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Schedule 13E-3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934 and Rule
13e-3 (Section 240.13e-3) thereunder)
[Amendment No. _______________]
SIGNATURE VII LTD. LIMITED PARTNERSHIP
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(Name of the Issuer)
SIGNATURE VII LTD. LIMITED PARTNERSHIP
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(Name of the Person(s) Filing Statement)
UNITS OF LIMITED PARTNERSHIP INTERESTS
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(Title of Class of Securities)
NONE
-----------------------------------
(CUSIP Number of Class of Securities)
Thomas N. Eckerle, Esq., Suite 1800, One Indiana Square,
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Indianapolis, Indiana 46240 (317) 634-9777
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(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
Calculation of Filing Fee
Transaction valuation* Amount of filing fee
$6,825,000 $1,365.00
[ ] Check box if any part of the fees is offset as provided by Rule
0-11(a)(20) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the Date of its filing.
Amount previously paid:_________________________
Form or Registration No.:_______________________
Filing Party:___________________________________
Date Filed:_____________________________________
____________________
*$6,825,000 is the total consideration to be received by the Limited
Partners under the transaction being proposed by the General Partner.
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Preliminary Statement
The Rule 13e-3 transaction with respect to which this Rule 13e-3
Transaction Statement is filed involves a transaction subject to Regulation
14A. The information contained in the Solicitation and Information Statement
filed by Signature VII Ltd. Limited Partnership with the Securities and
Exchange Commission on July 17, 1996, pursuant to Regulation 14A is hereby
incorporated by reference into this Rule 13e-3 Transaction Statement and is
attached hereto as Exhibit 1. A Cross-Reference Sheet showing the location of
information in the Solicitation and Information Statement required to be
included in response to items of this Rule 13e-3 Transaction Statement is
attached hereto as Exhibit 6.
Item 1. Issuer and Class of Securities Subject to the Transaction.
(a) The issuer of the class of securities subject to the Rule 13e-3
transaction is Signature VII LTD. Limited Partnership, 250 E. 96th Street,
Suite 450 Indianapolis, Indiana 46240 (Telephone (317) 581-1111). Signature
VII LTD. Limited Partnership shall hereinafter be referred to as the "Issuer"
or the "Partnership".
Information regarding the organization structure of the Issuer is hereby
incorporated by reference to Section III, "Description of Partnership
Business," pages 10 and 11 of the Issuer's Solicitation and Information
Statement.
The General partner of the Issuer is Signature Inns, Inc., an Indiana
corporation (the "General Partner"). The General Partner was incorporated
under the laws of the State of Indiana on March 31, 1978, and operates under
management and franchise agreements, 23 Signature Inn hotels located in six
midwestern states. The General Partner has five, wholly-owned subsidiary
corporations. Signature Securities Corporation ("SSC"), is an SEC/NASD
registered "limited" broker-dealer which previously was engaged in the offer
and sale of direct participation programs (e.g., limited partnership real
estate offerings) of partnerships affiliated with Signature Inns, Inc. SSC
has marketed thirteen limited partnership programs. However, SSC has not
offered limited partnership interests since 1989.
The Signature Franchise Corporation subsidiary was organized in 1992, and
has never engaged in any business operations.
The P & N Corporation subsidiary was organized in late 1993 and acts as
the general partner of the Peoria/Normal Signature Limited Partnership, which
owns and operates the Normal and Peoria, Illinois, Signature Inn hotel
properties, the Knoxville Signature Limited Partnership which owns and
operates the Knoxville, Tennessee, Signature Inn hotel property and Meridian
Signature Limited Partnership which owns land and a hotel under construction
in Indianapolis, Indiana. Those properties are managed and franchised under
management and franchise agreements between the partnerships and the General
Partner.
The S.I.E. Corporation subsidiary was organized in December 1995 and acts
as general partner for Signature Northwestern Ltd., I.
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The Signature Inn Springfield Corporation subsidiary was organized in
1996, and has not yet engaged in any business activity.
In addition, set forth below is a chart of the organizational structure
of the General Partner and its subsidiaries and affiliates.
(At this point in the text is an organization chart showing
Signature Inns, Inc., its five wholly-owned subsidiaries, its
fifteen affiliated limited partnerships and its six affiliated
joint venture partnerships. A footnote to the display of
partnerships states: The General Partner's ownership interest
in these partnerships ranges between 5% and 50%, depending upon
the capital contributions made and other factors relating to the
structuring of the partnership.)
(b) The exact title of the securities subject to the Rule 13e-3 transaction
is "Units of Limited Partnership Interests." The Limited Partnership Interest
are divided into Units representing an investment of $10,000. There are
currently 451 Units issued and outstanding being held by 393 holders of
record.
(c) The information required to be disclosed in this Item 1 is hereby
incorporated by reference to Section XVII, "Marketability of Units of Limited
Partnership Interest," page 38, of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit 1.
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(d) The information required to be disclosed in this Item 1 is hereby
incorporated by reference to Section XII, "Book Value, Distributions and
Income," page 31 of the Issuer's Solicitation and
Information Statement, which is attached hereto as Exhibit 1.
(e) Not applicable.
(f) Not applicable.
Item 2. Identity and Background.
The Issuer is the person filing this statement and is the issuer of the
Units of Limited Partnership Interests which are the subject of this Rule
13e-3 transaction. Signature Inns, Inc., an Indiana corporation (the "General
Partner") has its executive offices located at 250 E. 96th Street, Suite 450
Indianapolis, Indiana 46240. The information required by this item
for each executive officer and director of the General Partner is set forth
below:
Name: John D. Bontreger
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: President, Chief Executive Officer and Chairman
of the Board of Signature Inns, Inc., since the
Company's inception on March 31, 1978.
Mr. Bontreger has served as President, Chief Executive Officer and
Chairman of the Board of Signature Inns, Inc. since the Company's inception on
March 31, 1978.
Name: David R. Miller
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Secretary, Executive Director of Sales and
Marketing and Director
Mr. Miller has been employed by Signature Inns, Inc. since August 1978
and has served as the Secretary (and Treasurer until May 1986) of the Company
since September, 1978. Since June 1984, he has been President of Signature
Securities Corporation. Since 1990, Mr. Miller has been the Executive
Director of Marketing responsible for hotel room sales programs and the
central reservation system.
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Name: Mark D. Carney
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Vice President Finance, Chief Financial Officer
and Director
Mr. Carney has been employed by Signature Inns, Inc. since September 1992
as Vice President Finance and Chief Financial Officer. Mr. Carney was
previously employed with the public accounting firm KPMG Peat Marwick in its
real estate, hospitality and financial institution practices. He received his
CPA certification in 1982.
Name: Bo Hagood
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Vice President Hotel Operations and Director
Mr. Hagood has been employed by Signature Inns, Inc. since December 1980
starting as General Manager. In January 1984, he was promoted to Director of
Hotel Operations and then to Vice President Hotel Operations in 1987. Mr.
Hagood has been in the hospitality industry for over 20 years. Prior to
Signature Inns, Mr. Hagood managed several hotels for national chains.
Name: Martin D. Brew
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Treasurer and Controller
Mr. Brew has been employed by Signature Inns, Inc. since April 1986. In
December 1987, Mr. Brew assumed the position of Controller and additionally,
in April 1992, he began serving as Treasurer. Prior to his employment with
Signature Inns, Mr. Brew worked four years with KPMG Peat Marwick. He
received his CPA certification in 1985.
Name: Orus E. Weaver
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Independent life insurance broker
Mr. Weaver has been an independent life insurance broker since 1981 and
previously assisted in the sale of securities of Signature Inns, Inc. in
various capacities. Mr. Weaver has been a member of the National Association
of Life Underwriters for almost twenty years.
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Name: George A. Morton
Address: 2545 E. State Road 47
Lebanon, IN 46052
Present Employment: Vice President and Treasurer of Morton Farms,
Inc.
Mr. Morton has been part owner of Morton Farms, Inc. since 1962, and
serves as Vice President and Secretary of that company. From April 1987 to
January 1989, Mr. Morton served as Deputy Commissioner of Agriculture for the
State of Indiana. He served as the Indiana Director of Farmers Home
Administration from 1989 to 1993.
Name: Richard E. Shank
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Self-Employed real estate agent.
Mr. Shank has been self-employed in the real estate business since 1961.
Mr. Shank was an elected representative in the Indiana General Assembly for 21
years, and was a State Senator from 1976 to 1987. He served as Executive
Director of the Indiana Professional Licensing Agency during 1988.
Name: Richard L. Russell
Address: National Retail Hardware Association
5822 W. 74th St.
Indianapolis, IN 46278
Present Employment: Executive Director, Direct Regions of the
National Retail Hardware Association.
Mr. Russell has been the Executive Director, Direct Regions of the
National Retail Hardware Association for almost thirty years. He has also
served as President or director of several community and civic organizations.
Name: Stephen M. Huse
Address: Huse Food Group, Inc.
2620 N. Walnut St.
PO Box 98
Bloomington, IN 47402
Present Employment: President and Chief Executive Officer, Huse
Food Group, Inc.
Mr. Huse has been President and Chief Executive Officer, Huse Food Group,
Inc., in Bloomington, Indiana, since 1986. Mr. Huse is also a director of
Marsh Supermarkets, Inc., and a member of the Advisory Board of Society
National Bank, Central Indiana District, Indianapolis, Indiana.
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None of executive officers or directors of the General Partner during the
last 5 years has been convicted in a criminal proceeding nor has any such
person during the last 5 years been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order
enjoining further violations of, or prohibiting activities subject to, federal
or state securities laws or finding any violation of such laws. All executive
officers and directors of the General Partner are citizens of the United
States.
Item 3. Past Contracts, Transactions or Negotiations.
There are no contracts, negotiations or transactions requiring disclosure
pursuant to this item.
Item 4. Terms of the Transaction.
(a) The information required to be disclosed under this item is hereby
incorporated by reference to Section IV, "The Proposed Sale/Purchase
Transaction Between the Partnership, as Seller, and Signature Inns, Inc., as
Buyer," pages 12-19, and Section V, "Required Amendments to the Partnership
Agreement," pages 19 and 20, of the Issuer's Solicitation and Information
Statement, which is attached hereto as Exhibit 1.
(b) Not applicable.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) The information required to be disclosed under this item is hereby
incorporated by reference to Section II, "Special Factors" pages 2-6 ;
Section IV, "The Proposed Sale/Purchase Transaction Between the Partnership,
as Seller, and Signature Inns, Inc., as Buyer," pages 12-19 ; Section V,
"Required Amendments to the Partnership Agreement," pages 19 and 20 ;
and Section VI, "Dissolution, Termination and Final Distributions,"
pages 20 and 21 , of the Issuer's Solicitation and Information Statement,
which is attached hereto as Exhibit 1.
(b) The information required to be disclosed under this item is hereby
incorporated by reference to Section II, "Special Factors, Summary of
Proposals," page 2 ; and Section IV, "The Proposed Sale/Purchase
Transaction Between the Partnership, as Seller, and Signature Inns, Inc., as
Buyer," pages 12-19 , of the Issuer's Solicitation and Information
Statement, which is attached hereto as Exhibit 1.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
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(f) The proposed Rule 13e-3 transaction will not cause the Units of Limited
Partnership to become eligible for termination of registration pursuant to
Section 12g-4 of the Securities Exchange Act of 1934. The Units were eligible
for such termination of registration upon the amendment of Rule 12g-4,
effective May 9, 1996. The Partnership filed Form 15 electing to terminate
the registration of the Units on July 17, 1996, and such termination shall
become effective 90 days after such filing.
(g) Not applicable.
Item 6. Source and Amounts of Funds or Other Consideration.
(a) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors; Source and Amount
of Funds and Other Consideration," page 5 , of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit 1.
(b) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors; Source and Amount
of Funds and Other Consideration," page 6 , of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit 1.
(c) Not applicable.
(d) Not applicable.
Item 7. Purposes, Alternatives, Reasons and Effects.
(a) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," pages 2-5 of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit 1.
(b) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," page 3, of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit 1.
(c) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," pages 2-4, of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit 1.
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(d) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," pages 4 and
5, and Section X, "Federal Income Tax Consequences," pages 26-29, of the
Issuer's Solicitation and Information Statement, which is attached hereto as
Exhibit 1.
Item 8. Fairness of the Transaction.
(a) The Issuer reasonably believes that the proposed Rule 13e-3 transaction
is fair to the Limited Partners of the Issuer.
(b) The information required to be disclosed in this paragraph (b) of Item 8
is hereby incorporated by reference from Section II, "Special Factors;
Fairness of the Transaction," pages 6-8 , of the Issuer's Solicitation and
Information Statement, which is attached hereto as Exhibit 1.
(c) Under Section 1.13 and 14.01 of the Partnership Agreement of the Issuer,
the affirmative vote or written consent of Limited Partners then holding of
record more than 50% of the outstanding Units of the Partnership is required
to approve the proposed transaction.
(d) Upon approval of the Rule 13e-3 transaction by the limited partners of
the Issuer, the General Partner shall select and engage on behalf of the
Issuer independent legal counsel to represent the Issuer with respect to the
terms (other than price) of the Purchase Agreement and related documents and
the consummation of the transaction.
(e) Not applicable.
(f) Not applicable.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
The information required to be disclosed by this item is hereby
incorporated by reference to Section XV, "Appraisal Reports," pages 32-36
, and Exhibits 2 and 3 attached hereto .
Item 10. Interest in Securities of Issuer.
(a) No Units of Limited Partnership Interests are currently owned by the
General Partner, any pension, profit sharing or similar plan of the issuer or
the General Partner, or any affiliate of either, or any executive officer or
director of the General Partner.
(b) Not applicable.
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Item 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
Not applicable.
Item 12. Present Intention and Recommendation of Certain Persons with Regard
to the Transaction.
(a) No executive officer, director or affiliate of the Issuer nor any
executive officer, director or affiliate of the General Partner is a holder of
any Unit of Limited Partnership Interest. Accordingly, there are no
statements of present intention with respect to the voting intentions of such
persons.
(b) To the knowledge of the Issuer each director of the General Partner has
voted in support of the proposed Rule 13e-3 transaction.
Item 13. Other Provisions of the Transaction.
(a) Under the Indiana Revised Uniform Limited Partnership Act no appraisal or
dissenters' rights are provided to Limited Partners. No such appraisal or
dissenters' rights are provided by the Amended Certificate and Agreement of
Limited Partnership of the Issuer and none are being accorded voluntarily by
the Issuer in connection with the Rule 13e-3 transaction.
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information.
(a) (1) The information required to be disclosed in this item is hereby
incorporated by reference to the Issuer's Form 10-KSB/A (Exhibit A thereto)
attached hereto as Exhibit 4.
(a) (2) The information required to be disclosed in this item is hereby
incorporated by reference to the Issuer's Financial Statements for the six
months ended June 30, 1996, attached hereto as Exhibit 5.
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(a) (3) The Issuer's ratio of earnings to fixed charges for the two most
recent fiscal years and the six months ended June 30, 1996 are as follows:
Six Months Ended June 30, 1996: 2.2X
Fiscal Year Ended December 31, 1995: 1.9X
Fiscal Year Ended December 31, 1994: 1.5X
(a) (4) The information required to be disclosed in this item is hereby
incorporated by reference to the Issuer's Form 10-KSB/A (page 4 of Exhibit A
thereto) attached hereto as Exhibit 4, and page 2 of the Issuer's Financial
Statements for the six months ended June 30, 1996, attached hereto as Exhibit
5.
(b) Certain pro forma financial information is set forth and described in
Section VII, "Summary of Estimated Benefits from Sale of Properties and
Liquidation of Partnerships," page 22, and Section XII, "Pro Forma Financial
Information," page 31 of the Issuer's Solicitation and Information Statement,
which is attached hereto as Exhibit 1, and such information is hereby
incorporated herein by this reference thereto.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) No officer or employee of Issuer has been or is proposed to be employed,
availed of or utilized by the Issuer or an affiliate in connection with this
Rule 13e-3 transaction.
(b) Consents may be solicited by directors, officers or employees of the
General Partner without additional compensation in connection with the Rule
13e-3 transaction.
Item 16. Additional Information.
Not applicable.
Item 17. Index to Exhibits
Exhibit 1: Issuer's Solicitation and Information Statement
dated ___, 1996
Exhibit 2: Appraisal Report for Columbus, Ohio
Exhibit 3: Appraisal Report for Kokomo, Indiana
Exhibit 4: Signature VII Ltd. Limited Partnership, Form 10-KSB/A for
the fiscal year ended December 31, 1995
Exhibit 5: Signature VII Ltd. Limited Partnership, Financial
Statements for the six months
ended June 30, 1996
Exhibit 6: Cross-Reference Sheet
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
__________________________________________
(Date)
s/:
------------------------------------------
(Signature)
Mark D. Carney, Vice President Finance and
------------------------------------------
Chief Financial Officer (Name and Title)
------------------------------------------
(Name and Title)
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 14A
Information Required in Proxy Statement
Reg. Section 240.13a-101
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14A of the
Securities and Exchange Act of 1934
(Amendment No.1)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[] Definitive Proxy Statement
[] Definitive Additional Materials
[] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
SIGNATURE VII LTD. LIMITED PARTNERSHIP
(Name of Registrant as Specified In Its Charter)
______________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_______________________________________________________________
2) Aggregate number of securities to which transaction applies:
_______________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the previous filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
________________________________________________________________
2) Form, Schedule or Registration statement No.:
________________________________________________________________
3) Filing Party:
________________________________________________________________
4) Date Filed:
________________________________________________________________
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TABLE OF CONTENTS
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I. Introduction ...............................................1
II. Special Factors ...............................2
III. Description of Partnership Business........................10
IV. The Proposed Sale/Purchase Transaction Between
the Partnership, as Seller, and Signature Inns, Inc. as
Buyer......................................................13
V. Required Amendments to the Partnership Agreement...........19
VI. Dissolution, Termination and Final Distributions...........21
VII. Summary of Estimated Benefits from Sale of
Properties and Liquidation of Partnership..................23
VIII. Purpose and Procedures for Majority Vote by
Limited Partners...........................................24
IX. General Partner's Duties, Conflicts of Interest and Risk
Factors....................................................24
X. Federal Income Tax Consequences............................27
XI. Selected Financial Data....................................31
XII. Book Value, Distributions and Income.......................32
XIII. Pro Forma Financial Information............................32
XIV. Regulatory Requirements....................................33
XV. Appraisal Reports..........................................33
XVI. Material Contracts.........................................37
XVII. Marketability of Units of Limited Partnership Interests....39
XVIII. Amended Form 10-KSB Report; Form 10-QSB Report
and Juen 30, 1996 Unaudited Financial Statements...........39
XIX. Amended Rule 13e-3 Transaction Statement...................40
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EXHIBITS
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A Amended Form 10-KSB Report for 1995
B Form 10-QSB Quarterly Report for Quarter Ended March 31, 19996
C Summary Report of Complete Appraisal of Signature Inn - Kokomo,
Indiana
D Summary Report of Complete Appraisal of Signature Inn - Columbus,
Ohio
E Text of Consent Resolutions of Limited Partners
F Text of Amendments to Partnership Agreement
G Rule 13e-3 Transaction Statement (without exhibits)
H Financial Statements of June 30, 1996 (unaudited)
I Irrevocable Consent of Limited Partner
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SIGNATURE VII LTD. LIMITED PARTNERSHIP
Signature Inn Kokomo, Indiana
Signature Inn Columbus, Ohio
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SOLICITATION
AND
INFORMATION STATEMENT
REGARDING
PROPOSED SALE OF PARTNERSHIP ASSETS
AND OTHER MATTERS
-----------------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR
UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
August ________, 1996
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SIGNATURE VII LTD. LIMITED PARTNERSHIP
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
Telephone (317) 581-1111
SOLICITATION AND INFORMATION STATEMENT
August ___, 1996
I. Introduction
This Solicitation and Information Statement (the "Statement") and the
enclosed form of Irrevocable Consent (the "Consent") are being mailed to
limited partners (the "Limited Partners") of Signature VII Ltd. Limited
Partnership (the "Partnership") on or about August ___, 1996, which date is
more than 20 days before the "Deadline" for the return of the Consents, as
established below. This Statement is being furnished in connection with the
General Partner's solicitation of Consents in connection with the General
Partner's proposals described below. A Limited Partner who executes and
returns a Consent may not revoke, modify or renounce the consent at any time
before February 28, 1997, which is the expiration date of the Consents.
The entire cost of soliciting Consents will be borne by the Partnership.
In addition to the use of the mails, Consents may be solicited by personal
interview, telephone and facsimile transmission by directors, officers and
employees of Signature Inns, Inc., the General Partner of the Partnership,
without extra compensation. The Partnership also will furnish, upon request,
a sufficient number of copies of this Statement to brokers, dealers, banks,
voting trustees, custodians and nominees, if any, for delivery to the
beneficiaries of units of limited partnership interest (the "Units"), and the
Partnership will undertake to reimburse such persons for their actual and
reasonable expenses incurred by such persons in forwarding consent material to
beneficial owners of the Units.
The General Partner has fixed the close of business on ____________,
August ___, 1996, as the record date for the determination of Unit Holders
entitled to receive this Statement and to give or withhold the Consent which
accompanies this Statement. Only Unit Holders of record at the close of
business on that date will be entitled to give or withhold a Consent. As of
the record date, there were 451 Units of Limited Partnership Interest which
were held by the Limited Partners of the Partnership. The Holders of a
"majority" (i.e., 226 Units) must provide their written Consents to the
proposed transactions in order for them to be approved and effectuated. The
General Partner of the Partnership does not own any Units of Limited
Partnership Interest.
You are urged to read all sections of this Statement carefully. You are
also urged to discuss the General Partner's proposals, as well as the
information set forth in this Statement, with your tax consultant and with
your other professional advisors. Following your review of this Statement and
your discussions with your professional advisors, you are urged to sign the
enclosed Irrevocable Consent of Limited Partner (yellow consent form) and
return it to the General Partner in the enclosed, self-addressed, stamped
yellow envelope so that it is received no later than
September ______, 1996
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(the "Deadline"). In its discretion, the General Partner may extend the
Deadline.
The General Partner believes that the proposed transactions are fair to
the Limited Partners, and that they represent an excellent opportunity for the
Limited Partners of the Partnership to liquidate their investments in the
Partnership at an appropriate time and at an acceptable price, for the reasons
stated herein (particularly Section II hereof) and in the cover letter which
accompanies this Statement.
II. Special Factors
Summary of the Proposals. In accordance with Sections 14.04 and 20.01 of
the Signature VII Ltd. Limited Partnership Second Amended Certificate and
Agreement of Limited Partnership, as amended, (the "Partnership Agreement"),
the General Partner of the Partnership is soliciting from the Limited Partners
their written Consents to certain proposals of the General Partner.
Specifically, the General Partner is proposing: (a) the sale by the
Partnership to the General Partner of an undivided 75% interest (equal to the
75% interest of the Limited Partners in the Partnership ) in the real
estate, improvements, furnishings, furniture, fixtures and other tangible and
intangible personal property which comprise the Partnership's two Hotel
Properties, as described in Section IV of this Statement (the "Sale"), and the
distribution of 100% of the net proceeds of the Sale to the Limited Partners;
(b) the adoption of certain Amendments to Articles VII and VIII of the
Partnership Agreement, as described in Section V of this Statement, which
amendments are necessary to accomplish the proposed transactions; and, (c) the
dissolution, termination, liquidation and winding-up of the Partnership, as
described in Section VI of this Statement and, in connection therewith, the
distribution in kind of the remaining 25% interest (equal to the 25% interest
of the General Partner in the Partnership
) in the Hotel Properties to the
General Partner (the "Proposals").
Currently, the Limited Partners own a 75%
interest and the General Partner owns a 25% interest in the Partnership.
These transactions will result in a per Unit distribution to the Limited
Partners of approximately $7,033, which includes the (a) 100% of net proceeds
from the Sale of the undivided 75% interest in the Partnership's real estate
to the General Partner and (b) 75% of the net operating assets which will be
realized upon the winding-up of the Partnership. However, this number is an
estimate, and the per Unit amount which ultimately will be distributed to the
Limited Partners may be reduced or increased as a result of changes in closing
adjustments, prorations and credits and increases/decreases in cash balances,
pre-paid items, accounts receivable, trade accounts payable, mortgage balances
and other cash and expense items over which neither the General Partner nor
the Partnership will have any control. See Sections IV and VI of this
Statement.
Purposes, Alternatives, Reasons and Effects of the Proposed Transactions.
The investment by the Limited Partners in the Partnership always has been and
will continue to be illiquid. Currently, there is no ready market for the
resale of Units of limited partnership interest, and it is not likely that a
market for the Units ever will develop. Further, there are a number of
restrictions on transferability of Units contained in the Partnership
Agreement. Absent a liquidation of the Partnership through a sale of all
or substantially all of the Partnership's properties, Limited Partners'
investment in the Partnership will remain illiquid. Accordingly, one of the
primary purposes of the proposed transaction is to afford the Limited Partners
the opportunity to "cash out" their investments in the Partnership through the
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<PAGE>
Sale by the Partnership of its assets to the General Partner and the
liquidation and winding-up of the Partnership.
The General Partner has not considered any other alternative means to
accomplish the "cash out" of the Limited Partners' investments in the
Partnership other than the proposed Sale by the Partnership of its Hotel
Properties to the General Partner, as described herein. Another possible
alternative would be for the Partnership to sell its assets to an independent,
third-party for cash or securities . The General Partner has not actively
solicited the sale of the Partnership's assets to any other party because the
General Partner believes that a sale to a third-party would not likely obtain
any greater purchase price or other benefit for the Partnership and would be
potentially disruptive to the Partnership's business, since a sale to a
third-party would necessarily entail: (a) the complication and costs of
"re-flagging" (i.e. operating under a different name) the Hotel Properties;
(b) the uncertainty and expense of a lengthy due diligence period during which
the third-party buyer would satisfy itself as to such matters as title,
survey, environmental and labor; and (c) the possible involvement of a realtor
with the consequence that a real estate commission may be paid, thereby
reducing net cash proceeds to the Partnership.
The General Partner believes that occupancy trends in the hotel
industry and overall values of hotel properties have
increased steadily over the past few years . Accordingly, it is the
General Partner's belief that this may be an opportune time for the Limited
Partners to liquidate their investments in the Partnership at an optimum
price. With hotel prices generally increasing, and with supply of
hotel rooms more closely in balance with demand for those rooms, performances
of many individual properties have improved, making them more
appealing to prospective purchasers, including the General Partner.
Because of the General Partner's dual role in the
transaction , the proposed purchase of the Hotel Properties by
the General Partner cannot be considered arms-length . Also, the
General Partner is subject to a number of conflicts of interest in
connection with the proposed transactions as described in Section IX of this
Statement. The purchase prices to be paid by the General Partner for
those properties are, however, supported by written
appraisals by a nationally recognized, qualified and independent appraisal
firm. Further, the engagement by the General Partner on behalf of the
Partnership of an independent, qualified legal counsel to represent the
Partnership in reviewing the Asset Purchase Agreements also is designed to
provide added assurance of the commercial reasonableness of
the proposed transactions to the Partnership and its Limited Partners.
Finally, the fiduciary duty of the General Partner, as described in Section IX
of this Statement, requires the General Partner to exercise the utmost
good faith and fairness in its dealings with the Partnership.
The General Partner believes that the proposed transactions serve its own
best interests, as well as the best interest of the Limited Partners .
Currently, the hotels which comprise the Signature Inn System are owned by a
total of 21 legally distinct and separate entities, each of which is bound to
the General Partner through an elaborate plan of partnership, management and
franchise contracts and relationships. By eliminating this complicated and
cumbersome system , and by replacing it with a simplified, unified
company-owned hotel structure, the General Partner expects to:
(1) Combine all 23 existing Signature Inn hotels
into a single portfolio of hotels, the combined revenues of which will
afford much greater income stability and income predictability
than the current system of essentially "one-op" (i.e.,
single hotel) operating entities;
-3-
<PAGE>
(2) Achieve through this combination a greatly enhanced
ability to obtain pools of financing from hotel lenders for new
hotels and for refinancings of existing hotels , rather than
single hotel loans on individual properties, as currently is the case;
(3) Be able to retain earnings from hotel operations to
fund future growth, rather than being required to pay all cash
available for distribution to Partners under the current Partnership
Agreements; and,
(4) Increase value for its shareholders by reducing
substantially the legal risks, liabilities and obligations which
attend the General Partner's exercise of its fiduciary and other
duties under the existing partnership, management and franchise
system, which include, among others, the duties to operate all
aspects of the Partnerships' businesses, periodically provide
reports to a total of approximately 1857 limited partners, file
tax returns and statements on behalf of the partnerships, obtain
insurance coverages on the partnerships' properties, account for
and distribute cash to the limited partners, and hire, train and
supervise the Partnerships' appropriate 700 employees .
Accordingly, the General Partner believes that the proposed transactions
will provide substantial benefits to each of its
affiliated limited partnerships and their limited partners and to the
General Partner and its shareholders , as well .
Thus, the ultimate goal and effect of the proposed transactions between
the General Partner and its affiliated limited partnerships, including the
Partnership, is to: (a) allow all limited partners to liquidate their
investments in the affiliated partnerships at values of the
various hotel properties which equal or, in some cases, exceed, the fair market
value of those properties as established by an independent, qualified appraiser;
(b) place the fee simple ownership and complete operations of all of the
existing Signature Inn hotels within the General Partner, thereby eliminating,
entirely, the current system of affiliated partnerships, management contracts
and franchise relationships, with a view to enhancing the value and prospects
of the General Partner; and, (c) accomplishing the goals of (a) and (b) in a
manner which is least disruptive to the current business, operations, value
and prospects of the affiliated partnerships and the General Partner. The
specific federal tax consequences to the Partnership and its partners
resulting from the proposed transactions are described
under Section X of this Statement.
The primary detriment to the Limited Partners which will result from the
consummation of the proposed transactions, as pointed out in Section IX of
this Statement, is that the Limited Partners will no longer share in any
future income, distributions and credits or any other benefits to be generated
by the future operations of the Partnership's Hotel Properties. Also, the
Limited Partners will not share in any future increases, if any, in the values
of the Hotel Properties. However, the Partnership's ability to produce future
income, distributions and credits and other benefits to the Limited Partners
is subject to the same competitive and other factors
affecting the market place as were described in the prospectus pursuant to
which the Units were sold to the Limited Partners. Those factors
include, among other things, cyclical-overbuilding in the lodging
industry, varying levels of demand for rooms and related services, adverse
affects of general and local economic conditions, changes in local market
conditions, over-supply or a reduction in demand for hotel rooms, changes in
travel patterns, changes in governmental
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<PAGE>
regulations that influence or determine wages, prices or construction costs,
changes in interest rates and the availability of credit and changes in real
estate taxes and other operating expenses. In addition, hotels are capital
intensive and, in order to remain competitive, facilities must be constantly
maintained, modernized and refurbished on an ongoing basis at substantial
costs. Hotel businesses are also subject to inflationary pressures,
seasonality of demand and energy and environmental factors relating to real
estate ownership generally. The operation of hotels is highly competitive,
and Signature Inn hotels compete with other hotels of varying quality and
size, including hotels which are a part of a national or regional chain and
which may have available to them greater financial resources than the General
Partners. Moreover, there can no assurance that the values of hotel
properties (including the Partnership's Hotel Properties) will not decrease
.
Source and Amounts of Funds or Other Consideration. The General Partner
intends to fund its proposed acquisition of the Partnership's Hotel
Properties and the hotel properties of its other affiliated
limited partnership entities through an equity offering/placement and
through the assumption by the General Partner of the current first mortgage
indebtedness on those properties. The total equity funds which will be
required to acquire the Hotel Properties owned by the Partnership will be
approximately $ 2,951,000 , and approximately $
3,763,000 of mortgage indebtedness will be assumed by the General Partner.
The balance of the purchase price represents the amount of the value of the
General Partner's interest in the Partnership. The General Partner's ability
to obtain both equity and debt financing of the acquisitions are conditions
precedent to the General Partner's obligation to acquire the properties. As a
result, if the General Partner is unable to obtain equity financing and debt
assumptions sufficient to allow it to acquire the hotel properties, the
proposals will be withdrawn and the proposed acquisitions terminated.
The Partnership will incur certain expenses in connection with the
proposed transactions. An itemized list of those expenses is as follows:
<TABLE>
<S> <C>
(a) Appraisal Fees $10,000
(b) Legal Fees 1,000
(c) Proxy Statement and
Schedule 13E-3 Filing Fees 1,490
(d) Printing, Mailing and
Other Solicitation Expenses 3,000
-------
Total: $15,490
-------
-------
</TABLE>
In addition to the foregoing direct costs and expenses to the Partnership
resulting from the proposed transactions, the Partnership will incur the
adjustments, prorations and charges described under Sections V I and
VII of this Statement in connection with the closing of the Sale and the
winding-up and liquidation of the Partnership.
Fairness of the Transaction. The General Partner reasonably believes
that the proposed transactions are fair to the Limited Partners of the
Partnership. The entire nine-member Board of Directors of the
General Partner (five of whom are outside, non-employee directors)
voted unanimously in favor of approving the proposed transactions from the
standpoint both of the General Partner and the Partnership.
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<PAGE>
The material factors upon which the General Partner's belief is based ,
the weight, if any, assigned to each factor by the General
Partner and whether the factor supports the General Partner's belief
as to fairness are as follows:
(1) Net Book Value of Hotel Properties. The Partnership's
cost basis for the property and equipment which comprise its
two Hotel Properties totaled $8,709,476, as of June 30, 1996.
After deducting accumulated depreciation through that date, the
depreciated, net book value of the Partnership's two Hotel
Properties totaled $5,628,474. All items of property and
equipment are recorded on the Partnership's balance sheets at
cost and include assets leased under non-cancelable agreements
and construction loan interest and fees. Depreciation is
determined on the straight-line basis over the estimated useful
lives of the related assets. Because net book value of the
Partnership's Hotel Properties has little relationship to the
current fair market values of those properties, the net book
value of the Hotel Properties neither supports nor fails to
support the General Partner's belief as to fairness, and the
General Partner attaches no weight to that factor.
(2) Appraised Values of Hotel Properties. On March 11,
1996, USRC Realty Consultants, Inc., a nationally recognized,
qualified and independent appraisal firm, issued two separate
reports which estimated the fair market values on a going concern
basis of the Partnership's Kokomo, Indiana Hotel Property at
$4,800,000 and the fair market value on a going concern basis of
the Partnership's Columbus, Ohio Hotel Property at $4,300,000, for
an aggregate appraised value of $9,100,000. The se
appraisals of the Partnership's Hotel Properties by an independent,
qualified appraiser, which analyzed all appropriate data and which
estimated the fair market value of the Hotel Properties based upon the
Income Capitalization Approach and the Sales Comparison Approach (which
approaches are described in Section XV), completely support the
General Partner's belief as to fairness, and they provide the most
substantial weight and basis upon which the General Partner is
relying to ensure that fairness. They are intended by the General
Partner to constitute the primary assurance to the Limited Partners
that the prices proposed by the General Partner to be paid for the
Partnership's Hotel Properties represent the true, fair market
values of those properties. See Section XV for a complete discussion
of the USRC appraisal reports, summaries of which are also attached
to this Statement as Exhibits C and D.
(3) Going Concern or Liquidation Values. The USRC appraisal
reports described under subparagraph ( 2)
above are based upon going concern, rather than liquidation, values of
the assets. As stated in the appraisal reports, the appraiser's opinion
is based upon "the market value of the fee simple interest of the going
concern" in the Hotel Properties, as of February 28, 1996. Basing the
value of the Hotel Properties on a going concern basis, rather than the
liquidation basis, supports the General Partner's belief as to fairness,
although the weight assigned to this factor is subsumed within the weight
assigned to the appraisal reports, themselves.
(4) Current and Historical Market Prices. As a part of
its appraisal process, USRC reviewed the comparable selling
prices of a total of 63 sales of limited service hotels in the
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<PAGE>
Mid-Western, Middle-Atlantic, Southern and New England regions
of the United States. The data was verified by USRC through
sources deemed to be reliable, and using commonly accepted
appraisal methodology. USRC incorporated in its written appraisals
tables entitled "Summary of Improved Sale Comparables - Select
Nationwide Limited - Service Hotels," which listed the names,
locations, dates of sale, ages, sales prices, number of rooms,
sales price per room and occupancy, ADR and REVPAR information for
each of those 63 hotels. All of this information was utilized by
USRC in making its determination of value. Nonetheless, as pointed
out in the appraisal reports, USRC's analysis made comparisons of the
transactions primarily upon economic lines, rather than on the lines
of comparable sale prices. In the opinion of the appraiser, a
buyer's criteria for the purchase of a hotel property is predicated
primarily on the property's income characteristics. The comparable
sales indicated a range of price per room which provided an
indication of value for the Partnership's Hotel Properties. This
information, together with other analyses, were used as a part of
the appraiser's Sales Comparison Approach. The appraiser placed less
weight on this approach due to the lack of recent truly comparable
sales in the market. However, the conclusions reached by the
appraiser via this approach supported the appraiser's conclusions
as to value based upon the Income Capitalization Approach.
(5) Independent Counsel. The planned engagement by
the General Partner on behalf of the Limited Partners of the
Partnership of an independent, qualified attorney to represent the
Limited Partners of the Partnership in connection with the
execution of the Asset Purchase Agreements by reviewing the commercial
reasonableness of the terms (other than assets purchased and
price) of that agreement is also intended by the General Partner to
provide additional assurance of the commercial
reasonableness of the transactions to the Partnership and its
Limited Partners. Although a draft of an Asset Purchase Agreement
has been prepared by counsel to the General Partner (the general terms
of which are described below), the independent counsel to the Limited
Partners will review that draft of Asset Purchase Agreement in its
entirety, prior to its execution by the Partnership, and such independent
counsel will have the opportunity to negotiate on behalf of the
Limited Partners all terms of the purchase, except for the
description of the assets to be purchased and the purchase prices
established therefore, both of which terms are a function of the
appraisal reports. It is not currently contemplated that the independent
counsel will prepare and issue a report to the Limited Partners in
relation to the commercial reasonableness of the terms (other than
assets purchased and price) of the Asset Purchase Agreements.
(6) Industry Data. According to Smith
Travel Research, industry-wide hotel occupancy rates, average
daily room rates, revenue per available room, gross operating profit
and net income levels, as well as the market value of hotel properties,
have been increasing during the past several years. As a
result, the General Partner believes that the economic and market
conditions in the hotel industry favor the sale of the Partnership's
properties to the General Partner at this time , and that
these conditions provide additional assurance of fairness.
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<PAGE>
(7) Competitive Bids. The General Partner has not received
any offer by any unaffiliated person during the precedings 18
months for (a) the merger or consolidation of the Partnership into
or with any such person, (b) the sale or transfer of all or any
substantial part of the Partnership's Hotel Properties to such
other person, or (c) the sale or other transfer of all or any part
of the Limited Partnership interests of the Partnership to such
other person.
The foregoing material factors supporting the General Partner's belief as
to fairness should not be considered separately, but rather as an overall
program. Current and historical sales prices of comparable properties were
considered by USRC in arriving at the appraised values. Net book value of the
Partnership's Hotel Properties had little significance to the determination of
those values. The appraiser determined that the Income Capitalization
Approach was the best indicator of value on a going concern basis, although
the other approaches described under Section XV of this Statement were
utilized by the appraiser to provide additional support for its conclusions as
to value.
The Purchase Price and Appraisal. The purchase price to be paid by the
General Partner for the 75% undivided fractional interest in the Hotel
Properties will be $6,825,000, which equals 75% of the $9,100,000, appraised
fair market value of the Hotel Properties, as supported by appraisals as of
February 28, 1996. The appraisal was performed by USRC Realty Consultants,
Inc. of Columbus, Ohio, an independent, experienced and qualified real estate
and hotel appraiser. A description of the experience, qualifications and
independence of the appraiser and a Summary of the Complete Appraisal Reports,
as well as other information, is set forth in Section XV and in Exhibits C and
D of this Statement. All appraisal reports shall be made available
for inspection and copying at the principal executive offices of the General
Partner at 250 E. 96th Street, Suite 450 Indianapolis, Indiana 46240 during
its regular business hours by any interested Limited Partner or his
representative who has been so designated in writing. A copy of any such
appraisal reports will be transmitted by the General Partner to any interested
Limited Partner or his representative who has been so designated in writing
upon written request and at the expense of the requesting Limited Partner.
Limited Partner Consents. Under Article XIV of the Partnership
Agreement, the Limited Partners are granted the exclusive right by "Majority
Vote" and without concurrence of the General Partner to, among other things,
approve or disapprove the Sale of the Partnership's Hotel Properties. Under
Section 1.13 of the Partnership Agreement, the term "Majority Vote" is defined
as the "affirmative vote or written consent of Limited Partners then owning of
record more than 50% of the outstanding Units of the Partnership."
Accordingly, whether or not the General Partner favors or opposes a proposed
sale of the Partnership's Hotel Properties is not determinative, since the
General Partner's concurrence is not required. For the purposes of this
transaction, the General Partner has agreed not to vote the Units of
limited partnership interest which it holds, if any .
The Partnership currently has 451 Units of limited partnership interest,
which are held by its Limited Partners. This means that the holders of 226
Units must provide their written consent to the proposed transactions in order
for those transactions to be approved. No Units of limited partnership
interest are held by the General Partner.
-8-
<PAGE>
Amendments to Partnership Agreement. In connection with the approval of
the Sale of the Partnership's Hotel Properties to the General Partner, it will
be necessary to amend certain subparagraphs of Articles VII and VIII of the
Partnership Agreement in order to allow the allocation of 100% of the income
and the distribution of 100% of the cash proceeds of the Sale to the Limited
Partners, as a group, and the distribution in kind of the remaining 25%
undivided interest in the Hotel Properties to the General Partner.
