FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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, 1997, 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. NPI
Equity Investments II, Inc. ("NPI Equity") a Florida corporation, is the
managing general partner of FRI. 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.
Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired all of the
issued and outstanding shares of stock of NPI Equity and National Property
Investors, Inc. ("NPI"), the sole shareholder of NPI Equity until December 31,
1996, at which time the stock of NPI Equity and NPI Realty was acquired by
Insignia Properties Trust. In connection with these transactions, affiliates of
Insignia appointed new officers and directors of NPI, NPI Equity and NPI Realty.
See "Item 9. Directors, Executive officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act."
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 was 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.
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. The Combined Fund
had a controlling interest in the eighteen hotels acquired. The acquisition
activities of the Registrant were completed on September 15, 1988. 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.
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed below, the Registrant and Growth
Hotel Investors ("GHI"), the Registrant's joint venture partner in the Combined
Fund properties, marketed all of their properties for sale. In this regard, the
Registrant and GHI retained Bear, Stearns & Co Inc. to assist in the marketing
of such properties. As described in "Item 2. Properties", the Registrant sold
all of its assets during 1997. As a result, it is anticipated that a final
distribution will be made to the Registrant's partners during 1998 and that the
Registrant will be dissolved.
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 acquired such
interest in April 1997.
The Registrant was involved in only one industry segment, as described above.
The Registrant does not engage in any foreign operations or derive revenues from
foreign sources.
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 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. 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."
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership. It is anticipated, however, that the Partnership
will be liquidated prior to the consummation of the AIMCO transaction. In any
event, it is not anticipated that this transaction will have a material effect
on the Partnership.
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 13,401 units with
respect to this offer.
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.
ITEM 2. DESCRIPTION OF PROPERTIES
As of December 31, 1997, the Partnership adopted the liquidation basis of
accounting as a result of the sale of all of its investment properties as
discussed below.
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 $13,502,000. 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 $4,830,000. Additionally, North Coast
Syracuse Limited Partnership sold its investment property, Hampton Inn-Syracuse
for a sales price of approximately $2,294,000. 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 $107,576,000. 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.
Hampton/GHI's last hotel property, the Hampton Inn-Mountain Brook, was sold on
August 1, 1997 for a sales price of $8,758,000.
The aggregate sale price for all 22 properties was approximately $136,960,000.
The Partnership received net proceeds, after satisfaction of outstanding
indebtedness and closing costs, from the sale of its investment properties of
approximately $14,411,000. In addition, the Partnership received approximately
$26,207,000 from its unconsolidated joint venture in distributions from
operations and the sale of its properties. The Partnership made distributions
of $32,720,000 ($885.95 per unit) to its limited partners and approximately
$668,000 to the General Partners from these net proceeds in July and December
1997. It is anticipated that the Partnership will be dissolved during 1998 and
the remaining cash and any funds from operations will be distributed to the
partners at that time.
In connection with the sale of the properties owned by Hampton/GHI Associates
No. 1 and the liquidation of the joint venture, 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 Joint Venture
Agreement, Hampton was obligated to contribute to the joint venture an amount
equal to the deficit of its tax capital account, which amount was 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.
The joint venture received such payment from Hampton for its deficit restoration
obligation on November 5, 1997 in the amount of approximately $9,067,000.
The Partnership recognized a gain of approximately $3,908,000 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 a gain of
approximately $18,422,000 from its unconsolidated joint venture, Growth Hotel
Investors Combined Fund No. 1, from the sale of the joint venture's properties.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is unaware of any pending or outstanding litigation that is not
routine in nature. The Managing General Partner of the Partnership believes
that all such pending or outstanding litigation will be resolved without a
material adverse effect upon the business, financial condition, or operations of
the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the second quarter of 1997 a proxy statement detailing the particulars of
the sales transactions noted in "Item 2. Description of Properties" was
submitted to a vote of unit holders and approved.
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. As a result of the sale of all of its investment properties, the
Partnership has adopted the liquidation basis of accounting, and expects to
distribute all remaining funds and terminate the Partnership in 1998.
During the years ended December 31, 1997 and 1996, 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 (*)
1997 1996
March 31 $ 0 $ 0
June 30 $ 20 $ 20
September 30 $947 $ 0
December 31 $ 91 $ 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, 1997, there were 1,841 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, 1997, 1996, 1995, 1994, and 1993. The data should be
read in conjunction with "Item 8, Consolidated Financial Statements." This data
is not covered by the independent auditors' report.
For the Year Ended December 31,
1997 1996 1995 1994 1993
(Amounts in thousands except per unit data)
Total Revenues $26,192 $ 9,831 $10,341 $10,049 $10,895
Income Before Minority
Interest in Joint Ventures'
Operations and Extraordinary Item $21,395 $ 2,558 $ 3,556 $ 2,920 $ 2,716
Minority Interest In Joint Ventures'
Operations (76) 35 (28) (36) (36)
Extraordinary Item - Gain On
Extinguishment Of Debt -- -- -- 606 --
Net Income $21,319 $ 2,593 $ 3,528 $ 3,490 $ 2,680
Net Income Per Limited
Partnership Assignee Unit (1):
Income Before Extraordinary Item $ 537 $ 65 $ 89 $ 73 $ 68
Extraordinary Item - Gain On
Extinguishment of Debt -- -- -- 15 --
Net Income $ 537 $ 65 $ 89 $ 88 $ 68
Total Assets $ 4,157 $28,422 $27,510 $27,898 $31,672
Notes Payable $ -- $ 5,412 $ 5,433 $ 7,655 $12,488
Cash Distributions Per Limited
Partnership Assignee Unit (actual
amount based on admission to
partnership) $ 1,059 $ 40 $ 40 $ 40 $ 35
(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.
