and tax return
(including the limited partner K-1s), filing of the first two quarterly reports,
and transition of asset management responsibilities to the new administration.
The decrease in interest expense is due to the timing of payments in the prior
year. The increase in interest income is related to an increase in interest-
bearing reserves. Offsetting the above increases to net income are increases in
depreciation expense and litigation settlement expense. The litigation
settlement in 1997 relates to amounts due in connection with the legal
settlement as discussed in "Note E- Sale of Properties". The increase in
depreciation expense is due to the purchase of assets in 1996 and 1997 related
to renovations at the Partnership's properties.
At June 30, 1997, the Partnership had unrestricted cash of approximately
$37,095,000 as compared to approximately $3,780,000 at June 30, 1996. Net cash
provided by operations decreased due to increases in accounts receivable and
other assets, and decreases in accounts payable and other liabilities as the
result of timing of receipts and payments. Net cash provided by investing
activities increased due to the receipt of approximately $19,972,000 in net
proceeds from the sale of investment properties sold during the second quarter
of 1997, as discussed above. In addition, unconsolidated joint venture
distributions increased due to the sale of seventeen of the joint venture's
eighteen properties. Net cash used in financing activities increased due to
the payoff of the mortgages encumbering Hampton Inn- Albuquerque and Hampton
Inn- Aurora.
In connection with the sale of Hampton/GHI of its properties, the Partnership's
joint venture partner, Hampton Inns, Inc. ("Hampton"), was to be distributed a
portion of the net sale proceeds. However, pursuant to the terms of the
Hampton/GHI Joint Venture Agreement, Hampton is obligated to contribute to
Hampton/GHI an amount equal to the deficit of its capital account, which amount
is in excess of the amount to be distributed to Hampton. As a result, the
Partnership has set aside as a reserve the amount which otherwise would have
been distributed to Hampton pending the payment by Hampton of its deficit
restoration obligation. The Partnership is hopeful that Hampton will make its
deficit restoration obligation payment during 1997.
Cash distributions were made in the second quarters of 1997 and 1996 totaling
approximately $794,000 each. Approximately $739,000 was paid to the limited
partners and approximately $55,000 was distributed to the general partner. A
cash distribution of approximately $35,906,000 was made in July 1997 from sales
proceeds. Approximately $34,992,000 was distributed to the limited partners and
approximately $914,000 was distributed to the general partner. It is
anticipated that the Partnership will be dissolved during the second half of
1997 and the remaining proceeds, after establishment of sufficient reserves,
will be distributed to the partners.
PART II - OTHER INFORMATION
ITEM 1. LEGAL
Pursuant to the terms of the settlement agreement with respect to the class
actions brought by limited partners of the Partnership and Growth Hotel
Investors II ("GHI II"), an affiliated partnership, against among others, the
Partnership, GHI II and their general partners, the Partnership and GHI II were
required to pay the plaintiffs' attorneys' fees associated with such actions.
As a result, an aggregate of $1,800,000 ($583,000 of which is allocable to the
Partnership) was paid in the third quarter of 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K filed in the second quarter ended June 30,
1997:
Current report on Form 8-K dated June 24, 1997, as filed with the
Securities and Exchange Commission on July 9, 1997.
Current report on Form 8-K/A dated June 24, 1997, as filed with the
Securities and Exchange Commission on August 15, 1997.
SIGNATURES
Pursuant to the requirements 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.
GROWTH HOTEL INVESTORS
By: MONTGOMERY REALTY COMPANY 85,
its general partner
By: NPI REALTY MANAGEMENT CORP.
MANAGING GENERAL PARTNER
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Principal Financial Officer
and Principal Accounting Officer
Date: September 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Growth Hotel
Investors 1997 Second Quarter 10-Q and is qualified in its entirety by reference
to such 10-Q filing.
</LEGEND>
<CIK> 0000769129
<NAME> GROWTH HOTEL INVESTORS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 37,095
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,930
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 41,075
<TOTAL-LIABILITY-AND-EQUITY> 41,930
<SALES> 0
<TOTAL-REVENUES> 23,570
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,424
<EPS-PRIMARY> 498.32<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