Accordingly, at the conclusion of the transactions, the Limited Partners will
receive 100% of the cash proceeds of the Sale, and the General Partner will
receive 100% of the Hotel Properties. The Sale is being structured in this
two-step manner in order to provide certain tax advantages to the General
Partner, but without prejudice to the tax considerations of the Limited
Partners. As with the Sale transaction, the written consent of the holders of
a majority of Units is necessary to approve the amendments to the Partnership
Agreement. Copies of the proposed amendments to the Partnership Agreement
and copies of the consent resolutions adopting those amendments are attached
as Exhibits E and F to this Statement.
Dissolution of Partnership. Assuming that the conditions to closing set
forth in the Asset Purchase Agreement are satisfied and that the Sale
transaction is completed, the Partnership will be dissolved in accordance with
Section 18.01(e) of the Partnership Agreement and liquidated in accordance
with Article XIX of the Partnership Agreement. However, the General Partner,
in its discretion, may elect not to close the Sale transaction in the event
that: (a) the General Partner is unable to obtain required financing with
which to complete the Sale; (b) the General Partner is unable to obtain the
consents of the mortgage lenders to the assumption by the General Partner of
the mortgage indebtedness on the Partnership's Hotel Properties; (c) the
holders of a majority of the Units of limited partnership interest in the
Partnership fail to approve the transactions by timely supplying their written
Consents; or, (d) the General Partner is unable to complete its proposed
transactions with any of the other affiliated partnerships. In
any such event, the Asset Purchase Agreements will be canceled, and the
Partnership will continue to own and operate the Hotel Properties as it has
done in the past.
General Partner Duties and Conflicts. The duties of the General Partner,
as well as certain conflicts of interest between the General Partner and the
Partnership, in connection with the Proposals as well as certain risk factors,
are described in Section IX of this Statement.
Cash Payments and Tax Consequences. You, as a Limited Partner of the
Partnership, already have received your usual check for your share of the Cash
Available for Distribution generated from the Partnership's operations for the
year ending December 31, 1995. In addition, if the Proposals are approved and
the transactions closed and consummated, you will receive your allocable share
of the Cash Available for Distribution from January 1, 1996, through the date
of closing, as well as your share of various cash reserves and escrow accounts
which will be liquidated in connection with the dissolution of the
Partnership. The overall economic benefits of the proposed transactions to
the General and Limited Partners are described later in Section VII under the
heading "Summary of Estimated Benefits from Sale of Property and Liquidation
of Partnership". Also, the federal tax consequences of the proposed
transactions are generally described later in Section X. Finally, certain
historical financial information is set forth in the Amended Form 10-KSB
Report ; and 10-QSB Report and June 30, 1996 Financial Statements
which are attached to this Statement as Exhibits A, B and H .
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<PAGE>
III. Description of Partnership Business
The Partnership was originally organized pursuant to a Certificate and
Agreement of Limited Partnership dated April 22, 1985, which was filed for
record with the Recorder's Office of Marion County, Indiana, (the "Recorder")
on April 24, 1985, in accordance with the Indiana Uniform Limited Partnership
Act ("ULPA") (I.C. Section 23-4-2-1 et seq.). On September 19, 1985, an Amended
Certificate and Agreement of Limited Partnership was executed by and between
the General Partner and the Limited Partners, which was filed for record with
the Recorder on September 28, 1985. On August 13, 1986 a Second Amended
Certificate and Agreement of Limited Partnership was executed by and between
the General Partner and the Limited Partners, which was filed for record with
the Recorder on August 13, 1986. A third amendment was executed between the
parties on April 15, 1988 and filed for record with the Recorder on April 15,
1988. On July 1, 1988, the Partnership filed a Certificate of Limited
Partnership under the Revised Uniform Limited Partnership Act ("INRULPA"),
thereby electing to be governed under the provisions of INRULPA. As a result,
effective on July 1, 1988, the Partnership became a partnership governed by
INRULPA rather than by the ULPA.
Subsequent to its organization, the Partnership commenced a Securities
and Exchange Commission ("SEC") registered, public offering of Units of
limited partnership interest (the "Units") at $10,000 per Unit, with a minimum
subscription of one Unit pursuant to a Registration Statement which originally
became effective on July 11, 1985. The Rule 415, "shelf-registered" offering
was concluded on June 30, 1986, and a total of 451 Units, aggregating
$4,510,000, was sold in the offering to 396 purchasers who became the limited
partners of the Partnership. In addition to the capital contributions of the
Limited Partners, Signature Inns, Inc., the General Partner of the
Partnership, contributed $1,503,333 (i.e. 25% of total capital contributions)
to the Partnership.
The business of the Partnership currently consists exclusively of the
ownership and operation of two Signature Inn hotels located in Columbus, Ohio,
and Kokomo, Indiana (the "Hotel Properties"). A listing of these hotels, the
number of rooms, location and opening dates is as follows:
<TABLE>
<CAPTION>
Location of Hotel Number of Rooms Opening Date
----------------- --------------- ------------
<S> <C> <C>
I-270 & Cleveland Rd. 125 02/27/86
Columbus, Ohio
U.S. Hwy. 31 & Alto Rd. 102 04/04/86
Kokomo, Indiana
</TABLE>
Each of the foregoing properties is operated as a franchisee of the
General Partner. The Partnership has entered into a standard Signature Inn
Individual Hotel License Agreement (the "Franchise Agreement") with the
General Partner with respect to each of the Hotel Properties. By the terms of
those Franchise Agreements, the Partnership pays to the General Partner
monthly franchise fees (i.e., royalties) equal to 4% of the gross receipts of
each of the Partnership's two hotels, and, in addition, contributes an
additional 3.5% of gross receipts to advertising and reservation funds
administered by the General Partner to fund cooperative advertising programs
and a reservation system. The terms of each of the Franchise Agreements is 10
years, with each expiring in February, 2003. The Partnership has an option to
renew each of those agreements for an additional term of 5 years. Under the
franchise agreements, the Partnership is authorized to use the name "Signature
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<PAGE>
Inn," as well as other trademarks and logos associated with the Signature
system, and the General Partner provides a multitude of services in relation
to that system.
Each of the Partnership's hotels is managed by the General Partner
pursuant to a Management Agreement entered into between the Partnership and
the General Partner. Under the Management Agreements, the General Partner
establishes policies for the Partnership's employees having direct
responsibility for the hotel's operation. In addition, the General Partner
establishes room rates, directs the promotional activity of the Partnership's
employees, supervises the purchase and replacement of equipment and supplies,
supervises maintenance activities and selects vendors, suppliers and
independent contractors. In addition, the General Partner performs all
bookkeeping and administrative duties in connection with each of the Hotel
Properties and administers payments and reports to the Limited Partners. The
Partnership is required to pay to the General Partner, as compensation for its
management services, an amount equal to 5% of the gross receipts per month for
each of the Hotel Properties. This compensation is in addition to the cost of
compensating the Partnership's own employees and the costs of goods and
services acquired by the Partnership from independent contractors. However,
the management fee covers all of the General Partner's overhead for which
there is no separate charge. The terms of the management agreements both
expire on February, 1998.
The Partnership's Columbus, Ohio Signature Inn Hotel is subject to a
first mortgage, non-recourse lien in the principal amount of $2,767,426 (at
December 31, 1995), which is payable in monthly installments of $26,438, based
upon a 30 year amortization and with a substantial balloon payment due at
maturity. The Partnership's Kokomo, Indiana Signature Inn Hotel is subject to
a first mortgage, non-recourse lien in the principal amount of
$2, 2 50,000 (at December 31, 1995), which is payable in monthly
installments of $23,431, based upon a 20 year amortization and with a
substantial balloon payment due at maturity. The Columbus Ohio mortgage loan
matures on August 20, 2001, and the Kokomo mortgage loan matures on
February 1, 2005.
The Partnership previously owned and operated a 125-room Signature Inn
Hotel in Warren, Michigan, which had been financed by a non-recourse mortgage
loan. The Warren Signature Inn Hotel was sold under Michigan foreclosure
procedures in January, 1992. Because the Warren Signature Inn Hotel loan was
"non-recourse," the foreclosure did not affect any of the Partnership's
operations of its other two Hotel Properties.
Additional information concerning the Partnership's business is set forth
under Part I, Item 1, entitled "Business of Signature VII Ltd. Limited
Partnership," of the Amended Form 10-KSB Report, which is
attached to this statement as Exhibit A.
IV. The Proposed Sale/Purchase Transaction Between
the Partnership, as Seller, and Signature Inns, Inc., as Buyer
Introduction. The General Partner intends to acquire 100% of the
Partnership's Hotel Properties, which, as of February 28, 1996, had a combined
appraised value of $9,100,000. However, the acquisition will be accomplished
in two parts. Part one will involve a sale of a portion of the Hotel
Properties to the General Partner, and the second part will involve a
liquidating distribution of the remaining portion of the Hotel Properties to
the General Partner.
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First, the Partnership will sell and the General Partner will purchase an
undivided 75% interest (the "Initial Interest") in all of the real estate,
improvements, fixtures, furnishings, furniture, equipment and all other
tangible and intangible personal property which comprise the Partnership's
Hotel Properties (the "Sale"). For the Initial Interest, the General Partner
will pay to the Partnership a purchase price of $6,825,000 (i.e. 75% of the
$9,100,000 appraised value), of which: (1) approximately $110,600 will be
deducted to defray 75% of the anticipated property tax prorations and closing
costs; (2) approximately $2,951,000 will be paid in cash at the time of
closing; and, (3) approximately $3,763,400 will be paid through the assumption
by the General Partner of a portion of the mortgage indebtedness owed by the
Partnership as of the date of closing.
The entire net cash proceeds of the Sale will be distributed to the
Limited Partners, as a group, and the General Partner will not share in any of
those proceeds. Instead, and as the second part of the transaction, the
General Partner will receive a liquidating distribution of the remaining
undivided 25% interest (the "Remaining Interest") in the Hotel Properties at
the time of the dissolution of the Partnership (the "Distribution In-kind").
The net result of the Sale and the Distribution In-kind will be to
allocate to the Limited Partners, as a group, 100% of the net cash proceeds of
the Sale (i.e. 75% of the value of the Hotel Properties) for their 75%
partnership interest in the Partnership and to distribute in-kind to the
General Partner the 25% Remaining Interest in the Hotel Properties in
liquidation of the General Partner's 25% interest in the Partnership.
The transaction is being structured in this manner in order to provide
certain tax advantages to the General Partner. The Limited Partners will not
be prejudiced by this two part structure, however, since they will receive the
same share of cash and the same tax consequences as they would have received
had the entire transaction been structured as an outright purchase by the
General Partner of 100% of the Partnership's Hotel Properties.
Assuming that Limited Partners holding the required number of Units
consent to these transactions, the Partnership, as seller, and the General
Partner, as buyer, will immediately enter into a written Asset Purchase
Agreements (the "Purchase Agreements"). However, the Purchase Agreements will
not be executed until the independent counsel retained on behalf of the
Limited Partners reviews the drafts of Purchase Agreements and negotiates with
the General Partner the final terms thereof. All terms of the Purchase
Agreements will be negotiable except for the description of the assets to be
purchased and the purchase prices to be paid. Upon execution, the Purchase
Agreements shall constitute legally binding obligations of both the
Partnership to sell and the General Partner to purchase the Initial Interest
in the Hotel Properties. However, the General Partner's obligations under the
Purchase Agreements shall be conditioned upon the satisfaction of several
conditions precedent to closing, which are described below. Each of these
conditions must be satisfied or, in the discretion of the General Partner,
waived on or before February 28, 1997.
If those conditions are not satisfied or waived on or before that date,
the Purchase Agreements will be terminated and canceled, and the proposed
transactions will not occur.
The remainder of this Section IV to the Statement is devoted to an
explanation of some of the terms of the Purchase Agreements. The description
includes a brief discussion of the general terms of the Purchase Agreements,
the adjustments, prorations and credits which will be made in connection with
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<PAGE>
the Sale, the conditions precedent to closing, the closing procedures and the
distribution of net sale proceeds to the Limited Partners. However, this is a
summary only of some of the terms of the Purchase Agreements and, accordingly,
does not describe all of the terms of these Agreements. Upon
request, Limited Partners may inspect the actual form of the Purchase
Agreements which will be executed by and between the Partnership and the
General Partner following receipt of the Limited Partners' written consent
and after review by the independent counsel representing the Limited
Partners . Inspection may be made at the corporate offices of the
General Partner at 250 East 96th Street, Suite 450, Indianapolis, Indiana
46240.
General Terms of the Purchase Agreements
Description of Property to be Sold. The Initial Interest to be purchased
by the General Partner will be equal to an undivided 75% interest in all of
the real and personal property comprising the Hotel Properties, consisting of:
(1) real estate; (2) all improvements constructed on the real estate; (3) all
furniture, furnishings, fixtures, equipment and other tangible personal
property owned by the Partnership and located on or used in connection with
the operation or maintenance of the Hotel Properties; (4) all of the
Partnership's interests in all equipment leases and contracts relating to the
ownership, maintenance, use or operation of the Hotel Properties; (5) all of
the Partnership's interests in room rental and other lease agreements (if
any); and (6) all of the Partnership's rights, title and interest in and to
all intangible personal property used in connection with the Hotel Properties,
including all books and records, plans and specifications, drawings, reports,
rights, guarantees, licenses, permits and warranties.
Purchase Price and Payment. For the Initial Interest, the General
Partner will pay to the Partnership a Purchase Price of $6,825,000 (i.e. 75%
of the $9,100,000 appraised value). Of that amount: (1) approximately
$110,600 will be deducted to defray 75% of tax prorations and closing costs;
approximately $2,951,000 will be paid in cash at the time of closing, and
approximately $3,763,400 will be paid through the assumption by the General
Partner of a portion of certain mortgage indebtedness owed by the Partnership
to its mortgage lenders as of the date of closing. The Purchase Price will be
subject to certain adjustments, prorations and credits, as described below.
A $2,500 earnest money deposit (the "Earnest Money") will be required to be
paid by the General Partner at the time of the signing of the Purchase
Agreement. In the event the Purchase Agreement expires or is terminated by
the General Partner, the Earnest Money will be paid to the Partnership in
consideration for its agreement to allow the General Partner until February
28, 1997, in which to satisfy the conditions precedent to Closing.
Date of Closing. The Closing of the Sale shall take place on or before
February 28, 1997. It can be expected that Closing of the Sale, the
distributions of cash and the Remainder Interest and dissolution of the
Partnership will occur simultaneously.
Real Estate Commissions. Payment of commissions to a real estate broker
in the range of from 3% to 5% of the purchase price for a property is normal
and customary in commercial real estate transactions. Because the General
Partner is the buyer, however, no real estate commission, finders fee or
similar compensation will be paid by the Partnership or the General Partner to
any person in connection with the Sale. Therefore, the net proceeds to be
realized by the Partnership will be greater than they would have been in a
brokered sale.
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<PAGE>
Title Insurance, Survey and Environmental Matters. The Partnership will
be required to furnish to the General Partner, at the Partnership's expense, a
commitment (the "Title Commitment") to issue an owner's policy of title
insurance insuring fee simple title to the Hotel Properties in the name of the
General Partner upon delivery of a limited warranty deed from the Partnership
to the General Partner. The Title Commitment shall set forth the state of
title to the real estate together with all exceptions or conditions to such
title, including, but not limited to, all easements, restrictions,
rights-of-way, covenants, reservations and all other encumbrances affecting
the real estate which would appear in an owner's policy of title insurance
issued pursuant to the Title Commitment. The Title Commitment will contain
the commitment of the title Company to insure such title in the General
Partner for the full amount of the appraised value of the Hotel Properties,
and will contain the further agreement of the title company to insure access
from the real estate to a dedicated public right-of-way which is contiguous to
the boundary of the real estate, a 3.0 zoning endorsement certifying that the
real estate is zoned under the zoning ordinance of the zoning jurisdiction in
which the real estate is located to permit the use of the real property as a
hotel.
The Partnership shall also be required to furnish the General Partner, at
the Partnership's expense, a boundary survey of the real estate prepared by a
surveyor or engineer who is licensed by the appropriate governmental
authorities of the state in which the real estate is located and who is
acceptable to the General Partner. The Survey shall be prepared in accordance
with Minimum Standard Detail Requirements for Land Title Surveys jointly
established and adopted by ALTA and ACSM in 1992, and shall certify that the
real estate is not located within a Special Flood Hazard Area. The Survey
shall be certified to the Partnership, the General Partner, and such other
parties as the General Partner may request.
It is customary in real estate transactions such as the Sale for an
environmental survey to be provided to the purchaser. Because the General
Partner was involved in the original purchase of the real estate and the
construction of the Hotel and has managed the Hotel Properties continuously
since then, no environmental survey is being required by the General Partner
in connection with the Sale. The waiver by the General Partner of an
environmental survey is a benefit to the Partnership and the Limited Partners.
Covenants, Representations and Warranties. The Purchase Agreement will
require the General Partner and the Partnership, at all times between the
signing of the Purchase Agreement and Closing: (1) not to enter into any new
undertakings or agreements relating to the management, financing or
maintenance of the Hotel Properties, other than in the ordinary course of
business; (2) to continue to operate and maintain the Hotel Properties in the
same manner that the Partnership has operated and maintained the Hotel
Properties during its ownership, and to continue complying with all provisions
of the service contracts and other agreements to which they are parties, and
to continue compliance with all applicable laws, ordinances, rules and
regulations to which the Partnership or the Hotel Properties is subject; (3)
to maintain all insurance on the Hotel Properties; (4) not to remove any
personal property from the Hotel Properties unless such personal property is
replaced with property of like kind and like value; (5) not to enter into any
agreement granting to any other party the right to purchase the Hotel
Properties or to alienate, lien, encumber or otherwise transfer any portion of
the Hotel Properties or any interest therein.
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<PAGE>
The Partnership and the General Partner will make the following
representations and warranties to each other in the Purchase Agreement: (1)
that they are duly organized and validly existing under the laws of Indiana;
(2) that they have the power and authority to enter into the Purchase
Agreement and that all necessary action has been taken to authorize their
respective executions and performance of the Purchase Agreement and the
consummation of the transactions contemplated therein; (3) that the
Partnership owns good, marketable and indefeasible fee simple title to the
Hotel Properties free and clear of all liens, encumbrances, security interests
and other defects in title other than permitted exceptions; and, (4) that the
Partnership owns good and marketable title to the personal property free and
clear of all liens, encumbrances security interests and other defects in title
other than permitted exceptions.
The General Partner will not assume any indebtedness, obligations,
commitments or liabilities of the Partnership relating to the Hotel Properties
imposed under any law relating to the environment, health or safety, and
arising out of any act, event or condition occurring or existing prior to the
Closing. Although customary in transactions such as the Sale, the Partnership
will not be required to make any representations or warranties regarding
environmental matters. The waiver by the General Partner of any requirement
that the Partnership make environmental warranties and representations is a
benefit to the Partnership.
Agreement Regarding Employees. The Partnership will take all action as
is necessary to terminate the employment of all Partnership employees as of
the Closing Date. The General Partner will take all action as is necessary to
employ all Partnership employees as of the Closing Date in the positions and
with the compensation and benefits equivalent to those employees' employment
with the Partnership. The General Manager and Assistant General Manager
currently already are employees of the General Partner.
Closing Costs. The Partnership and the General Partner each shall be
responsible for their respective costs and expenses (including attorneys fees)
incurred in connection with the execution of the Purchase Agreement and the
closing of the transactions contemplated therein.
Default and Remedies. If the General Partner fails to perform any of its
obligations under the Purchase Agreement, or fails to keep or observe any
other covenant, agreement or obligation to be kept or observed by the General
Partner under the Purchase Agreement and does not cure such failure prior to
Closing, then the Partnership shall have the right to terminate the Purchase
Agreement in which event the Earnest Money shall be paid to the Partnership
and the Partnership may pursue any and all other rights available at law or in
equity. If the Partnership fails to perform any of its obligations under the
Purchase Agreement, or the Partnership fails to keep or perform any other
covenant, agreement or obligation to be kept or performed by the Partnership
under the Purchase Agreement and does not cure such failure prior to the
Closing then the General Partner may terminate the Purchase Agreement or the
General Partner may enforce specific performance of the Purchase Agreement.
If the Purchase Agreement is terminated for cause by the General Partner, the
Earnest Money shall be immediately returned to the General Partner.
Separate Legal Representation. Upon approval of the Proposals by the
Limited Partners of the Partnership, the General Partner shall select and
engage on behalf of the Limited Partners independent legal counsel
to represent the Limited Partners with respect to the terms (other
than assets to be purchased and price) of the Purchase Agreements and
related documents and the consummation of the transactions contemplated therein.
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<PAGE>
Conditions Precedent to Closing. The obligation of the General Partner
to consummate the Sale will be, at the General Partner's option, subject to
the occurrence of the following events prior to February 28, 1997:
Financing Condition. The General Partner shall have
obtained financing in amounts and subject to terms satisfactory
to the General Partner in its sole discretion, including, but not
limited to, the satisfactory completion of a public offering of
the General Partner's common stock.
Lender and Other Consents. The Partnership shall have
received consents of all third parties necessary to consummate
the Proposals and the transactions, including, but not limited
to consents from mortgage lenders.
Limited Partnership Approval by Majority Vote. The Sale
shall have received the consent of the holders of a majority of
the Units of limited partnership interests in the Partnership in
accordance with the Partnership Agreement and applicable law.
Closings of Other Transactions With Related, Affiliated
Partnerships. The General Partner shall have obtained the approval
of the limited partners holding a majority of units of limited
partnership interests of Signature I, II, III, IV, V, VI, VIII,
IX, X, XI, XII, XIV, XVII, XXI, Northwestern, Southport, Elkhart,
Normal/Peoria and Knoxville, Ltd. Limited Partnerships to the sale
of the respective hotel properties owned by those partnerships to
the General Partner in accordance with asset purchase agreements
similar to the Purchase Agreements, and the General Partner shall
have satisfied or waived all conditions to closing of each of those
asset purchase agreements, subject to the General Partner's right,
in its discretion, to waive this condition with respect to the
acquisition of one or more of the other affiliated partnership
properties.
Adjustments, Prorations and Credits. Set forth below are certain items
to be adjusted, prorated or credited between the Partnership and the General
Partner at Closing. All credits to the General Partner from the Closing
adjustments and prorations described herein shall reduce the cash payable at
Closing, and all credits to the Partnership from the Closing adjustments and
prorations described herein shall increase the cash payable at Closing.
For purposes of this discussion, it is assumed that the Sale and the
Distribution In-kind will occur on the same day.
Taxes and Assessments. All real estate and personal property taxes
assessed against the Hotel Properties for years prior to the year of the
Closing and all penalties and interest thereon shall be paid by the
Partnership. All real estate and personal property taxes assessed against the
Hotel Properties for the year of the Closing shall be prorated between the
Partnership and the General Partner as of the Closing Date on the basis of the
exact number of days each will own the Hotel Properties.
Utilities. Water, electricity, sewer, gas, cable television, telephone
and other utility charges shall be prorated based, to the extent practicable,
on final meter readings and final invoices, and on the basis of the actual
number of days of the month which shall have elapsed as of the Closing Date.
The Partnership shall be responsible for all such charges for the periods
prior to the Closing Date. The General Partnership shall be responsible for
such charges for the period on and after the Closing Date.
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<PAGE>
Accounts Payable. Accounts payable accrued prior to the Closing Date
shall be the responsibility of the Partnership. The General Partner shall be
responsible for all accounts payable accruing on and after the Closing Date.
Guest Advance Deposits. The liability for all unearned guest advance
deposits (if any) on the books of the Partnership on the Closing Date shall be
assumed by the General Partner and shall be credited against payment of the
Purchase Price.
Accrued Payroll and Employee Expenses. To the extent practicable, all
accrued but unpaid employee salaries and benefits and all accrued but unpaid
payroll, F.I.C.A., employee benefit and other employee-related taxes
("Employees Costs") due and payable for the period prior to the Closing Date
shall be paid by the Partnership in full at or prior to Closing without
proration or contribution from the General Partner. The General Partner shall
assume and receive credit against payment of the Purchase Price for all
accrued Employees Costs prior to Closing which are not paid on or before
Closing. The General Partner shall be responsible for all Employee Costs
accruing on and after Closing.
Sales/Lodging Taxes. All sales and/or lodging taxes applicable to guest
room rental charges or public room rental charges accruing prior to the
Closing Date shall be the responsibility of the Partnership. The General
Partner shall be responsible for such taxes accruing on or after the Closing
Date.
Prepaid Insurance. Any amounts of prepaid insurance on the books of the
Partnership as of the Closing Date representing payments for insurance
coverage for any period subsequent to the Closing Date shall be credited to
the Partnership and paid at Closing.
Accounts Receivable. All accounts receivable accruing prior to the
Closing Date shall remain the sole property of the Partnership, and the
General Partner shall have no rights, title or interest in such accounts
receivable.
Closing Procedures. If the Proposals are approved, Closing of the Sale
shall take place as follows:
Closing shall occur on a date specified by the General
Partner not earlier than five (5) days following satisfaction
of all conditions to closing in the Purchase Agreements.
The Closing shall occur in the offices of Johnson Smith
Pence Densborn Wright & Heath, Indianapolis, Indiana, or at
such other location as may be selected by the General Partner.
Distributions to Limited Partners of Net Sale Proceeds: Procedures and
Timetables. On or within five business days after the Closing Date, the
Partnership shall make cash distributions to the Limited Partners in an amount
equal to 100% of the net proceeds of Sale which represents 75% of the
appraised value of the Hotel Properties. See Section VI below for a
description of distributions to Limited Partners in connection with the
dissolution and termination of the Partnership.
V. Required Amendments to the Partnership Agreement
As noted above under the "Introduction" portion of Section IV of this
Statement, the General Partner intends to acquire 100% of the Partnership's
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Hotel Properties in a two-part transaction. Part one will involve a sale of
the portion of the Hotel Properties to the General Partner
which will be equivalent to the Limited Partners' 75% interest in the
Partnership. The second part of the transaction will involve a liquidating
distribution of the remaining 25% portion of the Hotel Properties to the
General Partner, in-kind. The net result of this two-part method of sale
will be to allocate to the Limited Partners, as a group, 100% of the net cash
proceeds of the sale (i.e. 75% of the value of the Hotel Properties) for their
75% partnership interest in the Partnership and to distribute in-kind to the
General Partner the 25% remaining interest in the Hotel Properties in
liquidation of the General Partner's 25% interest in the Partnership.
In order to facilitate the sale of the Hotel Properties, the following
revisions, deletions and additions to the Partnership Agreement have
been determined to be necessary. The complete text of the revisions,
deletions and additions appear in the Second Amendment to Second
Amended Certificate and Agreement of Limited Partnership of Signature
VII Ltd. Limited Partnership (the "Amendment") which is attached to this
Statement as Exhibit F and incorporated herein and by this reference made a
part hereof:
Amendment to Section 7.06 of the Partnership Agreement. Section 7.06
contains provisions concerning the allocation of gain or loss on the sale of
partnership property. The Amendment adds new language which provides that in
the case of a sale of an undivided fractional interest in the partnership
property by the Partnership to the General Partner which undivided fractional
interest is equal to the aggregate units of limited partnership interests in
the Partnership owned by all Limited Partners (as a group), the gain or loss
on the sale of such undivided fractional interest shall be allocated entirely
to the Limited Partners (as a group), provided that: (a) the Limited Partners
(as a group) receive all distributable cash sale proceeds resulting from that
sale; and, (b) the General Partner receives the distribution of the remaining
undivided fractional interest in the partnership property as a distribution in
kind in connection with the dissolution and termination of the Partnership in
accordance with Article XVIII of the Partnership Agreement.
Amendments to Section 8.02 of the Partnership Agreement. Section 8.02
contains provisions concerning the distribution of net proceeds of sales,
financings and refinancings of Partnership properties. The Amendment adds new
language which provides that in the event of any sale of an undivided
fractional interest in the Partnership properties to the General Partner which
undivided fractional interest is equal to the aggregate units of limited
partnership interests in the Partnership owned by all Limited Partners (as a
group), all net proceeds of such sale shall be allocated and distributed to
the Limited Partners (as a group), and the General Partner shall not receive
any allocation or distribution of any such cash. Rather, the General Partner
shall receive instead a distribution in-kind of the remaining undivided
fractional interest in the Partnership's property represented by the General
Partner's interest in the Partnership in connection with the dissolution and
termination of the Partnership. The purpose of these revisions is to ensure
that, in the event of a sale of an undivided fractional interest in the
Partnership property to the General Partner, the Limited Partners will receive
100% of all distributable cash from the Net Sale Proceeds, and the General
Partner will receive the remaining undivided fractional interest in the
Partnership property.
VI. Dissolution, Termination and Final Distributions
Dissolution/Termination of Partnership. Pursuant to Section 18.01(e) of
the Partnership Agreement and the consents of the holders of a majority of
Units, the Partnership will be dissolved and terminated upon the Sale of the
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Hotel Properties. Following Closing, the General Partner will cause to be
filed with the Secretary of State of Indiana a Certificate of Cancellation of
Indiana Limited Partnership to effectuate such dissolution. This Certificate
will effectively terminate the legal existence of the Partnership.
Under Section 19.01 of the Partnership Agreement, upon the dissolution
and final termination of the Partnership, the General Partner must take
account of the Partnership's assets and liabilities and must conduct the
liquidation of such assets as promptly as is consistent with obtaining the
fair market thereof. Any proceeds received from the liquidation of the assets
are required to be applied in the following order:
(1) To the payment of all debts and liabilities of the
Partnership to creditors in the order of priority provided by
law and to the expenses of liquidation;
(2) To the establishment of any reserves deemed necessary
for any contingent liabilities or obligations of the Partnership;
(3) To the repayment of any loans or advances that may have
been made by any Partner to the Partnership;
(4) To the Limited Partners in an amount equal to the excess,
if any, of their capital contributions over prior distributions to
them from all sources; and
(5) Seventy-five percent (75%) of any remaining balance shall
be allocated to the Limited Partners based on their percentage
interest in the Partnership and twenty-five percent (25%) to the
General Partner, except that the General Partner shall not receive
any part of any balance of cash remaining from the Net Sale Proceeds.
Pursuant to Section 19.03 of the Partnership Agreement, each Limited
Partner will be furnished with a Liquidation Statement describing the
disposition of the assets and liabilities of the Partnership and reporting any
other information with respect to the liquidation of the Partnership.
Finally, Limited Partners shall be provided with a notice that the Partnership
has been dissolved and that a Certificate of Cancellation of the Partnership
has been filed in accordance with applicable law.
Termination of Contracts. The Partnership's obligations under the
Management Agreements between the General Partner and the Partnership, and the
Partnership's obligations under the Franchise Agreements between the
Partnership and the General Partner shall be canceled and terminated without
cost or penalty to the Partnership upon the dissolution of the Partnership.
Thus, the Partnership will have no further duties, obligations or
responsibilities with respect to either the Management Agreements or the
Franchise Agreements.
Final Cash Distributions to Limited and General Partners. As described
above, the Limited Partners of the Partnership will receive 100% of the net
cash proceeds of the Sale on or within five business days of Closing. Upon
the final wind-up of the Partnership, the Limited Partners will receive their
allocable share of 75% of all other remaining cash, including (a) accounts
receivable collections, (b) the net balance at Closing of the FF&E cash
reserve, (c) the net cash balance at Closing of the Tax Escrow Account, (d)
all cash generated from the operations of the Partnership up to the date of
Closing, and (e) interest on such amounts, which amounts will be reduced by
any and all liabilities of the Partnership which are not assumed by the
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General Partner in connection with the Sale, and which were not credited
against the General Partner's payment of the Purchase Price. The General
Partner will receive the remaining 25% of those items of cash .
VII. Summary of Estimated Benefits from Sale of Properties
and Liquidation of Partnership
The following table includes pro forma financial information as if the
Sale and the other proposed transactions occurred on December 31, 1995 and
illustrates the disposition of proceeds of Sale, including payment of the
Partnership's liabilities and the completion of distributions to the Limited
Partners.
<TABLE>
<CAPTION>
Table of Estimated Benefits
----------------------------
Pro forma
Purchase of Hotel Properties 12/31/95
- ---------------------------- ----------
<S> <C>
Hotel Appraised Values
(real estate and personal property) 9,100,000
(Less) estimated costs for title insurance,
survey, appraisal, etc. (34,000)
Adjustments for Real Estate Taxes unpaid (113,463)
----------
Adjusted Hotel
Appraised Values 8,952,537
(Less) Mortgage Principal Balance Outstanding (5,017,422)
----------
Net Proceeds from Real Estate Sale (note 1) 3,935,115
Limited Partners Share 75%
Limited Partners Share Amount $2,951,336
Number of Limited Partner Units 451
Amount per Limited Partner Unit $ 6,544
</TABLE>
Note 1: The General Partner's share of Net Proceeds from Real Estate Sale
shall be distributed in the form of a deed
of the "Remaining Interest" in the Hotel Properties.
<TABLE>
<CAPTION>
Pro forma
Winding-up of Partnership 12/31/95
- ------------------------- ---------
<S> <C>
Add assets acquired by Buyer or liquidated:
Working capital cash balance 200,000
Prepaid Insurance 3,304
Account Receivables 39,587
Supplies 46,000
FF&E Cash Reserve 88,775
Tax Escrow Cash Account 36,276
(Less) liabilities assumed by Buyer or paid:
Trade Accounts Payable (59,585)
Guests Advance Deposits (809)
Accrued Payroll Expense (35,346)
Sales and Lodging Taxes (24,029)
--------
Net Business Assets and Liabilities (note 2) 294,173
Limited Partners Share 75%
Limited Partners Share Amount $220,630
Number of Limited Partner Units 451
Amount per Limited Partner Unit $ 489
</TABLE>
Note 2 - Does not include Limited Partner's Share of operating income
from January 1, 1996.
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VIII. Purpose and Procedures for Majority Vote by Limited Partners
-------------------------------------------------------------------
Requirements Under Applicable Securities Laws. Under applicable state
securities laws, regulations and policies pursuant to which the Units of
limited partnership interests were sold to the Limited Partners, the General
Partner was required to include in the Partnership Agreement certain
"democracy" voting rights for the Limited Partners. Pursuant to those
"democracy" rights, the Limited Partners are required to be given the right to
determine by majority vote of limited partnership interests, among other
matters, whether or not to (1) amend the partnership agreement, (2) approve or
disapprove the sale of all or substantially all of the assets of the
partnership, and (3) dissolve the partnership. All of these determinations
are authorized to be done by the Limited Partners, only, and without
concurrence of the General Partner. Moreover, the General Partner may be
prohibited by certain regulations/policies from exercising any vote or consent
with respect to any Unit of limited partnership interest owned by the General
Partner regarding any matter submitted to the vote of the Limited Partners.
Requirements Under Article XIV of the Partnership Agreement. Article XIV
of the Partnership Agreement grants to the Limited Partners, as a group, the
sole right, by a "Majority Vote" of units of limited partnership interest, and
without the concurrence of the General Partner, to among other matters: (a)
amend the Partnership Agreement; (b) dissolve the Partnership; and (c) approve
or disapprove the sale or exchange of all or substantially all of the
properties of the Partnership. Under Section 1.13 of the Partnership
Agreement, the term "Majority Vote" is defined as the "affirmative vote or
written consent of Limited Partners then holding of record more than 50% of
the outstanding Units of the Partnership". Accordingly, under Article XIV of
the Partnership Agreement, the Limited Partners are granted the exclusive
right to approve or disapprove the transactions proposed by the General
Partner. The Partnership currently has 451 Units of Limited Partnership
interest, which are held by its Limited Partners. This means that the holders
of 226 Units must provide their written consent to the proposed transactions
in order for them to be approved. No Units of Limited Partnership interest
are held by the General Partner.
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Voting Procedures and Instructions. The procedures and instructions for
voting on (i.e. consenting to) the proposed transactions are set forth on both
sides of the "Irrevocable Consent of Limited Partner of Signature VII Ltd.
Limited Partnership," which accompanies this Statement. Please read those
instructions carefully.
IX. General Partner's Duties, Conflicts of Interest and Risk Factors
----------------------------------------------------------------
General Partner's Fiduciary and Other Duties to the Partnership and Its
Limited Partners. A General Partner in an Indiana limited partnership has a
fiduciary duty to exercise the utmost good faith, fairness and loyalty with
respect to limited partners under both statutory and common law. This standard
requires the General Partner to determine the best interests of the
partnership and its limited partners and to conduct the business and affairs
of the limited partnership accordingly. The fiduciary duty of a General
Partner to a limited partnership and its limited partners is one of the
highest duties recognized by law.
In addition to the above-described general duties which obligate a
General Partner as a matter of law, the Partnership Agreement requires the
General Partner to perform other particular duties. These duties include,
among others, the overall management, conduct and operation of the Partnership
in all matters respecting the Partnership, its business and its property,
subject to certain restrictions enumerated in the Partnership Agreement.
However, provision has been made in the Partnership Agreement to the effect
that the General Partner shall have no liability to the Partnership for any
loss arising out of any act or omission by the General Partner, provided that
the General Partner determined in good faith that its conduct was in the best
interest of the Partnership and, provided, further that its conduct did not
constitute fraud, gross negligence or intentional misconduct.
The fiduciary duty of a General Partner to a limited partnership and its
partners also includes the duty to disclose to the limited partners all
significant and material information regarding the partnership and its
affairs. Additionally, General Partners must exercise reasonable care in
furnishing such information to the limited partners. With respect to a sale
of the partnership assets, the General Partner of a syndicated partnership
must obtain the limited partners' consent, and the General Partner bears the
burden of complete disclosure of material facts relevant to the limited
partners' decision whether or not to consent to such a transaction.
In transactions between a limited partnership and its General Partner,
the actions of the General Partner are subject to even greater scrutiny
because the terms of the transaction are not the result of arms's length
negotiations, and the General Partner is in a position to control all terms of
the transaction. Such terms must be the result of the exercise of the General
Partner's judgment in a manner consistent with its fiduciary responsibility to
the limited partners and the partnership.
The General Partner has endeavored in all respects to structure a
commercially reasonable sale pursuant to a Purchase Agreements containing
terms and provisions which are fair and reasonable to both parties. Although
the price for the Hotel Properties has not been determined from an arm's
length bargaining process, as described in Section IV. of this Statement, the
price offered by the General Partner is the result of independent
appraisals conducted by a qualified appraiser which has extensive experience in
appraising hotel properties. The General Partner believes that the
appraisals reflect the fair market value of the Hotel Properties.
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<PAGE>
Conflicts of Interest. The General Partner is subject to various
conflicts of interest arising out of its relationships with the Partnership
and its Limited Partners. Because the Partnership originally was organized by
the General Partner and because the Partnership has continuously been operated
by the General Partner since then, these conflicts cannot be resolved through
arms-length negotiations but must be resolved, if at all, through the exercise
by the General Partner of its judgment consistent with its fiduciary
responsibilities to the Partnership and its Limited Partners and the
investment objectives and policies of the Partnership. These conflicts
include, but are not limited to, the following:
Transactional Conflicts. The General Partner is the proposed
purchaser of the Partnership's Hotel Properties. As such, the
General Partner is naturally desirous of obtaining the lowest
possible price and the most favorable terms to it in connection
with the transaction. As the proposed seller, the Partnership is
naturally desirous of obtaining the highest possible price and
the most favorable terms to it in connection with the transaction.
However, by virtue of its dual position as the General Partner of
the Partnership and as the purchaser in the transaction, the General
Partner is in the position of exercising complete control over all
of the terms of the Sale, both for itself as buyer and for the
Partnership as seller. Therefore, there exists the potential for
the General Partner to fashion the terms of the transaction in ways
which are more favorable to it as the buyer than to the Partnership
as the seller. The General Partner has endeavored to minimize these
conflicts by engaging a qualified, independent appraiser to appraise
the fair market value of the Hotel Properties on behalf of the
Partnership in order to provide a more independent basis for
determining the purchase price for the Hotel Properties to be paid
by the General Partner. In addition, the General Partner has
attempted to further reduce the conflicts by planning to engage the
services of an independent counsel to review the Purchase Agreement,
prior to its execution by the parties, to determine the general
commercial reasonableness and fairness (other than price) of the
terms of that Agreement. However, these efforts cannot eliminate
totally the conflicts which exist.
Choice of Legal Representative. Because of its position as
manager of the Partnership, the General Partner will have complete
control over the selection of the legal counsel to represent the
Limited Partners in connection with the review of the Purchase
Agreements to determine commercial reasonableness and fairness of
its terms. However, the General Partner believes that it will be
able to retain an independent, qualified legal counsel to represent
the Limited Partners in these matters.
Choice of Appraiser. In its capacity as manager of the
Partnership, the General Partner had total control over the
selection of US Realty Consultants, Inc., as the appraiser of
the Hotel Properties. However, the General Partner believes
that USRC is a qualified, independent appraiser possessing
extensive experience in appraising hotel properties and that
USRC's appraisal is an accurate estimation of the fair market
value of the Hotel Properties.
Risk and Other Factors. In addition to the factors set forth elsewhere
in this Statement, limited partners should specifically consider the following
risk factors before signing the Consent accompanying this Statement:
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Failure to Satisfy Conditions Precedent. As explained in
Section IV of this Statement, the Purchase Agreements contain
certain conditions precedent which must be satisfied before
closing. Among others, these conditions include the requirement
that the General Partner be able to acquire any or all of the
properties owned by other affiliates of the General Partner. If
any condition precedent to those proposed acquisitions is not
satisfied, the closing and consummation of the subject transactions
may not occur.