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
At December 31, 1997 the Partnership had cash and cash equivalents of
approximately $2,562,000 as compared to approximately $4,644,000 at December 31,
1996. For the year ended December 31, 1997, cash and cash equivalents
decreased approximately $2,082,000 compared to an increase of approximately
$1,044,000 for the year ended December 31, 1996. The decrease in net cash
provided by operating activities is 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
1997. 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 $40,129,000 and
the payoff of the mortgages encumbering Hampton Inn-Albuquerque and Hampton Inn-
Aurora.
Cash distributions were made in the second, third and fourth quarters of 1997.
A cash distribution of approximately $794,000 was made in June 1997.
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. A
cash distribution of approximately $3,429,000 was made in December 1997 from
cash from operations and sales proceeds. Approximately $3,362,000 was
distributed to the limited partners and approximately $67,000 was distributed to
the general partner. In connection with the sale of the properties owned by
Hampton/GHI and the liquidation of the joint venture, 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 was obligated to contribute to Hampton/GHI an
amount equal to the deficit of its capital account, which amount was 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
$9,067,000.
The classification of the funds received from Hampton is not clearly defined in
the partnership agreement. If the funds are classified as funds from
operations, the General Partner would be due a partnership management incentive
on the distribution of these funds in the amount of approximately $1,004,000.
The General Partner has agreed to take 50% of such allocation or $502,000, which
has been accrued at December 31, 1997.
The Partnership holds a warranty reserve escrow account in the amount of
approximately $1,595,000. This escrow must be held for the period of one year
from the closing date of the sale of the investment properties. If the
purchaser has not notified the Partnership of any amounts owed to it, the
Partnership will distribute such funds to its partners. At March 30, 1998, no
notification had been given from the purchaser that any amounts were due the
purchaser under the agreement.
Cash distributions were made in both 1996 and 1995 totaling approximately
$1,587,000, of which approximately $1,477,000 was distributed to the limited
partners and approximately $110,000 was distributed to the general partner for
each year.
Results of Operations
1997 Compared to 1996
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 "Item 8.
Financial Statements Note B - Sale of Properties."
As a result of the sale of its investment properties and the decision to
liquidate the Partnership, the Partnership changed its basis of accounting to
the liquidation basis of accounting for its financial statements at December 31,
1997. Consequently, assets have been valued at their estimated net realizable
value (including subsequent actual transactions described below) and liabilities
are presented at their estimated settlement amounts, including estimated costs
associated with carrying out the liquidation. The valuation of assets and
liabilities necessarily requires many estimates and assumptions and there are
substantial uncertainties in carrying out the liquidation. The actual
realization of assets and settlement of liabilities could be higher or lower
than the amounts indicated and is based upon the General Partner's estimates as
of the date of the financial statements.
The Partnership's net income as reported in the financial statements for the
year ended December 31, 1997, was approximately $21,319,000 compared to
approximately $2,593,000 for the corresponding period of 1996 (see "Item 8.
Financial Statements Note H" for a reconciliation of these amounts to the
Partnership's federal taxable income). 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 owned by the joint
venture. The Partnership was allocated approximately $18,422,000 of the gain
from the sale of these properties. Also contributing to the increase in net
income is the gain on the sale of investment properties due to the sale of the
Partnership's investment properties. As a result of the sale of the
Partnership's investment properties, hotel operations revenues, hotel operations
expenses, depreciation and interest expense decreased. The litigation
settlement in 1997 relates to amounts paid in connection with the legal
settlement as discussed in "Item 8. Financial Statements Note B - Sale of
Properties". The change in minority interest in joint ventures' operations is
due to the sale of the Hampton Inn-Aurora.
The statement of net assets in liquidation as of December 31 1997, includes
approximately $130,000 of accrued costs, net of income, that the General partner
estimates will be incurred during the period of liquidation, based on the
assumption that the liquidation process will be completed during the third
quarter of 1998. These costs principally include legal and administrative
expenses. Because the success in realization of assets and the settlement of
liabilities is based on the General Partner's best estimates, the liquidation
period may be shorter than projected or it may be extended beyond the projected
period.
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 "
Item 8. Financial Statements Note H" 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 income 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 income 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.
Unconsolidated Joint Venture Operations
(Growth Hotel Investors Combined Fund No. 1)
1997 Compared to 1996
Operating results, prior to minority in joint venture operations and gain on
sale of investment properties, was $1,666,000 for the year ended December 31,
1997 as compared to $5,469,000 for 1996. This is a result of the sale of 17 of
its 18 investment properties in June 1997 and the remaining property in August
1997. The gain recognized as a result of these sales was $58,044,000.
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.
