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 September 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)
(864) 239-1000
(Issuer's phone number)
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 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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) GROWTH HOTEL INVESTORS
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
September 30, December 31,
1997 1996
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 2,635 $ 4,644
Restricted cash -- 268
Deferred costs -- 652
Receivables and other assets 23 189
Investment in unconsolidated joint venture 4,199 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 $ 6,857 $28,422
Liabilities and Partners' Equity (Deficit)
Accounts payable and other liabilities $ 401 $ 523
Notes payable -- 5,412
Minority interest in joint ventures -- 42
Partners' Equity (Deficit):
General partner -- (965)
Limited partners' (36,932 units outstanding
at September 30, 1997 and December 31, 1996) 6,456 23,410
Total partners' equity 6,456 22,445
Total liabilities and partners' equity $ 6,857 $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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Hotel operations $ (11) $ 2,323 $ 3,658 $ 6,046
Equity in unconsolidated
joint venture operations 1,605 614 17,619 1,759
Interest income 52 33 145 101
Gain on sale of investment
properties (4) -- 3,790 --
Total revenues 1,642 2,970 25,212 7,906
Expenses:
Hotel operations 109 1,428 2,571 3,849
Interest -- 150 280 495
Depreciation -- 236 562 668
General and administrative 246 138 547 519
Litigation settlement -- -- 583 --
Total expenses 355 1,952 4,543 5,531
Net income before minority
interest in joint ventures'
operations 1,287 1,018 20,669 2,375
Minority interest in joint
ventures' operations -- 11 42 20
Net income $ 1,287 $ 1,029 $20,711 $ 2,395
Net income allocated to
general partners $ 914 $ 71 $ 1,934 $ 166
Net income allocated to
limited partners 373 958 18,777 2,229
$ 1,287 $ 1,029 $20,711 $ 2,395
Net income per limited
partnership unit $ 10.10 $ 25.94 $508.42 $ 60.35
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 nine months
ended September 30, 1997 -- 1,934 18,777 20,711
Cash distributions for the nine
months ended September 30, 1997 -- (969) (35,731) (36,700)
Partners' equity at
September 30, 1997 36,932 $ -- $ 6,456 $ 6,456
See Notes to Consolidated Financial Statements
d) GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income $ 20,711 $ 2,395
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 604 733
Equity in unconsolidated joint venture
operations (17,629) (1,759)
Minority interest in joint ventures' operations (42) (20)
Gain on sale of investment properties (3,790) --
Change in accounts:
Accounts receivables and other assets 140 (55)
Accounts payable and other liabilities (122) 151
Net cash (used in) provided by operating
activities (128) 1,445
Cash flows from investing activities:
Property improvements and replacements (1,201) (761)
Unconsolidated joint venture distributions 21,197 1,473
Restricted cash decrease (increase) 268 (63)
Net proceeds from sale of investment properties 19,967 --
Net cash provided by investing
activities 40,231 649
Cash flows from financing activities:
Cash distributions to partners (36,700) (794)
Notes payable principal payments (13) (16)
Repayment of notes payable (5,399) --
Net cash used in financing activities (42,112) (810)
Net (decrease) increase in cash and cash equivalents (2,009) 1,284
Cash and cash equivalents at beginning of period 4,644 3,600
Cash and cash equivalents at end of period $ 2,635 $ 4,884
Supplemental information:
Cash paid for interest $ 317 $ 445
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" or "NPI Realty"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 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 general partner of the Partnership 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. 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 1997 and 1996:
For the Nine Months Ended
September 30,
1997 1996
(in thousands)
Reimbursement for services of affiliates (primarily
included in general and administrative expenses) $ 93 $180
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 September 30, 1997
and 1996 are as follows:
1997 1996
(in thousands)
Partnership management incentive $239 $ 40
Continuing interest 80 15
Sales proceeds 650 --
Total $969 $ 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 cash from
operations and sales proceeds (see "Note E"). 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 September 30, 1997, and
December 31, 1996, and condensed statements of operations for the three and nine
month periods ended September 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.
CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 6,850 $ 2,228
Restricted cash -- 3
Deferred costs and other assets -- 1,108
Investment Properties
Land -- 10,369
Buildings and related personal property -- 79,891
-- 90,260
Less accumulated depreciation -- (31,400)
-- 58,860
Total assets $ 6,850 $ 62,199
Liabilities and Partners' Equity
Liabilities
Accounts payable and other liabilities $ 5,428 $ 1,337
Due to an affiliate of the joint
venture partner 26 827
Notes payable -- 40,185
Minority interest in consolidated
joint venture (9,672) (5,268)
Partners' Equity
GHI 4,198 7,767
GHI II 6,870 17,351
Total partners' equity 11,068 25,118
Total Liabilities and Partners' Equity $ 6,850 $ 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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues $ 434 $ 10,607 $ 18,578 $ 29,793
Gain on sale of investment
properties 5,569 -- 54,322 --
Expenses (1,070) (8,570) (17,084) (24,537)
Income before minority
interest in joint
venture's operations 4,933 2,037 55,816 5,256
Minority interest in joint
venture's operations 126 (102) (293) 287
Net income $ 5,059 $ 1,935 $ 55,523 $ 5,543
Allocation of income:
GHI $ 1,595 $ 614 $ 17,619 $ 1,759
GHI II 3,464 1,321 37,904 3,784
Net income $ 5,059 $ 1,935 $ 55,523 $ 5,543
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 22 properties was approximately $134,300,000.
The Partnership received net proceeds, after satisfaction of outstanding
indebtedness and closing costs, from the sale of its investment properties of
approximately $14,568,000. In addition, the Partnership received approximately
$21,197,000 from its unconsolidated joint venture in distributions from
operations and the sale of its properties. The Partnership made a distribution
of $31,782,000 ($860.55 per unit) to its limited partners and approximately
$650,000 to the General Partners from these net proceeds in July 1997. It is
anticipated that the Partnership will be dissolved during the fourth quarter 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 set aside as a reserve the amount which otherwise would have been
distributed to Hampton. Hampton/GHI received such payment from Hampton for its
deficit restoration obligation on November 5, 1997 in the amount of
approximately $9,093,000. It is expected that this amount, after establishment
of reserves, will be distributed by the Partnership prior to year end, at which
time the Partnership will be dissolved.
The Partnership recognized a gain of approximately $3,790,000 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
$17,238,000 from its unconsolidated joint venture, Growth Hotel Investors
Combined Fund No. 1, from the sale of the joint venture's 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."
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 cash
from operations and 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 fourth quarter of 1997 and the remaining proceeds, after
establishment of sufficient reserves, will be distributed to the partners. In
this regard, it should be noted that 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 set aside as a reserve the amount which
otherwise would have been distributed to Hampton. Hampton/GHI received such
payment from Hampton for its deficit restoration obligation on November 5, 1997,
in the amount of approximately $9,093,000.
The Partnership's net income for the three and nine month periods ended
September 30, 1997, was approximately $1,287,000 and $20,711,000, respectively,
compared to net income of approximately $1,029,000 and $2,395,000, respectively,
for the corresponding 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 the eighteen properties in the joint venture.
The Partnership was allocated approximately $17,238,000 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. Net income also increased due to decreases in hotel
operations expense and depreciation expense due to the sale of all of the
Partnership's investment properties. In addition, interest expense decreased
and interest income increased. The decrease in interest expense is due to the
payoff of the mortgages encumbering Hampton Inn-Albuquerque and Hampton Inn-
Aurora. The increase in interest income is related to an increase in interest-
bearing reserves. Offsetting the above increases to net income are a decrease
in hotel operations revenue and an increase in litigation settlement expense.
The decrease in hotel operations revenue is due to the sale of all of the
Partnership's investment properties. The litigation settlement in 1997 relates
to amounts paid in connection with the legal settlement as discussed in "Note E-
Sale of 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.)
At September 30, 1997, the Partnership had cash and cash equivalents of
approximately $2,635,000 as compared to approximately $4,884,000 at September
30, 1996. The change from net cash provided by operations to net cash used in
operations is due to a decrease in accounts payable and other liabilities as the
result of timing of payments and due to the decrease in operating income related
to the sale of the Partnership's investment properties. Net cash provided by
investing activities increased due to the receipt of approximately $19,967,000
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 the joint venture's eighteen
properties. Net cash used in financing activities increased due to the
distribution of approximately $35,906,000 in July 1997 from sales proceeds and
the payoff of the mortgages encumbering Hampton Inn-Albuquerque and Hampton Inn-
Aurora.
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:
None were filed during the quarter ended September 30, 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: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Growth Hotel
Investors 1997 Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,635
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,857
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,456
<TOTAL-LIABILITY-AND-EQUITY> 6,857
<SALES> 0
<TOTAL-REVENUES> 25,212
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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<NET-INCOME> 20,711
<EPS-PRIMARY> 508.42<F2>
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<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
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