Tax Effect. As more completely described in Section X of this
Statement, the subject transactions will result in certain federal
income tax effects with respect to the Limited Partners. These
effects include, among others, the treatment of the distribution of
the Sale proceeds of the Hotel Properties to the Limited Partners
as a fully taxable transaction. Although highly unlikely, the
federal income tax liability could exceed the amount of cash
received by the Limited Partner upon dissolution. Limited partners
should carefully review Section X of this Statement and consult
their tax advisors where appropriate.
Release of Rights to Future Revenues. Although the General
Partner believes that current trends in the hotel industry are
such that now is a favorable time for Limited Partners to cash
out their investments, there can be no assurance that values of
hotel properties (including the Partnership's Hotel Properties)
will not continue to rise. Limited Partners should be aware that,
by consenting to the subject transactions, they are releasing and
terminating any and all rights they may have to share in any
future income, distributions and credits to be generated by the
Partnership's Hotel Properties.
Partners in More Than One Partnership. As described earlier
in this Statement, the General Partner is proposing to acquire
each of the hotel properties owned by all of its affiliated
limited partnerships, including the Hotel Properties owned by
this Partnership. The successful acquisition by the General
Partner of each of those hotel properties is a condition
precedent to the closing of the purchase of the Hotel Properties
of this Partnership and the other transactions as described in
this Statement. Therefore, a limited partner who is a partner
in both this Partnership and one or more of the other partnerships
may be faced with a dilemma in deciding whether to provide his/ her
consent to each of the proposed transactions.
For example, a partner of the Partnership may wish to consent
to the sale by this Partnership of its Hotel Properties to the
General Partner, but may wish to withhold his consent to the
proposed sale by another partnership of its hotel properties to
the General Partner. The withholding of such a limited partner's
consent in connection with another proposed transaction between
the General Partner and another partnership, however, may adversely
effect the consummation of the proposed sale by this Partnership
of its Hotel Properties, since closing of the transaction with
this Partnership is conditional upon the General Partner's
ability to consummate each of the other proposed transactions.
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<PAGE>
X. Federal Income Tax Consequences
The following is a summary of the principal U.S. Federal income tax
consequences resulting from the transactions described in the General
Partner's Proposals. This summary does not purport to consider all the
possible U.S. Federal income tax consequences of those transactions and is not
intended to reflect the individual tax position of any Limited Partner. The
actual tax consequences of the Proposals to any Limited Partner will depend on
that Partner's own tax circumstances. This summary deals with interests in the
Partnership held as capital assets. Because the General Partner is unaware of
the existence of Limited Partners who are tax-exempt entities or non-United
States persons not subject to U.S. Federal income tax on worldwide income,
this summary is inapplicable to such persons. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), and regulations as now
in effect and as currently interpreted and does not take into account possible
changes in such laws or interpretations, any of which may be applied
retroactively. Except as described in Possible Indiana Tax Withholding below,
this summary does not include any description of the tax laws of any state,
local or foreign governments possibly applicable to the transactions
contemplated by the Proposals. Limited Partners should consult their own tax
advisors concerning the application of U.S. Federal tax laws to their
particular situations as well as any consequences to them under the laws of
any other taxing jurisdiction.
Sale of Interest in Hotel Property/Special Allocation. The sale of an
undivided interest in the Hotel Properties will be a taxable event to the
Partnership and Limited Partners. Each Limited Partner will be required to
take into account the share of income, gain or loss realized from that sale
which is allocable to such Partner's interest in the Partnership. By reason
of the proposed special allocation of Partnership income, all income, gain or
loss from the sale of the Hotel Properties will be allocated to the Limited
Partners in the aggregate. In determining the tax consequences of the
proposed sale, each Limited Partner will be required to take into account
separately his, her or its distributive share of the gains or losses realized
by the Partnership from transfers of property described in Section 1245 and
1231 of the Code (relating to certain depreciable and other property used in a
trade or business) and certain "tax benefit" income. Gain allocable to any
Section 1245 property and "tax benefit" income will be taxable as ordinary
income. The aggregate net gain or loss recognized by a Limited Partner on
dispositions of Section 1231 property in any taxable year will be taxable as
long-term capital gain or ordinary loss, respectively, except that any net
Section 1231 gain will be treated as ordinary income to the extent of net
losses from the sale or exchange of Section 1231 property in the previous five
years.
Receipt of Special and Liquidating Distributions. Upon receipt of the
final liquidating distribution, each Limited Partner will recognize capital
gain or loss from the dissolution of the Partnership in an amount equal to the
difference between the sum of all liquidating distributions received from the
Partnership, which will include the special distribution of proceeds from the
sale of Hotel Properties, and his, her or its basis in the interest in the
Partnership. Such gain or loss will be long-term capital gain or loss if the
interest in the Partnership is held by the Limited Partner for more than
twelve months. The entire amount of gain or loss recognized on the
dissolution of the Partnership must be taken into account by each Limited
Partner in the taxable year in which the final liquidating distribution is
received. It is expected that the Closing Date will occur in the same taxable
period in which all liquidating distributions will be made available to the
Limited Partners. If the taxable period in which the Closing Date occurs does
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<PAGE>
close before the final liquidating distribution becomes available, the Limited
Partners must account for the tax consequences from the sale of Hotel
Properties in the first such taxable period and for the tax consequences from
the dissolution of the Partnership in the latter taxable period.
Basis of Units. In general, each Limited Partner had an initial tax
basis in his interest in the Partnership ("Initial Basis") equal to the cash
or other property he transferred to acquire that interest. A Limited
Partner's Initial Basis in his interest in the Partnership generally is
increased by (i) such Limited Partner's share of Partnership taxable and
tax-exempt income and (ii) increases in such Limited Partner's allocable share
of liabilities of the Partnership. Generally, such Partner's basis in his
interest in the Partnership is decreased (but not below zero) by (A) such
Partner's share of Partnership distributions, (B) decreases in such partner's
allocable share of liabilities of the Partnership, (C) such Partner's share of
losses of the Partnership and (D) such partner's share of nondeductible
expenditures of the Partnership that are not chargeable to his capital
account. In calculating a Limited Partner's basis in his interest in the
Partnership for purposes of determining gain or loss on the dissolution of the
Partnership, such Partner will take into account his, her or its allocable
share of income, gain, loss and deduction of the Partnership, including gain
or loss on the sale of the Hotel Properties, for the year or years of the
Partnership which include the Closing Date and the date on which the final
liquidating distribution is made available to the Limited Partners.
Suspended Losses. Certain taxpayers, including individuals and
"closely-held C corporations," are prohibited from deducting in any taxable
year otherwise allowable losses from a particular business or activity,
including losses allocable to an investment in the Partnership, in excess of
the aggregate amount such taxpayers are "at risk" with respect to such
business or activity as of the end of such year. Losses of the Partnership
not deductible by a Limited Partner in the year they are initially sustained
because of the "at risk" limitation may be deductible in succeeding tax
periods, again subject to the "at risk" and other limitation provisions. In
general, a Limited Partner will be considered "at risk" in respect of his
interest in the Partnership to the extent of the sum of (i) that Partner's
Initial Basis; (ii) the difference between gains and profits of the
Partnership allocated to that Partner over losses and deductions of the
Partnership allocated to such Partner; (iii) any Partnership"qualified
nonrecourse financing" (as defined under Section 465(b)(6) of the Code)
allocable to that Partner; and (iv) any gain recognized by that Partner on the
dissolution of the Partnership.
Separate and apart from the "at risk" rules described above, Section 469
of the Code generally prohibits certain taxpayers, including individuals,
estates, trusts and personal service corporations, from deducting in any
taxable year otherwise allowable losses from "passive" activities in excess of
income and gains from the same or other "passive" activities in such year.
(In addition, certain "closely-held C corporations" will be subject to the
passive activity loss limitation rule except that losses from "passive"
activities may offset net "active" income, but not "portfolio" income.) For
this purpose, "passive" income does not include interest, dividends, annuities
and royalties not derived in the ordinary course of a trade or business and
gain or loss derived from the disposition of property producing such income or
held for investment ("portfolio" income). A Limited Partner's determination
of income which passive losses may currently offset must exclude such
"portfolio" income. Disallowed losses carry forward and are treated as
"passive" losses in subsequent years to the extent of the taxpayer's net
"passive" income in such year. Disallowed "passive" losses will be deductible
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<PAGE>
by a Limited Partner upon the completion of the transactions described in the
General Partner's Proposals, offsetting, in the following order, income or
gain realized in respect of the Partnership, other net "passive" income, and
any "portfolio" and "active" income.
Possible Indiana Tax Withholding. The General Partner will be required
to withhold Indiana gross income, adjusted gross income and net supplemental
income tax from gain, loss or income realized by the Partnership on the sale
of the Hotel Property located in Indiana or the conduct of Indiana-situs
operations which is allocable to Limited Partners not resident or qualified to
do business in Indiana, unless such Partner is resident in a jurisdiction for
which a full credit may be available.
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<PAGE>
XI. Selected Financial Data
The following table sets forth certain historical financial data relating
to the Partnership's operating revenues, income (loss) from continuing
operations, total assets and long term obligations for the five year period
from 1991 through 1995. Income (loss) from continuing operations per Unit, as
well as other per Unit information, is set forth in Section XII.
<TABLE>
<CAPTION>
Schedule of Selected Five Year Financial Data
Concerning the Partnership's Operations
Hotels: Columbus & Kokomo
Statistics: 1991 1992 1993 1994 1995
- ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Rooms
- Columbus 125 125 125 125 125
Number of Rooms
- Kokomo 101 101 101 101 101
Occupancy - Columbus 57.7% 64.9% 59.6% 61.1% 64.7%
Occupancy - Kokomo 69.6% 59.3% 62.5% 69.3% 81.4%
Average Daily Rate
- Columbus $47.82 $49.04 $50.36 $53.59 $56.39
Average Daily Rate
- Kokomo $47.43 $48.33 $49.35 $52.68 $55.30
Revpar - Columbus $27.59 $31.83 $30.01 $32.74 $36.48
Revpar - Kokomo $33.01 $28.66 $30.84 $36.51 $45.01
Operating Results:
Hotel Revenue
- Columbus $1,301,625 $1,498,624 $1,426.101 $1,543,094 $1,711,463
Hotel Revenue
- Kokomo $1,263,522 $1,104,016 $1,202,794 $1,411,220 $1,731,534
Net Income (Loss)
- Columbus ($102,199) $ 58,328 $ 34,916 $ 89,571 $ 129,691
Net Income (Loss)
- Kokomo ($42,534) $ 77,875 $ 8,700 $183,024 $ 351,500
Total Assets:
Columbus $3,641,723 $3,658,726 $3,558,954 $3,526,840 $3,399,381
Kokomo $2,884,641 $2,731,026 $2,667,774 $2,770,873 $3,403,113
Total $6,526,364 $6,389,752 $6,226,728 $6,297,713 $6,802,494
--------- --------- --------- --------- ---------
Long Term Debt Obligations:
Columbus $2,952,584 $2,864,778 $2,819,395 $2,768,552 $2,725,003
Kokomo $2,156,109 $2,066,651 $1,986,930 $1,938,405 $2,176,214
Total $5,108,693 $4,931,429 $4,806,325 $4,706,957 $4,901,217
--------- --------- --------- --------- ---------
</TABLE>
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XII. Book Value, Distributions and Income
The following table sets forth certain information concerning the
Partnership's book value per Unit, cash distributions declared and paid per
Unit and income (loss) per Unit from continuing operations for the five year
period from 1991 through 1995:
<TABLE>
<CAPTION>
Schedule of Per Unit Book Value, Cash Distributions and Income (Loss)
Book Value: 1991 1992 1993 1994 1995
- ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total
(Columbus & Kokomo) $976,996 $1,145,590 $1,094,797 $1,295,833 $1,548,656
Number of L.P. Units 451 451 451 451 451
Per Limited
Partner Unit $ 1,624 $ 1,905 $ 1,820 $ 2,155 $ 2,575
Limited Partner Cash Distributions:
Total
(Columbus & Kokomo) $0 $ 0,807 $ 53,724 $ 171,276 $ 412,361
Number of L.P. Units 451 451 451 451 451
Per Limited
Partner Unit $0 $ 157 $ 119 $ 380 $ 914
Cumulative Limited Partner Distributions $ 2,469
Per Unit, 1986 to 1995 As a percentage of 24.7%
Original Investment Per Unit
Income (Loss):
Total Net Income (Loss)
(Columbus & Kokomo) $(144,733) $136,203 $ 43,616 $ 272,595 $ 481,191
Number of L.P. Units 451 451 451 451 451
Income (Loss) Per
Limited Partner Unit $ (241) $ 227 $ 72 $ 453 $ 800
</TABLE>
XIII. Pro Forma Financial Information
The Summary of Estimated Benefits from Sale of Property and Liquidation
of Partnership, which is included in Section VII of this Statement, sets forth
certain pro forma financial information concerning the Sale and the other
proposed transactions, as if the Sale and the other transactions had occurred
on December 31, 1995, the end of the Partnership's last fiscal year. The
purpose of that pro forma financial information is to provide the Limited
Partners with information concerning the impact of the proposed transactions
by showing how the transactions might have effected historical financial
statements, had the transactions been consummated at an earlier time.
However, because the Partnership will be liquidated and dissolved, assuming
the transactions are effectuated, no pro forma financial information is being
supplied with respect to the future prospects of the Partnership as would
ordinarily be required under Article 11 of Regulation SX.
XIV. Regulatory Requirements
The Partnership is required to comply with the rules and regulations
promulgated under the federal and state securities laws administered by the
Indiana Secretary of State, other state regulatory agencies and the United
States Securities and Exchange Commission ("SEC") in connection with the
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solicitation of Consents with respect to, and the consummation of, the
transactions proposed herein by the General Partner. The Partnership must
also comply with the substantive and procedural requirements of the
Partnership Agreement. Please refer to Section XVI of this Statement for a
description of the terms and conditions of the Partnership Agreement. The
Partnership believes that it is, and will continue to be, in full compliance
with all the requirements of federal and state securities laws and the
Partnership Agreement.
Other than the requirements of federal and state securities laws and the
Partnership Agreement, there are no federal or state regulatory requirements
which must be complied with or with respect to which approval must be obtained
in connection with the transactions proposed herein by the General Partner.
XV. Appraisal Reports
US Realty Consultants, Inc. Appraisal Reports. On February 16, 1996 the
general partner on behalf of the partnership engaged the services of US Realty
Consultants, Inc. ("USRC") to perform appraisals of the Partnership's two
Hotel Properties located in Kokomo, Indiana and Columbus, Ohio and to estimate
the fair market value (on a going concern basis) of the fee simple estate in
those properties, including the furniture, fixtures and equipment components
thereof. The scope of the appraisals involved the systematic research and
analysis necessary for USRC to reach value conclusions for the Hotel
Properties. In connection with their analysis, USRC inspected both Hotel
Properties, conducted market research in regard to similar and comparable
hotel properties, assembled data from the general market area for the Hotel
Properties and studied the competitive hotel markets for the Hotel Properties.
In addition, USRC gathered and analyzed data in regard to income, expense,
capitalization rate, discount rate, comparable improved sales and real estate
tax, zoning and flood plane data relating to the Hotel Properties. A more
detailed explanation of the appraisal process as described in the Summary
Appraisals is as follows:
The initial step was to inspect the subject, general
market area, and neighborhood. Market research included the
assembly of data from public records, real estate specialists,
governmental entities, real estate publications, as well as
owners/investors, management and hotel managers at similar and
comparable properties. Information from the market area was
collected and studied in order to define the character,
composition and the propensity for change in the subject trade
area. This information was analyzed to determine the influences
which will impact the surrounding market area and the value of the
subject property.
After analyzing the macro-environment, research was conducted
relevant to the valuation process, including gathering income,
expense, capitalization rate, and discount rate data; comparable
improved sales; real estate tax, zoning, and flood plain data and
any other information pertinent to the valuation of the subject
property. This information was reviewed, confirmed when necessary,
and analyzed through the approaches to value.
The competitive hotel market was analyzed. Management of
most of the competitive hotel properties were interviewed. Improved
sale comparables were all analyzed, and where possible were
confirmed with either the buyer, the seller or a knowledgeable
third party.
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<PAGE>
In order to estimate the market value of the Hotel Properties, USRC
utilized the Income Capitalization and the Sales Comparison approaches to
commercial real estate valuations.
The appraiser deemed the Income Capitalization Approach to be the most
applicable method to estimate the fair market value of the Partnership's Hotel
Properties. The Sales Comparison Approach was utilized to provide an
additional point of reference. Numerous hotel sales were analyzed, and the
analysis rendered a meaningful conclusion of value. Due to the age of the
Partnership's Hotel Properties, significant depreciation exists, which is
difficult and subjective to quantify. As a result, the "Cost Approach," which
estimates the cost to replace the improvements, was not completed. In
addition, the Cost Approach would not reflect the reasoning or approach taken
by an investor for a property of the age and type of the Partnership's
Properties. A discussion of the Income Capitalization and Sales Comparison
approaches is as follows:
Income Capitalization Approach. Under the Income Capitalization Approach
an appraiser analyzes a property's capacity to generate income (or other
monetary benefits) and converts this capacity into an indication of value.
The approach is suitable for properties that have obvious earning power and
investment appeal but is inappropriate for properties that have no readily
discernible income potential. Further, this approach is based on the premise
that the value of a property is represented by the present worth of
anticipated future benefits to be derived from ownership. There are two basic
techniques which can be used for analysis purposes: Direct Capitalization and
Discounted Cash Flow.
Direct Capitalization converts an estimate of a single year's income
expectancy or an annual average of several years' income expectancies into an
indication of value in one direct step. Direct Capitalization is especially
useful when analyzing a property that has achieved a stabilized level of
operations and occupancy.
Discounted Cash Flow analysis is a market reflective method of estimating
the present worth of anticipated income benefits. This analysis converts a
stream of expected income into a present value and is most appropriate when
valuing a property that has not yet reached stabilized occupancy.
In valuing the Partnership's Hotel Properties, it was the opinion of the
appraiser that the direct capitalization valuation technique was most useful
in its analysis. The appraiser estimated cash flow for a typical stabilized
year. Their estimates were based upon results of the Partnership's Hotel
Properties' historical operations, the performance of comparable Signature Inn
facilities, industry standards and assumptions regarding the environment in
which the subject hotels operate.
On the basis of this approach, the appraiser estimated the market value
of the fee simple estate of the going concern of the Kokomo Hotel Property to
be $4,800,000 of the Columbus, Ohio Hotel Property to be $4,300,000, for an
aggregate of $9,100,000.
Sales Comparison Approach. The Sales Comparison Approach is defined in
"The Dictionary of Real Estate Appraisal," Third Edition, (published by the
Appraisal Institute, 1993), as:
A set of procedures in which a value indication is derived
by comparing the property being appraised to similar properties
that have been sold recently, applying appropriate units of
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<PAGE>
comparison, and making adjustments to the sale prices based on
the elements of comparison.
This approach is based on the premise that the market value of a property
is directly related to the prices paid for similar properties which have
recently sold. Inherent in this approach is the principle of substitution,
which holds that when a property is replaceable, its price tends to be set at
the cost of acquiring an equally desirable substitute property, assuming that
no costly delay is encountered in making the substitution.
Under this approach, USRC collected information concerning a number of
transactions involving the sale of limited services hotels in the Mid-Western,
Mid-Atlantic, Southern and New England regions. The data was verified by USRC
through sources deemed reliable, using commonly accepted appraisal
methodology.
Two techniques were utilized in this valuation approach. First, a Linear
Regression Analysis was performed to demonstrate that the sale price is a
function of income. Next, Effective Rooms Revenue Multiplier was developed
which adjusts the sales prices of the comparables based on differences in room
revenue. The presentation of these techniques then led to the appraiser
determining an estimate of market value via the Sales Comparison Approach.
Using this approach, the appraiser estimated the fair market value of the
going concern of the fee simple estate in the Kokomo Hotel Property to be
$4,800,000 and the Columbus Hotel Property to be $4,400,000, for an aggregate
of $9,200,000.
Reconciliation of Value. The two approaches, Income Capitalization
Approach and Sales Comparison Approach, represent alternative ways of viewing
market phenomena. A final estimate of value was selected by the appraiser as
the dominate tendency or most probable outcome from the range of possible
outcomes. In final analysis, the appraiser based its estimate of value on the
Income Capitalization Approach, since the Partnership's Hotel Properties
represent investments capable of attracting investor capital. The Sales
Comparison Approach was used to provide additional support for the appraiser's
conclusions.
Based upon their research and analysis, and using applicable, standard
appraisal techniques in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 and 1994, and the Uniform Standards of Professional
Appraisal Practice (1995 Edition), USRC estimated the market value of the
fee simple estate of the going concern of the Kokomo, Indiana Signature Inn
Hotel, as of February 28, 1996, at $4,800,000 and the similar value of the
Columbus, Ohio Signature Inn Hotel , as of February 23, 1996, at
$4,300,000, for a combined appraised value of both hotels of $9,100,000.
USRC issued Summary Reports of Complete Appraisals on both Hotel
Properties dated March 11, 1996, copies of which are attached to this
statement as Exhibits C and D. In addition, USRC has issued more
descriptive summary reports. All appraisal reports shall be
made available for inspection and copying at the principal executive
offices of the General Partner at 250 E. 96th Street,
Suite 450 Indianapolis, Indiana 46240 during its regular business hours
by any interested Limited Partner or his representative who has been so
designated in writing. A copy of any such appraisal reports will be
transmitted by the General Partner to any interested Limited
Partner or his representative who has been so designated in writing
upon written request and at the expense of the requesting Limited Partner.
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<PAGE>
Experience and Qualifications of the Appraiser. USRC was organized in
1983. USRC operates regional offices in Atlanta, Georgia, Chicago, Illinois
and Columbus, Ohio. USRC specializes in providing commercial real estate
appraisal and consulting services in four major areas of the real estate
industry: Health Care Services Facilities, Hospitality & Resort Industry
Services, Golf and Country Club Services and Real Estate Appraisal Services.
Through its Hospitality & Resort Industry Services Group, USRC has
extensive experience in providing appraisal services for the hotel industry.
USRC employs professionally-trained hoteliers with outstanding academic
credentials and over forty combined years of industry experience. USRC has
participated in over 500 hotel and resort-related engagements since 1991 and
has knowledge and experience in all product segment types of the hotel
industry including limited-service to full-service, hard-budget to luxury
resort, commercial to convention and extended-stay to all-suite.
Many of USRC's hotel appraisal assignments have been national in scope
and have included national brand name affiliations such as Best Western, Days,
Embassy Suites, Fairfield Inn, Hampton Inn, Hilton, Holiday Inn, Howard
Johnson, Knights Inn, LaQuinta, Quality, Radisson, Ramada, Red Roof, Sheraton
and Westin. USRC has been a major participant in the development of
analytical software programs designed specifically for hospitality and resort
consulting and appraising purposes. As further evidence of USRC's expertise
in providing appraisal services in the hotel industry, USRC publishes a
seasonal pamphlet titled Hospitality Perspectives which provides information
with respect to trends in the hotel industry including regional reports on
average daily rates and occupancy.
Selection of the Appraiser. The General Partner considered and reviewed
the credentials of three other nationally recognized firms, before selecting
USRC as the appraiser to conduct the appraisal on the Partnership's Hotel
Properties. The other three firms which had been considered by the General
Partner were Hospitality Valuation Services of Miami, Florida, and Cushman &
Wakefield, Inc. of New York, New York, as well as the Financial Advisory
Services Department of the accounting firm, Coopers & Lybrand LLP. The
General Partner made its decision to hire USRC over the other firms based upon
the criteria established by the Company, included years of experience,
national reputation, specialization in appraising hotel properties and
experience in appraising hotels in the Mid-West region of the United States.
Independence of the Appraiser. Prior to its engagement by the General
Partner on behalf of the Partnership, USRC had only minor prior business
relationship with the General Partner or any of its other affiliated entities.
However, the General Partner, on behalf of certain other of its affiliated
Limited Partnerships, has engaged USRC to conduct appraisals on behalf of
those entities, as well. Nonetheless, the General Partner does not believe
that the engagement of USRC by other affiliated partnerships for purposes of
appraising their respective properties interferes with the independence of
USRC in conducting the appraisal of the Partnership's Hotel Properties. In
order to document USRC's independence, the General Partner has obtained from
USRC a completed due diligence questionnaire which supports the independence
of the appraiser.
Cost of Appraisal. The Partnership has a paid the $10,000 cost of the
appraisals.
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XVI. Material Contracts
A. Past and Present Material Contracts.
The Franchise Agreements. The Partnership has entered into a standard
Signature Inn Individual Hotel License Agreement with the General Partner with
respect to each of the Hotel Properties. Those agreements are more fully
described in Section III of this Statement.
The Management Agreements. The Partnership has also entered into a
Management Agreement with the General Partner with respect to each of the
Hotel Properties. Those agreements are more fully described in Section III of
this Statement.
The Partnership Agreement. The Partnership Agreement sets forth the
terms and conditions pursuant to which the affairs of the Partnership are
governed and the relative rights and duties of the General Partner and the
Limited Partners. The discussion which follows refers only to the Partnership
Agreement, that is, the Second Amended Certificate and Agreement of Limited
Partnership dated August 13, 1986, as amended, and not to any preceding
certificates or agreements. Please refer to Section III of this Statement for
a discussion of prior certificates and agreements.
Powers of the General Partner. The General Partner has full,
exclusive, and complete authority and discretion in the management
and control of the business of the Partnership. Limited Partners
have no right or power to take part in the management of, or to
bind, the Partnership.
Liabilities of the Limited Partners. The Partnership
Agreement provides that no Limited Partner shall be liable for any
debts or obligations of the Partnership in excess of the amount of
his/her Capital Contribution which has not been previously returned
to him/her, except that, under applicable law, the Limited Partners
may be required to return (with interest) amounts distributed to
them as a return of their Capital Contributions if the Partnership
is unable to pay creditors who extended credit to the Partnership
prior to the date of any such return of capital. In addition, all
undistributed Cash Available for Distribution and proceeds of the
sale or financing of Partnership Properties which would otherwise
be distributed to the Partners are available, along with all
Partnership assets, to creditors to satisfy the debts and
obligations of the Partnership until actually distributed. Upon
payment in full of the subscription price, Units acquired by
Limited Partners pursuant to the Partnership Agreement become fully
paid and nonassessable. No Limited Partner has the right to
withdraw all or any portion of his Capital Contribution until the
full and complete winding up and liquidation of the business of
the Partnership, except as otherwise provided by law.
Voting Rights of the Limited Partners. Limited Partners may,
with the affirmative vote of those holding more than 50% of the
Units, take action on the following matters: (a) the approval or
disapproval of the sale or exchange of all or substantially all of
the Partnership's properties; (b) dissolution of the Partnership;
(c) removal of a General Partner or any successor General Partner;
(d) election of new General Partner upon the removal, retirement,
bankruptcy, insolvency or death of a General Partner or any
successor General Partner; (e) amendment of the Partnership Agreement.
-34-
<PAGE>
The right of the Limited Partners to amend the Partnership Agreement,
however, is limited with respect to amendments affecting limited
liability of the Limited Partners and the rights and interests of
the General Partner. Amendments receiving the requisite vote will
be executed by the General Partner on behalf of all Limited Partners
acting pursuant to the power of attorney contained in the Partnership
Agreement.
Other Terms and Conditions. For a more complete description
of the terms and conditions of the Partnership Agreement please
refer to the Partnership's Amended Form 10-KSB Report
for 1995 attached hereto as Exhibit A.
B. Proposed Material Contracts
The General Partner is proposing that the General Partner and the
Partnership enter into an Asset Purchase Agreement which shall constitute a
legally binding obligation of both the Partnership to sell and the General
Partner to buy the Initial Interest in the Hotel Properties. A description of
the terms and conditions of the Asset Purchase Agreement is set forth in
Section IV of this Statement.
XVII. Marketability of Units of Limited Partnership Interests
The Partnership's common equity consists of Units of limited partnership
interest in the Partnership. There is only one class of Units, and all Units
have the same rights and the same interests in income, loss, distributions and
capital of the Partnership. Each Unit represents a total required capital
contribution of $10,000. Units are not subject to assessment for additional
contributions. Holders of the Units possess certain limited voting rights
(with respect to those matters which are submitted to a vote of the Limited
Partners) and rights to certain distributions. Such voting and distribution
rights will be based upon the number of Units owned by each Limited Partner.
The Partnership Agreement contains a number of restrictions on the
transferability of the Units. The General Partner does not have the right and
is not obligated to redeem or repurchase the Units, and the Partnership
Agreement prohibits the holders of the Units from withdrawing their respective
capital contributions.
The Units are not listed on any securities exchange and are not subject
to any quotations under the "NASDAQ" system. The Units are not actively
traded in any established public trading market. Units are expected to be
transferable, if at all, only in privately negotiated transactions.
Accordingly, the Partnership is unable to furnish any information with respect
to ranges of high and low bid quotations for the Units during the past two
years.
The following table sets forth the number of Units outstanding and the
approximate number of holders or record of the Units as of the date of this
report:
<TABLE>
<CAPTION>
Number of Number of
Outstanding Units Holders of Record
<S> <C>
451 393
</TABLE>
-35-
<PAGE>
XVIII. Amended Form 10-KSB Report;
Form 10-QSB Report and June 30, 1996
Unaudited Financial Statements
Until recently, the Partnership was required to file annual, quarterly
and current reports with the Securities and Exchange Commission ("SEC"),
pursuant to the requirements of Section 12(g) of the Securities Exchange Act
of 1934 (the "Act"). As a result, however, of a recent amendment to Rule
12g-1 promulgated by the SEC under the Act, the Partnership became eligible
for an exemption from the registration and reporting requirements under
Section 12(g), provided that the Partnership file a Form 15 Certification and
Notice of Termination of Registration under Section 12(g) of the Act ("Form
15"). The Partnership filed its Form 15 on July 17, 1996, and, under Rule
12g-4, termination of the Partnership's registration of its Units of Limited
Partnership Interest shall take effect 90 days thereafter (i.e., October 15,
1996).
On or about August 21 , 1996, the Partnership filed its
Amended Form 10-KSB Report with the SEC for the year ended
December 31, 1995. A copy of that report is attached to this Statement as
Exhibit A. Also, on May 15, 1996, the Partnership filed its Form 10-QSB
Quarterly Report with the SEC for the quarter ended March 31, 1996.
A copy of that report is attached to this Statement as Exhibit B.
Also, the Partnership's June 30, 1996 unaudited financial statements
are attached to the Statement as Exhibit H.
XIX. Amended Rule 13e-3 Transaction Statement
Rule 13e-3 promulgated by the SEC under the Act requires the Partnership
to file a Schedule 13E-3 with the SEC in connection with this Statement. A
copy of the Schedule 13E-3 (without exhibits) is attached to this
Statement as Exhibit G.
-36-
<PAGE>
EXHIBIT INDEX
A Amended Form 10-KSB Report for 1995
B Form 10-QSB Quarterly Report for Quarter Ended March 31, 1996
C Summary Report of Complete Appraisal of Signature Inn - Kokomo, Indiana
D Summary Report of Complete Appraisal of Signature Inn - Columbus, Ohio
E Text of Consent Resolutions of Limited Partners
F Text of Amendments to Partnership Agreement
G Rule 13e-3 Transaction Statement
H Financial Statements of June 30, 1996 (unaudited)
I Irrevocable Consent of Limited Partner
-37-
<PAGE> 1
SUMMARY
APPRAISAL REPORT
OF THE
SIGNATURE INN - COLUMBUS
6767 SCHROCK HILL COURT
COLUMBUS, OHIO
AS OF
FEBRUARY 23, 1996
FOR
MR. MARK CARNEY
VICE PRESIDENT
SIGNATURE INN VII LIMITED
ONE PARKWOOD CROSSING
250 EAST 96TH STREET
SUITE 450
INDIANAPOLIS, INDIANA 46240
<PAGE> 2
April 3, 1996
Mr. Mark Carney
Vice President
Signature Inn VII Limited
One Parkwood Crossing
250 East 96th Street
Suite 450
Indianapolis, Indiana
RE: SIGNATURE INN - COLUMBUS
COLUMBUS, OHIO
Dear Mr. Carney:
In accordance with the engagement letter dated February 16, 1996, we have
appraised the property referenced above. The purpose of this appraisal is to
estimate the market value of the going concern of the fee simple estate in the
subject, including the furniture, fixtures, and equipment component.
The subject's site contains 3.612 acres and is improved with a 125-unit,
limited-service Signature Inn hotel. A complete description of the property, the
sources of information, and the bases of the estimates are stated in the
accompanying report. Your attention is called to the Standard and Special
Conditions and Certification which follow. This appraisal conforms to the
guidelines stipulated by the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice.
MARKET VALUE
Subject to all conditions and explanations contained in this report, and based
upon our analyses of the subject and the market, together with our experience
and knowledge acquired in appraising similar properties, it is our opinion that
the market value of the going concern of the fee simple estate in the subject
(including the contributory value of the existing furniture, fixtures, and
equipment), expressed in terms of financial arrangements equivalent to cash, as
of February 23, 1996, is:
FOUR MILLION THREE HUNDRED THOUSAND DOLLARS
$4,300,000
<PAGE> 3
Mr. Mark Carney
April 3, 1996
Page 2
CONTRIBUTORY VALUE OF THE FURNITURE, FIXTURES, AND EQUIPMENT
The estimate of value stated above includes the value of the furniture,
fixtures, and equipment (FF&E). Based on our analysis, the contributory value of
the FF&E is $350,000.
The accompanying prospective financial analyses are based on estimates and
assumptions developed in connection with the appraisal. The assumptions are
believed to be correct and reasonable; however, some assumptions may not
materialize, and unanticipated events and circumstances may occur; therefore,
actual results achieved during the period covered by our prospective financial
analyses may vary from our estimates and the variations may be material.
Further, we have not been engaged to evaluate the effectiveness of management,
and we are not responsible for future marketing efforts and other management
actions upon which actual results will depend.
This report and its contents are intended solely for your information and
assistance for the function stated above, and should not be relied upon for any
other purpose. Otherwise, neither our report nor any of its contents nor any
reference to the appraisers or U S Realty Consultants, Inc. may be included or
quoted in any document, offering circular or registration statement, prospectus,
sales brochure, other appraisal, or other agreement without U S Realty
Consultants prior written approval of the form and context in which it appears.
Such permission will not be unreasonably withheld.
Respectfully submitted,
U S REALTY CONSULTANTS, INC.
____________________________________ ___________________________________
James A. Powers, MAI Jeffrey H. Walker, CHSE
President Director of Hospitality Development
Ohio General Cert. Appraiser #381516
<PAGE> 4
APPRAISAL REPORT
OF THE
SIGNATURE INN - COLUMBUS
6767 SCHROCK HILL COURT
COLUMBUS, OHIO
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. PREFACE
Standard Conditions............................................................................ I-1
Special Conditions............................................................................. I-3
Executive Summary.............................................................................. I-4
Representative View of the Subject............................................................. I-5
II. INTRODUCTION
Property Identification........................................................................ II-1
Purpose and Function of the Appraisal.......................................................... II-1
Legal Interest Appraised....................................................................... II-1
Effective Date of Valuation.................................................................... II-1
Definition of Value............................................................................ II-2
Exposure Time and Marketing Period............................................................. II-2
Appraisal Development and Reporting Process.................................................... II-3
History of the Subject......................................................................... II-5
Competency of Appraisers....................................................................... II-5
III. DESCRIPTIVE DATA
Regional Analysis.............................................................................. III-1
Neighborhood Analysis.......................................................................... III-3
Property Description........................................................................... III-6
IV. MARKET ANALYSIS
Lodging Market Overview........................................................................ IV-1
Signature Inns................................................................................. IV-4
Competitive Lodging Market Analysis............................................................ IV-8
Competitive Position of the Subject............................................................ IV-16
V. HIGHEST AND BEST USE.............................................................................. V-1
VI. INCOME CAPITALIZATION APPROACH.................................................................... VI-1
VII. SALES COMPARISON APPROACH......................................................................... VII-1
VIII. RECONCILIATION.................................................................................... VIII-1
IX. CERTIFICATION..................................................................................... IX-1
</TABLE>
<TABLE>
<CAPTION>
ADDENDA
<S> <C>
Legal Description..................................................................... Addendum I
Neighborhood and Subject Photographs.................................................. Addendum II
Qualifications........................................................................ Addendum III
</TABLE>
<PAGE> 5
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PREFACE I-1
- -------------------------------------------------------------------------------
STANDARD CONDITIONS
The following Standard Conditions apply to real estate appraisals by U S Realty
Consultants, Inc. Appraisals are performed and written reports are prepared by,
or under the supervision of, members of the Appraisal Institute in accordance
with the Institute's Standards of Professional Practice and Code of Professional
Ethics.
No opinion is rendered as to property title, which is assumed to be good and
marketable. Unless otherwise stated, no consideration is given to liens or
encumbrances against the property. Sketches, maps, photos, or other graphic aids
included in appraisal reports are intended to assist the reader in ready
identification and visualization of the property and are not intended for
technical purposes.
Appraisal reports may contain prospective financial information, estimates, or
opinions to represent the appraisers' view of reasonable expectations at a
particular point in time, but such information, estimates, or opinions are not
offered as predictions or as assurances that a particular level of income or
profit will be achieved, that events will occur, or that a particular price will
be offered or accepted. Actual results achieved during the period covered by our
prospective financial analyses will vary from those described in our report, and
the variations may be material.
It is assumed that legal, engineering, or other professional advice, as may be
required, has been or will be obtained from professional sources and that the
appraisal report will not be used for guidance in legal or technical matters
such as, but not limited to, the existence of encroachments or easements or
other discrepancies affecting the legal description of the property. It is
assumed that there are no concealed or dubious conditions of the subsoil or
subsurface waters including water table and flood plain, unless otherwise noted.
We further assume no regulations of any government entity control or restrict
the use of the property unless specifically referred to in the report. It is
assumed that the property will not operate in violation of any applicable
government regulations, codes, ordinances, or statutes.
In the absence of competent technical advice to the contrary, it is assumed that
the property being appraised is not adversely affected by concealed or
unapparent hazards such as, but not limited to, asbestos, hazardous or
contaminated substances, toxic waste, or radioactivity.
The report and the final estimate of value and prospective financial analyses
included in it are intended for the information of the person or persons to whom
they are addressed, solely for the purposes stated, and should not be relied
upon for any other purpose. Permission will be granted only upon meeting certain
conditions.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; but no responsibility, whether legal
or otherwise, is assumed for its accuracy, and it cannot be guaranteed as being
certain. No single item of information was completely relied upon to the
exclusion of other information.
Appraisal assignments are accepted with the understanding that there is no
obligation to furnish services after completion of the original assignment. If
the need for subsequent services related to an appraisal assignment (for
example, testimony, updates, conferences, reprint or copy services) is
contemplated, special arrangements acceptable to U S Realty Consultants, Inc.
must be made in advance.
<PAGE> 6
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I-2 PREFACE
- -------------------------------------------------------------------------------
No significant change is assumed in the supply and demand patterns indicated in
the report. The appraisal assumes market conditions as observed as of the
current date of our market research stated in the letter of transmittal. These
market conditions are believed to be correct; however, the appraisers assume no
liability should market conditions materially change because of unusual or
unforeseen circumstances.
The valuation applies only to the property described and for the purpose so
stated and should not be used for any other purpose. Any allocation of total
price between land and the improvements as shown is invalidated if used
separately or in conjunction with any other report.
Neither the report nor any portions thereof (especially any conclusions as to
value, the identity of the appraisers or U S Realty Consultants, Inc., or any
reference to the Appraisal Institute or the MAI designation) shall be
disseminated to the public through public relations media, news media, sales
media or any other public means of communication without the prior written
consent and approval of the appraisers and U S Realty Consultants, Inc.
The date of the valuation to which the value estimate conclusions apply is set
forth in the letter of transmittal and within the body of the report. The values
are based on the purchasing power of the United States dollar as of that date.
It should be specifically noted by any prospective mortgagee that the appraisal
assumes that the property will be competently managed, leased, and maintained by
financially sound owners over the expected period of ownership. This appraisal
engagement does not entail an evaluation of management's or owner's
effectiveness, nor are we responsible for future marketing efforts and other
management or ownership actions upon which actual results will depend.
The Americans with Disabilities Act ("ADA") became effective January 26, 1992.
We will not be responsible for conducting a specific compliance survey and
analysis of this property to determine whether or not it is in conformity with
the various detailed requirements of the ADA. It is possible that a compliance
survey of the property, together with a detailed analysis of the requirements of
the ADA, could reveal that the property is not in compliance with one or more of
the requirements of the Act. If so, this fact could have a negative effect upon
the value of the property. Since we will have no direct evidence relating to
this issue, we will not be considering possible non-compliance with the
requirements of ADA in estimating the value of the property.
It is strongly recommended that the reader should rely upon only authorized
copies of this report. Authorized copies are printed on recycled grey paper and
contain original U S Realty Consultants, Inc. letterhead. Our letterhead is
printed with grey ink on an evenly- shaded grey background. All original
signatures are in blue ink. Any copy that does not have the above is
unauthorized and may have been altered. If the reader is uncertain as to the
authenticity of this report, please contact U S Realty Consultants, Inc. at
(614) 221-9494.
<PAGE> 7
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PREFACE I-3
- -------------------------------------------------------------------------------
SPECIAL CONDITIONS
It is assumed that qualified professional hospitality management with
demonstrated expertise in management of hotels operating in the market will
operate the subject. It is assumed that adequate funds will be available for
upkeep and repair of the facility.
It is assumed that the subject will continue to operate as a Signature Inn or
similar chain affiliation with access to a national reservation system. We have
assumed that competent and efficient management of the hotel will be in place.