Other
Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 ("the Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements of the Partnership expressed or implied by
such forward-looking statements. Such forward-looking statements speak only as
of the date of this annual report. The Partnership expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Partnership's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
GROWTH HOTEL INVESTORS
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Statement of Net Assets in Liquidation - December 31, 1997
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations-Years ended December 31, 1997, 1996
and 1995
Consolidated Statements of Partners' Capital (Deficit)/Net Assets in
Liquidation-Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows-Years ended December 31, 1997, 1996
and 1995
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 statement of net assets in liquidation, and the
consolidated balance sheet of Growth Hotel Investors, a California Limited
Partnership, (the "Partnership") as of December 31, 1997 and 1996, respectively,
and the related consolidated statements of operations, partners' capital and
cash flows for each of the three years in the period ended December 31, 1997.
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, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Imowitz Koenig & Co., LLP
Certified Public Accountants
New York, N.Y.
March 30, 1998
GROWTH HOTEL INVESTORS
STATEMENT OF NET ASSETS IN LIQUIDATION
(in thousands)
December 31, 1997
Assets
Cash and cash equivalents $2,562
Escrow receivable 1,595
4,157
Liabilities
Accounts payable and state withholding taxes payable 522
Distribution payable to general partner 502
Estimated costs during the period
of liquidation 130
1,154
Net Assets in liquidation $3,003
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1996
Assets
Cash and cash equivalents $ 4,644
Restricted cash 268
Deferred costs 652
Accounts receivables and other assets 189
Investment in unconsolidated joint venture 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 $ 28,422
Liabilities and Partners' Capital
Liabilities
Accounts payable and other liabilities $ 523
Notes payable 5,412
Minority interest in joint ventures 42
Partners' Capital (Deficit):
General partner (965)
Limited partners' (36,932 units outstanding
at December 31, 1996) 23,410
Total partners' capital 22,445
Total liabilities and partners' capital $ 28,422
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1997 1996 1995
Revenues:
Hotel operations $ 3,658 $7,830 $ 8,091
Equity in unconsolidated
joint venture operations 18,440 1,851 2,021
Interest income 186 150 229
Gain on sale of investment properties 3,908 -- --
Total revenues 26,192 9,831 10,341
Expenses (including $150, $201, and $140
paid to the general partner and
affiliates in 1997, 1996 and 1995):
Hotel operations 2,606 5,107 4,839
Interest 280 594 798
Depreciation 561 941 750
Litigation settlement 583 -- --
General and administrative 767 631 398
Total expenses 4,797 7,273 6,785
Net income before minority
interest in joint ventures'
operations 21,395 2,558 3,556
Minority interest in joint
ventures' operations (76) 35 (28)
Net Income $ 21,319 $2,593 $ 3,528
Net income allocated to general partners $ 2,503 $ 179 $ 247
Net income allocated to limited partners 18,816 2,414 3,281
$ 21,319 $2,593 $ 3,528
Net income per limited
partnership unit $ 509.48 $65.36 $ 88.84
Cash distributions per
limited partnership unit $1,058.51 $39.99 $ 39.99
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENTS OF CHANGES IN
PARTNERS' CAPITAL (DEFICIT)/NET ASSETS IN LIQUIDATION
(in thousands, except unit data)
Limited
Partnership General Limited Total
Units Partners' Partners' Capital
Original capital contributions 36,932 $ -- $36,932 $ 36,932
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
Net income for the year ended
December 31, 1997 -- 2,503 18,816 21,319
Distributions -- (1,538) (39,093) (40,631)
Partners' capital at
December 31, 1997 36,932 $ -- $ 3,133 3,133
Adjustment to liquidation basis (130)
Net assets in liquidation at
December 31, 1997 $ 3,003
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 21,319 $ 2,593 $ 3,528
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 604 1,028 838
Equity in unconsolidated joint venture
operations (18,440) (1,851) (2,021)
Minority interest in joint ventures' operations 76 (35) 28
Deferred income -- -- (40)
Deferred costs paid -- -- (775)
Gain on sale of investment properties (3,908) -- --
Change in accounts:
Accounts receivable and other assets 163 43 (26)
Accounts payable, state withholding taxes
payable and other liabilities (1) (39) (95)
Net cash (used in) provided by operating
activities (187) 1,739 1,437
Cash Flows From Investing Activities:
Warranty escrow (1,595) -- --
Property improvements and replacements (1,201) (1,245) (1,428)
Unconsolidated joint venture distributions 26,207 2,237 2,355
Restricted cash decrease (increase) 268 (79) 146
Net proceeds from sale of investment properties 19,967 -- --
Net cash provided by investing activities 43,646 913 1,073
Cash Flows From Financing Activities:
Cash distributions to partners (40,129) (1,587) (1,587)
Notes payable principal payments (13) (21) (36)
Repayment of notes payable (5,399) -- (2,186)
Net cash used in financing activities (45,541) (1,608) (3,809)
(Decrease) Increase in Cash and Cash Equivalents (2,082) 1,044 (1,299)
Cash and Cash Equivalents at Beginning of Year 4,644 3,600 4,899
Cash and Cash Equivalents at End of Year $ 2,562 $ 4,644 $ 3,600
Supplemental disclosure of cash flow information:
Interest paid in cash during the year $ 325 $ 556 $ 813
Supplemental disclosure of non-cash financing activity:
Distributions payable $ 502 $ -- $ --
<FN>
See Notes to Consolidated Financial Statements
</FN>
</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 owned properties in Albuquerque, New Mexico, and Nashville,
Tennessee, and has 50 percent joint venture interests in two partnerships which
owned 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 February 15, 1996, Devon Associates, a New York general partnership,
commenced a tender offer (the "Offer") for up to 15,000 of the outstanding
Limited Partnership Units ("the 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 13,401 Units with respect to this offer.