We have assumed that a strong marketing effort will be put forth by the
management of the motel.
Historical revenues and expenses of the subject have been provided by Signature
Inns. We have used these unaudited financial statements in developing our bases
for the prospective financial analysis contained in the Income Capitalization
Approach. We based our analysis on 1993 through 1995 performance. All financial
information provided to us is assumed to be accurate, and we bear no
responsibility for inaccuracies that may exist.
We have not been provided with a detailed environmental assessment of the
subject. During our inspection, there were no visible signs of contamination at
the property that would indicate possible environmental hazards. Discussions
with local assessment officials and area real estate professionals did not
indicate that the property had formerly been used for a purpose that would have
led to soil contamination or indicate that hazardous materials would be found on
the site.
U S Realty Consultants, Inc. has no expertise in evaluation of environmental
hazards, and therefore expresses no independent opinion as to the existence
thereof. If environmental hazards, such as asbestos or other forms of
contamination of the ground or improvements are subsequently found to exist, the
negative impact on the estimate of market value for the property could be
substantial.
<PAGE> 8
- -------------------------------------------------------------------------------
I-4 PREFACE
- -------------------------------------------------------------------------------
EXECUTIVE SUMMARY
PROPERTY IDENTIFICATION Signature Inn - Columbus
PROPERTY LOCATION 6767 Schrock Hill Court
Columbus, Ohio
PERTINENT DATES:
EFFECTIVE DATE OF VALUATION February 23, 1996
DATE OF INSPECTION February 23, 1996
LEGAL INTEREST APPRAISED Fee simple estate
PROPERTY DATA:
SITE 3.612 acres
BUILDING 125 units
HIGHEST AND BEST USE:
AS IMPROVED A limited-service hotel
AS THOUGH VACANT A limited-service hotel
INDICATION OF VALUE:
INCOME CAPITALIZATION APPROACH $4,300,000
DIRECT CAPITALIZATION RATE 12.25%
SALES COMPARISON APPROACH $4,400,000
FINAL ESTIMATE OF MARKET VALUE: $4,300,000
CONTRIBUTORY VALUE OF THE FF&E $350,000 (Included in market value)
UNIT OF COMPARISON $34,400 per room
ESTIMATE OF EXPOSURE TIME/
MARKETING PERIOD Less than 12 months
<PAGE> 9
- -------------------------------------------------------------------------------
PREFACE I-5
- -------------------------------------------------------------------------------
REPRESENTATIVE VIEW OF THE SUBJECT
<PAGE> 10
- -------------------------------------------------------------------------------
INTRODUCTION II-1
- -------------------------------------------------------------------------------
PROPERTY IDENTIFICATION
The subject consists of a 125-unit, limited-service Signature Inn hotel, located
at 6767 Schrock Hill Court, Columbus, Franklin County, Ohio. The property is
considered to be in average condition. The legal description of the subject is
presented in the addenda.
PURPOSE AND FUNCTION OF THE APPRAISAL
The purpose of the appraisal is to estimate the as is market value of the going
concern of the fee simple estate in the subject, including furniture, fixtures
and equipment (FF&E), subject to the Uniform Standards of Professional Appraisal
Practice (USPAP), and Title XI (and amendments) of the Financial Institution
Reform Recovery and Enforcement Act of 1989 and 1994 (FIRREA). This report is to
be used to assist the limited partners regarding the possible acquisition of the
subject by the general partner.
LEGAL INTEREST APPRAISED
The legal interest appraised herein is the fee simple estate in the land and
improvements. A fee simple estate is defined as follows:
Absolute ownership unencumbered by any other interest or estate, subject
only to the limitations imposed by the governmental powers of taxation,
eminent domain, police power and escheat.(1)
With respect to this motel, the property rights appraised include all items of
personal property, including the existing furniture, fixtures and equipment, and
licenses and agreements required to operate the property and related facilities.
The "business assets" or business component included as an integrated
constituent of value includes "tangible and intangible resources other than
personal property and real estate that are employed by a business enterprise in
its operations.(2) This category includes, but is not necessarily limited to,
all intangible property and documents evidencing trademarks, trade names,
governmental operating rights, licenses, privileges, permits, copyrights, and
goodwill as a going-concern.
- --------
(1) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd Ed.,
p. 140.
(2) Uniform Standards of Professional Appraisal Practice, 1987.
<PAGE> 11
- -------------------------------------------------------------------------------
II-2 INTRODUCTION
- -------------------------------------------------------------------------------
EFFECTIVE DATE OF VALUATION
The appraisal is based upon market conditions as of February 23, 1996, the
current date of our market research and property inspection.
DEFINITION OF VALUE
The purpose of the appraisal is to estimate the market value of the subject
property. Market value is defined in the Uniform Standards of Professional
Practice, 1995 Edition as follows:
"The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the
buyer and seller each acting prudently and knowledgeably, and assuming
the price is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in
what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in United States dollars or
in terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale."
For the purpose of this report, the definition of going-concern value shall be
as follows:
The value created by a proven property operation; considered as a
separate entity to be valued with a specific business
establishment.(3)
EXPOSURE TIME AND MARKETING PERIOD
The concept of exposure time is historical in nature and is presumed to have
occurred prior to the effective date of the appraisal. Alternatively, marketing
period occurs after the
- --------
(3) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd
Edition, (Chicago: Appraisal Institute, 1993), p. 160.
<PAGE> 12
- -------------------------------------------------------------------------------
INTRODUCTION II-3
- -------------------------------------------------------------------------------
effective date of the appraisal and may or may not be directly related to the
value presented. The actual sale price could increase, decrease, or remain
static during the marketing period depending upon market conditions and the type
of property being appraised.
We referenced a number of sources in estimating a probable exposure period. U S
REALTY CONSULTANTS, INC. Spring 1995 Hotel Investor Survey reported typical
marketing time for hotels/motels was 3 to 18 months with an average of 7.2
months. KORPACZ's Real Estate Investor Survey - Fourth Quarter 1995 stated that
their survey respondents indicated that average marketing time for all
commercial real estate is approximately 9.95 months.
Since most investors' perceptions and estimates of marketing period are based
largely on exposure times that they have recently encountered in similar
transactions, it stands to reason that there should be some correlation between
marketing periods and exposure times. In fact, in the absence of perceived
changes in the market or other extenuating circumstances, marketing period and
exposure time should be identical. That is to say, if all other things are held
constant, a property that (retrospectively) required an exposure time of say one
year should be expected to have a marketing period (prospectively) also of one
year.
Differences in the two concepts should appear when there is a perceived change
in the market. To use the same example presented above, if a property required
an exposure time of one year but perceived market conditions are improving, an
appropriate estimate of marketing period could reasonably be expected to be less
than one year. Conversely, if market conditions were anticipated to worsen,
marketing period might exceed exposure time.
Objectively quantifying such differences would be virtually impossible. However,
understanding the relationship between the two concepts and how they are
affected by perceived changes in the market allows one to better estimate
(subjectively) a reasonable period for exposure time and marketing period. This
is especially important during periods when actual market evidence is limited by
a lack of transactions. Extracting transaction- driven estimates can also be
tenuous since many properties are often originally placed on the market at
inflated asking prices. It is then necessary to decide if exposure time began
when the property was first offered for sale or when the price was dropped to
(or near) the ultimate sale price. Further complicating the issue is the
question of whether exposure time ends when a sale contract is signed or whether
it ends at the closing date of a sale. Recent transactions of hotels during the
past twelve months indicate that marketing times have been decreasing to a range
of 3 to 9 months.
Based upon our investigations, we believe that a marketing period of less than
12 months is reasonably appropriate. Furthermore, it is our opinion that the
exposure time commensurate with our estimate of value for the subject would also
be less than 12 months.
<PAGE> 13
- -------------------------------------------------------------------------------
II-4 INTRODUCTION
- -------------------------------------------------------------------------------
APPRAISAL DEVELOPMENT AND REPORTING PROCESS
The scope of this appraisal involves the systematic research and analysis
necessary to reach a value conclusion for the hotel. The initial step was to
inspect the subject, general market area, and neighborhood. Market research
included the assembly of data from public records, real estate specialists,
governmental entities, real estate publications, as well as owners/investors,
management and hotel managers at similar and comparable properties. Information
concerning the subject was also collected and consisted of ad valorem taxes,
zoning information, sales history, governmental restrictions, environmental
regulations and other factors which may affect its operating performance and
resulting value. Site and title studies were not commissioned at the same time
USRC was engaged to provide valuation services. USRC reserves the right to amend
our value conclusions in the event that these studies are conducted and reveal
material discrepancies. Information from the market area was collected and
studied in order to define the character, composition and the propensity for
change in the subject trade area. This information was analyzed to determine the
influences which will impact the surrounding market area and the value of the
subject property.
After analyzing the macro-environment, research was conducted relevant to the
valuation process, including gathering income, expense, capitalization rate, and
discount rate data; comparable improved sales; real estate tax, zoning, and
flood plain data and any other information pertinent to the valuation of the
subject property. This information was reviewed, confirmed when necessary, and
analyzed through the approaches to value. The subject-specific data considered
in our analysis was provided by Signature Inns.
The hotel market was analyzed. Management of the hotel comparables were
interviewed. Improved sale comparables were all analyzed, and where possible
were confirmed with either the buyer, the seller or a knowledgeable third party.
APPLICABILITY OF APPROACHES
THE INCOME CAPITALIZATION APPROACH: This approach analyzes the property's
capacity to generate income (or other monetary benefit) and converts this
capacity into an indication of market value. The approach is suitable for
properties that have obvious earning power and investment appeal but is
inappropriate for properties that have no readily discernible income potential.
THE SALES COMPARISON APPROACH: This approach compares the subject property to
other properties that have changed hands fairly recently, at known price levels.
The approach is most meaningful when there is adequate market data involving
comparable properties. Reliability of the approach varies directly with the
quantity and quality of available market data.
<PAGE> 14
- -------------------------------------------------------------------------------
INTRODUCTION II-5
- -------------------------------------------------------------------------------
THE COST APPROACH: In this approach, the cost to replace the improvements is
estimated. A deduction is made for any depreciation, and the result is combined
with the estimated value of the underlying land. The approach is applicable when
each component is independently measurable, and when the sum of all components
is believed to reflect market value. The approach is not applicable to
unimproved land or obsolete improvements.
APPLICABILITY TO SUBJECT PROPERTY: The Income Capitalization Approach was deemed
the most applicable method to estimate market value for the subject. The Sales
Comparison Approach was utilized to provide an additional point of reference.
Numerous hotel sales were analyzed, and the analysis rendered a meaningful
conclusion of value.
The Cost Approach has not been completed. Due to the age of the subject,
significant depreciation exists, which is difficult and subjective to quantify.
In addition, the Cost Approach would not reflect the reasoning or approach taken
by an investor for a property of this age and type.
This appraisal engagement has been conducted using applicable standard appraisal
techniques and in conformity with the requirements of the Code of Professional
Ethics and the Standards of Professional Practice of the Appraisal Institute,
the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989
and 1994, and the Uniform Standards of Professional Appraisal Practice (USPAP)
1995 Edition.
The definition of market value presented previously discusses the conditions of
a market where buyers and sellers are acting freely and are not under duress.
Within the valuation process we have attempted to balance the buyer and seller
perspectives in our consideration of assumptions and rates. This has been done
by evaluating available market data and available surveys. In addition, we have
also spoken with active market participants. The primary emphasis of this
research was to discover differences in valuation criteria from a buyer's versus
a seller's perspective. The results provide support for analysis bases such as
capitalization and discount rates.
HISTORY OF THE SUBJECT
According to public records, the subject is owned by Signature VII Limited.
According to management, the property was constructed by its current owners in
1986. There have been no other recorded transfers of the subject. Additionally,
there are no current agreements for sale, options, or listings of the subject as
of the date of the appraisal.
COMPETENCY OF THE APPRAISERS
U S Realty Consultants, Inc. has performed numerous appraisals and reviews of
appraisals on income producing properties such as the subject. Files are
maintained with historical and current data relative to the changing market with
respect to the subject. Competency has been established in both the property
type and geographical area, either through previous engagements or through
current research of germane market trends. Therefore, we possess
<PAGE> 15
- -------------------------------------------------------------------------------
II-6 INTRODUCTION
- -------------------------------------------------------------------------------
the knowledge and experience to conduct the inspection, analysis, and reasoning
necessary to accurately estimate the value of the appraised interest in the
subject.
<PAGE> 16
- -------------------------------------------------------------------------------
DESCRIPTIVE DATA III-1
- -------------------------------------------------------------------------------
REGIONAL ANALYSIS
The subject is located within the Columbus MSA, which is composed of six
counties including Franklin, Delaware, Fairfield, Licking, Madison, and
Pickaway. The Columbus MSA is the third largest metropolitan area in Ohio with
approximately 1.4 million people. Of this total, approximately 642,780 (or 45%)
reside in Columbus, which serves as the state's capitol. During the 1980s, the
population in the MSA and Columbus increased at compound annual rates of 1.0%
and 0.9%, respectively. According to National Planning Data Corporation, the
population in the MSA and Columbus is projected to increase at compound annual
rates of 0.3% and 0.9%, respectively. From this analysis, we can conclude that
the greatest amount of population growth is occurring in the communities
surrounding Columbus.
Major employers in Columbus include the State of Ohio, The Ohio State
University, the Federal Government, the Limited, Inc., and Nationwide Insurance
Cos. During 1995, approximately 784,000 jobs were available in the Columbus MSA,
28% of which were concentrated the services sector, 22% in the retail trade
sector, and 17% in the government sector. According to the Ohio Bureau of
Employment Services, the MSA's employment base expanded by 10.0% between 1992
and 1995, primarily due to strong job growth in services and retail trade.
Together, these sectors added approximately 50,000 new jobs. The MSA's 1995
annual unemployment rate was 3.5%, reflecting a decline of 1.6 percentage points
since 1992. Overall, these population and employment trends bode well for the
prospects of long-terms economic growth in the Columbus MSA.
NEIGHBORHOOD ANALYSIS
The neighborhood surrounding a hotel impacts the property's status, class, style
of operation, and its ability to attract and properly serve a particular market
segment of users. The subject property is located in the city of Columbus, Ohio,
at 6767 Schrock Hill Court. The site is located in the northwest quadrant of the
intersection of Interstate 270 and Cleveland Avenue on Columbus' north side. The
area is highly developed with a variety of retail, hotel, restaurant, highway
service, and office uses.
ACCESS AND EXPOSURE: The subject property is accessed from I-270 by exiting onto
Cleveland Avenue north. A traveller then would head west by taking their first
"right" onto Schrock Road, and heading south onto Schrock Hill Court. The
subject has good access, and very good visibility from I-270. Visibility is
reduced from Cleveland Avenue and Schrock Road.
SURROUNDINGS: In general, Schrock Road and Cleveland Avenue are both highly
developed commercial streets. To the east of the subject, towards Cleveland
Avenue, is the All American Grille, Wendy's, and Kentucky Fried Chicken,
followed by a community retail strip center. Schmidt's, part of a small chain of
local German restaurants, is located southeast of the subject. South of the
intersection of I-270 and Cleveland Avenue is the non-
<PAGE> 17
- -------------------------------------------------------------------------------
III-2 DESCRIPTIVE DATA
- -------------------------------------------------------------------------------
competitive Embassy Suites hotel, and numerous office buildings. In addition,
numerous office, restaurant, retail, and highway service uses extend along both
Cleveland Avenue and Schrock Road.
<PAGE> 18
{REGIONAL MAP}
Regional Map
Signature Inn
Columbus, Ohio
<PAGE> 19
AREA ATTRACTIONS
(MAP FROM SIGNATURE INNS SHOWING LOCATION AND SURROUNDINGS)
VICINITY
<TABLE>
<S> <C> <C>
1. Ponderosa 13. Pizzeria Uno 24. Monte Carlo
2. Red Lobster 14. Friendly's 25. Burger King
3. Burger King 15. Olive Garden 26. St. Ann's Hospital
4. Wendy's 16. Monaco's Palace 27. McDonald's
5. Rax 17. Columbus Square 28. Kentucky Fried Chicken
6. Pizza Hut Shopping Center 29. Wendy's
7. Chi-Chi's 18. Mark PI's 30. All American
8. McDonald's 19. Barney's 31. Schmidts
9. 50's Connection 20. Bob Evan's 32. Villa Milano
10. Club 161 21. Fujiyama 33. Otterbein College
11. Hunan House 22. Cockers 34. Scandinavian Fitness
12. Taco Bell 23. Cheddar's Center
</TABLE>
SURROUNDING AREA
<TABLE>
<S> <C>
1. Columbus Zoo 16. Ohio Center
2. Otterbein University 17. Veterans Auditorium
3. Muirfield C.C. 18. State Capital
4. Worthington Square Shopping Mall 19. Center of Science & Industry
5. Westerville Square Shopping Mall 20. Ohio Theatre
6. Columbus Square Mall 21. Westland Shopping Ctr.
7. Little Turtle C.C. 22. County Stadium
8. The Continent 23. German Village
9. Don Scott Airport 24. Capitol University
10. Graceland Shopping Ctr. 25. Eastland Shopping Ctr.
11. Arlington Center 26. Bolton Field Airport
12. Northland Shopping Ctr. 27. Beulah Park
13. Riverside Hospital 28. Southwest Industrial Park
14. Ohio State University 29. Scioto Downs
15. State Fairgrounds 30. Rickenbacker Air Park
</TABLE>
<PAGE> 20
- -------------------------------------------------------------------------------
DESCRIPTIVE DATA III-5
- -------------------------------------------------------------------------------
SITE ANALYSIS
The site contains 3.612 acres and is generally rectangular in shape. It is near
street grade level of Schrock Road, with good access. Visibility is very good
from I-270, but limited from Cleveland Avenue and Schrock Road. The site is
located in a C-4 (Commercial) District. The district allows for a wide range of
uses, including retail, hotel, motel, restaurant, and highway service uses. The
subject is considered to be a legally conforming land use. According to flood
map community panel #15539049C-155G, the site is located in a Zone X, or area of
minimal flooding. No easements or encroachments, other than normal utility
easements, were made known to the appraiser, and none are assumed to exist. All
public utilities are available to the site and are considered adequate for the
existing hotel operation.
IMPROVEMENT ANALYSIS
Based upon information provided by Signature Inn's corporate offices, and
confirmed during our inspection, the property is constructed with steel frame
and concrete block walls, with exterior brick cover, on a concrete slab
foundation. Roofs are sloped and covered with metal siding, which extends
partially over the side of the buildings. Interior finishes consist of paint or
wall vinyl, with carpeting or tile flooring throughout. The buildings consist of
two stories, surrounded by concrete walks, with average landscaping.
Guests rooms are somewhat typical of a mid-priced, corporate-oriented,
limited-service hotel. All rooms feature a bedside table, a low chest of
drawers, a small table and chairs, a desk and chair, color remote-control
television with HBO, and a vanity with sink outside of the bathroom. In
addition, Signature Rooms feature a larger 12-foot desk, and a reclining chair.
Each room has its own individually controlled electrical heating and cooling
units. Guest room amenities include free local phone calls, and a guest voice
mail system is currently being installed in all Signature Inns. A complimentary
newspaper is delivered to the guest room every weekday, and complimentary
continental breakfast is served daily.
The subject contains 125 guest rooms, consisting of 63 Double/Doubles, 58
Signature Queens, 1 Signature King VIP, 2 Studios with a fold-up "Murphy bed",
and 1 Spa King. Guest rooms are in average condition.
Although the property is limited-service, it offers several extra amenities
geared toward the corporate traveller. All Signature Inns have recently
installed Business Centers for the complimentary use of their guests. These
private offices include a computer, printer, copier, and speaker phone.
Additionally, the properties have two interview centers located on the balcony
above the lobby, which feature a desk and local telephone service in a
comfortable, partially enclosed workspace. The property contains two meeting
rooms totalling approximately 1,800 square feet.
<PAGE> 21
SIGNATURE INN
NORTH'S
FLOOR PLAN
MAP
- -------------------------------------------------------------------------------
Thank you for choosing Signature Inn North! We hope your stay with us is
comfortable. This map will not only help you find your room . . . but also the
other key areas within the motel such as our meeting rooms, our Guest office
and interview centers. The maps on the reverse side will also help you find
your way around town. In addition, in display cases just off the lobby, there's
a large, detailed map of Columbus. If you have any questions or need
directions, be sure to ask at the front desk. We'll be glad to help. Have a
pleasant stay!
[FLOOR PLAN]
(FROM SIGNATURE INNS)
<PAGE> 22
- -------------------------------------------------------------------------------
DESCRIPTIVE DATA III-7
- -------------------------------------------------------------------------------
The hotel contains an outdoor pool of approximately 800 square feet. In
addition, guests are given passes for a complimentary work-out at a local health
club. Guests also receive a discount at selected nearby restaurants.
In 1995, the subject underwent limited capital improvements, including new guest
room spreads and drapes. In 1996, capital improvements will be limited,
including the addition of voice mail for the property, with individual voice
mail boxes for guest rooms.
Based upon these improvements, as well as the age and condition of the building,
we have estimated a 4% Replacement Reserve throughout our analysis period.
REAL ESTATE AND PERSONAL PROPERTY TAXES
The subject is located within the city of Columbus. It is identified as tax
parcel 10-200865-3. Assessed value is 35% of the market value. The assessed
figure is multiplied by the prevailing tax rate (per $1,000 of value) to arrive
at the tax amount due.
Commercial property was last appraised in 1993 (effective with taxes payable in
1994), and is scheduled for re-assessment in 1999. The historical real estate
taxes for the subject property, payable in years 1995 and 1996 are shown in the
following table.
<TABLE>
<CAPTION>
===============================================================================
TABLE III-6
HISTORICAL REAL ESTATE TAXES
- -------------------------------------------------------------------------------
YEAR TAXES DUE
- -------------------------------------------------------------------------------
<S> <C>
1995 $57,583
1996 58,333
- -------------------------------------------------------------------------------
Growth Rate 1.3%
- -------------------------------------------------------------------------------
Source: Franklin County Tax Assessor's Office
===============================================================================
</TABLE>
We researched the market for other hotels located in the city and their
assessments. Table III-10 lists these properties.
<PAGE> 23
- -------------------------------------------------------------------------------
III-8 DESCRIPTIVE DATA
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=======================================================================================
TABLE III-7
REAL ESTATE TAX COMPARABLES
- ---------------------------------------------------------------------------------------
ASSESSED
PROPERTY ROOMS ASSESSED VALUE VALUE PER
ROOM
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Signature Inn (Subject) 125 $1,154,990 $9,240
- ---------------------------------------------------------------------------------------
Cross Country Inn 142 953,750 $6,717
- ---------------------------------------------------------------------------------------
Fairfield Inn 135 945,000 $7,000
- ---------------------------------------------------------------------------------------
Residence Inn 96 1,764,000 $18,375
- ---------------------------------------------------------------------------------------
</TABLE>
Source: Franklin County Assessor's Office
===============================================================================
The above listed comparables indicate that the subject's new assessed value is
within a reasonable range of comparables as both a total assessment and on a per
room assessment. Based upon the age of the subject, the assessment appears to be
reasonable. We have based our real estate projections on 1995 (payable in 1996)
historical taxes, or $58,300. Personal property taxes payable in 1995 (the
latest data available) were $4,385. We have inflated this figure by 3.5% to
arrive at a stabilized projection of $4,500. Accordingly, our projection for
real estate and personal property taxes are $62,800.
<PAGE> 24
- -------------------------------------------------------------------------------
MARKET ANALYSIS IV-1
- -------------------------------------------------------------------------------
NATIONAL LODGING MARKET OVERVIEW
HISTORICAL PERFORMANCE
Occupancy and average daily rate figures for most regions in the United States
showed a strong improvement between 1992 and 1995 as the lodging industry
rebounded from a severe recession and over-supply of rooms. Prior to 1991, the
hotel industry was focused more on the impact of segmentation than its
underlying problems. These problems ranged from over-building to a tightening of
credit in the financial markets. A positive improvement of industry statistics
is projected to continue into 1996. The occupancy and average daily rate figures
for the United States are presented in the table below.
<TABLE>
<CAPTION>
============================================================================================================================
TABLE IV-1
HISTORIC OCCUPANCY AND RATE FIGURES
UNITED STATES
- ----------------------------------------------------------------------------------------------------------------------------
Occupancy Percent Average Room Rate
1995 1994 1993 1992 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES 65.5% 64.7% 63.7% 61.9% $67.34 $64.24 $61.30 $59.62
REGION:
NEW ENGLAND 60.5 58.8 59.3 57.7 78.38 74.75 74.53 71.35
MIDDLE ATLANTIC 66.6 66.5 64.2 61.8 87.18 82.50 78.79 77.03
SOUTH ATLANTIC 65.8 64.4 64.0 62.7 65.28 62.38 60.47 59.29
EAST NORTH CENTRAL 63.0 62.4 60.3 59.1 61.38 58.43 56.28 54.77
EAST SOUTH CENTRAL 64.0 64.2 63.0 61.5 51.45 49.19 47.14 45.65
WEST NORTH CENTRAL 64.2 63.6 63.1 62.1 52.29 50.13 48.76 47.35
WEST SOUTH CENTRAL 65.5 64.5 62.7 61.7 58.1 55.55 53.86 52.22
MOUNTAIN 67.8 68.2 65.2 63.7 66.61 62.89 58.41 52.87
PACIFIC 66.2 64.6 62.5 62.5 75.56 72.39 71.17 70.85
SOURCE: SMITH TRAVEL RESEARCH
============================================================================================================================
</TABLE>
All regions benefitted from the increase in demand for hotel rooms in 1995 over
the previous three years. The increase in occupancy nationwide for 1995 was
approximately 1.2%, while the average room rate increased by 4.8%. In 1995,
properties in the New England states experienced the strongest level of demand
growth achieving 2.9% increase in occupancy from 1994. The revenue per available
room (REVPAR equals occupancy multiplied by average daily rate) figure in the
East South Central Region also showed the largest growth at 8.5%. The East North
Central region showed comparatively moderate growth.
<PAGE> 25
- -------------------------------------------------------------------------------
IV-2 MARKET ANALYSIS
- -------------------------------------------------------------------------------
OCCUPANCY AND RATE PROJECTIONS
The 1996 forecasted figures indicate further improvement though at a slower rate
as the United States lodging industry is experiencing tangible change for the
better. This is due to the following:
- Year to date profits indicate increases, as debt is better-managed
through refinancing. Occupancies have continued to rise at an
acceptable pace.
- Participants in the rate wars that have plagued the industry over the
past few years have called a truce. Discounting has become more
regionally targeted, and has been only offered during the true shoulder
seasons rather than throughout the entire year. This has resulted in
rising average daily rates (ADR), which in many markets is out- pacing
inflation. This ultimately has yielded higher revenues.
- Demand in all the three major segments of travel - commercial, group,
and tourist/leisure - have risen at a consistent pace.
- Hotel companies have stepped up their pace of new development,
conversions, and renovations due to improved market conditions and a
slight increase in the availability of financing and new debt. However,
this increase has been within reason so far such that it hasn't
negatively effected most market occupancies. The economy, limited-
service sector has been experiencing the most new supply growth.
- A cautioning note is the number of new rooms entering the market. Rooms
starts totaled 81,900 in 1995, which was the highest level since 1989.
There are a number of new brands being announced by the larger chains
(Wingate, Mainstay, Hilton Garden, Microtel) which are expected to
increase rooms supply in the late 1990s, particularly in the limited
service sector.
Projections for national occupancy levels through 1997 indicate further
improvement. Coopers and Lybrand in their Hospitality Directions publication
forecasts that the average national occupancy rate will rise steadily to 66.5%
in 1996, and 67.2% in 1997. This is the highest annual level since 1979. This
will occur due to moderate levels of demand growth in the nation that are
forecast to equal 2.4% in 1996 and 2.4% in 1997. This compares to higher levels
of growth of 4.6% that occurred during the last steep occupancy rise from 1976
to 1979. It is interesting to note that the Coopers and Lybrand projections are
lower than in their late 1993 forecast due to a higher number of projected rooms
completions. Overall, this suggests that the higher projected occupancies of the
1990s will be more supply-driven than demand-driven, as supply growth will
remain under reasonable control by the continued restraints on available credit.
Other industry forecasts are not quite as optimistic, but all forecasters show
an improvement in occupancy figures on a nationwide basis.
<PAGE> 26
- -------------------------------------------------------------------------------
MARKET ANALYSIS IV-3
- -------------------------------------------------------------------------------
Industry experts indicate average daily rate projections for 1996 range between
an increase of 3% and 5% on a national basis which is expected to be similar to
that of the projected inflation rate of 3.5%. Coopers and Lybrand projects
average daily rate increases of 3.9% in 1996 and 4.5% in 1997.
HOTEL EXPENSE LEVELS
Operating expense ratios in the hotel industry have shown improvement in recent
years. According to the HOST report for 1994, gross operating profit (before
management fees) improved from 27.4% of total sales in 1993 to 30.8% in 1994.
Smaller properties less than 150 rooms, and those in suburban locations tended
to report the highest GOP. This represents a dramatic improvement from the early
1990s and explains the increased investor interest in hotels. In 1994, fixed
charges total $6,952 per available room resulting in a net profit of $1,939 per
available room. This compares to a net loss of $719 per available room in 1991
and a small net gain of $159 per available room in 1992 indicating the dramatic
turnaround in profitability for the hotel industry. We project a stabilization
in the overall profitability of hotels as the payments for interest charges have
been reduced and other expenses are projected to remain stable.
HOTEL SALES PERFORMANCE
The decline in prices for hotels from the late 1980s appears to have stopped as
prices have stabilized. A leveling out of hotel sales prices nationwide began in
1991 with increases reported beginning in 1994. Nationwide prices averaged
$19,068 per room in 1994. This 1994 figure compares to $17,411 in 1993, $18,741
in 1992, $18,400 in 1991, and $21,549 in 1990. These figures are taken from the
Hotel Motel Broker Association's (HMBA) Transactions Publication which provides
averages of hotels which they have sold. The trend shows a steady decline in
prices in the early 1990s. Figures for 1995 indicate an improvement from 1994
and are indicative of current trends showing increasing prices for hotels.
Industry experts are predicting that prices will continue to slowly increase as
financing becomes more available. Conventional buyers and sellers are beginning
to return to the marketplace. Due to the current and expected business cycle,
the life insurance companies and pension funds have begun marketing their hotel
properties.
Overall, competition is rising among buyers of good quality, full-service, and
economy/ limited-service hotels. Many new buyers have entered the market during
1994 and 1995, increasing competition for hotels and shortening marketing
periods. The spread between asking price and bids is also narrowing.
<PAGE> 27
- -------------------------------------------------------------------------------
IV-4 MARKET ANALYSIS
- -------------------------------------------------------------------------------
SIGNATURE INNS OVERVIEW
Signature Inns was founded in 1978, and opened its first hotel in Indianapolis
in 1981. The company was one of the earliest innovators of the value-oriented
mid-priced hotel concept geared primarily to the corporate traveller, a concept
that has since been mass marketed by chains such as Hampton Inn and Courtyard by
Marriott. Although the Signature Inn concept is limited-service in that none of
the properties contain a restaurant, many extra amenities are available for
guests, such as business centers, interview centers, meeting space, and
newspaper delivery to the guest rooms. The "Signature Rooms" were one of the
first guest room lay-outs designed for the business traveller, with one bed, a
reclining chair, and a 12-foot corner desk with telephone.
Today, Signature Inns operates twenty-three hotels, with two additional
properties in the active stages of development. The company enjoys a fine
reputation for quality and consistency in the central Midwest, but has little
name recognition outside that region. In 1995, the company was voted fifth
nationally among mid-priced hotel chains by the readers of Business Travel News,
outscoring many national chains. Similarly, Consumer Reports ranked the chain
third in overall value among moderately priced chains, behind only Homewood
Suites and Residence Inn, but ahead of all other national chains.
COMPETITIVE LODGING MARKET ANALYSIS
EXISTING COMPETITIVE SUPPLY: Based on our research, we have identified a current
competitive hotel supply with a total of 1,592 guest rooms in twelve lodging
facilities (including the subject). The properties are considered competitive
due primarily to their location on the north side of Columbus, along the
I-71/I-270 corridor. The table on the following page lists the selected
competitive hotels and characteristics about each property.
A map and photographs of each competitor follow.
<PAGE> 28
<TABLE>
<CAPTION>
TABLE IV-1
SIGNATURE INN - COLUMBUS
COMPETITIVE MARKET SUPPLY
Map Year Restaurant/ Published
# Built Rooms Lounge Pool Corridor Rack Rates Comments
- --- ----- ----- ----------- ---- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 SIGNATURE INN 1986 125 No Outdoor Interior $55 - $65 Good visibility to I-270;
Distance from I-71 is a
disadvantage
2 DAYS INN* 1960's 148 Yes Outdoor Interior $37 - $42 Economy-positioned
full-service hotel
Very good visibility
from I-71
3 BEST WESTERN* 1968 180 Yes Both Interior $62 - $68 Full-service hotel,
including restaurant,
room service, health
club. Free breakfast
4 COMFORT INN* 1975 128 Yes Outdoor Interior $50 - $70 Former Ramada, completely
renovated when re-flagged
in 1992
5 TRUEMAN CLUB HOTEL* 1970's 182 No Indoor Interior $85 - $95 Owned and operated by Red
Roof Inns. Similarly to
subject, but lacks brand
identity.
6 HARLEY HOTEL 1968 150 Yes Both Interior $95 -$115 Full-service upscale, but
aging property
Extensive amenities,
including tennis, health
club
7 KNIGHTS INN NORTH 1989 116 No Outdoor Exterior $25 - $36 Budget economy property.
Typical Knights Inn
prototype.
8 HAMPTON INN* 1988 117 No Outdoor Interior $47 - $55 Similarly positioned
property with strong
national res system and
reputation for consistency
9 SUPER 8 1971 164 No None Exterior $38 - $48 Former independent
Buckeye Inn, affiliated in
1993. Good location
near the Continent.
10 KNIGHTS COURT 1986 50 Yes Outdoor Interior $75 - $80 Atypical Knights Inn with
atrium lobby and fountain
Amenities include
steamroom and whirlpool
11 CROSS COUNTRY INN 1986 142 No Outdoor Exterior $28 - $40 Regional chain similarly
to Red Roof Inns in
positioning and
construction
12 HOLIDAY INN EXPRESS* 1994 90 No Outdoor Interior $45 - $60 Same management and
ownership as Days Inn
Guests have use of Days
Inn facilities
</TABLE>
<TABLE>
<S> <C> <C> <C>
Total/Market Average 1,592 Est. 1995 Occupancy 63%
*Considered primary competitor Estimated 1995 ADR $49.00
</TABLE>
<PAGE> 29
[MAP]
Competitive Supply Map
Signature Inn
Columbus, Ohio
<PAGE> 30
- -------------------------------------------------------------------------------
MARKET ANALYSIS IV-7
- -------------------------------------------------------------------------------
[PHOTO]
[up arrow] VIEW OF DAYS INN
VIEW OF BEST WESTERN [down arrow]
[PHOTO]
<PAGE> 31
- -------------------------------------------------------------------------------
IV-8 MARKET ANALYSIS
- -------------------------------------------------------------------------------
[PHOTO]
[up arrow] VIEW OF COMFORT INN
VIEW OF TRUEMAN CLUB [down arrow]
[PHOTO]
<PAGE> 32
- -------------------------------------------------------------------------------
MARKET ANALYSIS IV-9
- -------------------------------------------------------------------------------
[PHOTO]
[up arrow] VIEW OF HARLEY HOTEL
VIEW OF KNIGHTS INN NORTH [down arrow]
[PHOTO]
<PAGE> 33
- -------------------------------------------------------------------------------
IV-10 MARKET ANALYSIS
- -------------------------------------------------------------------------------
[PHOTO]
[up arrow] VIEW OF HAMPTON INN
VIEW OF SUPER 8 [down arrow]
[PHOTO]
<PAGE> 34
- -------------------------------------------------------------------------------
MARKET ANALYSIS IV-11
- -------------------------------------------------------------------------------
[PHOTO]
[up arrow] VIEW OF KNIGHTS COURT
VIEW OF CROSS COUNTRY INN [down arrow]
[PHOTO]
<PAGE> 35
- -------------------------------------------------------------------------------
IV-12 MARKET ANALYSIS
- -------------------------------------------------------------------------------
[PHOTO]
[up arrow] VIEW HOLIDAY INN EXPRESS
<PAGE> 36
- -------------------------------------------------------------------------------
MARKET ANALYSIS IV-13
- -------------------------------------------------------------------------------
PROPOSED HOTEL DEVELOPMENT: Based upon discussions with local industry
participants, there are currently no new hotel projects in the active stages of
development within the immediate market area. There are several properties under
development at the airport, but these should have only a minimal effect on the
subject's market.
HISTORICAL LODGING DEMAND: Based on information compiled by Smith Travel
Research, and supported by our own interviews with management of the competitive
properties, and our knowledge of the market area, we have estimated historical
market occupancy levels. The following table indicates that the market occupancy
has increased over the period as demand has been rising, and supply has been
steady.
<TABLE>
<CAPTION>
=================================================================================================
TABLE IV - 2
HISTORICAL MARKET OCCUPANCY AND ADR
=================================================================================================
Year 1993 1994 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Estimated Market Occupancy 56% 58% 63%
- -------------------------------------------------------------------------------------------------
Estimated Market ADR $46.00 $47.00 $49.00
=================================================================================================
</TABLE>
Source: Smith Travel Research and local market interviews. Occupancies have
been rounded to the nearest point, while ADR's have been rounded to the
nearest $.50.
===============================================================================
Market occupancies increased by approximately seven points between 1993 and
1995, with compound annual ADR growth of 3.2%. The market has been affected by
the following:
- Growth in the Columbus area, particularly on the city's north side, has
caused increases in corporate demand for hotels. (See Regional Analysis
section of this report.) In particular, Bank One, Worthington
Industries, Simex, and Bisys serve as demand generators for the subject
and its market.
- A strong national economy has led to increased demand on a national
level. (See National Market Overview.) In particular, as hotels have
regained occupancy, many properties have attempted to boost profits
with rate hikes, leading to increased realized ADR.
- With improvement in the U.S. economy, consumer confidence has
increased, leading to additional leisure travel. The market is located
near the Continent, a retail and entertainment complex, as well as the
fairgrounds, which serves as a significant demand generator for the
State Fair each August, as well as during various trade shows.
- Although growth in demand has led to improved market occupancy, the 63%
figure still lags the 1995 national average occupancy of 65.5%.
<PAGE> 37
- -------------------------------------------------------------------------------
IV-14 MARKET ANALYSIS
- -------------------------------------------------------------------------------
COMPETITIVE POSITION OF SUBJECT PROPERTY
We have assessed the projected competitive position of the subject property as
it relates to the defined competitive lodging supply. Based on interviews with
representatives of competitive hotels, our general knowledge of the market area,
and consideration of factors such as competent and efficient management, a well
defined marketing program, the location of the subject property, and the quality
of the facility, we have estimated future occupancy and ADR for the subject.
Table IV - 3 presents the historical occupancy and ADR for the subject.
<TABLE>
<CAPTION>
==================================================================================================
TABLE IV - 3
HISTORICAL SUBJECT OCCUPANCY AND ADR
==================================================================================================
Year 1993 1994 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Subject Occupancy 59.6% 61.1% 64.7%
- --------------------------------------------------------------------------------------------------
Subject ADR $50.28 $53.53 $56.29
==================================================================================================
Source: Signature Inns
==================================================================================================
</TABLE>
Subject occupancy has surpassed market occupancy for 1993 through 1995. ADR
growth has increased a healthy 5.8% annually, well in excess of market growth.
The following property characteristics were considered as competitive advantages
and disadvantages when analyzing historical trends and estimating future
penetration rates for the subject:
- The subject is well positioned against the competitive supply. Many of
the economy properties are in inferior condition. In general, the
full-service properties are priced higher than the subject, and offer
services which are not of interest to a typical Signature Inn guest.
- The subject's location has advantages and disadvantages. Although most
of the competitive supply has superior access and visibility to I-71,
the subject does not have any direct competition at its intersection.
- The subject has very good visibility and relatively good access from
I-270.
- The Signature Inn affiliation and reservation system provides a very
good reputation for consistency and value for the mid-economy oriented
traveller, particularly among the corporate segment, in the central
mid-west. However, the flag is lesser known in the Columbus market, and
commands little brand loyalty. (Please see Signature Inn corporate
overview earlier in this section.)
<PAGE> 38
- -------------------------------------------------------------------------------
MARKET ANALYSIS IV-15
- -------------------------------------------------------------------------------
- Free local phone calls and continental breakfast add a sense of value
to budget- conscious consumers.
- Subject amenities, including a private guest business center and
interview stations, are unique to the market.
ESTIMATED OCCUPANCY AND AVERAGE DAILY RATE
To estimate the stabilized occupancy and average daily room rate (ADR) for the
subject property, we analyzed historical occupancy and average daily rates
achieved by the subject and the competitors, the discounting practices of these
hotels, the projected supply and demand changes in the market, and the
competitive advantages and disadvantages of the subject.
Based upon the condition of the property and market, discussion with the
property's general managers, as well as its historical occupancy and ADR market
trends, we project the subject will achieve a stabilized occupancy of 65% at an
ADR of $57.50. The occupancy reflects a slight increase in rooms occupied, based
upon the historical trend. The projected ADR increase allows for a moderate
improvement based upon historical growth.
HOTEL SUPPLY AND DEMAND CONCLUSION
The competitive supply has demonstrated strong demand growth, with strong
increases in ADR. The subject has consistently out-performing the market
occupancy levels. We believe occupancy levels will stabilize at 65%, and have
projected a stabilized ADR of $57.50.
Our estimates of annual occupancy and average daily room rate, as outlined in
this section of the report, are predicated on the following assumptions:
1. The subject hotel will continue to be professionally managed and
maintained;
2. The subject hotel will be effectively promoted with a well-targeted
marketing program throughout the analysis period;
3. The subject hotel will continue to be operated under the existing chain
affiliation as a Signature Inn, or a comparable chain affiliation; and,
4. The subject will undergo a continued program of periodic replacement of
furniture, fixtures and equipment, which will continue throughout the
analysis period.
<PAGE> 39
- -------------------------------------------------------------------------------
HIGHEST AND BEST USE V-1
- -------------------------------------------------------------------------------
HIGHEST AND BEST USE
According to The Dictionary of Real Estate Appraisal published by the Appraisal
Institute, Highest and Best Use is defined as:
The reasonable and probable use that supports the highest present value
of vacant land or improved property, as defined, as of the date of the
appraisal.
The reasonably probable and legal use of land or sites as though vacant,
found to be physically possible, appropriately supported, financially
feasible, and that results in the highest present land value.
The most profitable use.
Land must always be valued at its highest and best use as if vacant. Thus, we
evaluate the highest and best use of the site both as if vacant and as currently
improved. The highest and best use of the site as if vacant may differ from the
highest and best use of the property as improved.
The hierarchial order for determining the highest and best use for both the land
as though vacant and the property as improved is that the use must be:
1. Physically possible.
2. Legally permissible.
3. Financially feasible.
4. Maximally productive.
The synthesis of these four factors was considered to determine a most probable
and profitable use for the subject parcel of real estate.
HIGHEST AND BEST USE, AS THOUGH VACANT
The major considerations in estimating the highest and best use as though vacant
include the zoning classification and locational attributes of the site, the
quality and quantity of surrounding land use patterns, the current availability
of infrastructure, and the supply and demand factors currently affecting the
real estate marketplace.
PHYSICALLY POSSIBLE: The initial step in our analysis involved estimating what
uses were physically possible. The site has supported the existing hotel use for
approximately ten years. This is testimony to its physical possibility. A number
of other uses are also
<PAGE> 40
- -------------------------------------------------------------------------------
V-2 HIGHEST AND BEST USE
- -------------------------------------------------------------------------------
physically possible on a site of this size. Those uses include, but are not
limited to commercial, industrial, retail, residential, and service related
uses.
LEGALLY PERMISSIBLE: The subject site is zoned C-4 (Commercial District). A
hotel is considered a legally conforming use. Most other uses are allowed, and
most uses are represented in the neighborhood.
FINANCIALLY FEASIBLE: The next step in our narrowing of options for highest and
best use involved determining what physically possible and legally permissible
uses would be financially feasible and compatible with surrounding developments.
The area in the vicinity of the site is developed with a variety of retail,
restaurant, hotel, residential, and commercial uses. We have examined the
current hotel market performance and projected operating performance of the
subject. The development of a new hotel on the site is currently marginally
justified based upon the occupancy and average daily rate currently being
achieved by the competitive supply. The performance of the subject attests to
the market viability of a hotel on the site, as if vacant.
An analysis of other possible uses for the site indicate some financial
feasibility. Possible uses may include office, or highway service. The
surrounding land uses include nearly all of these uses. These improvements
appear to be supported by the market.
MAXIMALLY PRODUCTIVE: In the final analysis, a determination must be made as to
which feasible use is the highest and best use, providing the maximum net return
to the land over the longest period of time. To maximize value, a property must
be financially feasible and legally permissible while coinciding with the
surrounding existing land uses. Based upon our analysis of the zoning code, the
existing surrounding properties, the financial feasibility, and the status of
the land, it is our opinion that the highest and best use for the subject, as
though vacant, is for development of a limited-service hotel similar to the
subject, and assuming that the financing could be obtained.
HIGHEST AND BEST USE, AS IMPROVED
In analyzing the highest and best use of the existing improvements, the four
tests which were previously discussed are also applied to the subject as
improved. This simple test is undertaken in order to determine whether an
alternative use could generate a greater return to the land and removal of the
existing improvements is justified. Since the improvements, as they currently
exist, continue to make a substantial contribution to the overall value of the
property, the continuation of the existing use is justified. There is no
alternative, economically feasible use that could justify removal of the
existing improvements at this time. Therefore, the highest and best use of the
subject, as improved, is the continued use as a limited service hotel.
<PAGE> 41
- -------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-1
- -------------------------------------------------------------------------------
INTRODUCTION
This approach analyzes a property's capacity to generate income (or other
monetary benefit) and converts this capacity into an indication of value. The
approach is suitable for properties that have obvious earning power and
investment appeal but is inappropriate for properties that have no readily
discernible income potential. Further, this approach is based on the premise
that the value of a property is represented by the present worth of anticipated
future benefits to be derived from ownership. There are two basic techniques
which can be used for analysis purposes: direct capitalization and discounted
cash flow.
Direct capitalization converts an estimate of a single year's income expectancy
or an annual average of several years' income expectancies into an indication of
value in one direct step. Direct capitalization is especially useful when
analyzing a property that has achieved a stabilized level of operations and
occupancy.
The discounted cash flow (DCF) analysis is a market reflective method of
estimating the present worth of anticipated income benefits. This analysis
converts a stream of expected income into a present value and is most
appropriate when valuing a property that has not yet reached stabilized
occupancy.
In valuing the subject, it is our opinion that the direct capitalization
valuation technique is useful in the analysis. We have estimated cash flow for a
typical stabilized year. These financial estimates are based on the results of
the subject property's historical operations, the performance of comparable
Signature Inn facilities, industry standards, and assumptions regarding the
environment in which the subject hotel operates.
All amounts have been rounded to the nearest one thousand dollars and account
classifications generally conform to the definitions prescribed by the American
Hotel and Motel Association in the Uniform System of Accounts for Hotels. All
percentages, amounts per available room or amounts per occupied room presented
in the following pages were first computed on the basis of the revenue and
expenses expressed in constant dollars and then inflated. All dollar amounts are
expressed in stated year dollars unless otherwise noted.
OVERVIEW OF HISTORICAL FINANCIAL PERFORMANCE
Historical financial statements for years 1993 through 1995 were provided by
Signature Inns. These unaudited financial statements were formatted to follow
the Uniform System of Accounts for Hotels, and are presented on the following
pages. In utilizing these statements, it should be noted that the historical
financial information was not audited or reviewed by us. Accordingly, we express
no opinion as to the reliability of this financial information.
<PAGE> 42
- -------------------------------------------------------------------------------
VI-2 INCOME CAPITALIZATION APPROACH
- -------------------------------------------------------------------------------
During the period, the subject's overall financial performance has improved. The
Income Before Other Deductions increased from $401,409 in 1993 to $474,808 in
1995. Total revenue increased from $1,458,766 in 1993 to $1,756,978 in 1995.
However, departmental expenses demonstrated an increase as a percentage of total
revenue between 1993 and 1995 from 24.4% to 26.2%, while undistributed expenses
declined from 37.2% to 37.0%.
<PAGE> 43
HISTORICAL OPERATING RESULTS OF THE
SIGNATURE INN VII LTD-COLUMBUS, OHIO
<TABLE>
<CAPTION>
1995 ACTUAL 1994 ACTUAL
PERCENTAGE OF OCC/ADR 64.7% at $50.29 61.1% at $53.69
OCCUPIED ROOMS 20,810 27,877
AVAILABLE ROOMS 45,625 45,625
PER AVAL PER PER AVAL PER
REVENUE: AMOUNT RATIO ROOM OCC ROOM AMOUNT RATIO ROOM OCC ROOM
------ ----- ---- -------- ------ ----- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $1,681,737 94.6% $13,264 $50.29 $1,492,145 94.4% $11,037 $53.03
TELEPHONE 45,515 2.6% 384 1.54 38,038 2.4% 304 1.30
RENTALS & OTHER INCOME 49,726 2.8% 308 1.68 50,050 3.2% 408 1.83
------ ---- --- ---- ------ ---- --- ----
TOTAL 1,756,978 100.0% 14,058 59.32 1,581,133 100.0% 12,649 56.72
--------- ------ ------ ----- --------- ------ ------ -----
DEPARTMENTAL EXPENSES:
ROOMS 427,285 25.7% 3,418 14.47 369,299 24.3% 2,906 13.03
TELEPHONE 32,354 71.1% 259 1.10 25,573 67.2% 205 0.92
------ ----- --- ---- ------ ----- --- ----
TOTAL 459,642 26.2% 3,677 15.57 385,872 24.0% 3,111 13.95
------- ----- ----- ----- ------- ----- ----- -----
TOTAL DEPARTMENTAL PROFIT 1,297,336 73.8% 10,379 43.95 1,192,261 75.4% 9,538 42.77
--------- ----- ------ ----- --------- ----- ----- -----
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 201,838 11.5% 1,615 6.84 180,589 11.5% 1,493 6.09
MANAGEMENT FEE 85,273 4.9% 682 2.89 76,819 4.9% 615 2.70
MARKETING 82,358 4.7% 859 2.79 73,207 4.6% 580 2.83
FRANCHISE FEES 68,219 3.9% 546 2.31 61,455 3.9% 492 2.20
PROPERTY OPERATION & MAINT. 129,991 7.4% 1,040 4.40 104,344 6.6% 935 3.74
ENERGY 31,682 4.7% 855 2.77 80,009 6.4% 689 3.09
------ ---- --- ---- ------ ---- --- ----
TOTAL 649,562 37.0% 5,195 22.00 588,483 37.2% 4,708 21.11
------- ----- ----- ----- ------- ----- ----- -----
INCOME BEFORE FIXED CHARGES 847,774 36.9% 5,162 21.94 603,778 38.2% 4,830 21.66
------- ----- ----- ----- ------- ----- ----- -----
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 66,218 3.5% 630 2.24 65,835 4.2% 527 2.38
BUILDING & CONTENTS INSURANCE 36,469 2.1% 292 1.24 32,112 2.0% 257 1.16
0 0.0% 0 0.00 0 0.0% 0 0.00
- ---- - ---- - ---- - ----
TOTAL 102,687 5.8% 821 3.48 97,947 6.2% 784 3.51
------- ---- --- ---- ------ ---- --- ----
INCOME BEFORE RESERVE 545,087 31.0% 4,361 18.47 503,631 32.0% 4,047 18.15
------- ----- ----- ----- ------- ----- ----- -----
RESERVE FOR REPLACEMENT 70,279 4.0% 562 2.38 63,245 4.0% 606 2.27
------ ---- --- ---- ------ ---- --- ----
INCOME BEFORE OTHER DEDUCTIONS $474,808 27.0% $3,798 $16.08 $442,586 28.0% $3,541 $15.68
-------- ----- ------ ------ -------- ----- ------ ------
</TABLE>
<TABLE>
<CAPTION>
1993 ACTUAL
PERCENTAGE OF OCC/ADR 59.6% at $50.28
OCCUPIED ROOMS 27,193
AVAILABLE ROOMS 45,625
PER AVAL PER
REVENUE: AMOUNT RATIO ROOM OCC ROOM
------ ----- ---- --------
<S> <C> <C> <C> <C>
ROOMS $1,367,200 93.7% $10,938 $50.25
TELEPHONE 32,664 2.2% 261 1.20
RENTALS & OTHER INCOME 58,812 4.0% 470 2.10
---------- ----- ------- ------
TOTAL 1,458,766 100.0% 11,670 53.65
---------- ----- ------- ------
DEPARTMENTAL EXPENSES:
ROOMS 333,693 24.4% 2,671 12.28
TELEPHONE 21,685 66.4% 173 0.80
------ ----- --- ----
TOTAL 355,578 24.4% 2,845 13.08
------- ----- ----- -----
TOTAL DEPARTMENTAL PROFIT 1,103,188 75.6% 8,820 40.57
--------- ----- ----- -----
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 168,485 11.5% 1,348 6.20
MANAGEMENT FEE 70,795 4.9% 586 2.60
MARKETING 66,792 4.6% 634 2.40
FRANCHISE FEES 66,638 3.9% 453 2.08
PROPERTY OPERATION & MAINT. 107,689 7.4% 861 3.95
ENERGY 72,725 5.0% 582 2.68
------- ----- ----- -----
TOTAL 543,082 37.2% 4,345 19.97
------- ----- ----- -----
INCOME BEFORE FIXED CHARGES 560,106 38.4% 4,481 20.60
------- ----- ----- -----
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 71,850 4.9% 871 2.62
BUILDING & CONTENTS INSURANCE 28,996 2.0% 232 1.07
0 0.0% 0 0.00
- ---- - ----
TOTAL 100,346 0.0% 800 3.69
------- ---- --- ----
INCOME BEFORE RESERVE 459,760 31.5% 3,676 10.91
------- ----- ----- -----
RESERVE FOR REPLACEMENT 58,351 4.0% 487 2.15
------ ---- --- ----
INCOME BEFORE OTHER DEDUCTIONS $401,409 27.5% $3,211 $14.76
-------- ----- ------ ------
</TABLE>
Source: SIGNATURE INNS
Based on _______ 125 Rooms
<PAGE> 44
- -------------------------------------------------------------------------------
VI-4 INCOME CAPITALIZATION APPROACH
- -------------------------------------------------------------------------------
PROSPECTIVE FINANCIAL ANALYSIS
COMPARABLES: The prospective financial analysis is based on the results of
historical operations of the subject property, results of operations of
comparable facilities, industry standards, and projections regarding the future
environment in which the hotel will operate. This includes the assumption that
the property will be operated in a competent and professional manner, and it
will be properly advertised and promoted.
We have compared the operating performance of the subject to a 17-property
portfolio of Signature Inns located in the mid-west. Their average, high, and
low performance is presented on the following page. The industry standards
presented on the next page are from the Host Report 1994, published by Arthur
Anderson and Smith Travel Research, and the Trends Report 1994, published by PKF
Consulting. We have utilized the standards for mid-priced, limited-service
properties.
<PAGE> 45
1995
SIGNATURE INN PORTFOLIO
HISTORICAL AVERAGE, HIGH, AND LOW OPERATING RESULTS
<TABLE>
<CAPTION>
PORTFOLIO AVERAGE PORTFOLIO LOW
PERCENTAGE OF OCC/ADR 66.96% at $55.76 53.70% at $48.40
OCCUPIED ROOMS 29,180
AVAILABLE ROOMS 44,015
PER AVAIL PER PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM AMOUNT RATIO ROOM OCC ROOM
------ ----- ---- -------- ------ ----- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
ROOMS $1,631,154 94.8% $13,527 $55.38 $1,223,933 92.3% $ 9,870 $48.46
TELEPHONE 42,263 2.5% 350 1.45 30,695 1.9% 238 1.19
RENTALS & OTHER INCOME 47,640 2.8% 395 1.63 28,328 1.6% 227 0.97
------ ---- --- ---- ------ ---- --- ---
TOTAL 1,721,057 100.0% 14,272 58.96 1,283,000 100.0% 10,435 51.24
--------- ------ ------ ----- --------- ------ ------ -----
DEPARTMENTAL EXPENSES:
ROOMS 397,111 24.3% 3,293 13.60 310,456 20.5% 2,819 12.05
TELEPHONE 33,202 78.6% 275 1.14 25,266 59.6% 177 0.88
------ ----- --- ---- ------ ----- --- ----
TOTAL 430,313 25.0% 3,568 14.74 314,817 20.5% 3,025 13.27
------- ----- ----- ----- ------- ----- ----- -----
TOTAL DEPARTMENTAL PROFIT 1,290,744 75.0% 10,704 44.22 912,312 70.5% 7,357 35.12
--------- ----- ------ ----- ------- ----- ----- -----
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 192,580 11.2% 1,597 6.50 163,013 9.5% 1,148 5.02
MANAGEMENT FEE 83,614 4.9% 603 2.86 62,582 4.8% 605 2.48
MARKETING 82,806 4.8% 687 2.84 64,036 4.1% 644 2.44
FRANCHISE FEES 66,891 3.9% 555 2.29 50.066 3.8% 404 1.98
PROPERTY OPERATIONS & MAINT. 103,337 6.0% 857 3.54 73,021 4.5% 687 2.66
ENERGY 73,648 4.3% 612 2.53 50,068 3.1% 403 1.05
------ ---- --- ---- ------ ---- --- ----
TOTAL 603,077 35.0% 5,001 20.00 527,436 31.1% 4,177 18.25
------- ----- ----- ----- ------- ----- ----- -----
INCOME BEFORE FIXED CHARGES 687,667 40.0% 5,703 23.58 384,876 20.7% 3,104 15.24
------- ----- ----- ----- ------- ----- ----- -----
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 62,395 3.6% 817 2.14 33,781 2.2% 311 1.27
BUILDING & CONTENTS INSURANCE 30,315 1.8% 251 1.04 22,309 1.2% 108 0.75
0 0.0% 0 0.00 0 0.0% 0 0.00
- ---- - ---- - ---- - ----
TOTAL 92,710 5.4% 769 3.18 56,531 3.7% 654 2.19
------ ---- --- ---- ------ ---- --- ----
INCOME BEFORE RESERVE 594,957 34.6% 4,934 20.38 253,274 20.3% 2,123 10.42
------- ----- ----- ----- ------- ----- ----- -----
RESERVE FOR REPLACEMENT 68,842 4.0% 571 2.36 51,780 4.0% 417 2.05
------ ---- --- ---- ------ ---- --- ----
INCOME BEFORE OTHER DEDUCTIONS $528,115 30.6% $4,363 $18.02 $211,514 16.3% $1,708 $8.38
-------- ----- ------ ------ -------- ----- ------ -----
<CAPTION>
PORTFOLIO HIGH
PERCENTAGE OF OCC/ADR 81.40% at $64.88
OCCUPIED ROOMS
AVAILABLE ROOMS
PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM
------ ----- ---- --------
<S> <C> <C> <C> <C>
REVENUE:
ROOMS $2,225,242 96.0% $18,091 $64.88
TELEPHONE 58,935 3.3% 584 1.96
RENTALS & OTHER INCOME 79,199 4.4% 784 2.64
------ ---- --- ----
TOTAL 2,331,954 100.0% 18,959 67.99
--------- ------ ------ -----
DEPARTMENTAL EXPENSES:
ROOMS 450,029 28.8% 3,937 18.07
TELEPHONE 47,983 99.9% 390 1.57
--------- ----- ------ -----
TOTAL 497,019 29.5% 4,309 18.64
------- ----- ------ -----
TOTAL DEPARTMENTAL PROFIT 1,846,396 79.2% 15,011 83.83
--------- ----- ------ -----
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 242,323 13.8% 2,062 7.27
MANAGEMENT FEE 113,728 4.9% 925 3.32
MARKETING 107,997 8.9% 878 3.16
FRANCHISE FEES 90,982 9.0% 740 2.85
PROPERTY OPERATIONS & MAINT. 135,387 7.8% 1,082 4.48
ENERGY 113,718 6.4% 753 3.55
------- ---- ----- -----
TOTAL 748,100 40.8% 6,882 22.51
------- ----- ----- -----
INCOME BEFORE FIXED CHARGES 1,098,287 47.1% 8,029 32.02
--------- ----- ----- -----
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 115,734 7.4% 798 3.81
BUILDING & CONTENTS INSURANCE 46,338 2.6% 377 1.49
0 0.0% 0 0.00
- ---- - ----
TOTAL 148,145 9.4% 1,017 4.81
------- ---- ----- ----
INCOME BEFORE RESERVE 980,338 42.0% 7,971 26.58
------- ----- ----- -----
RESERVE FOR REPLACEMENT 93,278 4.0% 758 2.72
------ ---- --- ----
INCOME BEFORE OTHER DEDUCTIONS $887,110 38.0% $7,212 $25.80
-------- ----- ------ ------
</TABLE>
Source: SIGNATURE INNS
NOTE: Totals will not foot as averages, highs, and lows have
been presented by line item.
Average of ________ 121 rooms
<PAGE> 46
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOST - LIMITED SERVICE TRENDS - LIMITED SERVICE
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARABLE PROPERTY OPERATING RESULTS 1994 MID-PRICED 1994 ALL LIMITED SERVICE
YEAR-END RESULTS ROOMS 124 ROOMS 111
PERCENTAGE OF OCCUPANCY/ $52.26 at 72.6% $40.31 at 66.7%
AVERAGE DAILY ROOM RATE
- ------------------------------------------------------------------------------------------------------------------------------------
PER AVAIL PER PER AVAIL PER
REVENUE: AMOUNT RATIO ROOM OCC ROOM AMOUNT RATIO ROOM OCC ROOM
---------- ----- --------- -------- ---------- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $1,714,505 05.0% $13,827 852.25 $1,372,465 96.3% $12,365 $40.31
TELEPHONE 32,064 1.0% 200 1.01 35,400 2.5% 310 1.27
RENTALS & OTHER INCOME 35,068 2.1% 307 1.15 14,206 1.0% 120 0.61
OTHER OPERATED DEPTS 19,220 1.1% 165 0.59 17,671 1.2% 101 9.54
---------- ----- ------- ------ ---------- ----- ------- ------
TOTAL 1,604,777 100.0% 14,569 55.00 1,430,073 100.0% $12,973 51.73
---------- ----- ------- ------ ---------- ----- ------- ------
DEPARTMENTAL EXPENSES:
ROOMS 456,345 27.2% 3,701 14.21 331,002 24.1% 2,902 11.50
TELEPHONE 22,000 00.7% 177 0.07 20,079 50.2% 160 0.75
OTHER OPERATED DEPTS 98 0.5% 1 0.90 13,098 73.3% 118 0.47
---------- ----- ------- ------ ---------- ----- ------- ------
TOTAL 468,442 27.1% 3,039 14.89 305,079 25.4% 3,280 15.12
---------- ----- ------- ------ ---------- ----- ------- ------
TOTAL OPERATED INCOME 1,310,335 72.9% 10,618 40.12 1,074,804 74.0% 9,084 35.62
---------- ----- ------- ------ ---------- ----- ------- ------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 105,540 9.2% 1,335 8.04 129,570 9.0% 1,170 4.07
MANAGEMENT FEE 68,572 3.8% 583 2.00 54,612 3.8% 492 1.90
MARKETING 86,032 4.8% 503 2.02 52,201 5.0% 471 1.58
FRANCHISE FEES 43,548 2.4% 352 1.33 10,953 1.2% 153 0.01
PROPERTY OPERATION & MAINT. 77,370 4.3% 524 2.35 60,919 6.0% 729 2.91
ENERGY 65,932 4.0% 603 2.02 76,033 5.4% 103 2.00
---------- ----- ------- ------ ---------- ----- ------- ------
TOTAL 527,000 29.2% 4,250 15.00 412,000 25.7% 3,710 14.03
---------- ----- ------- ------ ---------- ----- ------- ------
INCOME BEFORE FIXED CHARGES 789,335 43.7% 6,300 24.00 602,196 45.0% 5,000 23.79
---------- ----- ------- ------ ---------- ----- ------- ------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 64,976 3.6% 524 1.96 62,715 4.4% 506 2.25
BUILDING & CONTENTS INSURANCE 19,840 1.1% 100 0.00 22,644 1.0% 204 0.51
EQUIPMENT LEASE 0 0.0% 0 0.00 0 0.0% 0 0.00
OTHER 0 0.0% 0 0.00 0 0.0% 0 0.00
---------- ----- ------- ------ ---------- ----- ------- ------
TOTAL 54,510 4.7% 584 2.50 65,359 5.9% 700 3.07
---------- ----- ------- ------ ---------- ----- ------- ------
INCOME BEFORE RESERVE 704,519 30.0% 5,682 21.47 576,837 40.1% 5,197 20.72
---------- ----- ------- ------ ---------- ----- ------- ------
RESERVE FOR REPLACEMENT 0 0.0% 0 0.0% 0 0.0% 0 0.00
---------- ----- ------- ------ ---------- ----- ------- ------
INCOME BEFORE OTHER DEDUCTIONS $ 704,519 30,0% $ 5,682 21.47 $ 576,837 40.1% $ 5,197 $20.72
---------- ----- ------- ------ ---------- ----- ------- ------
</TABLE>
<PAGE> 47
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-7
- --------------------------------------------------------------------------------
ROOMS DEPARTMENT
ROOMS REVENUE: Rooms department revenue was calculated by estimating annual
occupancy and average daily rate per occupied room. Our estimates of occupancy
and ADR, and the rationale supporting these estimates, are presented in the
Market Analysis section of this report. We estimate the 125-room subject will
achieve a stabilized occupancy of 65% and an average daily rate of $57.50.
ROOMS EXPENSES: This category includes rooms payroll and related expenses, guest
supplies, paper goods, cleaning supplies, laundry, linen, and other items for
maintaining guest rooms as well as miscellaneous expenses.
These expenses increased from 24.4% of departmental revenue in 1993 to 25.7% of
rooms revenue in 1995. Comparable Signature Inns in the portfolio averaged a
1995 rooms expense of 24.3%, with a range of 20.5% to 28.8%. The Host Report
indicates an industry standard of 27.2%, while Trends reports a 24.1%. The
subject has experienced increased costs due to a labor shortage in the area,
which has driven up wages. The trend is expected to continue in the mid-term.
Accordingly, we estimate the rooms expense to equal a stabilized 26.0% of rooms
revenue based upon historical statistics and trend.
TELEPHONE DEPARTMENT
TELEPHONE REVENUE: This revenue includes income from local calls, long distance
calls, and access charges. Historically, the subject realized telephone revenue
per occupied room increased from $1.20 to $1.54. Telephone revenues at the
subject are relatively low since the property does not charge for local
telephone calls, which is becoming increasingly common at limited-service
hotels. The portfolio averaged telephone sales of $1.45 per occupied room, with
a range of $1.19 to $1.96. Industry standards indicated $1.01 and $1.27 per
available room. Based upon the subject's pricing practices, as well as its
historical telephone income, we project income of $1.50 per occupied room.
TELEPHONE EXPENSES: These expenses reflect the cost of providing local and long
distance cells. Historical telephone expenses at the property increased from
66.4% in 1993 to 71.1% of telephone revenue in 1995. The portfolio averaged
78.6% per occupied room, ranging from 59.6% to 99.9%, while industry standards
indicate 66.7% and 59.2% per occupied room. Based upon the telephone pricing
practices at the subject, we have projected a stabilized expense of 70% of
telephone revenues.
RENTALS AND OTHER INCOME
This line item includes all net income associated with vending machines,
laundry, movie rental, rentals, faxes, and any other miscellaneous income
generated by the hotel. The subject has shown net income in rentals and other
income category within a range of $58,818 in 1993 to $49,726 in 1995. Based upon
the historical, we have estimated rentals and other income to be $50,000 upon
stabilization.
<PAGE> 48
- --------------------------------------------------------------------------------
VI-8 INCOME CAPITALIZATION APPROACH
- --------------------------------------------------------------------------------
UNDISTRIBUTED OPERATING EXPENSES
ADMINISTRATIVE AND GENERAL EXPENSES: These expenses represent payroll costs and
other expenses for management and administration. Administrative and general
(A&G) expenses include such items as the cost of accounting and legal fees,
credit card commissions, printing, stationery, general liability insurance,
donations, and postage costs.
These expenses increased from $1,348 per available room in 1993 to $1,615 in
1995. The Signature Inn portfolio averaged $1,597 per available room, ranging
from $1,146 to $2,062. Industry standards indicate a lower $1,335 and $1,170 per
available room. Based upon historical trend, and considering the portfolio and
standards, we have projected a lower A&G expense of $1,620 per available room
for the stabilized year.
MANAGEMENT FEE: Signature Inns has historically charged a management fee of 5%
of rooms revenue and most rental revenue. However, since the purpose of our
appraisal is to estimate market value, management fees for the property must
reflect current market management fees, since existing management contracts are
not binding upon subject transfer. U S Realty Consultants' Fall 1995 survey
indicated a management fee range of 3% to 6% for properties without incentive
fees. The overall base management fee for new contracts was 2.9%, down from a
3.4% average in our database of existing contracts. However, it should be noted
that this average does not include incentive fees incorporated into some
agreements. Based upon the declining trend for new contracts, as well as our
knowledge of current market fees, we have estimated this expense to be 4% of
total revenue.
MARKETING EXPENSES: include payroll and related benefits, the cost of
advertising in various media such as newspapers, magazines and directories, as
well as direct mail campaign, bill boards and miscellaneous sales and marketing
expenses.
Historically, the marketing expenses at the subject hotel have ranged from $534
to $659 per available room. The portfolio averaged $687 per available room.
Industry standards reflect an expense of $693 and $471 per available room. Based
upon the historical performance, as well as the portfolio and industry standard,
we have projected a marketing expense of $675 per available room for the
subject.
FRANCHISE FEE: Signature Inn historically has charged a franchise fee of 4% of
rooms revenue. However, as discussed in our management fee section, a potential
buyer would need to affiliate the subject with a similar franchise in order to
achieve the occupancy and ADR projected. Currently, the Signature Inn
affiliation is a contributing factor in the subject's ability to penetrate the
market. After examining the franchise costs of more than sixty national
franchises, we have determined that a franchise fee of 4% of rooms revenue is
appropriate for the level of corporate support and brand recognition provided by
the Signature Inn affiliation.
<PAGE> 49
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-9
- --------------------------------------------------------------------------------
PROPERTY OPERATION AND MAINTENANCE EXPENSES: include both payroll and related
benefits and other expenses associated with periodic preventive maintenance and
repairs to the physical structure and mechanical equipment.
Historically, property operations and maintenance expenses at the subject hotel
varied from $861 per available room in 1993 to $1,040 per available room in
1995. Property operation and maintenance expenses in the portfolio averaged a
lower $857 per available room, ranging from $687 to $1,082. Industry standards
reflect a still lower average of $624 and $729 per available room. Based upon
all the available information, we have projected a stabilized expense of $975
per available room for the subject.
ENERGY EXPENSES: represent expenditures for electricity, heating, fuel, water,
waste removal and related operating supplies. The subject hotel experienced
energy expenses ranging from $582 in 1993, increasing to $689 in 1994 before
declining to $655 in 1995. We have based our projection on the increased
historical energy costs. We estimate the energy expense at $675 per available
room for the stabilized year.
FIXED CHARGES
REAL ESTATE AND PROPERTY TAXES: Historical property taxes were detailed in the
Descriptive Data section previously. We have projected stabilized real estate
and personal property taxes in 1996 dollars to be $62,800.
BUILDING AND PROPERTY INSURANCE: This expense includes building and property
insurance expenses at the subject hotel.
This expense has historically ranged from $232 in 1993 to $292 in 1995, while
the portfolio averaged $251 per available room. Industry standards reflected a
lower $160 and $204. Based upon the historical expense, as well as the portfolio
and standards, we have projected an expense of $250 per available room.
RESERVE FOR REPLACEMENT: represents a reserve set aside to provide for the
periodic replacement of furniture, fixtures and equipment during the life of the
building. Historically the subject hotel has posted a 4% replacement reserve to
its operating statement. As discussed in the Descriptive Data section, our
reserve is estimated at 4% of total sales throughout the analysis period. A 4%
replacement reserve is projected as it is in keeping with industry guidelines
for a hotel of the subject's age, size, and volume of operation. Additionally,
the amount is considered to be appropriate due to the level and extent of
furniture, fixtures and equipment replacement necessary to maintain and improve
the overall condition of the subject over its useful life.
STABILIZED OPERATING STATEMENT: A projected stabilized operating statement for
FY 1996 is presented on the following page. This projection is rounded to the
nearest one hundred dollars. The estimated cash flow will be used to estimate
the subject property's market value by direct capitalization.
<PAGE> 50
- --------------------------------------------------------------------------------
VI-10 INCOME CAPITALIZATION APPROACH
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
STABILIZED OPERATING STATEMENT
SIGNATURE INN - COLUMBUS
1996 DOLLARS
- -------------------------------------------------------------------------------------------
OCCUPANCY/ADR 65% at $57.50
PER OCC.
AMOUNT RATIO AMT\RM ROOM
<S> <C> <C> <C> <C>
REVENUES:
ROOMS $1,705,000 94.7% $13,640 $57.49
TELEPHONE 44,484 2.5% 356 1.50
RENTALS & OTHER INCOME 50,000 2.8% 400 1.69
---------- ---- ------- ------
TOTAL REVENUE $1,799,484 100.0% $14,396 $60.68
DEPARTMENTAL EXPENSES: (1)
ROOMS $ 443,300 26.0% $ 3,546 $14.95
TELEPHONE 31,139 70.0% 249 1.05
---------- ---- ------- ------
TOTAL DEPARTMENTAL EXPENSES $ 474,439 26.4% $ 3,796 $16.00
TOTAL OPERATED INCOME $1,325,000 73.6% $10,600 $44.68
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL $ 202,500 11.3% $ 1,620 $ 6.83
MANAGEMENT FEE 71,979 4.0% 576 2.43
MARKETING 84,375 4.7% 675 2.85
FRANCHISE FEES 68,200 3.8% 546 2.30
PROPERTY OPERATION & MAINT 121,875 6.8% 975 4.11
ENERGY 84,375 4.7% 670 2.82
---------- ---- ------- ------
TOTAL $ 633,304 35.2% $ 5,061 $21.33
INCOME BEFORE FIXED CHARGES $ 692,000 38.5% $ 5,539 $23.35
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES $ 62,800 3.5% $ 502 $ 2.12
BUILDING & CONTENTS INSURANCE 31,250 1.7% 250 1.05
---------- ---- ------- ------
TOTAL FIXED CHARGES $ 94,050 5.2% $ 752 $ 3.17
INCOME BEFORE RESERVE $ 598,000 33.2% $ 4,786 $20.18
RESERVE FOR REPLACEMENT $ 71,979 4.0% $ 576 $ 2.43
---------- ---- ------- ------
INCOME BEFORE OTHER DEDUCTIONS (2) $ 526,000 29.2% $ 4,208 $17.75
</TABLE>
NOTES:
(1) Each departmental expense ratio is based on the department's
estimated revenue and does not add to the total departmental expense
ratio.
(2) Income before other fixed charges such as interest, amortization,
depreciation, and income taxes.
Note: This statement is based upon a room inventory of: 125
THIS STATEMENT SHOULD BE READ SUBJECT TO THE COMMENTS CONTAINED IN THE ATTACHED
REPORT
- --------------------------------------------------------------------------------
<PAGE> 51
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-11
- --------------------------------------------------------------------------------
VALUATION ANALYSIS
In order to provide a value estimate via the Income Capitalization Approach an
analysis to estimate probable overall capitalization rates was necessary. We
relied upon input from a number of sources including discussions with market
participants, our own experience, and awareness of current money rates and
investment trends.
In developing a capitalization rate for income-producing real estate, factors
such as the quality and durability of the estimated income stream were analyzed.
A hotel property has special risk resulting from the generally single purpose
nature of the construction and its sensitivity to change in market conditions
and the lodging industry. An appropriate capitalization rate must reflect these
factors and their relationship to the subject property. An examination of the
capitalization rates for hotel properties that have recently been purchased has
been undertaken.
The table below presents current yields and capitalization rates as tracked by
the Korpacz Investor Survey, a widely utilized barometer of investment
parameters.
<TABLE>
<CAPTION>
===============================================================================================
TABLE VI-1
KORPACZ INVESTOR SURVEY - HOTELS
FOURTH QUARTER 1995
===============================================================================================
NATIONAL NATIONAL NATIONAL
FULL-SERVICE ECONOMY/LIMITED- LUXURY
HOTELS SERVICE HOTELS HOTELS
===============================================================================================
FREE & CLEAR EQUITY CAP RATE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Range 8.0% - 15.0% 8.0% - 18.0% 7.0% - 15.0%
- -----------------------------------------------------------------------------------------------
Average 10.65% 12.53% 10.17%
- -----------------------------------------------------------------------------------------------
</TABLE>
Source: Korpacz Real Estate Investor Survey, First Quarter 1995
================================================================================
Table VI - 1 provides information from the most recent overall hotel survey
conducted by Korpacz. The survey indicated a capitalization rate for
limited-service hotels in the range of 8% to 18% with an average of 12.53%.
As with other property types, there exists a degree of uncertainty in today's
real estate market. Nevertheless, for purposes of determining an appropriate
capitalization rate for the subject, we considered the capitalization rates from
the limited sales presented within Sales Comparison Approach.
<PAGE> 52
- --------------------------------------------------------------------------------
VI-12 INCOME CAPITALIZATION APPROACH
- --------------------------------------------------------------------------------
The sales in the Sales Comparison Approach indicate capitalization rates ranging
from 9.4% to 18.8%, with an average of 12.5%. Inconsistencies between properties
and accounting methodologies diminish the market extraction of rates for hotel
property sales. We have, therefore, also considered recent surveys in assessing
buyer requirements on potential hotel cash flows.
The upside of the subject is that it has historically achieved an increasing
occupancy and ADR, and penetration has been in excess of its market fair share.
The property is considered to be in average condition. The downside is that
overall occupancy has been mediocre compared to industry national overages.
In viewing all available data, we have focused in the middle of the range. Our
projected capitalization rate is similar to the average of the sales utilized in
the Sales Comparison Approach, and supported by the timely data of the Korpacz
survey. THEREFORE, BASED ON THE AFOREMENTIONED ANALYSIS, WE HAVE ESTIMATED THAT
A DIRECT CAPITALIZATION RATE OF 12.25% IS APPROPRIATE TO CONVERT THE STABILIZED
NET OPERATING INCOME INTO AN INDICATION OF MARKET VALUE.
The result of this procedure, using the market-driven capitalization rate of
12.25% is presented in the following calculation.
$527,000 net operating income / 12.25% capitalization rate = $4,302,041
or
$4,300,000 (rounded)
Based on the above analyses, we estimate that the market value of the fee simple
estate of the going concern of the subject property via the Income
Capitalization Approach (including the contributory value of the FF&E), as of
February 23, 1996, is:
FOUR MILLION THREE HUNDRED THOUSAND DOLLARS
$4,300,000
<PAGE> 53
- --------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-1
- --------------------------------------------------------------------------------
INTRODUCTION
The Sales Comparison Approach is defined in The Dictionary of Real Estate
Appraisal, Third Edition, (published by The Appraisal Institute, 1993), as:
A set of procedures in which a value indication is derived by
comparing the property being appraised to similar properties that
have been sold recently, applying appropriate units of comparison,
and making adjustments to the sale prices based on the elements of
comparison.
It is based on the premise that the market value of a property is directly
related to the prices paid for similar properties which have recently sold.
Inherent in this approach is the principle of substitution, which holds that
when a property is replaceable in the market, its price tends to be set at the
cost of acquiring an equally desirable substitute property, assuming that no
costly delay is encountered in making the substitution.
METHODOLOGY
Information was collected on a number of transactions involving the sale of
limited service hotels in the Midwestern, Middle Atlantic, Southern and New
England regions. The data was verified by USRC through sources deemed to be
reliable, and using commonly accepted appraisal methodology. Summary data for
these sales is presented within the table on the following page, from which
price trends may be identified for the extraction of value parameters. We
segregated the data by year of sale to lend additional perspective to our
analysis. Comparability in economic characteristics is the most important
criteria in analyzing these sales in relation to the subject property. However,
it is also extremely important to recognize that hotels are distinct physical
entities by virtue of their age and design, visibility and accessibility, their
services, as well as the uses within the neighborhood. Thus, the Sales
Comparison Approach, when utilized to value a hotel such as the subject, can at
best only establish a reasonable range of parameters within which the typical
investor operates.
Two techniques were utilized in this valuation approach. First, a Linear
Regression Analysis was performed to demonstrate that sale price is a function
of income. Next, an Effective Rooms Revenue Multiplier was developed, which
adjusts the sale prices of the comparables based on differences in rooms
revenue. The presentation of these techniques are followed by an estimate of
market value via the Sales Comparison Approach.
<PAGE> 54
- --------------------------------------------------------------------------------
VII-2 SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
INSERT SALES TABLE
<PAGE> 55
- --------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-3
- --------------------------------------------------------------------------------
CRITERIA FOR COMPARABLE SELECTION
As indicated on the preceding summary charts, a total of 63 hotel sales were
utilized as comparable data. Physical factors such as location, sale date, year
of construction and size were considered. However, our analysis makes
comparisons of the transactions primarily along economic lines. In our opinion,
a buyer's criteria for the purchase of a hotel property is predicated primarily
on the property's income characteristics.
STATISTICAL MEASURES
Various statistical measures of the data are calculated and presented in the
following table. These basic descriptive statistics are measures of central
tendency and measures of variation or scatter.
<TABLE>
<CAPTION>
===============================================================================================
TABLE VII-2
STATISTICAL MEASURES
- ------------------------------------------------------------------------------------------------
MEASUREMENT TYPES ADR REVPAR INCOME/ROOM ERRM RO (%)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sample Size: 57 63 54 63 54
- ------------------------------------------------------------------------------------------------
Measures of Central Tendency
- ------------------------------------------------------------------------------------------------
Mean $44.20 $29.95 $3,679 2.68 12.54
- ------------------------------------------------------------------------------------------------
Median 45.00 30.34 3,721 2.66 12.50
- ------------------------------------------------------------------------------------------------
Measures of Variation
- ------------------------------------------------------------------------------------------------
Highest Value $63.03 $46.80 $7,164 4.25 18.82
- ------------------------------------------------------------------------------------------------
Lowest Value 14.50 8.70 1,496 1.10 9.40
- ------------------------------------------------------------------------------------------------
Data Range 48.53 38.10 5,668 3.15 9.42
- ------------------------------------------------------------------------------------------------
Standard Deviation 8.98 8.46 1,362 0.65 1.97
- ------------------------------------------------------------------------------------------------
Coefficient of Variability 20.3% 28.3% 37.0% 24.1% 15.7%
================================================================================================
</TABLE>
The mean and median are both measures of central tendency. The mean is the
mathematical average of the numerical data. The median of a set of values is a
number such that half of the values are less than that number, and half of the
values are greater than that number.