The Partnership sold its investment properties on June 24, 1997 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.
As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its financial statements at December 31,
1997 to the liquidation basis of accounting. Consequently, assets have been
valued at their estimated net realizable value and liabilities are presented at
their estimated settlement amounts, including estimated costs associated with
carrying out the liquidation. The valuation of assets and liabilities
necessarily requires many estimates and assumptions and there are substantial
uncertainties in carrying out the liquidation. The actual realization of assets
and settlement of liabilities could be higher or lower than amounts indicated
and is based upon the Managing General Partner's estimates as of the date of the
financial statements.
The statement of net assets in liquidation as of December 31, 1997, includes
approximately $130,000 of accrued costs, net of income, that the Managing
General Partner estimates will be incurred during the period of liquidation,
based on the assumption that the liquidation process will be completed during
1998. These costs principally include legal and administrative expenses.
Because the success in realization of assets and the settlement of liabilities
is based on the General Partner's best estimates, the liquidation period may be
shorter than projected or it may be extended beyond the projected period.
On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into an
agreement to merge its national residential property management operations, and
its controlling interest in Insignia Properties Trust, with Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust. The closing, which is anticipated to happen in the third quarter of
1998, is subject to customary conditions, including government approvals and the
approval of Insignia's shareholders. If the closing occurs, AIMCO will then
control the General Partner of the Partnership. It is anticipated, however, that
the Partnership will be liquidated prior to the consummation of the AIMCO
transaction. In any event, it is not anticipated that this transaction will
have a material effect on the Partnership.
Principles of Consolidation
The consolidated financial statements include the Partnership and the two joint
ventures in which the Partnership has a controlling interest. 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.
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 $210,000, $400,000
and $530,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Investment Properties
Investment properties are stated at cost. Acquisition fees are capitalized as a
cost of real estate. The Partnership records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.
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 was
being amortized over the remaining term of the services agreement which was 7
years. Financing costs were deferred and amortized, as interest expense, over
the lives of the related loans, or expensed, if financing was not obtained.
Franchise fees paid in connection with the acquisition of the hotels were
deferred and were amortized over the lives of the franchise agreements, which
ranged from ten to twenty years. Land lease costs paid in connection with
acquisition of certain hotels were deferred and amortized over the lives of the
lease agreements. In connection with the sale of properties during 1997 all
remaining deferred cost balances were written off.
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 1996 and 1995 balances to
conform to the 1997 presentation.
NOTE B - 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 $13,502,000. 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 $4,830,000. Additionally, North Coast Syracuse
Limited Partnership sold its investment property, Hampton Inn-Syracuse for a
sales price of approximately $2,294,000. 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 $107,576,000. 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. Hampton/GHI's last hotel
property, the Hampton Inn-Mountain Brook, was sold on August 1, 1997 for a sales
price of $8,758,000.
The aggregate sale price for all 22 properties was approximately $136,960,000.
The Partnership received net proceeds, after satisfaction of outstanding
indebtedness and closing costs, from the sale of its investment properties of
approximately $14,411,000. In addition, the Partnership received approximately
$26,207,000 from its unconsolidated joint venture in distributions from
operations and the sale of its properties. The Partnership made aggregate
distributions of $32,720,000 ($885.95 per unit) to its limited partners and
approximately $668,000 to the General Partners from these net proceeds in 1997.
It is anticipated that the Partnership will be dissolved during 1998 and the
remaining proceeds and any funds from operations will be distributed to the
partners at that time.
In connection with the sale of Hampton/GHI Associates No. 1's 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 Joint Venture Agreement, Hampton was obligated to contribute to the joint
venture an amount equal to the deficit of its tax capital account, which amount
was 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. The joint venture received such payment from Hampton
for its deficit restoration obligation on November 5, 1997 in the amount of
approximately $9,067,000.
The Partnership recognized a gain of approximately $3,908,000 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 a gain of
approximately $18,422,000 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 1997.
NOTE C - ADJUSTMENT TO LIQUIDATION BASIS OF ACCOUNTING
At December 31, 1997, in accordance with the liquidation basis of accounting,
assets were adjusted to their estimated net realizable value and liabilities
were adjusted to their estimated settlement amount and include all estimated
costs associated with carrying out the liquidation. The net adjustment required
to convert to the liquidation basis of accounting was an increase in net
liabilities of approximately $130,000 which is included in the Statement of
Changes of Partners' Capital (Deficit)/Net Assets in Liquidation.
NOTE D - 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 1997, 1996, and 1995:
1997 1996 1995
(in thousands)
Reimbursement for services of affiliates ( primarily
included in general and administrative expenses) $ 150 $ 201 $ 140
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 accrued or paid to the general partner for the years ended
December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
(in thousands)
Partnership management incentive $ 741 $ 79 $ 79
Continuing interest 129 31 31
Sales proceeds 668 -- --
Total $1,538 $110 $110
NOTE E - 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, 1997, 1996 and 1995 were approximately $0, $40,000 and $76,000,
respectively.