In studying the measures of central tendency, consideration is given to the
advantages and disadvantages of each, as they relate to the data analyzed. One
of the major considerations is how symmetrical the distribution of the data is.
If the data is highly symmetrical, the distribution will be in the form of a
bell-shaped curve, with the mean and median coinciding. However, as the data
becomes more and more skewed or lopsided, the differences in these
<PAGE> 56
- --------------------------------------------------------------------------------
VII-4 SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
measures will become greater. In such a case, the median, by excluding the
extremes, may become a more meaningful measure of central tendency.
The measures of central tendency tell nothing about the variation or scatter
among the observed values. In any set of statistical data, the individual
numerical values will be dispersed to a greater or lesser degree around the
center. Obviously, the less the dispersion, the tighter the data clusters around
the center, and the more meaningful the measures of central tendency become. One
method of measuring dispersion is by calculating the average distance the data
points are from the mean. Since the individual deviations from the mean can be
positive or negative, depending on whether the data point is above or below the
mean, and adding these distances would always equal zero, it is necessary to
square the deviations before adding them. The square root of the sum of these
squared deviations, known as the standard deviation, is one of the most popular
measures of data dispersion.
An equally important descriptive statistic presented on the summary chart is the
coefficient of variability. This is calculated by dividing the standard
deviation by the mean. Since the standard deviation measures data dispersion,
the lower the ratio of the standard deviation (dispersion) to the mean, the more
tightly the data clusters around the mean. Generally speaking, coefficients
below 12% indicate that the data points are found close to the mean, and that
the mean is therefore a fairly good indicator of the tendency of the data. On
the preceding summary chart, the coefficients ranged between 15.7% and 37.0%,
indicating significant data dispersion.
LINEAR REGRESSION ANALYSIS
A strong indication of how sale prices are influenced by revenue is found by
studying the relationship between the two. To illustrate, we have performed two
regression analyses. The first analysis graphs the data points relating to the
REVPAR and sale price per room for each of the sales. This "scatter plot" is
presented on the following page, and shows the positive linear trend in the
data. An analysis plotting income per room versus sale price per room follows.
In the graph, the direct relationship is clearly evident. Hotels that generate
greater revenue per room sell for more, regardless of age, location, size,
appearance, or any other physical factors. This is not to say that those
physical and cosmetic factors do not influence price, but they do so only
insofar as they influence room rates, occupancy, operating expenses, and
ultimately net operating income.
<PAGE> 57
- --------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-5
- --------------------------------------------------------------------------------
[Sales Regression Analysis
Sale Price/Room vs. REVPAR chart]
Mathematically, the relative strength of the relationship between net income and
price per room can be found by submitting the two variables to a correlation
analysis. A perfect linear relationship would be indicated by a correlation
coefficient of 1 (positive relationship) or -1 (negative relationship). Since
very few markets are perfect, the correlation coefficient will generally fall
between -1.0 and 1.0. Correlation coefficients above .75 (or below -.75)
generally reflect a good linear relationship, meaning that one variable (price
per room) can be predicted if given the second variable (REVPAR).
When the REVPAR and price per room variables on the 63 sale properties were
submitted to a correlation analysis, the correlation coefficient (R squared) was
found to be 0.752, indicating that much of the variation in the dependent
variable (sale price per room) is explained by the independent variable
(REVPAR). This technique works best for limited service hotels since rooms
revenue is the only major source of income. The regression output is detailed on
the following chart.
<PAGE> 58
- --------------------------------------------------------------------------------
VII-6 SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
TABLE VII-3
REGRESSION OUTPUT
COMPARABLE SALE DATA SAMPLE
================================================================================
<S> <C>
Constant: $(10,101)
Standard Error of Y Estimate: 6,657
R Squared: 0.752
X Coefficient: 1,333
Standard Error of X Coefficient: 99.65
================================================================================
</TABLE>
The constant is the Y-axis intercept and is the value of the dependent variable
(sales price per room) when the independent variable (REVPAR) is zero (0). The X
Coefficient is the slope of the regression line. The X Coefficient measures the
amount of change in the dependent variable for every change in the independent
variable. Given the value of the independent variable (REVPAR), we can estimate
the value of the dependent variable (sale price per room) by using the X
Coefficient and constant.
Based on this information, REVPAR is a significant variable driving the value of
hotels. Although differences in physical characteristics exist, they only affect
value to the extent that they affect room rates and revenue. The regression
formula for the subject can be presented as follows:
Sale Price/Room = (X Coefficient X Subject REVPAR) + Constant
= (1,333 X $37.38) + -$10,101
Sale Price/Room = $39,727
REVPAR was calculated based upon estimates presented in the Income
Capitalization Approach. Solving the regression equation yields a predicted
price for the subject, providing a total value estimate as follows:
$39,727 per room X 125 Rooms = $4,965,875
Rounded = $5,000,000
The first analysis graphed the data points relating to the REVPAR and sale price
per room for each of the sales, while this second analysis considers net income
per room as the independent variable. The following "scatter plot" shows the
positive linear trend in the income per room versus sale price per room.
<PAGE> 59
- --------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-7
- --------------------------------------------------------------------------------
In the graph, the direct relationship is clearly evident. Again, hotels that
generate greater net income per room sell for more, regardless of individual
market factors, such as age, location, size, appearance, or any other physical
factors.
[Sales Regression Analysis
Sale Price/Room vs. Net Income/Room Chart]
When the net income per room and price per room variables on 54 sale properties
were submitted to a correlation analysis, the correlation coefficient (R
squared) was found to be 0.874, indicating that much of the variation in the
dependent variable (sale price per room) is explained by the independent
variable (income per room). This R squared, or correlation, is higher than that
of the REVPAR regression. The regression output is detailed on the following
chart.
<PAGE> 60
- --------------------------------------------------------------------------------
VII-8 SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
TABLE VII-4
REGRESSION OUTPUT
COMPARABLE SALE DATA SAMPLE
- --------------------------------------------------------------------------------
<S> <C>
Constant: $ (919)
Standard Error of Y Estimate: 4,457
R Squared: 0.874
X Coefficient: 8.462
Standard Error of X Coefficient: 0.445
================================================================================
</TABLE>
Based on this information, net income per room is also a significant variable
driving the value of hotels. Although differences in physical characteristics
exist, they only affect value to the extent that they affect room rates,
revenue, and expenses. The regression formula for the subject can be presented
as follows:
Sale Price/Room = (X Coefficient X Subject Inc./Rm.) + Constant
= (8.462 X $4,216) + -$919
Sale Price/Room = $34,757
Net income per room for the subject was estimated in the Income Capitalization
Approach. Solving the regression equation yields a predicted price for the
subject, providing a total value estimate as follows:
$34,757 per room X 125 Rooms = $4,344,625
Rounded = $4,400,000
EFFECTIVE ROOMS REVENUE
We also employed an effective rooms revenue multiplier (ERRM) analysis. This
method is generally used as a check of reasonableness for the linear regression
method.
The ERRM is a factor derived by dividing the sales price of the comparable sale
by the rooms revenue (number of guest rooms available annually multiplied by the
average daily room rate times the occupancy factor). As with the above approach,
room revenue projections for the first full year after purchase were utilized to
reflect the buyer's anticipation of rooms revenues at the time of purchase. The
principal advantage of using economic units of comparison is that rental income
is directly reflected. Therefore, differences between properties which could
involve adjustments, based on subjective judgment estimates, have been resolved
by the free action of the market place. If the comparable properties have some
advantage over the subject in terms of age, condition accessibility, location or
physical characteristics, the difference in actual revenues presumably
<PAGE> 61
- --------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-9
- --------------------------------------------------------------------------------
reflects the extent of this advantage. The primary disadvantage of a straight
ERRM multiple is that is does not take into consideration variations in food
and beverage revenues and potential profits. However, rooms revenue profit
margins are typically significantly higher than that of food and beverage,
making this disadvantage somewhat less relevant. The fact that the subject is a
limited service hotel and most of the comparables except are limited service
properties, also mitigates this disadvantage.
The following table summarizes the Effective Rooms Revenue Multipliers for the
comparable sales.
<TABLE>
<CAPTION>
================================================================================
TABLE VII-5
EFFECTIVE ROOMS REVENUE MULTIPLIERS
================================================================================
<S> <C>
Median 2.66
- --------------------------------------------------------------------------------
Mean 2.68
- --------------------------------------------------------------------------------
Highest 4.25
- --------------------------------------------------------------------------------
Lowest 1.10
- --------------------------------------------------------------------------------
Data Range 3.15
- --------------------------------------------------------------------------------
Number in Sample 63
================================================================================
</TABLE>
The mean of the comparable sales' ERRM is 2.68, while they ranged between 1.10
and 4.15. To supplement this information, we analyzed USRC's internal study that
was performed in the Spring of 1995. This investor survey indicated ERRMs
ranging from 1 to 5, with an average of 2.7. The average of this survey
generally supports the average of the reported sales.
Based on the foregoing analysis, and in consideration of the stability and
income potential of the subject, we estimated an ERRM of 2.7 to be most
appropriate for the subject. Applying this to the effective room revenue
estimate for our stabilized year yields the following:
$1,705,000 rooms revenue X 2.7 ERRM = $4,603,500
Rounded to $4,600,000
<PAGE> 62
- --------------------------------------------------------------------------------
VII-10 SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
CORRELATION OF SALES COMPARISON APPROACH
The preceding value indications derived in the Sales Comparison Approach reflect
an overall value range of $4,300,000 to $5,000,000 for the fee simple estate.
The basis of value was 63 limited service hotel sales located throughout the
United States.
Two linear regression analyses were performed: one based upon a REVPAR model and
one based on net income. The net income model, with a higher correlation
coefficient of 0.874 was judged to provide the better indicator of value at
$4,300,000.
The ERRM analysis is based upon more subjectivity, and provided a value
indication of $4,600,000, which is at the lower end of the statistical analyses.
Based upon all available data, it is our opinion that the market value of the
going concern of the fee simple estate, as indicated by the Sales Comparison
Approach, in the subject (including the contributory value of the furniture,
fixtures, and equipment), as of February 23, 1996 is:
FOUR MILLION FOUR HUNDRED THOUSAND DOLLARS
$4,400,000
<PAGE> 63
- --------------------------------------------------------------------------------
RECONCILIATION VIII - 1
- --------------------------------------------------------------------------------
RECONCILIATION
Two of the traditional approaches to value -- Income Capitalization Approach and
the Sales Comparison Approach -- were used to estimate the market value of the
subject property. The indications of value as of February 23, 1996, are as
follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
INCOME CAPITALIZATION APPROACH $4,300,000
SALES COMPARISON APPROACH $4,400,000
- --------------------------------------------------------------------------------
</TABLE>
These two approaches represent alternative ways of viewing market phenomena. A
final estimate of value is selected as the dominant tendency or most probable
outcome from a range of possible outcomes.
Within the Income Capitalization Approach, direct capitalization was used to
provide an indication of value. An analysis of the subject's occupancy and
average daily rate was made. Both income and expense estimates were based
primarily upon an analysis of historic data provided from the subject hotel in
addition to data from comparable hotels operating at comparable levels. Current
investment parameters and market conditions were also considered. The
capitalization rate was within the range of the investment criteria of investors
as well as comparable sales.
The Sales Comparison Approach reflects the value of the subject property based
upon an analysis of recent sales of similarly improved properties and reflects
the actions of buyers and sellers of comparable properties in the market. Both
the physical and economic units of comparison were included within the analysis.
The sales indicated a range of price per room which provided an indication of
value for the subject. Less weight was placed on the Sales Comparison Approach
due to the lack of recent truly comparable sales in the market. However, the
conclusion via this approach supported our conclusion via the Income
Capitalization Approach.
MARKET VALUE
Because the subject property represents an investment capable of attracting
investor capital, we have utilized the value estimate produced by the Income
Capitalization Approach. The Sales Comparison Approach provides additional
support for the conclusion. Subject to all conditions and explanations contained
in this report, and based upon our analyses of the subject property and the
market, together with our experience and knowledge acquired in appraising
similar properties, it is our opinion that the market value of the fee simple
interest of the going concern in the 101-room subject (including the
contributory value of the
<PAGE> 64
- --------------------------------------------------------------------------------
VIII - 2 RECONCILIATION
- --------------------------------------------------------------------------------
existing furniture, fixtures, and equipment), expressed in terms of financial
arrangements equivalent to cash, as of February 23, 1996, is:
FOUR MILLION THREE HUNDRED THOUSAND DOLLARS
$4,300,000
CONTRIBUTORY VALUE OF THE FURNITURE, FIXTURES, AND EQUIPMENT
The final estimate of value stated above includes the estimated value of the
furniture, fixtures, and equipment (FF&E) for the hotel. Based on a report
published by Hospitality Valuation Services, Inc., the cost of new FF&E in a
standard limited-service hotel such as the subject property is typically in the
range of $5,100 to $9,500 per available room in 1994 dollars. We consider the
FF&E cost of $7,000 per unit, or $875,000 to be reasonable for the subject
property.
We have estimated the effective age of the FF&E to be approximately five years
old which takes into account the older case goods, as well as the more recently
replaced soft goods. Based on an expected economic life of ten years, the amount
of total depreciation attributable to the FF&E is $525,500. The contributory
value of the FF&E, based upon this analysis, included in the estimated value of
the property, is $350,000.
Therefore, it is our opinion that the contributory value of the furniture,
fixtures and equipment, as of February 23, 1996, is:
THREE HUNDRED FIFTY THOUSAND DOLLARS
$350,000
<PAGE> 65
- --------------------------------------------------------------------------------
CERTIFICATION IX - 1
- --------------------------------------------------------------------------------
We certify to the best of our knowledge and belief
- - The statements of fact contained in this report are true and
correct.
- - The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our
personal, unbiased professional analyses, opinions, and conclusions.
- - We have no present or prospective interest in the property that is
the subject of this report, and we have no personal interest or bias
with respect to the parties involved.
- - This appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
- - Our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of
the client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of a subsequent event.
- - Our analyses, opinions, and conclusions were developed, and this
report has been prepared, in conformity with the Uniform Standards
of Professional Appraisal Practice.
- - We certify that, to the best of our knowledge and belief, the
reported analyses, opinions and conclusions were developed, and this
report has been prepared in conformity with the requirements of the
Code of Professional Ethics and the Standards of Professional
Appraisal Practice of the Appraisal Institute.
- - We certify that the use of this report is subject to the
requirements of the Appraisal Institute relating to review by its
duly authorized representatives.
- - As of the date of this report, James A. Powers, MAI has completed
the requirements of the continuing education program of the
Appraisal Institute
- - Jeffrey H. Walker has made a personal inspection of the property
that is the subject of this report. James A. Powers has not
inspected the property.
- - No one other than the undersigned provided significant professional
assistance to the person(s) signing this report.
________________________________________ ___________________________
James A. Powers, MAI, CRE Jeffrey H. Walker, CHSE
Ohio General Certified Appraiser #381516
<PAGE> 66
ADDENDUM I
<PAGE> 67
Instrument #87-162.10
CORRECTED CORPORATE WARRANTY DEED
THIS INDENTURE WITNESSETH, That Signature Inns, Inc. ("Grantor"), a
corporation organized and existing under the laws of the State of Indiana,
conveys and warrants to Cracker Barrel Old Country Store, Inc., a Tennessee
corporation, for the sum of One Hundred Dollars ($100.00) and other valuable
consideration, the receipt of which is hereby acknowledged, the following
described real estate in Marion County, State of Indiana, to-wit:
A part of the South half of Section 14, Township 16 North, Range 2
East of the second Principal Meridian in Marion County, Indiana,
more particularly described as follows:
Commencing at the Southeast corner of the Southwest Quarter; thence
North 89(degrees)52(feet)51(inches) West along the South line of
said Section 14 a distance of 230.11 feet; thence North
00(degrees)07(feet)08(inches) East a distance of 15.77 feet to the
Northerly right-of-way line of State Road 100 as per plans for State
Road No. 100, Project No. I-01-1(29), dated 1959, the right-of-way
grant of which is recorded as Instrument No. 37922 in Deed Record
1751 in the Office of the Recorder of Marion County, Indiana; (the
following three (3) courses are along said Northerly right-of-way
line); thence North 34(degrees)49(feet)59(inches) East a distance of
122.92 feet; thence South 89(degrees)52(feet)51(inches) East parallel
with the South line of Section 14 a distance of 75.58 feet to the
point of curvature of a curve to the left whose center bears North
00(degrees)07(feet)09(inches) East and whose radius equals 624.16
feet; thence Northeasterly along said curve to the left through a
central angle of 25(degrees)49(feet)52(inches) an arc distance of
281.40 feet to the end point of said curve from which point the
center bears North 29(degrees)42(feet)45(inches) East; thence North
00(degrees)35(feet)01(inches) East a distance of 37.72 feet to the
POINT OF BEGINNING; thence continuing North 00(degrees)35(feet)
01(inches) East a distance of 478.12 feet; thence South
43(degrees)43(feet)43(inches) East a distance of 423.94 feet;
thence South 46(degrees)16(feet)20(inches) West a distance of
193.43 feet to the point of curvature of a curve to the right whose
center bears North 43(degrees)43(feet)40(inches) West and whose
radius equals 110.22 feet; thence Southwesterly along said curve to
the right through a central angle of 21(degrees)17(feet)01(inches)
an arc distance of 40.94 feet to the end point of said curve from
which point the center bears North 22(degrees)26(feet)39(inches)
West, said point also being the point of curvature of a non-tangent
curve to the left whose center bears South 82(degrees)32(feet)13(inches)
West and whose radius equals 60.00 feet; thence Northerly, Westerly
and Southerly along the arc of said curve to the left through a central
angle of 160(degrees)50(feet)24(inches) an arc distance of 168.43 feet
to the end point of said curve from which point the center bears South
78(degrees)18(feet)11(inches) East, said point being also the point
of curvature of a curve to the right whose center bears North
78(degrees)18(feet)11(inches) West and whose radius equals 140.00
feet; thence Southerly, along said curve to the right through a
central angle of 8(degrees)36(feet)09(inches) an arc distance of
21.02 feet to the end point of said curve from which point the
center bears North 69(degrees)42(feet)02(inches) West, said point
being also the point of beginning; contains 1.704 acres (74,209
square feet), more or less.
<PAGE> 68
DEED
BOOK 355 PAGE 43 CLERK'S OFFICE
SHORT*FORM
DEED
Know All Men By These Presents:
PROPERTY TRANSFER TAX PAID $748.00
--------
JERRY W. ROUSE, CLERK DC
--------------
That TURFWAY DEVELOPMENT CO., an Ohio general partnership
for and in consideration of Seven Hundred Forty-seven Thousand Six Hundred to
them paid by the grantees herein, the receipt of which is acknowledged, do
bargain, sell, and convey to:
Signature X Ltd., an Indiana limited partnership, its successors and
assigns forever, the following described Real Estate, in the City of Florence;
--------
County of Boone and Commonwealth of Kentucky, to-wit: Group No. 1693
----
Present Street Address Plat No. 21, page 3,
----------------------------------- -----------
Mailing Address 941 E. 86th Street, Suite 213, Indianapolis, Indiana 46240
---------------------------------------------------------------
Situated in the City of Florence, Boone County, Kentucky and being entire Lot
Number Three (3) as designated on the plat of Turfway Commercial Park, Section
One as recorded in Plat Book 21, Page 3 of the County Clerk's Records at
Burlington, Kentucky.
<PAGE> 69
SOUTH PARCEL: Part of the Northeast Quarter of Section 21, Township 17 North,
Range 4 East in Marion County, Indiana, including part of Lots 1, 2, 3 and 4 in
Block 4, part of the vacated alley lying West of and adjoining said lots, part
of the vacated alley between said Lots 2 and 3, and part of vacated Third
Street in P. Ashbrook and A. Homman's Second Addition to the Town of
Allisonville, Indiana, the plat of which is recorded in Land Record "G", page
472 in the Office of the Recorder of Marion County, Indiana, more particularly
described as follows:
Beginning on the West line of the Northeast Quarter of Section 21, Township 17
North, Range 4 East, 717.105 feet North 00 degrees 55 minutes 38 seconds West
(assumed bearing) from the Southeast corner thereof; thence North 00 degrees 55
minutes 38 seconds West on and along said West line 130.00 feet; thence North
89 degrees 04 minutes 22 seconds East 301.86 feet to the Westerly right of way
line of Access Road #3 as shown on plans for I.S.H.C. Project #I-465-4(146)122
dated 1965; thence South 14 degrees 53 minutes 54 seconds West on and along
said West right of way line 237.32 feet to a point that is South 68 degrees 24
minutes 23 seconds East of the Beginning Point; thence North 68 degrees 24
minutes 23 seconds West 256.72 feet to the Beginning Point; containing 1.145
acres, more or less.
Subject to any legal easements or rights of way.
MOTEL PARCEL: Part of the Northeast Quarter and part of the North Half of the
Northwest Quarter of Section 21, Township 17 North, Range 4 East in Marion
County, Indiana, including part of Lot 4 in Block 4 and part of the vacated
alley lying West of and adjoining said lot in P. Ashbrook and A. Homan's Second
Addition to the Town of Allisonville, Indiana, the plat of which is recorded
in Land Record "G", page 472 in the Office of the Recorder of Marion County,
Indiana, more particularly described as follows:
Beginning on the West line of the Northeast Quarter of Section 21, Township 17
North, Range 4 East, 847.105 feet North 00 degrees 55 minutes 38 seconds West
(assumed bearing) from the Southwest corner thereof; thence North 89 degrees 04
minutes 22 seconds East 301.86 feet to the Westerly right of way line of Access
Road #3, as shown on plans for Indiana State Highway Commission Project
#I-465-4(146)122 dated 1965; thence North 14 degrees 53 minutes 54 seconds East
(this and the following 6 courses are on and along said Westerly right of way
line of Access Road #3) 61.85 feet to the point of curvature of a curve having
a radius length of 125.00 feet which bears North 75 degrees 06 minutes 06
seconds West; thence Northwesterly along said curve 113.68 feet to the point of
tangency thereof; thence North 37 degrees 12 minutes 23 seconds West 54.21
feet; thence North 40 degrees 04 minutes 09 seconds West 100.12 feet; thence
North 37 degrees 12 minutes 23 seconds West 100.00 feet; thence North 34
degrees 20 minutes 40 seconds West 100.12 feet; thence North 37 degrees 12
minutes 23 seconds West 148.65 feet to the East line of the North Half of the
Northwest Quarter of Section 21; thence South 49 degrees 29 minutes 42 seconds
West 32.91 feet to a point that is 25.00 feet South 89 degrees 11 minutes 38
seconds West of said East line; thence South 00 degrees 04 minutes 42 seconds
West parallel with said East line 75.00 feet to the South line of the North
Half of the Northwest Quarter; thence North 89 degrees 11 minutes 38 seconds
East on and along said South line 25.00 feet to the West line of the Northeast
Quarter aforesaid; thence South 00 degrees 55 minutes 38 seconds East on and
along said West line 476.92 feet to the Beginning Point; containing 2.636
acres, more or less.
Subject to any legal easements or rights of way.
I, the undersigned, hereby certify that the within plat represents a
survey of the above described real estate and that corners were located and
marked as indicated.
Certified September 14, 1982
/s/ Allan H. Weihe
---------------------------------------------
Allen H. Weihe, Reg. L.S.-Indiana #10398
<PAGE> 70
[MAP]
LEGAL DESCRIPTION-LOT NUMBERED TWO (2)
Lot Numbered Two (2) in Wilson's Commercial Subdivision as platted upon part of
the Southwest Quarter of Section Twenty-four (24), Township Twenty-three (23)
North, Range Four (4) West, in Fairfield Township, Tippecanoe County, Indiana.
Subject to all easements of record.
LEGAL DESCRIPTION-PART OF LOT NUMBERED ONE (1)
A part of Lot Numbered One (1) in Wilson's Commercial Subdivision as platted up
on part of the Southwest Quarter of Section Twenty-four (24), Township
Twenty-three (23) North, Range Four (4) West, in Fairfield Township, Tippecanoe
County, Indiana, being more completely described as follows, to wit:
Beginning at the Northwest corner of Lot Numbered 2 in Wilson's Commercial
Subdivision, said point being marked by a re-bar; thence South
1(degree)-04(feet)-00(inches) West along the west line of said Lot Numbered 2 a
distance of 117.000 feet to a PK Nail; thence North
88(degrees)-56(feet)00(inches) West a distance of 340.00 feet to a PK Nail on
the west line of Lot Numbered 1 in said subdivision; thence North
1(degree)-04(feet)00(inches) East along said west line a distance of 115.52 feet
to the northwest corner of said Lot Numbered 1, said point being marked by a
re-bar; thence South 89(degrees)-11(feet)00(inches) East along the north line of
said Lot Numbered 1 a distance of 340.00 feet to a re-bar and the point of
beginning, containing 0.91 acres.
A sign easement being ten (10) feet in even width along the north side of the
following described line:
Commencing at the northwest corner of Lot Numbered 1 in Wilson's Commercial
Subdivision, said point being marked by a re-bar; thence South
1(degree)-04(feet)00(inches) West along the west line of said lot a distance
of 115.52 feet to a PK Nail and the point of beginning of the herein described
line; then South 88(degrees)-56(feet)00(inches) East a distance of 192.00 feet
to the point of termination of the herein described line.
The above described tract being subject to all other easements of record.
<PAGE> 71
[MAP]
Situated in the Northeast Quarter of Township 2 North, Range 18 West,
United States Military Lands, City of Columbus, Franklin County, Ohio, being
all of Lot No. 2 (3.612 acres) as said Lot is numbered and delineated upon the
recorded plat of "SHROCK HILL CENTRE" of record in Plat Book 62, Page 99,
Recorder's Office, Franklin County, Ohio.
NOTES
Bearings shown hereon conform to that system used on the recorded plat
of Schrock Hill Centre.
No part of the premises shown on this survey plat is located in any
Flood Hazard Boundary Area as determined from F.E.M.A. maps.
HOCKADEN AND ASSOCIATES, INC.
CONSULTING ENGINEERS
883 N. CASSSADY AVENUE
COLUMBUS, OHIO 43219
PHONE: (614) 252-0993
<PAGE> 72
[MORRISON AND ASSOCIATES, INC. LETTERHEAD]
January 21, 1982
Don Marsh and William Marsh
A part of the West Half of the Southeast Quarter of Section 31 Township 21
North Range 10 East, more particularly described as follows, to wit.
Beginning at a point in the East line of the West Half of the Southeast Quarter
of Section 31 Township 21 North Range 10 East four hundred and fourteen
hundredths (400.14) feet North of the Southeast Corner of the said West Half of
the Southeast Quarter; thence South 84(degrees)-48(feet)-00(inches) West and on
and along the North line of Relocated Bethel Pike two hundred ninety seven
(297.0) feet; thence North 00(degrees)-48(feet)-00(inches) East and on and along
the East line of Chadam Lane one hundred twenty five and eight tenths (125.8)
feet; thence continuing North 8(degrees)-05(feet)-19(inches) West and on and
along the East line of Chadam Lane one hundred sixty five and fifteen hundredths
(165.15) feet; thence continuing Northwesterly on a curve to the left, said
curve having a radius of 855.0 feet and along chord having a bearing of North
16(degrees)-11(feet)-58(inches) West, a distance of one hundred seventy eight
and seventy three hundredths (178.73) feet; thence North
67(degrees)-39(feet)-04(inches) East three hundred ninety nine and sixty nine
hundredths (399.69) feet to the East line of the said West Half of the Southeast
Quarter; thence 00(degrees)-16(feet)-12(inches) West and on the said East line
five hundred eighty five (585.0) feet to the point of beginning. Estimated to
contain 3.894 acres, more or less.
EXHIBIT A
<PAGE> 73
I, the undersigned Registered Land Surveyor, do hereby certify that the
included plat correctly represents a survey performed under my direction
during January, 1988, a part of the Southeast Quarter of Section 18, Township
17 North, Range 3 East, situated in Pike Township, Marion County, Indiana,
being more particularly described as follows, to wit:
TRACT "A"
Commencing at the Northwest corner of the Southeast Quarter of said Section 18,
thence North 80 degrees 20 minutes 03 seconds East along the North line of said
Quarter Section a distance of 939.66 feet to the POINT OF BEGINNING; thence
South 00 degrees 20 minutes 30 seconds East a distance of 314.23 feet along the
East right-of-way of Waldemar Road; thence North 89 degrees 29 minutes 03
seconds East, 278.86 feet; thence North 70 degrees 23 minutes 48 seconds East,
123.21 feet; thence North 29 degrees 24 minutes 43 seconds East, 101.34 feet;
thence North 70 degrees 44 minutes 53 seconds East, 178.03 feet; thence North 19
degrees 46 minutes 30 seconds West, 136.55 feet along the limited access
right-of-way line of U.S. Highway #421 to a point on the North line said quarter
section; thence South 89 degrees 29 minutes 03 seconds West along said North
line, 568.46 feet; to the point of beginning, containing 3.604 acres, more or
less.
I further certify that the property is not located in a flood hazard area, as
shown on the Flood Insurance Rate Map, Community Panel Number 180159-0010C.
I further certify that there are building(s) situated on the above-described
real estate and that the building(s) located on the adjoining property do not
encroach upon said real estate, except as indicated.
CERTIFIED: January 8, 1988 /s/ David J. Stoeppelwerth
-------------------------------
David J. Stoeppelwerth
Registered Land Surveyor
No. S0474
<PAGE> 74
ADDENDUM II
<PAGE> 75
[Photo]
[Photo]
<PAGE> 76
[Photo]
[Photo]
<PAGE> 77
[Photo]
[Photo]
<PAGE> 78
ADDENDUM III
<PAGE> 79
COMPANY PROFILE
- --------------------------------------------------------------------------------
<PAGE> 80
U S REALTY CONSULTANTS, INC. (USRC) was originally formed in January of 1983 as
a Columbus-based firm specializing in commercial real estate appraisal and
market analysis. With regional offices located in Atlanta, Georgia and Chicago,
Illinois, USRC has now grown to be one of the premier real estate appraisal and
consulting practices in the United States.
As we continue our phenomenal growth, our professionals continue to be involved
in literally hundreds of assignments annually, involving millions of dollars of
real estate. Our practice now includes three major areas of services to the
real estate industry: Hospitality & Resort Industry Services, Golf and Country
Club Services, and Real Estate Appraisal Services.
- Hospitality & Resort Industry Services - Evolving from a diversified
background of hospitality and resort market analysts, appraisers, and
operational specialists, USRC has established a hospitality & resort
consulting practice second to none. Our professionally-trained
hoteliers, resort, and golf course specialists, all having achieved
outstanding academic credentials, have over forty combined years of
industry experience. However, our constant involvement in the consulting
and appraising of hotels, motels, restaurants, resorts, and golf courses
have enabled us to be current with, as well as adaptive to, the
ever-changing dynamics of the industry. As a result, our professionals
combine current and in-depth industry experience with strong analytical
and communication skills to yield practical and effective results
tailored to the specific engagement, thus providing our clients the best
in hospitality & resort consulting services.
- Real Estate Appraisal Services - USRC is unique in that it was part of a
movement to pioneer the development of a national real estate appraisal
practice. We specialize in the valuation of real estate portfolios,
which are disbursed both geographically and by property type. Our
valuation expertise is in commercial real estate with emphasis on
office, industrial, retail, mixed-use, hotel, resort, golf course, other
special-use, and multifamily projects. These characteristics qualify us
as one of the leading appraisal organizations in the nation.
- Golf and Country Club Services - USRC has recently developed a
burgeoning practice devoted to golf-related and recreational facilities.
The services offered under this practice include valuation and
consultation for private country clubs, daily-fee golf courses,
surrounding residential development, and resort destinations.
The rapid expansion of USRC's experience and capabilities closely parallels the
growth and ever-changing requirements of the clients we serve. The Firm's
emphasis on programs of professional learning ensure that industry requirements
are being met by our people. Clients become the beneficiaries of this
continually expanding knowledge. Many USRC individuals also serve on senior
committees of national and state professional societies and associations,
enabling them to stay current with developing trends in the profession and to
participate in framing new rules and standards.
<PAGE> 81
USRC's clients benefit from the advantage of working with a local firm, yet
have access to the experience and much of the resources of a national firm.
With 20 professional staff members - five holding the coveted designation,
Member of the Appraisal Institute (MAI) - and five specifically trained in the
analysis of hotels, restaurants, resorts, and golf courses - and growing, we
are determined to provide the "quality client service" that our customers
expect.
U S REALTY CONSULTANTS, INC., with over 55 combined years of real estate
valuation experience, serves many of the nations most prominent pension funds,
investment managers and advisors, life insurance companies, financial
institutions, and governmental agencies providing quality appraisal and
litigation support services in relation to their real estate needs.
Some of the more significant marketplaces in which USRC holds experience and
important local market knowledge include:
- Albuquerque - Fort Worth - Portland, OR
- Aspen - Houston - Providence
- Atlanta - Indianapolis - Raleigh
- Austin - Kansas City - Sacramento
- Birmingham - Los Angeles - San Diego
- Boston - Louisville - San Francisco
- Charlotte - Minneapolis - San Jose
- Chicago - Milwaukee - Seattle
- Cincinnati - Nashville - St. Louis
- Cleveland - New Orleans - Tampa
- Colorado Springs - Oakland - Toledo
- Columbus - Orlando - Toronto, Ontario
- Dallas - Philadelphia - Washington, D.C.
- Dayton - Phoenix - West Palm Beach
- Denver - Pittsburgh - Wilmington
- Des Moines - Portland, ME - Caribbean
- Detroit
<PAGE> 82
PROFESSIONAL
STAFF
QUALIFICATIONS
- --------------------------------------------------------------------------------
<PAGE> 83
James Powers is the founder and President of U S REALTY
CONSULTANTS, INC., overseeing the company from its
inception in 1983. Mr. Powers is now actively involved
in the valuation of all income-producing property types,
including multi-property portfolio appraisal. In
JAMES A. addition, he is called upon to provide expert witness
testimony in courts throughout the country. Mr. Powers
POWERS, MAI, is a specialist in the securitization of real estate
through Real Estate Investment Trusts.
CRE
Mr. Powers received his MAI designation from the
PRESIDENT Appraisal Institute in 1974, and is a Certified General
Appraiser in the State of Ohio.
EDUCATION
Bachelor of Science (Major: Engineering), United States
Military Academy, West Point, New York, 1960
Instructor, Lecturer, Real Estate Appraisal
and Investment Topic
Chairman, Education Committee, Columbus Board of
Realtors, 1971 - 1972
PROFESSIONAL AFFILIATIONS
Member, Counselors of Real Estate
Appraisal Institute
Director, Ohio Chapter 1988
Society of Real Estate Appraisers:
Past President, Columbus Chapter 1978 - 1979
American Society of Appraisers:
Past President, Columbus Chapter 1974 - 1975
National Association Review Appraisers
National Association of Real Estate Boards
Ohio Association of Real Estate Boards
Columbus Board of Realtors
Real Estate Securities and Syndications Institute
National Association Corporate Real Estate Executives
Past Chairman, St. Ann's Hospital Board of Trustees,
during the Concept and Implementation Phase of the
Hospital's relocation and redevelopment.
<PAGE> 84
Robert J. Feeley, MAI is Vice President of U S REALTY
CONSULTANTS, INC.. He joined the firm in January, 1984
shortly after the firm's inception in 1983. Mr. Feeley's
experience includes appraisal and portfolio analysis
of investment-grade real estate, valuation of
ROBERT J. participating debt instruments, appraisal services for
asset valuation and loan underwriting of FSLIC- and
FEELEY, MAI FDIC-insured institutions, and third-party appraisal
reviews.
VICE PRESIDENT Mr. Feeley has extensive experience in the appraisal of
both CBD and suburban office buildings, apartments,
office/warehouse, hotel, retail centers ranging from
neighborhood centers to regional malls, marinas and
mixed-use properties. He has been a member of the
Appraisal Institute since 1993.
EDUCATION
Bachelor of Science, The Ohio State University, 1979
Master of Business Administration with emphasis in real
estate, The Ohio State University, 1983
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Society of Real Estate Appraisers
Delegate to the 1988 and 1989 Young Advisory Council of
the Society of Real Estate Appraisers
PROFESSIONAL AFFILIATES
Appraisal Institute
STATE CERTIFICATION
Mr. Feeley holds certification as a General Real Estate
Appraiser in the following states:
State of Indiana, July 1992
State of Kentucky, June 1993
State of Ohio, July 1991
<PAGE> 85
Jeffrey Walker joined the firm in 1992, serving as
Director of Hospitality Development. Mr. Walker's
previous experience includes various hotel and
restaurant positions. Most recently he served as
Director of Sales and Marketing with Hyatt Hotels
JEFFREY H. Corporation, where he received the "Hyatt Director of
Sales of the Year" award in 1991.
WALKER, CHSE
Mr. Walker is now involved in consulting work for
DIRECTOR lenders, owners, developers and operators. His areas of
HOSPITALITY specialization include hotel marketing consulting,
DEVELOPMENT operational review, market study and analysis, yield
management, and advertising and public relations
support for hotels.
EDUCATION
Bachelor of Science, James Madison University, 1985
Completed credit requirements for the following AI
courses:
1A1 Real Estate Appraisal Principles
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Ohio Hotel and Motel Association
The Ohio Restaurant Association
PROFESSIONAL AFFILIATIONS
Ohio Hotel and Motel Association, Allied Board of
Directors
Columbus Hotel and Motel Association, member
Hotel Sales and Marketing Association, International,
member
Greater Washington (D.C.) Society of Association
Executives, 1988-92
<PAGE> 86
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PROPERTY NAME LOCATION COMMENTS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Comfort Inn Mt. Pleasant SC includes $500,000 of renovations
Hampton Inn Flint MI near several office properties, restaurants and retail stores.
Days Inn Manistee MI
Days Inn Savannah GA includes $406,000 of renovations
Days Inn Richmond IL
Wentworth Inn Traverse City MI
Best Western Florence SC southeast quarter of I-96 and Hwy 52
Hampton Inn Tallahassee FL
Hampton Inn Naperville IL commercial area, no highway exposure
Shoney's Inn Hilton Head Island SC
Ramada Limited Lima OH from I-75. Originally constructed as full-service
Hampton Inn Gastonia NC corridor.
Knights Inn Indianapolis IN Minneapolis.
Hampton Inn Shelby NC 74, 40 miles west of downtown Charlotte
Knights Inn North Columbus OH downtown Columbus. Exit 117 of I-71.
Comfort Inn Abingdon VA
Shoney's Inn Columbia SC a Hampton Inn
Hampton Inn Hilton Head Island SC
Comfort Inn -
North & South Romulus MI both in vicinity of Detroit Airport.
Hampton Inn Albany NY Albany Airport
Comfort Inn University Durham NC Hill and Durham
Country Inn Burnsville MN
Fairfield Inn James City VA Occupancy and ADR below Avg at time of sale
Fairfield Inn West Columbus OH of I-270 and I-70
Comfort Inn Raleigh NC exterior corridors, renovated in 1993.
Knights Inn Akron
South Akron OH downtown Akron. Good access and visibility from I-77.
Hampton Inn Charlotte NC change and UNC - Charlotte
Mendota Motel Mendota MN
Hampton Inn Southfield MI from NW Highway (Lodge Freeway), but confusing access.
Comfort Inn Enterprise AL
Quality Inn Nashville TN access and exposure.
Comfort Inn Alexandria VA or corridor, average condition
Comfort Inn North Charleston SC Charleston International Airport
Comfort Inn Fort Mill SC commercial area with good access and visibility
Drury Inn Joplin MO bldng on 5 acres of land
Hampton Inn Westlake OH limited - service property in suburban Cleveland
Comfort Inn Clemson SC near Clemson University
Hampton Inn -
Victors Way Ann Harbor MI State Street Exit, on south side of Ann Harbor.
Hampton Inn Durham NC Medical Ctr and I-85
Comfort Inn Lynchburg VA Parkway
Hampton Inn Little Rock AK
Howard Johnson's Joplin MO
Hampton Inn Crestwood IL mercial street in SW suburb of Crestwood
Signature Inn Plymouth Twn MI I-275. Converted to Quality Inn in 1994.
Springhouse Inn Porter IN NW IN. poor visibility.
Comfort Inn Hotel Rolling Meadows IL
Knights Inn Indianapolis IN
Comfort Inn Marietta GA metro Atlanta, near Dobbins AFB & I-75/Cumberland Mall
Hampton Inn Florence SC I-95 and U.S. Highway 52
Hampton Inn Matteson IL limited-service property in suburban Chicago
Shoney's Inn Columbia SC
Signature Inn Middleburg Heights OH limited-service property in suburban Cleveland
Signature Inn Canton OH limited-service property in suburban Canton
Econo Lodge Motel Indianapolis IN east side of Minneapolis
Comfort Inn Conyers GA suburb.
Hampton Inn Greenville NC
Signature Inn Kalamazoo MI interstates, employers, and retail
Hampton Inn -
Green Rd. Ann Arbor MI lodging properties, west of hwy 23, north of I-94.
Knights Inn Canton OH Mall off I-77
Days Inn Madisonville KY veneer.
Ramada Inn Jacksonville FL Average Condition at Time of Sale.
Signature Inn Warren MI property near employers; distressed mkt
Save Inn/Days Inn Broadview Heights OH at exit 149B for State Route 82.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Ro = Overall Rate REVPAR = Revenue Per Room
ADR = Average Daily Rate ERRM = Effective Rooms
<PAGE> 1
SUMMARY
APPRAISAL REPORT
of the
Signature Inn - Kokomo
4021 South Lafountain Street
Kokomo, Indiana
as of
February 28, 1996
FOR
Mr. Mark Carney
Vice President
Signature Inn VII Limited
One Parkwood Crossing
250 East 96th Street
Suite 450
Indianapolis, Indiana 46240
<PAGE> 2
April 3, 1996
Mr. Mark Carney
Vice President
Signature Inn VII Limited
One Parkwood Crossing
250 East 96th Street
Suite 450
Indianapolis, Indiana
RE: SIGNATURE INN - KOKOMO
KOKOMO, INDIANA
Dear Mr. Carney:
In accordance with the engagement letter dated February 16, 1996, we have
appraised the property referenced above. The purpose of this appraisal is to
estimate the market value of the going concern of the fee simple estate in the
subject, including the furniture, fixtures, and equipment component.
The subject's site contains 2.9597 acres and is improved with a 101-unit,
limited-service Signature Inn hotel. A complete description of the property,
the sources of information, and the bases of the estimates are stated in the
accompanying report. Your attention is called to the Standard and Special
Conditions and Certification which follow. This appraisal conforms to the
guidelines stipulated by the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice.
MARKET VALUE
Subject to all conditions and explanations contained in this report, and based
upon our analyses of the subject and the market, together with our experience
and knowledge acquired in appraising similar properties, it is our opinion that
the market value of the going concern of the fee simple estate in the subject
(including the contributory value of the existing furniture, fixtures, and
equipment), expressed in terms of financial arrangements equivalent to cash, as
of February 28, 1996, is:
FOUR MILLION EIGHT HUNDRED THOUSAND DOLLARS
$4,800,000
<PAGE> 3
Mr. Mark Carney
April 3, 1996
Page 2
CONTRIBUTORY VALUE OF THE FURNITURE, FIXTURES, AND EQUIPMENT
The estimate of value stated above includes the value of the furniture,
fixtures, and equipment (FF&E). Based on our analysis, the contributory value
of the FF&E is $350,000.
The accompanying prospective financial analyses are based on estimates and
assumptions developed in connection with the appraisal. The assumptions are
believed to be correct and reasonable; however, some assumptions may not
materialize, and unanticipated events and circumstances may occur; therefore,
actual results achieved during the period covered by our prospective financial
analyses may vary from our estimates and the variations may be material.
Further, we have not been engaged to evaluate the effectiveness of management,
and we are not responsible for future marketing efforts and other management
actions upon which actual results will depend.
This report and its contents are intended solely for your information and
assistance for the function stated above, and should not be relied upon for any
other purpose. Otherwise, neither our report nor any of its contents nor any
reference to the appraisers or U S Realty Consultants, Inc. may be included or
quoted in any document, offering circular or registration statement,
prospectus, sales brochure, other appraisal, or other agreement without U S
Realty Consultants prior written approval of the form and context in which it
appears. Such permission will not be unreasonably withheld.
Respectfully submitted,
U S REALTY CONSULTANTS, INC.
<TABLE>
<S> <C>
- --------------------------------------- -----------------------------------------------
James A. Powers, MAI Robert J. Feeley, MAI
President Vice-President
Indiana General Cert. Appraiser #CG69201473
- --------------------------------------
Jeffrey H. Walker, CHSE
Director of Hospitality Development
</TABLE>
<PAGE> 4
APPRAISAL REPORT
OF THE
SIGNATURE INN - KOKOMO
4021 SOUTH LAFOUNTAIN STREET
KOKOMO, INDIANA
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. PREFACE
Standard Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Special Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
Representative View of the Subject . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5
II. INTRODUCTION
Property Identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Purpose and Function of the Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Legal Interest Appraised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Effective Date of Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Definition of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Exposure Time and Marketing Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Appraisal Development and Reporting Process . . . . . . . . . . . . . . . . . . . . . . . II-3
History of the Subject . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-5
Competency of Appraisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-5
III. DESCRIPTIVE DATA
Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Neighborhood Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-3
Property Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-6
IV. MARKET ANALYSIS
Lodging Market Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
Signature Inns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-4
Competitive Lodging Market Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-8
Competitive Position of the Subject . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-16
V. HIGHEST AND BEST USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
VI. INCOME CAPITALIZATION APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
VII. SALES COMPARISON APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
VIII. RECONCILIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1
IX. CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1
ADDENDA
Legal Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Addendum I
Neighborhood and Subject Photographs . . . . . . . . . . . . . . . . . . . . . . Addendum II
Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Addendum III
</TABLE>
<PAGE> 5
PREFACE I-1
STANDARD CONDITIONS
The following Standard Conditions apply to real estate appraisals by U S Realty
Consultants, Inc. Appraisals are performed and written reports are prepared
by, or under the supervision of, members of the Appraisal Institute in
accordance with the Institute's Standards of Professional Practice and Code of
Professional Ethics.
No opinion is rendered as to property title, which is assumed to be good and
marketable. Unless otherwise stated, no consideration is given to liens or
encumbrances against the property. Sketches, maps, photos, or other graphic
aids included in appraisal reports are intended to assist the reader in ready
identification and visualization of the property and are not intended for
technical purposes.
Appraisal reports may contain prospective financial information, estimates, or
opinions to represent the appraisers' view of reasonable expectations at a
particular point in time, but such information, estimates, or opinions are not
offered as predictions or as assurances that a particular level of income or
profit will be achieved, that events will occur, or that a particular price
will be offered or accepted. Actual results achieved during the period covered
by our prospective financial analyses will vary from those described in our
report, and the variations may be material.
It is assumed that legal, engineering, or other professional advice, as may be
required, has been or will be obtained from professional sources and that the
appraisal report will not be used for guidance in legal or technical matters
such as, but not limited to, the existence of encroachments or easements or
other discrepancies affecting the legal description of the property. It is
assumed that there are no concealed or dubious conditions of the subsoil or
subsurface waters including water table and flood plain, unless otherwise
noted. We further assume no regulations of any government entity control or
restrict the use of the property unless specifically referred to in the report.
It is assumed that the property will not operate in violation of any applicable
government regulations, codes, ordinances, or statutes.
In the absence of competent technical advice to the contrary, it is assumed
that the property being appraised is not adversely affected by concealed or
unapparent hazards such as, but not limited to, asbestos, hazardous or
contaminated substances, toxic waste, or radioactivity.
The report and the final estimate of value and prospective financial analyses
included in it are intended for the information of the person or persons to
whom they are addressed, solely for the purposes stated, and should not be
relied upon for any other purpose. Permission will be granted only upon meeting
certain conditions.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; but no responsibility, whether
legal or otherwise, is assumed for its accuracy, and it cannot be guaranteed as
being certain. No single item of information was completely relied upon to the
exclusion of other information.
Appraisal assignments are accepted with the understanding that there is no
obligation to furnish services after completion of the original assignment. If
the need for subsequent services related to an appraisal assignment (for
example, testimony, updates, conferences, reprint or copy services) is
contemplated, special arrangements acceptable to U S Realty Consultants, Inc.
must be made in advance.
<PAGE> 6
I-2 PREFACE
No significant change is assumed in the supply and demand patterns indicated in
the report. The appraisal assumes market conditions as observed as of the
current date of our market research stated in the letter of transmittal. These
market conditions are believed to be correct; however, the appraisers assume no
liability should market conditions materially change because of unusual or
unforeseen circumstances.
The valuation applies only to the property described and for the purpose so
stated and should not be used for any other purpose. Any allocation of total
price between land and the improvements as shown is invalidated if used
separately or in conjunction with any other report.
Neither the report nor any portions thereof (especially any conclusions as to
value, the identity of the appraisers or U S Realty Consultants, Inc., or any
reference to the Appraisal Institute or the MAI designation) shall be
disseminated to the public through public relations media, news media, sales
media or any other public means of communication without the prior written
consent and approval of the appraisers and U S Realty Consultants, Inc.
The date of the valuation to which the value estimate conclusions apply is set
forth in the letter of transmittal and within the body of the report. The
values are based on the purchasing power of the United States dollar as of that
date.
It should be specifically noted by any prospective mortgagee that the appraisal
assumes that the property will be competently managed, leased, and maintained
by financially sound owners over the expected period of ownership. This
appraisal engagement does not entail an evaluation of management's or owner's
effectiveness, nor are we responsible for future marketing efforts and other
management or ownership actions upon which actual results will depend.
The Americans with Disabilities Act ("ADA") became effective January 26, 1992.
We will not be responsible for conducting a specific compliance survey and
analysis of this property to determine whether or not it is in conformity with
the various detailed requirements of the ADA. It is possible that a compliance
survey of the property, together with a detailed analysis of the requirements
of the ADA, could reveal that the property is not in compliance with one or
more of the requirements of the Act. If so, this fact could have a negative
effect upon the value of the property. Since we will have no direct evidence
relating to this issue, we will not be considering possible non-compliance with
the requirements of ADA in estimating the value of the property.
It is strongly recommended that the reader should rely upon only authorized
copies of this report. Authorized copies are printed on recycled grey paper
and contain original U S Realty Consultants, Inc. letterhead. Our letterhead
is printed with grey ink on an evenly-shaded grey background. All original
signatures are in blue ink. Any copy that does not have the above is
unauthorized and may have been altered. If the reader is uncertain as to the
authenticity of this report, please contact U S Realty Consultants, Inc. at
(614) 221-9494.
<PAGE> 7
PREFACE I-3
SPECIAL CONDITIONS
It is assumed that qualified professional hospitality management with
demonstrated expertise in management of hotels operating in the market will
operate the subject. It is assumed that adequate funds will be available for
upkeep and repair of the facility.
It is assumed that the subject will continue to operate as a Signature Inn or
similar chain affiliation with access to a national reservation system. We
have assumed that competent and efficient management of the hotel will be in
place. We have assumed that a strong marketing effort will be put forth by the
management of the motel.
Historical revenues and expenses of the subject have been provided by Signature
Inns. We have used these unaudited financial statements in developing our
bases for the prospective financial analysis contained in the Income
Capitalization Approach. We based our analysis on 1993 through 1995
performance. All financial information provided to us is assumed to be
accurate, and we bear no responsibility for inaccuracies that may exist.
We have not been provided with a detailed environmental assessment of the
subject. During our inspection, there were no visible signs of contamination
at the property that would indicate possible environmental hazards.
Discussions with local assessment officials and area real estate professionals
did not indicate that the property had formerly been used for a purpose that
would have led to soil contamination or indicate that hazardous materials would
be found on the site.
U S Realty Consultants, Inc. has no expertise in evaluation of environmental
hazards, and therefore expresses no independent opinion as to the existence
thereof. If environmental hazards, such as asbestos or other forms of
contamination of the ground or improvements are subsequently found to exist,
the negative impact on the estimate of market value for the property could be
substantial.
<PAGE> 8
I-4 PREFACE
EXECUTIVE SUMMARY
<TABLE>
<S> <C>
PROPERTY IDENTIFICATION Signature Inn - Kokomo
PROPERTY LOCATION 4021 South Lafountain Street
Kokomo, Indiana
PERTINENT DATES:
EFFECTIVE DATE OF VALUATION February 28, 1996
DATE OF INSPECTION February 28, 1996
LEGAL INTEREST APPRAISED Fee simple estate
PROPERTY DATA:
SITE 2.9597 acres
BUILDING 101 units
HIGHEST AND BEST USE:
AS IMPROVED A limited-service hotel
AS THOUGH VACANT A limited-service hotel
INDICATION OF VALUE:
INCOME CAPITALIZATION APPROACH $4,800,000
DIRECT CAPITALIZATION RATE 12.25%
SALES COMPARISON APPROACH $4,800,000
FINAL ESTIMATE OF MARKET VALUE: $4,800,000
CONTRIBUTORY VALUE OF THE FF&E $350,000 (Included in market value)
UNIT OF COMPARISON $47,525 per room
ESTIMATE OF EXPOSURE TIME/
MARKETING PERIOD Less than 12 months
</TABLE>
<PAGE> 9
PREFACE I-5
REPRESENTATIVE VIEW OF THE SUBJECT
<PAGE> 10
I-6 PREFACE
BLANK PAGE
<PAGE> 11
INTRODUCTION II-1
PROPERTY IDENTIFICATION
The subject consists of a 101-unit, limited-service Signature Inn hotel,
located at 4021 South Lafountain Street, Kokomo, Howard County, Indiana. The
property is considered to be in above average condition. The legal description
of the subject is presented in the addenda.
PURPOSE AND FUNCTION OF THE APPRAISAL
The purpose of the appraisal is to estimate the as is market value of the going
concern of the fee simple estate in the subject, including furniture, fixtures
and equipment (FF&E), subject to the Uniform Standards of Professional
Appraisal Practice (USPAP), and Title XI (and amendments) of the Financial
Institution Reform Recovery and Enforcement Act of 1989 and 1994 (FIRREA).
This report is to be used to assist the limited partners regarding the possible
acquisition of the subject by the general partner.
LEGAL INTEREST APPRAISED
The legal interest appraised herein is the fee simple estate in the land and
improvements. A fee simple estate is defined as follows:
Absolute ownership unencumbered by any other interest or estate, subject
only to the limitations imposed by the governmental powers of taxation,
eminent domain, police power and escheat.(1)
With respect to this motel, the property rights appraised include all items of
personal property, including the existing furniture, fixtures and equipment,
and licenses and agreements required to operate the property and related
facilities. The "business assets" or business component included as an
integrated constituent of value includes "tangible and intangible resources
other than personal property and real estate that are employed by a business
enterprise in its operations.(2) This category includes, but is not necessarily
limited to, all intangible property and documents evidencing trademarks, trade
names, governmental operating rights, licenses, privileges, permits,
copyrights, and goodwill as a going-concern.
__________________________________
(1) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd Ed.,
p. 140.
(2) Uniform Standards of Professional Appraisal Practice, 1987.
<PAGE> 12
II-2 INTRODUCTION
EFFECTIVE DATE OF VALUATION
The appraisal is based upon market conditions as of February 28, 1996, the
current date of our market research and property inspection.
DEFINITION OF VALUE
The purpose of the appraisal is to estimate the market value of the subject
property. Market value is defined in the Uniform Standards of Professional
Practice, 1995 Edition as follows:
"The most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus. Implicit in
this definition is the consummation of a sale as of a specified date
and the passing of title from seller to buyer under conditions
whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in
what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in United States dollars or
in terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale."
For the purpose of this report, the definition of going-concern value shall be
as follows:
The value created by a proven property operation; considered as a
separate entity to be valued with a specific business
establishment.(3)
EXPOSURE TIME AND MARKETING PERIOD
The concept of exposure time is historical in nature and is presumed to have
occurred prior to the effective date of the appraisal. Alternatively,
marketing period occurs after the
__________________________________
(3) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd Edition,
(Chicago: Appraisal Institute, 1993), p. 160.
<PAGE> 13
INTRODUCTION II-3
effective date of the appraisal and may or may not be directly related to the
value presented. The actual sale price could increase, decrease, or remain
static during the marketing period depending upon market conditions and the
type of property being appraised.
We referenced a number of sources in estimating a probable exposure period.
U S REALTY CONSULTANTS, INC. Spring 1995 Hotel Investor Survey reported typical
marketing time for hotels/motels was 3 to 18 months with an average of 7.2
months. KORPACZ's Real Estate Investor Survey - Fourth Quarter 1995 stated
that their survey respondents indicated that average marketing time for all
commercial real estate is approximately 9.95 months.
Since most investors' perceptions and estimates of marketing period are based
largely on exposure times that they have recently encountered in similar
transactions, it stands to reason that there should be some correlation between
marketing periods and exposure times. In fact, in the absence of perceived
changes in the market or other extenuating circumstances, marketing period and
exposure time should be identical. That is to say, if all other things are
held constant, a property that (retrospectively) required an exposure time of
say one year should be expected to have a marketing period (prospectively) also
of one year.
Differences in the two concepts should appear when there is a perceived change
in the market. To use the same example presented above, if a property required
an exposure time of one year but perceived market conditions are improving, an
appropriate estimate of marketing period could reasonably be expected to be
less than one year. Conversely, if market conditions were anticipated to
worsen, marketing period might exceed exposure time.
Objectively quantifying such differences would be virtually impossible.
However, understanding the relationship between the two concepts and how they
are affected by perceived changes in the market allows one to better estimate
(subjectively) a reasonable period for exposure time and marketing period.
This is especially important during periods when actual market evidence is
limited by a lack of transactions. Extracting transaction-driven estimates can
also be tenuous since many properties are often originally placed on the market
at inflated asking prices. It is then necessary to decide if exposure time
began when the property was first offered for sale or when the price was
dropped to (or near) the ultimate sale price. Further complicating the issue
is the question of whether exposure time ends when a sale contract is signed or
whether it ends at the closing date of a sale. Recent transactions of hotels
during the past twelve months indicate that marketing times have been
decreasing to a range of 3 to 9 months.
Based upon our investigations, we believe that a marketing period of less than
12 months is reasonably appropriate. Furthermore, it is our opinion that the
exposure time commensurate with our estimate of value for the subject would
also be less than 12 months.
<PAGE> 14
II-4 INTRODUCTION
APPRAISAL DEVELOPMENT AND REPORTING PROCESS
The scope of this appraisal involves the systematic research and analysis
necessary to reach a value conclusion for the hotel. The initial step was to
inspect the subject, general market area, and neighborhood. Market research
included the assembly of data from public records, real estate specialists,
governmental entities, real estate publications, as well as owners/investors,
management and hotel managers at similar and comparable properties.
Information concerning the subject was also collected and consisted of ad
valorem taxes, zoning information, sales history, governmental restrictions,
environmental regulations and other factors which may affect its operating
performance and resulting value. Site and title studies were not commissioned
at the same time USRC was engaged to provide valuation services. USRC reserves
the right to amend our value conclusions in the event that these studies are
conducted and reveal material discrepancies. Information from the market area
was collected and studied in order to define the character, composition and the
propensity for change in the subject trade area. This information was analyzed
to determine the influences which will impact the surrounding market area and
the value of the subject property.
After analyzing the macro-environment, research was conducted relevant to the
valuation process, including gathering income, expense, capitalization rate,
and discount rate data; comparable improved sales; real estate tax, zoning,
and flood plain data and any other information pertinent to the valuation of
the subject property. This information was reviewed, confirmed when necessary,
and analyzed through the approaches to value. The subject-specific data
considered in our analysis was provided by Signature Inns.
The hotel market was analyzed. Management of the hotel comparables were
interviewed. Improved sale comparables were all analyzed, and where possible
were confirmed with either the buyer, the seller or a knowledgeable third
party.
APPLICABILITY OF APPROACHES
THE INCOME CAPITALIZATION APPROACH: This approach analyzes the property's
capacity to generate income (or other monetary benefit) and converts this
capacity into an indication of market value. The approach is suitable for
properties that have obvious earning power and investment appeal but is
inappropriate for properties that have no readily discernible income potential.
THE SALES COMPARISON APPROACH: This approach compares the subject property to
other properties that have changed hands fairly recently, at known price
levels. The approach is most meaningful when there is adequate market data
involving comparable properties. Reliability of the approach varies directly
with the quantity and quality of available market data.
<PAGE> 15
INTRODUCTION II-5
THE COST APPROACH: In this approach, the cost to replace the improvements is
estimated. A deduction is made for any depreciation, and the result is
combined with the estimated value of the underlying land. The approach is
applicable when each component is independently measurable, and when the sum of
all components is believed to reflect market value. The approach is not
applicable to unimproved land or obsolete improvements.
APPLICABILITY TO SUBJECT PROPERTY: The Income Capitalization Approach was
deemed the most applicable method to estimate market value for the subject.
The Sales Comparison Approach was utilized to provide an additional point of
reference. Numerous hotel sales were analyzed, and the analysis rendered a
meaningful conclusion of value.
The Cost Approach has not been completed. Due to the age of the subject,
significant depreciation exists, which is difficult and subjective to quantify.
In addition, the Cost Approach would not reflect the reasoning or approach
taken by an investor for a property of this age and type.
This appraisal engagement has been conducted using applicable standard
appraisal techniques and in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the Appraisal
Institute, the Financial Institutions Reform, Recovery and Enforcement Act
(FIRREA) of 1989 and 1994, and the Uniform Standards of Professional Appraisal
Practice (USPAP) 1995 Edition.
The definition of market value presented previously discusses the conditions of
a market where buyers and sellers are acting freely and are not under duress.
Within the valuation process we have attempted to balance the buyer and seller
perspectives in our consideration of assumptions and rates. This has been done
by evaluating available market data and available surveys. In addition, we
have also spoken with active market participants. The primary emphasis of this
research was to discover differences in valuation criteria from a buyer's
versus a seller's perspective. The results provide support for analysis bases
such as capitalization and discount rates.
HISTORY OF THE SUBJECT
According to public records, the subject is owned by Signature VII Limited.
According to management, the property was constructed by its current owners in
1986. There have been no other recorded transfers of the subject.
Additionally, there are no current agreements for sale, options, or listings of
the subject as of the date of the appraisal.
COMPETENCY OF THE APPRAISERS
U S Realty Consultants, Inc. has performed numerous appraisals and reviews of
appraisals on income producing properties such as the subject. Files are
maintained with historical and current data relative to the changing market
with respect to the subject. Competency has been established in both the
property type and geographical area, either through previous engagements or
through current research of germane market trends. Therefore, we possess
<PAGE> 16
II-6 INTRODUCTION
the knowledge and experience to conduct the inspection, analysis, and reasoning
necessary to accurately estimate the value of the appraised interest in the
subject.
<PAGE> 17
DESCRIPTIVE DATA III-1
REGIONAL ANALYSIS
The subject is located within the Kokomo MSA, which is composed of two counties
including Howard and Tipton. The Kokomo MSA contains nearly 99,722 people,
46,468 (or 47%) of which reside in Kokomo. During the 1980s, the population
declined in the MSA and Kokomo at compound annual rates of -0.7% and -1.0%,
respectively. According to National Planning Data Corporation, the population
is projected to increase the MSA and Kokomo at compound annual rates of 0.5%
and 0.6%, respectively. These population projections indicate an improved
economic climate.
During 1995, approximately 53,000 jobs were available in the Kokomo MSA, 40% of
which were concentrated in the manufacturing sector, 19% in the retail trade
sector, and 17% in the services sector. According to the Indiana Bureau of
Labor Statistics, the MSA's employment base expanded by 11.6% between 1992 and
1995, primarily due to strong job growth in the manufacturing sector which
added 2,400 new jobs. In 1994, the Kokomo MSA's annual unemployment rate was
5.7%, reflecting a decline of 1.7 percentage points since 1992. Overall, these
population and employment trends bode well for the prospects of long-terms
economic growth in the Kokomo MSA.
NEIGHBORHOOD ANALYSIS
The neighborhood surrounding a hotel impacts the property's status, class,
style of operation, and its ability to attract and properly serve a particular
market segment of users. The subject property is located in the city of
Kokomo, Indiana, at 4021 Lafountain Street, , also known at the subject site as
State Route 31. Just north of the subject, Lafountain Street splits from SR 31
to continue north, as the state route veers northeast. The area is developed
with a variety of industrial, retail, hotel, restaurant, highway service, and
office uses.
SURROUNDINGS: In general, the neighborhood is dominated by Delco Electronics
Worldwide Headquarters, and numerous other industrial facilities, such as
DuPont and Chrysler. The facilities are located several miles north of the
subject. The immediately surrounding land area is predominantly developed with
retail and commercial uses. Just north of the subject is an Olive Garden
restaurant. To the east, or "across" SR 31 is the site of the proposed Holiday
Inn Express, with an independent restaurant, the non-competitive independent
World Inn, an auto dealership, and a McDonald's to its north. To the south of
the Holiday Inn site is a service station. Land to the south of the subject is
undeveloped.
ACCESS AND EXPOSURE: The subject property is accessed directly from SR 31. As
such, access and visibility to the route are considered to be very good.
<PAGE> 18
III-2 DESCRIPTIVE DATA
REGIONAL MAP
SIGNATURE INN
KOKOMO, INDIANA
<PAGE> 19
DESCRIPTIVE DATA III-3
AREA ATTRACTIONS
- -------------------------------------------------------------------------------
[MAP FROM SIGNATURE INNS SHOWING LOCATION AND SURROUNDINGS]
RESTAURANTS
1. Hardee's 9. Richard's Restaurant 17. Chinese Gourmet
2. Bob Evan's 10. McDonald's 18. Colorado Steakhouse
3. Laughner's Cafeteria 11. Rax 19. Wendy's
4. Red Lobster 12. Pastarrific 20. Arby's
5. Olive Garden 13. Taco Bell 21. Burger King
6. Ruby Tuesday's 14. Steak-N-Shake 22. Chi Chi's
7. Seville 15. Denny's 23. Applebee's
8. Pizza Hut 16. Shenanigan's Pub
SURROUNDING AREA
1. Grissom Air Force Base 7. Chrysler Transmission
Museum (18 miles north of 8. Indiana University - Kokomo
Kokomo on U.S. 31) 9. Elwood Haynes Museum
2. Kokomo Municipal Airport 10. Highland Park
3. City Hall 11. Foster Park
4. Markland Mall 12. Howard County Historical
5. Kokomo Mall Museum/Seiberling Mansion
6. Delco Electronics World
Headquarters
<PAGE> 20
III-4 DESCRIPTIVE DATA
SITE ANALYSIS
The site contains 2.9597 acres and is generally rectangular in shape. It is
near street grade level of SR 31, with easy access and very good visibility.
The site is located in a B-1 (Retail Business) District. The district allows
for a wide range of uses, including light industrial, retail, hotel, motel,
restaurant, and service stations. The subject is considered to be a legally
conforming land use. According to flood map community panel #180414-0042B
dated July 16, 1981, the site is located in a Zone C, or area of minimal
flooding. No easements or encroachments, other than normal utility easements,
were made known to the appraiser, and none are assumed to exist. All public
utilities are available to the site and are considered adequate for the
existing hotel operation.
IMPROVEMENT ANALYSIS
Based upon information provided by Signature Inn's corporate offices, and
confirmed during our inspection, the property is constructed with steel frame
and concrete block walls, with exterior brick cover, on a concrete slab
foundation. Roofs are sloped and covered with metal siding, which extends
partially over the side of the buildings. Interior finishes consist of paint
or wall vinyl, with carpeting or tile flooring throughout. The buildings
consist of two stories, surrounded by concrete walks, with average landscaping.
Guests rooms are somewhat typical of a mid-priced, corporate-oriented,
limited-service hotel. All rooms feature a bedside table, a low chest of
drawers, a small table and chairs, a desk and chair, color remote-control
television with HBO, and a vanity with sink outside of the bathroom. In
addition, Signature Rooms feature a larger 12-foot desk, and a reclining chair.
Each room has its own individually controlled electrical heating and cooling
units. Guest room amenities include free local phone calls, and a guest voice
mail system is currently being installed in all Signature Inns. A
complimentary newspaper is delivered to the guest room every weekday, and
complimentary continental breakfast is served daily.
The subject contains 101 guest rooms, consisting of 24 Queen Double/Doubles, 25
Full Double/Doubles, 48 Signature Kings, 1 Signature Kings VIP, 2 Studios with
a fold-up "Murphy bed", and 1 Spa King. Guest rooms are in above average
condition.
Although the property is limited-service, it offers several extra amenities
geared toward the corporate traveller. All Signature Inns have recently
installed Business Centers for the complimentary use of their guests. These
private offices include a computer, printer, copier, and speaker phone.
Additionally, the properties have two interview centers located on the balcony
above the lobby, which feature a desk and local telephone service in a
comfortable, partially enclosed workspace. The property contains two meeting
rooms totalling approximately 1,800 square feet.
<PAGE> 21
DESCRIPTIVE DATA III-5
SIGNATURE INN
KOKOMO'S
FLOOR PLAN
MAP [FIRST FLOOR
- ----------------------------------- FLOOR PLAN] ---------------
Thank you for choosing Signature Inn
Kokomo! We hope your stay with us is
comfortable. This map will not only help
you find your room . . . but also the other
key areas within the motel such as our
meeting rooms, our guest office and
interview centers. The maps on the
reverse side will also help you find your
way around town. In addition, in display
cases just off the lobby, there's a large,
detailed map of Kokomo. If you have any
questions or need directions, be sure to
ask at the front desk. We'll be glad to
help. Have a pleasant stay!
[SECOND FLOOR
FLOOR PLAN]
SIGNATURE
INN [LOGO]
<PAGE> 22
III-6 DESCRIPTIVE DATA
The hotel contains an indoor pool of approximately 800 square feet, with a
whirlpool and exercise room. In addition, guests are given passes for a
discounted work-out at a local health club. Guests also receive a discount at
selected nearby restaurants.
In 1995, the subject underwent extensive capital improvements, including new
king beds, carpeting, drapes and spreads, and chairs. In addition, the
swimming pool was enclosed, and the exercise room and whirlpool were added.
Total cost of the renovation was approximately $400,000.
Based upon these improvements, as well as the age and condition of the
building, we have estimated a 4% Replacement Reserve throughout our analysis
period.
REAL ESTATE AND PERSONAL PROPERTY TAXES
The subject is located within the city of Kokomo. It is identified as tax
parcels 00520400900000 and 00520401000000. Assessed value is 33.3% of the
reproduction cost less depreciation. The assessed figure is multiplied by the
prevailing tax rate (per $1,000 of value) less a state tax replacement credit
to arrive at the tax amount due.
The effective commercial tax rate for 1994 (payable in 1995) for the city is
$74.52 per $1,000 of assessed value. Commercial property was last appraised in
1995 (effective with taxes payable in 1996), and is scheduled for re-assessment
in 1999. Although commercial property has been recently re-assessed, the new
assessment amounts and tax rates are not yet available as of the date of this
appraisal. Accordingly, we have first analyzed historical taxes. The
historical real estate taxes for the subject property, payable in years 1994
and 1995 are shown in the following table.
<PAGE> 23
DESCRIPTIVE DATA III-7
<TABLE>
<CAPTION>
====================================================================================
TABLE III-6
HISTORICAL REAL ESTATE TAXES
- ------------------------------------------------------------------------------------
<S> <C>
Year Taxes Due
- ------------------------------------------------------------------------------------
1994 $45,760
1995 44,864
- ------------------------------------------------------------------------------------
Growth Rate -2.0%
- ------------------------------------------------------------------------------------
Source: County Tax Assessor's Office
====================================================================================
</TABLE>
We researched the market for other hotels located in the city and their
assessments. Table III-10 lists these properties.
<TABLE>
<CAPTION>
=====================================================================
TABLE III-7
REAL ESTATE TAX COMPARABLES
---------------------------------------------------------------------
Assessed
Property Rooms Assessed Value Value per
Room
---------------------------------------------------------------------
<S> <C> <C> <C>
Signature Inn (Subject) 101 $602,070 $5,961
---------------------------------------------------------------------
Comfort Inn 63 313,130 4,970
---------------------------------------------------------------------
Ramada 132 764,500 5,792
---------------------------------------------------------------------
Fairfield Inn 61 355,300 5,825
---------------------------------------------------------------------
Source: County Assessor's Office
=====================================================================
</TABLE>
The above listed comparables indicate that the subject's new assessed value is
within a reasonable range of comparables as both a total assessment and on a
per room assessment. Based upon the age of the subject, the assessment appears
to be reasonable. According to the Assessor's office, no individual property
sale triggers re-assessment. Accordingly, we have based our real estate
projections on 1994 (payable in 1995) historical taxes inflated by 3.5%.
Accordingly, we project stabilized real estate taxes of $46,500.
Personal property taxes payable in 1995 were $4,828. Again, we have inflated
this figure by 3.5% to arrive at a stabilized projection of $5,000.
Accordingly, our projection for real estate and personal property taxes are
$51,500.
<PAGE> 24
MARKET ANALYSIS IV-1
NATIONAL LODGING MARKET OVERVIEW
HISTORICAL PERFORMANCE
Occupancy and average daily rate figures for most regions in the United States
showed a strong improvement between 1992 and 1995 as the lodging industry
rebounded from a severe recession and over-supply of rooms. Prior to 1991, the
hotel industry was focused more on the impact of segmentation than its
underlying problems. These problems ranged from over-building to a tightening
of credit in the financial markets. A positive improvement of industry
statistics is projected to continue into 1996. The occupancy and average daily
rate figures for the United States are presented in the table below.
<TABLE>
<CAPTION>
===========================================================================================================
Table IV-1
HISTORIC OCCUPANCY AND RATE FIGURES
UNITED STATES
- -----------------------------------------------------------------------------------------------------------
Occupancy Percent Average Room Rate
----------------- -----------------
1995 1994 1993 1992 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States 65.5% 64.7% 63.7% 61.9% $67.34 $64.24 $61.30 $59.62
Region:
New England 60.5 58.8 59.3 57.7 78.38 74.75 74.53 71.35
Middle Atlantic 66.6 66.5 64.2 61.8 87.18 82.50 78.79 77.03
South Atlantic 65.8 64.4 64.0 62.7 65.28 62.38 60.47 59.29
East North Central 63.0 62.4 60.3 59.1 61.38 58.43 56.28 54.77
East South Central 64.0 64.2 63.0 61.5 51.45 49.19 47.14 45.65
West North Central 64.2 63.6 63.1 62.1 52.29 50.13 48.76 47.35
West South Central 65.5 64.5 62.7 61.7 58.1 55.55 53.86 52.22
Mountain 67.8 68.2 65.2 63.7 66.61 62.89 58.41 52.87
Pacific 66.2 64.6 62.5 62.5 75.56 72.39 71.17 70.85
Source: Smith Travel Research
===========================================================================================================
</TABLE>
All regions benefitted from the increase in demand for hotel rooms in 1995 over
the previous three years. The increase in occupancy nationwide for 1995 was
approximately 1.2%, while the average room rate increased by 4.8%. In 1995,
properties in the New England states experienced the strongest level of demand
growth achieving 2.9% increase in occupancy from 1994. The revenue per
available room (REVPAR equals occupancy multiplied by average daily rate)
figure in the East South Central Region also showed the largest growth at 8.5%.
The East North Central region showed comparatively moderate growth.
<PAGE> 25
IV-2 MARKET ANALYSIS
OCCUPANCY AND RATE PROJECTIONS
The 1996 forecasted figures indicate further improvement though at a slower
rate as the United States lodging industry is experiencing tangible change for
the better. This is due to the following:
o Year to date profits indicate increases, as debt is better-managed
through refinancing. Occupancies have continued to rise at an
acceptable pace.
o Participants in the rate wars that have plagued the industry over the
past few years have called a truce. Discounting has become more
regionally targeted, and has been only offered during the true shoulder
seasons rather than throughout the entire year. This has resulted in
rising average daily rates (ADR), which in many markets is out-pacing
inflation. This ultimately has yielded higher revenues.
o Demand in all the three major segments of travel - commercial, group,
and tourist/leisure - have risen at a consistent pace.
o Hotel companies have stepped up their pace of new development,
conversions, and renovations due to improved market conditions and a
slight increase in the availability of financing and new debt.
However, this increase has been within reason so far such that it
hasn't negatively effected most market occupancies. The economy,
limited-service sector has been experiencing the most new supply
growth.
o A cautioning note is the number of new rooms entering the market.
Rooms starts totaled 81,900 in 1995, which was the highest level since
1989. There are a number of new brands being announced by the larger
chains (Wingate, Mainstay, Hilton Garden, Microtel) which are expected
to increase rooms supply in the late 1990s, particularly in the limited
service sector.
Projections for national occupancy levels through 1997 indicate further
improvement. Coopers and Lybrand in their Hospitality Directions publication
forecasts that the average national occupancy rate will rise steadily to 66.5%
in 1996, and 67.2% in 1997. This is the highest annual level since 1979. This
will occur due to moderate levels of demand growth in the nation that are
forecast to equal 2.4% in 1996 and 2.4% in 1997. This compares to higher
levels of growth of 4.6% that occurred during the last steep occupancy rise
from 1976 to 1979. It is interesting to note that the Coopers and Lybrand
projections are lower than in their late 1993 forecast due to a higher number
of projected rooms completions. Overall, this suggests that the higher
projected occupancies of the 1990s will be more supply-driven than
demand-driven, as supply growth will remain under reasonable control by the
continued restraints on available credit. Other industry forecasts are not
quite as optimistic, but all forecasters show an improvement in occupancy
figures on a nationwide basis.
<PAGE> 26
MARKET ANALYSIS IV-3
Industry experts indicate average daily rate projections for 1996 range between
an increase of 3% and 5% on a national basis which is expected to be similar to
that of the projected inflation rate of 3.5%. Coopers and Lybrand projects
average daily rate increases of 3.9% in 1996 and 4.5% in 1997.
HOTEL EXPENSE LEVELS
Operating expense ratios in the hotel industry have shown improvement in recent
years. According to the HOST report for 1994, gross operating profit (before
management fees) improved from 27.4% of total sales in 1993 to 30.8% in 1994.
Smaller properties less than 150 rooms, and those in suburban locations tended
to report the highest GOP. This represents a dramatic improvement from the
early 1990s and explains the increased investor interest in hotels. In 1994,
fixed charges total $6,952 per available room resulting in a net profit of
$1,939 per available room. This compares to a net loss of $719 per available
room in 1991 and a small net gain of $159 per available room in 1992 indicating
the dramatic turnaround in profitability for the hotel industry. We project a
stabilization in the overall profitability of hotels as the payments for
interest charges have been reduced and other expenses are projected to remain
stable.
HOTEL SALES PERFORMANCE
The decline in prices for hotels from the late 1980s appears to have stopped as
prices have stabilized. A leveling out of hotel sales prices nationwide began
in 1991 with increases reported beginning in 1994. Nationwide prices averaged
$19,068 per room in 1994. This 1994 figure compares to $17,411 in 1993,
$18,741 in 1992, $18,400 in 1991, and $21,549 in 1990. These figures are taken
from the Hotel Motel Broker Association's (HMBA) Transactions Publication
which provides averages of hotels which they have sold. The trend shows a
steady decline in prices in the early 1990s. Figures for 1995 indicate an
improvement from 1994 and are indicative of current trends showing increasing
prices for hotels.
Industry experts are predicting that prices will continue to slowly increase as
financing becomes more available. Conventional buyers and sellers are
beginning to return to the marketplace. Due to the current and expected
business cycle, the life insurance companies and pension funds have begun
marketing their hotel properties.
Overall, competition is rising among buyers of good quality, full-service, and
economy/ limited-service hotels. Many new buyers have entered the market
during 1994 and 1995, increasing competition for hotels and shortening
marketing periods. The spread between asking price and bids is also narrowing.
<PAGE> 27
IV-4 MARKET ANALYSIS
SIGNATURE INNS OVERVIEW
Signature Inns was founded in 1978, and opened its first hotel in Indianapolis
in 1981. The company was one of the earliest innovators of the value-oriented
mid-priced hotel concept geared primarily to the corporate traveller, a concept
that has since been mass marketed by chains such as Hampton Inn and Courtyard
by Marriott. Although the Signature Inn concept is limited-service in that
none of the properties contain a restaurant, many extra amenities are available
for guests, such as business centers, interview centers, meeting space, and
newspaper delivery to the guest rooms. The "Signature Rooms" were one of the
first guest room lay-outs designed for the business traveller, with one bed, a
reclining chair, and a 12-foot corner desk with telephone.
Today, Signature Inns operates twenty-three hotels, with two additional
properties in the active stages of development. The company enjoys a fine
reputation for quality and consistency in the central Midwest, but has little
name recognition outside that region. In 1995, the company was voted fifth
nationally among mid-priced hotel chains by the readers of Business Travel
News, outscoring many national chains. Similarly, Consumer Reports ranked the
chain third in overall value among moderately priced chains, behind only
Homewood Suites and Residence Inn, but ahead of all other national chains.
COMPETITIVE LODGING MARKET ANALYSIS
EXISTING COMPETITIVE SUPPLY: Based on our research, we have identified a
current competitive hotel supply with a total of 451 guest rooms in five
lodging facilities (including the subject). Based upon the small market area,
the properties are considered competitive due primarily to their location in
Kokomo. The table on the following page lists the selected competitive hotels
and characteristics about each property.
A map and photographs of each competitor follow.
<PAGE> 28
MARKET ANALYSIS IV-5
TABLE IV--1
SIGNATURE INN--KOKOMO
COMPETITIVE MARKET SUPPLY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Map Year Restaurant/ Published
# Built Rooms Lounge Pool Corridor Rack Rates Comments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 SIGNATURE INN 1986 101 No Indoor Interior $54 - $61 Good access and visibility; Newly renovated
property is superior to competition
2 RAMADA 1972 132 Yes Indoor Interior $49 Only full-service hotel in set; Rates are low
due to below average property condition
3 FAIRFIELD INN 1992 61 No Indoor Interior $43 - $58 Good quality consistent product in economy
segment
4 MOTEL 6 1960 94 No None Interior $30 - $35 Former HoJo Inn; Below average condition
5 COMFORT INN 1990 63 No Indoor Interior $41 - $56 Located approximately two miles north of
the rest of the competitive supply
Est. 1995 Occupancy 78%
Total/Market Average 451
Estimated 1995 ADR $51.50
</TABLE>
<PAGE> 29
IV-6 MARKET ANALYSIS
COMPETITIVE SUPPLY MAP
SIGNATURE INN
KOKOMO, INDIANA
<PAGE> 30
MARKET ANALYSIS IV-7
VIEW OF RAMADA
VIEW OF FAIRFIELD INN
<PAGE> 31
IV-8 MARKET ANALYSIS
VIEW OF MOTEL 6
VIEW OF COMFORT INN
<PAGE> 32
MARKET ANALYSIS IV-9
PROPOSED HOTEL DEVELOPMENT: Based upon discussions with local industry
participants, there are currently several new hotel projects in the active
stages of development within the immediate market area. Directly east of the
subject, a 75-room Holiday Inn Express has been announced. The project is
currently behind schedule, but should open in early 1997. Additionally, a
Hampton Suites is said to be in active early development behind the existing
Ramada and Motel 6. The 100-room property should open in early 1997. There
have also been unconfirmed rumors concerning a possible Courtyard by Marriott
development.