NOTE F - 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 years ended December 31, 1997, 1996 and
1995, approximately $39,000, $78,000 and $77,000, respectively, was amortized
and included in general and administrative expenses.
At December 31, 1996, accumulated amortization of the service agreement's
deferred costs totaled approximately $155,000.
At December 31, 1996, accumulated amortization of the franchise fees deferred
costs totaled approximately $30,000. The fully amortized costs were written off
during 1996.
The remaining deferred costs associated with the MMI agreement were written off
in 1997 as a result of the sale of investment properties and the Partnerships
adoption of the liquidation basis of accounting.
NOTE G - 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 has been reported under the
equity method of accounting.
As noted in Note B, the joint venture sold the eighteen Hampton inn Hotels in
1997. As a result of this sale, the joint venture has distributed the majority
of its funds as of December 31, 1997. It is anticipated that any remaining
funds will be distributed during 1998. At December 31, 1997 the Combined Fund
had assets of $153,000 and liabilities and estimated costs of liquidation of
$221,000 resulting in net liabilities in liquidation of $68,000.
Summary financial information for Growth Hotel Investors Combined Fund No. 1
Joint Venture is as follows (in thousands):
December 31, 1996
Total assets $ 62,199
Total liabilities (37,081)
Total ventures' equity $ 25,118
December 31,
1997 1996 1995
Total revenues $ 76,664 $ 38,327 $ 37,156
Total expenses (16,954) (32,858) (30,710)
Minority interest 455 393 (76)
Net income $ 60,165 $ 5,862 $ 6,370
Allocation of income:
GHI $ 18,440 $ 1,851 $ 2,021
GHI II 41,725 4,011 4,349
Net income $ 60,165 $ 5,862 $ 6,370
In 1997, 1996 and 1995 the Partnership received distributions of approximately
$26,207,000, $2,237,000 and $2,355,000, respectively, from the Joint Venture.
NOTE H - 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>
1997 1996 1995
(in thousands, except unit data)
<S> <C> <C> <C>
Net income - financial statements $21,319 $ 2,593 $ 3,528
Differences resulted from:
Deferred costs -- -- (775)
Depreciation and amortization 333 (120) (141)
Equity in unconsolidated joint venture operations 955 (180) (200)
Minority interest (2,282) 21 8
Gain on sale and other 3,366 15 30
Net income - income tax method $23,691 $ 2,329 $ 2,450
Taxable income per limited partnership
Assignee unit after giving effect to the
Allocation to the general partner $ 585 $ 59 $ 62
Partner's capital-financial statements $ -- $22,445 $21,439
Net assets in liquidation, as reported 3,003
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)
Deferred costs -- (775) (775)
Equity in unconsolidated joint venture operations -- (1,019) (839)
Minority interest -- 1,455 1,434
Other 620 (295) (310)
Partners' capital-income tax method $ 8,612 $25,056 $24,314
</TABLE>
NOTE I - COMMITMENT AND CONTINGENCIES
In connection with the sale of the properties owned by Hampton/GHI Associates
No. 1 and the liquidation of the joint venture, 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 Joint Venture
Agreement, Hampton was obligated to contribute to the joint venture an amount
equal to the deficit of its tax capital account, which amount was 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.
The Joint Venture received such payment from Hampton for its deficit restoration
obligation on November 5, 1997 in the amount of approximately $9,067,000.
The classification of the funds received from Hampton is not clearly defined in
the partnership agreement. If the funds are classified as funds from
operations, the General Partner would be due a partnership management incentive
on the distribution of these funds in the amount of approximately $1,004,000.
The General Partner has agreed to take 50% of such allocation or $502,000, which
has been accrued at December 31, 1997.
The Partnership holds a warranty reserve escrow account in the amount of
approximately $1,595,000. This escrow must be held for the period of one year
from the closing date of the sale of the investment properties. If the
purchaser has not notified the Partnership of any amounts owed to it, the
Partnership will distribute such funds to its partners. At March 30, 1998, no
notification had been given from the purchaser that any amounts were due the
purchaser under the agreement.
NOTE J - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
Reconciliation of Investment Properties and Accumulated Depreciation:
Years Ended December 31,
1997 1996 1995
(in thousands)
Balance at beginning of year $ 24,577 $23,332 $ 21,904
Property improvements 1,201 1,245 1,428
Retirement of assets (25,778) -- --
Balance at end of year $ -- $24,577 $ 23,332
Accumulated Depreciation
Balance at beginning of year $ 9,675 $ 8,734 $ 7,984
Additions charged to expense 561 941 750
Retirement of assets (10,236) -- --
Balance at end of year $ -- $ 9,675 $ 8,734
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1996 and 1995, respectively is approximately $23,742,000 and
$22,482,000. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1996, and 1995, respectively is approximately $11,316,000 and
$10,165,000.
NOTE K - 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 acquired such
interest in April 1997.
NOTE L - 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 17,302 and 13,401
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.
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.
The names and positions held by the officers and directors of NPI Realty are as
follows:
Name Age Position
William H. Jarrard, Jr. 51 President and
Director
Ronald Uretta 41 Vice President and
Treasurer
Daniel M. LeBey 32 Vice President and
Secretary
Robert D. Long, Jr. 30 Vice President
Kelley M. Buechler 40 Assistant Secretary
Martha L. Long 38 Controller
William H. Jarrard, Jr. has been President and Director of NPI Realty since
January 1996. He has acted as Senior vice President of Insignia Properties
Trust ("IPT"), parent of the General Partner since May 1997. Mr. Jarrard
previously acted as Managing Director - Partnership Administration of Insignia
from January 1991 through September 1997 and served as Managing Director -
Partnership Administration and Asset Management from July 1994 until January
1996.
Ronald Uretta has been Vice President and Treasurer of NPI Realty since January
1996 and Insignia's Treasurer since January 1992. Since August 1996, he has also
served as Insignia's Chief Operating Officer. He has also served as Insignia's
Secretary from January 1992 to June 1996 and as Insignia's Chief Financial
Officer from January 1992 to August 1996.
Daniel M. LeBey has been Vice President and Secretary of NPI Realty since
January 29, 1998 and Insignia's Assistant Secretary since April 30, 1997. Since
July 1996 he has also served as Insignia's Associate General Counsel. From
September 1992 until June 1996, Mr. LeBey was an attorney with the law firm of
Alston & Bird LLP, Atlanta, Georgia.
Robert D. Long, Jr. has been Vice President of NPI Realty since January 2, 1998.
Mr. Long joined Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of
Insignia, in September 1993. Since 1994 he has acted as Vice President and
Chief Accounting Officer of the MAE subsidiaries. Mr. Long was an accountant
for Insignia until joining MAE in 1993. Prior to joining Insignia, Mr. Long was
an auditor for the State of Tennessee and was associated with the accounting
firm of Harsman Lewis and Associates.
Kelley M. Buechler has been Assistant Secretary of NPI Realty since January
1996, and Assistant Secretary of Insignia since 1991.
Martha L. Long has been Controller of NPI Realty since December 1996 and Senior
Vice President - Finance and Controller of Insignia since January 1997. In June
1994, Ms. Long joined Insignia as its Controller, and was promoted to Senior
Vice President - Finance in January 1997. Prior to that time, she was Senior
Vice President and Controller of the First Savings Bank, in Greenville, SC.
There are no family relationships between or among any officers and directors.
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, 1998.
Name and address of Amount and nature of
Beneficial Owner Beneficial Owner % of Class
Devon Associates (1) (2) 13,401 36.29%
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 Managing General Partner own less than one percent
of the Registrant's voting securities. However, an affiliate of the Managing
General Partner holds an interest in Devon Associates.
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 except as
follows. On March 17, 1998, Insignia entered into an agreement to merge its
national residential property management operations, and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The closing,
which is anticipated to happen in the third quarter of 1998, is subject to
customary conditions, including government approvals and the approval of
Insignia's shareholders. If the closing occurs, AIMCO will then control the
General Partner of the Partnership. It is anticipated, however, that the
Partnership will be liquidated prior to the consummation of the AIMCO
transaction. In any event, it is not anticipated that this transaction will
have a material effect on the Partnership.
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 1997, 1996, and 1995:
1997 1996 1995
(in thousands)
Reimbursement for services of affiliates $ 150 $ 201 $ 140
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, 1997, 1996
and 1995 are as follows:
1997 1996 1995
(in thousands)
Partnership management incentive $ 741 $ 79 $ 79
Continuing interest 129 31 31
Sales proceeds 668 -- --
Total $1,538 $110 $110
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, 1997, 1996 and 1995 were $0, $40,000 and $76,000, respectively.
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. 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 $13,502,000. 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 $4,830,000.
Additionally, North Coast Syracuse Limited Partnership sold its investment
property, Hampton Inn-Syracuse for a sales price of approximately $2,294,000.
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 $107,576,000. 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
$8,758,000.
The aggregate sale price for all 22 properties was approximately $136,960,000.
The Partnership received net proceeds, after satisfaction of outstanding
indebtedness and closing costs, from the sale of its investment properties of
approximately $14,411,000. In addition, the Partnership received approximately
$26,207,000 from its unconsolidated joint venture in distributions from
operations and the sale of its properties. The Partnership made aggregate
distributions of $32,720,000 ($885.95 per unit) to its limited partners and
approximately $668,000 to the General Partners from these net proceeds in 1997.
It is anticipated that the Partnership will be dissolved during 1998 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 was obligated to contribute to
Hampton/GHI an amount equal to the deficit of its capital account, which amount
was 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 $9,067,000. 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.
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 1997.
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, 1997 and 1996.
(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 May 12, 1998
William H. Jarrard, Jr. Director
/s/ Ronald Uretta Principal Financial May 12, 1998
Ronald Uretta Officer and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Growth Hotel Investors 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,562
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,157
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,003
<TOTAL-LIABILITY-AND-EQUITY> 4,157
<SALES> 0
<TOTAL-REVENUES> 26,192
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,797
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,319
<EPS-PRIMARY> 509.48<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
EXHIBIT 99(g)
GROWTH HOTEL INVESTORS COMBINED FUND NO 1.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997, 1996 and 1995
GROWTH HOTEL INVESTORS COMBINED FUND NO 1.
December 31, 1997
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Statement of Net Liabilities in Liquidation - December 31, 1997
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations - Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Partners' Capital (Deficit)/Net Liabilities in
Liquidation - Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1.
To the Partners
Growth Hotel Investors Combined Fund No. 1,
Greenville, South Carolina
Independent Auditors' Report
We have audited the accompanying consolidated statement of net liabilities in
liquidation and the consolidated balance sheet of Growth Hotel Investors
Combined Fund No. 1 (the "Partnership"), as of December 31, 1997 and 1996,
respectively, and the related consolidated statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 1997. 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 Combined Fund No. 1, as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Imowitz Koenig & Co., LLP
Certified Public Accountants
New York, N.Y.
March 30, 1998
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
STATEMENT OF NET LIABILITIES IN LIQUIDATION
(in thousands)
December 31, 1997
Assets
Cash and cash equivalents $ 153
Liabilities
Accounts payable 195
Estimated costs during the period
of liquidation 26
221
Net Liabilities in liquidation $ (68)
See Accompanying Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
CONSOLIDATED BALANCE SHEET
(in thousands)
YEAR ENDED DECEMBER 31, 1996
Assets
Cash and cash equivalents $ 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 $ 62,199
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 1,337
Due to an affiliate of the joint venture
partner 827
Notes payable 40,185
Total liabilities 42,349
Minority interest in consolidated joint venture (5,268)
Partners' Equity:
GHI 7,767
GHI II 17,351
Total partners' equity 25,118
Total liabilities and partners' equity $ 62,199
See Accompanying Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
YEARS ENDED DECEMBER 31,
1997 1996 1995
Revenues:
Hotel operations $ 18,222 $ 38,154 $ 36,934
Gain on sale of investment properties 58,044 -- --
Interest income 398 173 222
Total revenues 76,664 38,327 37,156
Expenses (including $2,714, $5,602 and
$5,545 paid to an affiliate of the joint
venture partner in 1997, 1996, and 1995)
Hotel operations 12,515 24,274 22,811
Interest 1,926 4,227 4,139
Depreciation 2,283 4,088 3,751
General and administrative 230 269 9
Total expenses 16,954 32,858 30,710
Income before minority interest in
joint venture's operations 59,710 5,469 6,446
Minority interest in joint venture's operations 455 393 (76)
Net income $ 60,165 $ 5,862 $ 6,370
See Accompanying Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)/NET
LIABILITIES IN LIQUIDATION
(in thousands)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Growth Growth
Hotel Hotel
Investors Investors II Total
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
Net income 18,440 41,725 60,165
Cash distributions (26,207) (59,154) (85,361)
Balance - December 31, 1997 $ -- $ (78) (78)
Adjustment to liquidation basis 10
Net liabilities in liquidation $ (68)
See Accompanying Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 60,165 $ 5,862 $ 6,370
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,297 4,201 3,916
Minority interest in joint venture's operations (455) (393) 76
Gain on sale of investment properties (58,044) -- --
Change in operating assets and liabilities:
Deferred costs and other assets 482 (122) (20)
Accounts payable, other liabilities and due
to an affiliate of the joint venture partner (736) (144) 412
Net cash provided by operating activities 3,709 9,404 10,754
Cash flows from investing activities:
Net proceeds from sale of investment properties 114,230 -- --
Additions to real estate (2,721) (2,860) (3,154)
Restricted cash decrease 3 567 1,418
Net cash provided by (used in) investing activities 111,512 (2,293) (1,736)
Cash flows from financing activities:
Notes payable principal payments (273) (651) (525)
Due to affiliate (818) -- --
Repayment of notes payable (39,911) -- --
Joint venture partner contributions
(distributions) 9,067 (838) (367)
Cash distributions to partners (85,361) (7,051) (7,422)
Net cash used in financing activities (117,296) (8,540) (8,314)
(Decrease) Increase in Cash and Cash Equivalents (2,075) (1,429) 704
Cash and cash equivalents at beginning of year 2,228 3,657 2,953
Cash and cash equivalents at end of year $ 153 $ 2,228 $ 3,657
Supplemental disclosure of cash flow information:
Interest paid in cash during the year $ 1,926 $ 4,218 $ 3,716
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
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
were franchised by Hampton Inns, Inc. ("Hampton"), a wholly owned subsidiary of
Promus Hotels, Inc. ("Promus"). The properties owned by the joint venture were
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.
On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into an
agreement to merge its national residential property management operations, and
its controlling interest in Insignia Properties Trust, with Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust. The closing, which is anticipated to happen in the third quarter of
1998, is subject to customary conditions, including government approvals and the
approval of Insignia's shareholders. If the closing occurs, AIMCO will then
control the General Partners of the Partnership. It is anticipated, however,
that the Partnership will be liquidated prior to the consummation of the AIMCO
transaction. In any event, it is not anticipated that this transaction will
have a material effect on the Partnership.
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.
Except for Mountain Brook, all of the Partnership's properties were sold on June
24, 1997 to an unrelated third party, Equity Inns Partnership LP ("Equity
Inns"), a Tennessee Limited Partnership. Mountain Brook was sold on August 1,
1997 to Equity Inns.
As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its financial statements at December 31,
1997 to the liquidation basis of accounting. Consequently, assets have been
valued at their estimated net realizable value and liabilities are presented at
their estimated settlement amounts, including estimated costs associated with
carrying out the liquidation. The valuation of assets and liabilities
necessarily requires many estimates and assumptions and there are substantial
uncertainties in carrying out the liquidation. The actual realization of assets
and settlement of liabilities could be higher or lower than amounts indicated
and is based upon the Managing General Partner's estimates as of the date of the
financial statements.
The statement of net liabilities in liquidation as of December 31, 1997,
includes approximately $26,000 of costs, net of income, that the Managing
General Partner estimates will be incurred during the period of liquidation,
based on the assumption that the liquidation process will be completed in 1998.
These costs include anticipated legal fees and administrative expenses, net of
estimated interest income from cash balances. Because the realization of assets
and the settlement of liabilities is based on the Managing General Partner's
best estimates, the liquidation period may be shorter than projected or it may
be extended beyond the projected period.
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
were allocated to the minority interest. Pursuant to the terms of the
Hampton/GHI Joint Venture Agreement, Hampton was obligated to contribute to
Hampton/GHI an amount equal to the deficit of its tax capital account, which
amount was 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 $9,067,000.
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 $983,111, $1,995,000
and $1,911,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Investment Properties
Investment properties are stated at cost. Acquisition fees are capitalized as a
cost of real estate. The Partnership records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.
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 were deferred and amortized, as interest expense, over the life
of the related loans, which ranged from eight to ten years, or expensed, if
financing was not obtained. Franchise fees paid in connection with the
acquisition of the hotels were deferred and amortized over the lives of the
franchise agreements, which were twenty years. Land lease costs paid in
connection with the acquisition of certain hotels were deferred and amortized
over the lives of the lease agreements, which were twenty years. At December 31,
1996, accumulated amortization of deferred costs totaled $350,000. The fully
amortized costs were written off during 1996. Net deferred costs of $403,000
for 1996, are included in deferred costs and other assets. In connection with
the sale of properties during 1997, all remaining deferred cost balances were
written off.
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 1996 and 1995 balances to
conform to the 1997 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 $2,714,000, $5,602,000 and
$5,545,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE C - 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 D - NOTES PAYABLE
Properties and improvements were pledged as collateral for the related notes
payable. The notes carried interest at rates ranging from 7.63 percent to 10
percent. The mortgages encumbered sixteen of the eighteen hotels that were owned
by the joint venture and were cross collateralized. Amortization of deferred
financing costs totaled $103,000 for the year ended December 31, 1996, and
$124,000 for the year ended December 31, 1995. The notes were payable monthly
and matured 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 obtained an extension for 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 obtained an extension for these loans until July 1, 1997. Upon the sale
of the investment properties, as discussed in Note E, the mortgages were paid
off.
NOTE E - SALE OF PROPERTIES
On June 24, 1997, the Partnership 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 $107,576,000. 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 (see Note H - Tender Offers).
The Partnership's final property, the Hampton Inn-Mountain Brook, was sold on
August 1, 1997 for a sales price of $8,758,000.
The aggregate sale price for all the properties was approximately $116,334,000.
The Partnership received net proceeds, after satisfaction of outstanding
indebtedness and closing costs, from the sale of its investment properties of
approximately $74,312,000. The Partnership made distributions of approximately
$85,361,000 to its partners from proceeds of the sale and operations. It is
anticipated that the Partnership will be dissolved during 1998 and the remaining
funds will be distributed to the partners.
In connection with the sale of the Partnership's 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 was obligated to contribute to
Hampton/GHI an amount equal to the deficit of its tax capital account, which
amount was 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 $9,067,000.
The Partnership recognized a gain of approximately $58,044,000 due to the sale
of the properties in which the Partnership had a controlling interest.
NOTE F - ADJUSTMENT TO LIQUIDATION BASIS OF ACCOUNTING
At December 31, 1997, in accordance with the liquidation basis of accounting,
assets were adjusted to their estimated net realizable value and liabilities
were adjusted to their estimated settlement amount and include all estimated
costs associated with carrying out the liquidation. The net adjustment required
to convert to the liquidation basis of accounting was a decrease in net
liabilities of approximately $10,000. The adjustments are summarized as follows:
(Increase) Decrease
in Net Liabilities
(in thousands)
Adjustment to record estimated costs associated
with the liquidation (Note A) $ (26)
Adjustment of other assets and liabilities 36
Net decrease in net liabilities $ 10
Reconciliation of Investment Properties and Accumulated Depreciation:
Year Ended December 31,
1997 1996 1995
Investment Properties (in thousands)
Balance at beginning of year $ 90,260 $ 87,400 $ 94,793
Property improvements 2,721 2,860 3,154
Sale of investment properties (92,981) -- --
Retirement of assets -- -- (10,547)
Balance at end of year $ -- $ 90,260 $ 87,400
Accumulated Depreciation
Balance at beginning of year $ 31,400 $ 27,313 $ 34,108
Additions charged to expense 2,283 4,087 3,752
Sale of investment properties (33,683) -- --
Retirement of assets $ -- -- (10,547)
Balance at end of year $ -- $ 31,400 $ 27,313
The aggregate cost of the real estate for Federal income tax purposed at
December 31, 1996 and 1995, respectively is approximately $100,824,000 and
$97,964,000, respectively. The accumulated depreciation taken for Federal
income tax purposes at December 31, 1996 and 1995, is approximately $47,821,000
and $43,650,000, 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 17,302 and 13,401 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.