HISTORICAL LODGING DEMAND: Based on information compiled by Smith Travel
Research, and supported by our own interviews with management of the
competitive properties, and our knowledge of the market area, we have estimated
historical market occupancy levels. The following table indicates that the
market occupancy has increased over the period as demand has been rising, and
supply has been steady.
===============================================================================
TABLE IV - 2
HISTORICAL MARKET OCCUPANCY AND ADR
===============================================================================
<TABLE>
<CAPTION>
Year 1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Estimated Market Occupancy 72% 73% 78%
- --------------------------------------------------------------------------------
Estimated Market ADR $52.00 $56.00 $59.00
- --------------------------------------------------------------------------------
Source: Smith Travel Research and local market interviews. Occupancies have
been rounded to the nearest point, while ADR's have been rounded to the nearest
$.50.
===============================================================================
</TABLE>
Market occupancies increased by approximately six points between 1993 and 1995,
with strong compound annual ADR growth of 6.5%. The market has been affected
by the following:
o Growth in the Kokomo area has caused increases in corporate demand for
hotels. (See Regional Analysis section of this report.) The
neighborhood's industrial development helps drive commercial growth
within the local market. In particular, Delco Electronics received
approval in 1995 for global expansion, causing an increase in demand
from its Kokomo Worldwide Headquarters. Additionally, the growth has
caused an increase in demand from suppliers servicing the electronics
company.
o A strong national economy has led to increased demand on a national
level. (See National Market Overview.) In particular, as hotels have
regained occupancy, many properties have attempted to boost profits
with rate hikes, leading to increased realized ADR.
o With improvement in the U.S. economy, consumer confidence has
increased, leading to additional leisure travel. Although Kokomo does
not have any significant tourist attractions, leisure demand has
increased from travellers passing through the area.
<PAGE> 33
IV-10 MARKET ANALYSIS
COMPETITIVE POSITION OF SUBJECT PROPERTY
We have assessed the projected competitive position of the subject property as
it relates to the defined competitive lodging supply. Based on interviews with
representatives of competitive hotels, our general knowledge of the market
area, and consideration of factors such as competent and efficient management,
a well defined marketing program, the location of the subject property, and the
quality of the facility, we have estimated future occupancy and ADR for the
subject.
Table IV - 3 presents the historical occupancy and ADR for the subject.
===============================================================================
TABLE IV - 3
HISTORICAL SUBJECT OCCUPANCY AND ADR
===============================================================================
<TABLE>
<CAPTION>
Year 1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Subject Occupancy 62.5% 69.3% 81.4%
- --------------------------------------------------------------------------------
Subject ADR $49.02 $52.56 $55.06
- --------------------------------------------------------------------------------
Source: Signature Inns
================================================================================
</TABLE>
Subject occupancy has lagged behind market occupancy for 1993 and 1994, but
surpassed the market in 1995. ADR growth has increased a healthy 5.4%
annually, but falls short of the market's 6.5% annual compound growth.
The following property characteristics were considered as competitive
advantages and disadvantages when analyzing historical trends and estimating
future penetration rates for the subject:
- The subject is in superior condition as compared to the competitive
supply. In particular, the Ramada and Motel 6 are deteriorating. The
subject received an extensive guest room renovation in 1995. Its pool
area was enclosed, and an exercise room was added. Management at the
subject utilized this opportunity to aggressively pursue local volume
accounts from the inferior competitive supply. Thus, subject occupancy
demonstrated an even higher growth than the strong market growth.
- However, with the future additions of the Holiday Inn Express and
Hampton Suites, the subject will face new supply in very good
condition.
- The subject has very good visibility and access.
- The Signature Inn affiliation and reservation system provides a very
good reputation for consistency and value for the mid-economy oriented
traveller, particularly among the corporate segment, in the central
mid-west. However, for travellers from areas outside its geographic
circle of dominance, the flag is lesser known, and commands little
loyalty. (Please see Signature Inn corporate overview earlier in this
section.)
<PAGE> 34
MARKET ANALYSIS IV-11
- Free local phone calls and continental breakfast add a sense of value to
budget-conscious consumers.
- Subject amenities, including a private guest business center and
interview stations, are unique to the market.
ESTIMATED OCCUPANCY AND AVERAGE DAILY RATE
To estimate the stabilized occupancy and average daily room rate (ADR) for the
subject property, we analyzed historical occupancy and average daily rates
achieved by the subject and the competitors, the discounting practices of these
hotels, the projected supply and demand changes in the market, and the
competitive advantages and disadvantages of the subject.
Based upon the condition of the property and market, discussion with the
property's general managers, as well as its historical occupancy and ADR market
trends, we project the subject will achieve a stabilized occupancy of 73% at an
ADR of $56.00. The occupancy reflects a downturn in rooms occupied, based upon
the anticipated 39% increase in supply from the development of the competitive
Holiday Inn Express and Hampton Suites. The projected ADR increase allows for
a modest improvement based upon historical growth, but held down by the
increased competition from new supply.
HOTEL SUPPLY AND DEMAND CONCLUSION
The competitive supply has demonstrated strong demand growth, with strong
increases in ADR. The subject has consistently out-performing the market
occupancy levels. We believe occupancy levels will stabilize at 73%, and have
projected a stabilized ADR of $56.00.
Our estimates of annual occupancy and average daily room rate, as outlined in
this section of the report, are predicated on the following assumptions:
1. The subject hotel will continue to be professionally managed and
maintained;
2. The subject hotel will be effectively promoted with a well-targeted
marketing program throughout the analysis period;
<PAGE> 35
IV-12 MARKET ANALYSIS
3. The subject hotel will continue to be operated under the existing chain
affiliation as a Signature Inn, or a comparable chain affiliation; and,
4. The subject will undergo a continued program of periodic replacement of
furniture, fixtures and equipment, which will continue throughout the
analysis period.
<PAGE> 36
HIGHEST AND BEST USE V-1
HIGHEST AND BEST USE
According to The Dictionary of Real Estate Appraisal published by the Appraisal
Institute, Highest and Best Use is defined as:
The reasonable and probable use that supports the highest present value
of vacant land or improved property, as defined, as of the date of the
appraisal.
The reasonably probable and legal use of land or sites as though vacant,
found to be physically possible, appropriately supported, financially
feasible, and that results in the highest present land value.
The most profitable use.
Land must always be valued at its highest and best use as if vacant. Thus, we
evaluate the highest and best use of the site both as if vacant and as
currently improved. The highest and best use of the site as if vacant may
differ from the highest and best use of the property as improved.
The hierarchial order for determining the highest and best use for both the
land as though vacant and the property as improved is that the use must be:
1. Physically possible.
2. Legally permissible.
3. Financially feasible.
4. Maximally productive.
The synthesis of these four factors was considered to determine a most probable
and profitable use for the subject parcel of real estate.
HIGHEST AND BEST USE, AS THOUGH VACANT
The major considerations in estimating the highest and best use as though
vacant include the zoning classification and locational attributes of the site,
the quality and quantity of surrounding land use patterns, the current
availability of infrastructure, and the supply and demand factors currently
affecting the real estate marketplace.
PHYSICALLY POSSIBLE: The initial step in our analysis involved estimating what
uses were physically possible. The site has supported the existing hotel use
for approximately ten years. This is testimony to its physical possibility. A
number of other uses are also
<PAGE> 37
V-2 HIGHEST AND BEST USE
physically possible on a site of this size. Those uses include, but are not
limited to commercial, industrial, retail, residential, and service related
uses.
LEGALLY PERMISSIBLE: The subject site is zoned B-1 (Retail Business District)
by the city of Kokomo. A hotel is considered a legally conforming use by
special petition. Most other uses are allowed, and most uses are represented
in the neighborhood.
FINANCIALLY FEASIBLE: The next step in our narrowing of options for highest and
best use involved determining what physically possible and legally permissible
uses would be financially feasible and compatible with surrounding
developments. The area in the vicinity of the site is developed with a variety
of retail, restaurant, hotel, residential, and commercial uses. We have
examined the current hotel market performance and projected operating
performance of the subject. The development of a new hotel on the site is
currently marginally justified based upon the occupancy and average daily rate
currently being achieved by the competitive supply. The performance of the
subject attests to the market viability of a hotel on the site, as if vacant.
An analysis of other possible uses for the site indicate some financial
feasibility. Possible uses may include office, or highway service. The
surrounding land uses include nearly all of these uses. These improvements
appear to be supported by the market.
MAXIMALLY PRODUCTIVE: In the final analysis, a determination must be made as
to which feasible use is the highest and best use, providing the maximum net
return to the land over the longest period of time. To maximize value, a
property must be financially feasible and legally permissible while coinciding
with the surrounding existing land uses. Based upon our analysis of the zoning
code, the existing surrounding properties, the financial feasibility, and the
status of the land, it is our opinion that the highest and best use for the
subject, as though vacant, is for development of a limited-service hotel
similar to the subject, and assuming that the financing could be obtained.
HIGHEST AND BEST USE, AS IMPROVED
In analyzing the highest and best use of the existing improvements, the four
tests which were previously discussed are also applied to the subject as
improved. This simple test is undertaken in order to determine whether an
alternative use could generate a greater return to the land and removal of the
existing improvements is justified. Since the improvements, as they currently
exist, continue to make a substantial contribution to the overall value of the
property, the continuation of the existing use is justified. There is no
alternative, economically feasible use that could justify removal of the
existing improvements at this time. Therefore, the highest and best use of the
subject, as improved, is the continued use as a limited service hotel.
<PAGE> 38
INCOME CAPITALIZATION APPROACH VI-1
INTRODUCTION
This approach analyzes a property's capacity to generate income (or other
monetary benefit) and converts this capacity into an indication of value. The
approach is suitable for properties that have obvious earning power and
investment appeal but is inappropriate for properties that have no readily
discernible income potential. Further, this approach is based on the premise
that the value of a property is represented by the present worth of anticipated
future benefits to be derived from ownership. There are two basic techniques
which can be used for analysis purposes: direct capitalization and discounted
cash flow.
Direct capitalization converts an estimate of a single year's income expectancy
or an annual average of several years' income expectancies into an indication
of value in one direct step. Direct capitalization is especially useful when
analyzing a property that has achieved a stabilized level of operations and
occupancy.
The discounted cash flow (DCF) analysis is a market reflective method of
estimating the present worth of anticipated income benefits. This analysis
converts a stream of expected income into a present value and is most
appropriate when valuing a property that has not yet reached stabilized
occupancy.
In valuing the subject, it is our opinion that the direct capitalization
valuation technique is useful in the analysis. We have estimated cash flow
for a typical stabilized year. These financial estimates are based on the
results of the subject property's historical operations, the performance of
comparable Signature Inn facilities, industry standards, and assumptions
regarding the environment in which the subject hotel operates.
All amounts have been rounded to the nearest one thousand dollars and account
classifications generally conform to the definitions prescribed by the American
Hotel and Motel Association in the Uniform System of Accounts for Hotels. All
percentages, amounts per available room or amounts per occupied room presented
in the following pages were first computed on the basis of the revenue and
expenses expressed in constant dollars and then inflated. All dollar amounts
are expressed in stated year dollars unless otherwise noted.
OVERVIEW OF HISTORICAL FINANCIAL PERFORMANCE
Historical financial statements for years 1993 through 1995 were provided by
Signature Inns. These unaudited financial statements were formatted to follow
the Uniform System of Accounts for Hotels, and are presented on the following
pages. In utilizing these statements, it should be noted that the historical
financial information was not audited or reviewed by us. Accordingly, we
express no opinion as to the reliability of this financial information.
<PAGE> 39
VI-2 INCOME CAPITALIZATION APPROACH
During the period, the subject's overall financial performance has improved.
The Income Before Other Deductions increased from $321,444 in 1993 to $624,936
in 1995. Total revenue increased from $1,233,243 in 1993 to $1,790,469 in
1995. Departmental expenses demonstrated an decline as a percentage of total
revenue between 1993 and 1995 from 25.1% to 24.3%, while undistributed expenses
declined from 39.1% to 32.7%.
<PAGE> 40
HISTORICAL OPERATING RESULTS OF THE
SIGNATURE INN VII LTD -- KOKOMO
-------------------------------
<TABLE>
<CAPTION>
1995 ACTUAL 1994 ACTUAL
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF OCC/ADR 81.4% at $55.05 69.3% at $52.50
OCCUPIED ROOMS 30,008 25,547
AVAILABLE ROOMS 38,805 38,865
<CAPTION>
PER AVAIL PER PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM AMOUNT RATIO ROOM OCC ROOM
---------- ----- ------- -------- ---------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
ROOMS $1,652,335 92.3% $16,360 $55.06 $1,342,803 92.4% $13,295 $52.50
TELEPHONE 58,935 3.3% 584 1.96 41,266 2.8% 409 1.62
RENTALS & OTHER INCOME 79,199 4.4% 784 2.84 58,417 4.7% 677 2.58
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 1,790,469 100.0% 17,727 50.07 1,452,486 100.0% 14,731 56.65
---------- ----- ------- -------- ---------- ----- ------- --------
DEPARTMENTAL EXPENSES:
ROOMS 397,636 24.1% 3,937 13.25 328,393 24.5% 3,251 12.85
TELEPHONE 37,566 63.7% 372 1.25 24,174 58.6% 239 0.95
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 435,202 24.3% 4,309 14.50 352,587 24.3% 3,491 13.80
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL DEPARTMENTAL PROFIT 1,355,267 75.7% 13,418 45.10 1,099,919 75.7% 10,890 43.05
---------- ----- ------- -------- ---------- ----- ------- --------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 208,219 11.6% 2,062 8.94 177,805 12.2% 1,761 6.96
MANAGEMENT FEE 86,030 4.8% 852 2.87 70,102 4.8% 694 2.74
MARKETING 73,091 4.1% 724 2.44 60,944 4.2% 603 2.39
FRANCHISE FEES 68,824 3.8% 681 2.29 56,081 3.9% 555 2.20
PROPERTY OPERATION & MAINT. 80,593 4.5% 798 2.59 80,377 5.5% 796 3.15
ENERGY 69,553 3.9% 689 2.32 54,840 3.8% 541 2.14
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 586,311 32.7% 5,805 19.54 500,014 34.4% 4,951 19.57
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE FIXED CHARGES 788,956 42.9% 7,613 25.62 599,905 41.3% 5,940 23.48
---------- ----- ------- -------- ---------- ----- ------- --------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 49,868 2.8% 494 1.86 52,186 3.6% 517 2.04
BUILDING & CONTENTS INSURANCE 22,533 1.3% 223 0.75 24,059 1.7% 238 0.94
0 0.0% 0 0.00 0 0.0% 0 0.00
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 72,401 4.0% 717 2.41 76,247 5.2% 755 2.98
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE RESERVE 595,555 38.9% 6,697 23.21 523,656 36.1% 5,185 20.50
---------- ----- ------- -------- ---------- ----- ------- --------
RESERVE FOR PLACEMENT 71,819 4.0% 709 2.38 58,098 4.0% 575 2.27
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE OTHER DEDUCTIONS $ 624,636 34.9% $ 6,167 $20.83 $ 465,558 32.1% $ 4,609 $18.22
---------- ----- ------- -------- ---------- ----- ------- --------
<CAPTION>
1993 ACTUAL
------------------------------------------
<S> <C> <C> <C>
PERCENTAGE OF OCC/ADR 62.5% at $49.02
OCCUPIED ROOMS 23,041
AVAILABLE ROOMS 30,865
<CAPTION>
PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM
---------- ----- ------- --------
<S> <C> <C> <C> <C>
REVENUE:
ROOMS $1,129,551 91.6% $11,184 $49.02
TELEPHONE 30,737 2.5% 304 1.33
RENTALS & OTHER INCOME 73,243 5.9% 725 3.18
---------- ----- ------- --------
TOTAL 1,283,531 100.0% 12,213 53.54
---------- ----- ------- --------
DEPARTMENTAL EXPENSES:
ROOMS 288,473 25.5% 2,856 12.52
TELEPHONE 21,616 70.3% 214 0.84
---------- ----- ------- --------
TOTAL 310,089 25.1% 3,070 13.40
---------- ----- ------- --------
TOTAL DEPARTMENTAL PROFIT 923,442 74.9% 9,143 40.08
---------- ----- ------- --------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 193,300 14.9% 1,815 7.95
MANAGEMENT FEE 59,687 4.8% 591 2.59
MARKETING 55,599 4.5% 750 2.41
FRANCHISE FEES 47,750 3.9% 473 2.07
PROPERTY OPERATION & MAINT. 72,972 5.0% 722 3.17
ENERGY 62,721 5.1% 621 2.72
---------- ----- ------- --------
TOTAL 482,029 38.1% 4,773 20.02
---------- ----- ------- --------
INCOME BEFORE FIXED CHARGES 441,413 35.8% 4,370 19.16
---------- ----- ------- --------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 50,175 4.1% 497 2.18
BUILDING & CONTENTS INSURANCE 20,452 1.7% 202 0.89
0 0.0% 0 0.00
---------- ----- ------- --------
TOTAL 70,627 5.7% 699 3.07
---------- ----- ------- --------
INCOME BEFORE RESERVE 370,780 30.1% 3,071 13.09
---------- ----- ------- --------
RESERVE FOR PLACEMENT 49,341 4.0% 480 2.14
---------- ----- ------- --------
INCOME BEFORE OTHER DEDUCTIONS $ 321,444 28.1% $ 3,183 $13.95
---------- ----- ------- --------
</TABLE>
Source: SIGNATURE INNS
Based on 101 rooms
<PAGE> 41
VI-4 INCOME CAPITALIZATION APPROACH
PROSPECTIVE FINANCIAL ANALYSIS
COMPARABLES: The prospective financial analysis is based on the results of
historical operations of the subject property, results of operations of
comparable facilities, industry standards, and projections regarding the future
environment in which the hotel will operate. This includes the assumption that
the property will be operated in a competent and professional manner, and it
will be properly advertised and promoted.
We have compared the operating performance of the subject to a 17-property
portfolio of Signature Inns located in the mid-west. Their average, high, and
low performance is presented on the following page. The industry standards
presented on the next page are from the Host Report 1994, published by Arthur
Anderson and Smith Travel Research, and the Trends Report 1994, published by
PKF Consulting. We have utilized the standards for mid-priced, limited-service
properties.
<PAGE> 42
1995
SIGNATURE INN PORTFOLIO
HISTORICAL AVERAGE, HIGH, AND LOW OPERATING RESULTS
---------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO AVERAGE PORTFOLIO LOW
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF OCC/ADR 66.95% at $55.76 53.70% at $46.40
OCCUPIED ROOMS 29,189
AVAILABLE ROOMS 44,015
<CAPTION>
PER AVAIL PER PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM AMOUNT RATIO ROOM OCC ROOM
---------- ----- ------- -------- ---------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
ROOMS $1,031,154 94.8% $13,527 $55.88 $1,223,933 94.6% $10,150 $41.93
TELEPHONE 42,263 2.5% 350 1.43 30,695 2.4% 256 1.06
RENTALS & OTHER INCOME 47,040 2.8% 395 1.03 28,328 2.2% 235 0.07
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 1,721,057 100.0% 14,272 56.96 1,293,990 100.0% 10,731 44.30
---------- ----- ------- -------- ---------- ----- ------- --------
DEPARTMENTAL EXPENSES:
ROOMS 397,111 24.3% 3,293 13.60 310,450 25.4% 2,675 10.04
TELEPHONE 33,202 76.6% 275 1.14 25,266 51.8% 210 0.07
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 430,313 25.0% 3,568 14.74 341,817 20.4% 2,835 11.71
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL DEPARTMENTAL PROFIT 1,290,744 75.0% 10,074 44.22 912,312 70.5% 7,500 31.25
---------- ----- ------- -------- ---------- ----- ------- --------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 192,580 11.2% 1,597 8.60 163,013 12.0% 1,352 5.56
MANAGEMENT FEE 83,614 4.9% 693 2.80 82,582 4.8% 519 2.14
MARKETING 82,806 4.8% 687 2.84 84,636 5.0% 536 2.21
FRANCHISE FEES 66,591 3.9% 555 2.29 50,066 3.9% 415 1.72
PROPERTY OPERATION & MAINT. 103,337 6.0% 857 3.54 73,021 5.0% 606 2.50
ENERGY 73,848 4.3% 612 2.53 50,065 3.9% 415 1.72
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 603,077 35.0% 5,001 20.66 527,436 40.8% 4,374 16.07
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE FIXED CHARGES 687,667 40.0% 5,703 23.50 384,876 29.7 3,192 13.19
---------- ----- ------- -------- ---------- ----- ------- --------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 62,395 3.6% 517 2.14 33,781 2.6% 280 1.16
BUILDING & CONTENTS INSURANCE 30,315 1.8% 251 1.94 22,309 1.7% 185 0.78
0 0.0% 0 0.00 0 0.0% 0 0.00
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 92,710 5.4% 768 3.18 56,531 4.4% 469 1.94
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE RESERVE 594,597 34.6% 4,934 20.38 263,274 20.3% 2,183 9.02
---------- ----- ------- -------- ---------- ----- ------- --------
RESERVE FOR PLACEMENT 68,842 4.0% 571 2.36 51,760 4.0% 429 1.77
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE OTHER DEDUCTIONS $ 526,115 30.6% $ 4,363 $18.02 $ 211,514 16.3% $ 1,754 $ 7.25
---------- ----- ------- -------- ---------- ----- ------- --------
<CAPTION>
PORTFOLIO HIGH
------------------------------------------
<S> <C> <C> <C>
PERCENTAGE OF OCC/ADR 81.40% at $64.85
OCCUPIED ROOMS
AVAILABLE ROOMS
<CAPTION>
PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM
---------- ----- ------- --------
<S> <C> <C> <C> <C>
REVENUE:
ROOMS $2,225,242 95.4% $18,453 $76.23
TELEPHONE 58,935 2.8% 489 2.02
RENTALS & OTHER INCOME 79,199 3.4% 657 2.71
---------- ----- ------- --------
TOTAL 2,331,954 100.0% 19,338 79.69
---------- ----- ------- --------
DEPARTMENTAL EXPENSES:
ROOMS 456,029 20.5% 3,782 15.02
TELEPHONE 47,963 81.4% 398 1.64
---------- ----- ------- --------
TOTAL 407,019 21.3% 4,122 17.03
---------- ----- ------- --------
TOTAL DEPARTMENTAL PROFIT 1,846,380 79.2% 15,311 63.26
---------- ----- ------- --------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 242,323 10.4% 2,010 8.30
MANAGEMENT FEE 113,728 4.9% 943 3.90
MARKETING 107,997 4.6% 596 3.70
FRANCHISE FEES 90,982 3.9% 754 3.12
PROPERTY OPERATION & MAINT. 135,387 5.8% 1,123 4.04
ENERGY 113,718 4.9% 943 3.90
---------- ----- ------- --------
TOTAL 748,100 32.1% 6,204 25.63
---------- ----- ------- --------
INCOME BEFORE FIXED CHARGES 1,098,287 47.1% 9,108 37.83
---------- ----- ------- --------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 115,734 5.0% 960 3.95
BUILDING & CONTENTS INSURANCE 45,338 2.0% 384 1.09
0 0.0% 0 0.00
---------- ----- ------- --------
TOTAL 148,145 8.4% 1,220 5.08
---------- ----- ------- --------
INCOME BEFORE RESERVE 960,388 42.0% 5,130 33.89
---------- ----- ------- --------
RESERVE FOR PLACEMENT 93,278 4.0% 774 3.20
---------- ----- ------- --------
INCOME BEFORE OTHER DEDUCTIONS $ 867,110 38.0% $ 7,357 $30.39
---------- ----- ------- --------
</TABLE>
Source: SIGNATURE INNS
NOTE: Totals will not foot as averages, highs, and lows have been
presented by line item.
Average of 121 rooms
<PAGE> 43
<TABLE>
<CAPTION>
HOST--LIMITED SERVICE TRENDS--LIMITED SERVICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMPARABLE PROPERTY OPERATING RESULTS 1004 MID-PRICED 1004 ALL LIMITED SERVICE
YEAR-END RESULTS rooms 124 rooms 111
PERCENTAGE OF OCCUPANCY/ $52.25 at 72.6% $40.51 at 66.7%
AVERAGE DAILY ROOM RATE
PER AVAIL PER PER AVAIL PER
REVENUE: AMOUNT RATIO ROOM OCC ROOM AMOUNT RATIO ROOM OCC ROOM
------ ----- ---- -------- ------ ----- ---- --------
ROOMS $1,714,506 95.0% $13,627 $50.25 $1,372,465 95.3% $12,305 $40.31
TELEPHONE 32,064 1.8% 200 1.01 35,400 2.5% 310 1.27
RENTALS & OTHER INCOME 38,000 2.1% 307 1.10 14,200 1.0% 128 0.51
OTHER OPERATED DEPTS 19,220 1.1% 155 0.50 17,071 1.2% 101 0.04
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL 1,804,777 100.0% 14,555 65.00 1,439,073 100.0% $12,073 51.73
---------- ------ ------- ----- ---------- ------ ------- ------
DEPARTMENTAL EXPENSES:
ROOMS 466,345 27.2% 3,701 14.21 331,002 24.1% 2,082 11.80
TELEPHONE 22,000 66.7% 177 0.07 20,079 50.2% 100 0.75
OTHER OPERATED DEPTS 96 0.5% 1 0.00 13,008 73.3% 118 0.47
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL 466,442 27.1% 3,030 14.60 355,079 25.4% 3,260 13.12
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL OPERATED INCOME 1,310,335 72.9% 10,010 40.12 1,074,894 74.0% 9,004 30.02
---------- ------ ------- ----- ---------- ------ ------- ------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 165,540 0.2% 1,335 5.04 129,570 9.0% 1,170 4.07
MANAGEMENT FEE 65,872 3.8% 563 2.00 84,612 3.8% 492 1.96
MARKETING 85,032 4.5% 603 2.02 52,261 3.0% 471 1.88
FRANCHISE FEES 43,048 2.4% 352 1.33 10,983 1.2% 163 0.01
PROPERTY OPERATION & MAINT. 77,376 4.3% 624 2.30 80,910 6.0% 720 2.01
ENERGY 85,032 4.5% 903 2.02 78,000 6.4% 703 2.80
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL 527,000 20.2% 4,250 10.00 412,000 26.7% 3,718 14.03
---------- ------ ------- ----- ---------- ------ ------- ------
INCOME BEFORE FIXED CHARGES 760,335 43.7% 6,300 24.00 602,100 45.0% 5,000 23.79
---------- ------ ------- ----- ---------- ------ ------- ------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 84,976 3.0% 524 1.95 62,715 4.4% 605 2.26
BUILDING & CONTENTS INSURANCE 10,840 1.1% 100 0.60 22,644 1.0% 204 0.81
EQUIPMENT LEASE 0 0.0% 0 0.00 0 0.0% 0 0.00
OTHER 0 0.0% 0 0.00 0 0.0% 0 0.00
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL 94,810 4.7% 684 2.58 85,359 5.9% 709 3.07
---------- ------ ------- ----- ---------- ------ ------- ------
INCOME BEFORE RESERVE 704,519 30.0% 5,682 21.47 576,837 40.1% 5,197 20.72
---------- ------ ------- ----- ---------- ------ ------- ------
RESERVE FOR REPLACEMENT 0 0.0% 0 0.00 0 0.0% 0 0.00
---------- ------ ------- ----- ---------- ------ ------- ------
INCOME BEFORE OTHER DEDUCTIONS $ 704,519 30.0% $ 5,682 21.47 $ 576,837 40.1% $ 5,197 $20.72
---------- ------ ------- ----- ---------- ------ ------- ------
</TABLE>
<PAGE> 44
INCOME CAPITALIZATION APPROACH VI-7
ROOMS DEPARTMENT
ROOMS REVENUE: Rooms department revenue was calculated by estimating annual
occupancy and average daily rate per occupied room. Our estimates of occupancy
and ADR, and the rationale supporting these estimates, are presented in the
Market Analysis section of this report. We estimate the 101-room subject will
achieve a stabilized occupancy of 73% and an average daily rate of $56.00.
ROOMS EXPENSES: This category includes rooms payroll and related expenses,
guest supplies, paper goods, cleaning supplies, laundry, linen, and other items
for maintaining guest rooms as well as miscellaneous expenses.
These expenses declined from 25.5% of departmental revenue in 1993 to 24.1% of
rooms revenue in 1995. Comparable Signature Inns in the portfolio averaged a
1995 rooms expense of 24.3%, with a range of 20.5% to 28.8%. The Host Report
indicates an industry standard of 27.2%, while Trends reports a 24.1%. We
estimate the rooms expense to equal a stabilized 24.5% of rooms revenue based
upon historical statistics and the comparables.
TELEPHONE DEPARTMENT
TELEPHONE REVENUE: This revenue includes income from local calls, long distance
calls, and access charges. Historically, the subject realized telephone
revenue per occupied room increased from $1.33 to $1.96, the highest in the
portfolio. Telephone revenues at the subject are relatively low since the
property does not charge for local telephone calls, which is becoming
increasingly common at limited-service hotels. The portfolio averaged
telephone sales of $1.45 per occupied room, with a range of $1.19 to $1.96.
Industry standards indicated $1.01 and $1.27 per available room. Based upon
the subject's pricing practices, as well as its historical telephone income, we
project income of $2.00 per occupied room.
TELEPHONE EXPENSES: These expenses reflect the cost of providing local and long
distance cells. Historical telephone expenses at the property declined from
70.3% in 1993 to 63.7% of telephone revenue in 1995. The portfolio averaged
78.6% per occupied room, ranging from 59.6% to 99.9%, while industry standards
indicate 66.7% and 59.2% per occupied room. Based upon the telephone pricing
practices at the subject, we have projected a stabilized expense of 65% of
telephone revenues.
RENTALS AND OTHER INCOME
This line item includes all net income associated with vending machines,
laundry, movie rental, rentals, faxes, and any other miscellaneous income
generated by the hotel. The subject has shown net income in rentals and other
income category within a range of $73,243 to $79,199. Based upon the
historically increasing trend, we have estimated rentals and other income to be
$80,000 upon stabilization.
<PAGE> 45
VI-8 INCOME CAPITALIZATION APPROACH
UNDISTRIBUTED OPERATING EXPENSES
ADMINISTRATIVE AND GENERAL EXPENSES: These expenses represent payroll costs
and other expenses for management and administration. Administrative and
general (A&G) expenses include such items as the cost of accounting and legal
fees, credit card commissions, printing, stationery, general liability
insurance, donations, and postage costs.
These expenses increased from $1,815 per available room in 1993 to $2,062 in
1995. The Signature Inn portfolio averaged $1,597 per available room, ranging
from $1,146 to $2,062. Industry standards indicate a lower $1,335 and $1,170
per available room. Based upon historical information, and considering the
portfolio and standards, we have projected a lower A&G expense of $1,650 per
available room for the stabilized year.
MANAGEMENT FEE: Signature Inns has historically charged a management fee of 5%
of rooms revenue and most rental revenue. However, since the purpose of our
appraisal is to estimate market value, management fees for the property must
reflect current market management fees, since existing management contracts are
not binding upon subject transfer. U S Realty Consultants' Fall 1995 survey
indicated a management fee range of 3% to 6% for properties without incentive
fees. The overall base management fee for new contracts was 2.9%, down from a
3.4% average in our database of existing contracts. However, it should be
noted that this average does not include incentive fees incorporated into some
agreements. Based upon the declining trend for new contracts, as well as our
knowledge of current market fees, we have estimated this expense to be 4% of
total revenue.
MARKETING EXPENSES: include payroll and related benefits, the cost of
advertising in various media such as newspapers, magazines and directories, as
well as direct mail campaign, bill boards and miscellaneous sales and marketing
expenses.
Historically, the marketing expenses at the subject hotel have ranged from $550
to $724 per available room. The portfolio averaged $687 per available room.
Industry standards reflect an expense of $693 and $471 per available room.
Based upon the historical performance, as well as the portfolio and industry
standard, we have projected a marketing expense of $725 per available room for
the subject.
FRANCHISE FEE: Signature Inn historically has charged a franchise fee of 4% of
rooms revenue. However, as discussed in our management fee section, a
potential buyer would need to affiliate the subject with a similar franchise in
order to achieve the occupancy and ADR projected. Currently, the Signature Inn
affiliation is a contributing factor in the subject's ability to penetrate the
market. After examining the franchise costs of more than sixty national
franchises, we have determined that a franchise fee of 4% of rooms revenue is
appropriate for the level of corporate support and brand recognition provided
by the Signature Inn affiliation.
<PAGE> 46
INCOME CAPITALIZATION APPROACH VI-9
PROPERTY OPERATION AND MAINTENANCE EXPENSES: include both payroll and related
benefits and other expenses associated with periodic preventive maintenance and
repairs to the physical structure and mechanical equipment.
Historically, property operations and maintenance expenses at the subject hotel
varied from $722 per available room in 1993 to $798 per available room in 1995.
Property operation and maintenance expenses in the portfolio averaged $857 per
available room, ranging from $687 to $1,082. Industry standards reflect an
average of $624 and $729 per available room. Based upon all the available
information, we have projected a stabilized expense of $800 per available room
for the subject.
ENERGY EXPENSES: represent expenditures for electricity, heating, fuel, water,
waste removal and related operating supplies. The subject hotel experienced
energy expenses ranging from $621 in 1993, declining to $541 in 1994 before
increasing to $689 in 1995. We have based our projection on the increased
historical energy costs. We estimate the energy expense at $675 per available
room for the stabilized year.
FIXED CHARGES
REAL ESTATE AND PROPERTY TAXES: Historical property taxes were detailed in the
Descriptive Data section previously. We have projected stabilized real estate
and personal property taxes for in 1996 dollars to be $51,600.
BUILDING AND PROPERTY INSURANCE: This expense includes building and property
insurance expenses at the subject hotel.
This expense has historically ranged from $202 in 1993 to $238 in 1994, then
declining to $223 in 1995, while the portfolio averaged $251 per available
room. Industry standards reflected a lower $160 and $204. Based upon the
historical expense, as well as the portfolio and standards, we have projected
an expense of $210 per available room.
RESERVE FOR REPLACEMENT: represents a reserve set aside to provide for the
periodic replacement of furniture, fixtures and equipment during the life of
the building. Historically the subject hotel has posted a 4% replacement
reserve to its operating statement. As discussed in the Descriptive Data
section, our reserve is estimated at 4% of total sales throughout the analysis
period. A 4% replacement reserve is projected as it is in keeping with
industry guidelines for a hotel of the subject's age, size, and volume of
operation. Additionally, the amount is considered to be appropriate due to the
level and extent of furniture, fixtures and equipment replacement necessary to
maintain and improve the overall condition of the subject over its useful life.
STABILIZED OPERATING STATEMENT: A projected stabilized operating statement
for FY 1996 is presented on the following page. This projection is rounded to
the nearest one hundred dollars. The estimated cash flow will be used to
estimate the subject property's market value by direct capitalization.
<PAGE> 47
- -------------------------------------------------------------------------------
STABILIZED OPERATING STATEMENT
SIGNATURE INN -- KOKOMO
1996 DOLLARS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCCUPANCY/ADR 73% at $56.00
PER OCC.
AMOUNT RATIO AMT\RM ROOM
<S> <C> <C> <C> <C>
REVENUES:
ROOMS $1,507,000 91.8% $14,921 $56.00
TELEPHONE 53,823 3.3% 533 2.00
RENTALS & OTHER INCOME 80,000 4.9% 792 2.97
------ ---- --- ----
TOTAL REVENUE $1,640,823 100.0% $16,246 $60.97
DEPARTMENTAL EXPENSES:(1)
ROOMS $369,215 24.5% $3,656 $13.72
TELEPHONE 34,985 65.0% 346 1.30
------ ---- --- ----
TOTAL DEPARTMENTAL EXPENSES $404,200 24.6% $4,002 $15.02
TOTAL OPERATED INCOME $1,237,000 75.4% $12,248 $45.95
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL $166,650 10.2% $1,650 $6.19
MANAGEMENT FEE 65,633 4.0% 650 2.44
MARKETING 73,225 4.5% 725 2.72
FRANCHISE FEES 60,280 3.7% 597 2.24
PROPERTY OPERATION & MAINT. 80,800 4.9% 800 3.00
ENERGY 68,175 4.2% 675 2.53
------ ---- --- ----
TOTAL $514,763 31.4% $5,097 $19.13
INCOME BEFORE FIXED CHARGES $722,000 44.0% $7,151 $26.82
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES $51,500 3.1% $510 $1.91
BUILDING & CONTENTS INSURANCE 21,210 1.3% 210 0.79
------ ---- --- ----
TOTAL FIXED CHARGES $72,710 4.4% $720 $2.70
INCOME BEFORE RESERVE $649,000 39.6% $6,431 $24.12
RESERVE FOR REPLACEMENT $65,633 4.0% $650 $2.44
------ ---- --- ----
INCOME BEFORE OTHER DEDUCTIONS(2) $583,000 35.5% $5,772 $21.68
</TABLE>
NOTES;
(1) Each departmental expense ratio is based on the department's estimated
revenue and does not add to the total departmental expense ratio.
(2) Income before other fixed charges such as interest, amortization,
depreciation, and income taxes.
Note: This statement is based upon a room inventory of: 101
THIS STATEMENT SHOULD BE READ SUBJECT TO THE COMMENTS CONTAINED
IN THE ATTACHED REPORT
<PAGE> 48
INCOME CAPITALIZATION APPROACH VI-11
VALUATION ANALYSIS
In order to provide a value estimate via the Income Capitalization Approach an
analysis to estimate probable overall capitalization rates was necessary. We
relied upon input from a number of sources including discussions with market
participants, our own experience, and awareness of current money rates and
investment trends.
In developing a capitalization rate for income-producing real estate, factors
such as the quality and durability of the estimated income stream were
analyzed. A hotel property has special risk resulting from the generally
single purpose nature of the construction and its sensitivity to change in
market conditions and the lodging industry. An appropriate capitalization rate
must reflect these factors and their relationship to the subject property. An
examination of the capitalization rates for hotel properties that have recently
been purchased has been undertaken.
The table below presents current yields and capitalization rates as tracked by
the Korpacz Investor Survey, a widely utilized barometer of investment
parameters.
===============================================================================
TABLE VI-1
KORPACZ INVESTOR SURVEY - HOTELS
FOURTH QUARTER 1995
===============================================================================
<TABLE>
<CAPTION>
National National National
Full-Service Economy/Limited- Luxury
Hotels Service Hotels Hotels
======================================================================================================================
<S> <C> <C> <C>
Free & Clear Equity Cap Rate
- ----------------------------------------------------------------------------------------------------------------------
Range 8.0% - 15.0% 8.0% - 18.0% 7.0% - 15.0%
- ----------------------------------------------------------------------------------------------------------------------
Average 10.65% 12.53% 10.17%
======================================================================================================================
</TABLE>
Source: Korpacz Real Estate Investor Survey, First Quarter 1995.
================================================================================
Table VI - 1 provides information from the most recent overall hotel survey
conducted by Korpacz. The survey indicated a capitalization rate for
limited-service hotels in the range of 8% to 18% with an average of 12.53%.
As with other property types, there exists a degree of uncertainty in today's
real estate market. Nevertheless, for purposes of determining an appropriate
capitalization rate for the subject, we considered the capitalization rates
from the limited sales presented within Sales Comparison Approach.
<PAGE> 49
VI-12 INCOME CAPITALIZATION APPROACH
The sales in the Sales Comparison Approach indicate capitalization rates
ranging from 9.4% to 18.8%, with an average of 12.5%. Inconsistencies between
properties and accounting methodologies diminish the market extraction of rates
for hotel property sales. We have, therefore, also considered recent surveys
in assessing buyer requirements on potential hotel cash flows.
The upside of the subject is that it has historically achieved an increasing
occupancy and ADR, and 1995 penetration was well in excess of its market fair
share. The property is considered to be in above average condition after a
1995 renovation. The downside is two new competitive hotels are anticipated in
the market in the next year.
In viewing all available data, we have focused in the middle of the range.
Our projected capitalization rate is similar to the average of the sales
utilized in the Sales Comparison Approach, and supported by the timely data of
the Korpacz survey. THEREFORE, BASED ON THE AFOREMENTIONED ANALYSIS, WE HAVE
ESTIMATED THAT A DIRECT CAPITALIZATION RATE OF 12.25% IS APPROPRIATE TO CONVERT
THE STABILIZED NET OPERATING INCOME INTO AN INDICATION OF MARKET VALUE.
The result of this procedure, using the market-driven capitalization rate of
12.25% is presented in the following calculation.
$583,000 net operating income / 12.25% capitalization rate =
$4,759,184
or
$4,800,000 (rounded)
Based on the above analyses, we estimate that the market value of the fee
simple estate of the going concern of the subject property via the Income
Capitalization Approach (including the contributory value of the FF&E), as of
February 28, 1996, is:
FOUR MILLION EIGHT HUNDRED THOUSAND DOLLARS
$4,800,000
<PAGE> 50
SALES COMPARISON APPROACH VII-1
INTRODUCTION
The Sales Comparison Approach is defined in The Dictionary of Real Estate
Appraisal, Third Edition, (published by The Appraisal Institute, 1993), as:
A set of procedures in which a value indication is derived by comparing
the property being appraised to similar properties that have been sold
recently, applying appropriate units of comparison, and making
adjustments to the sale prices based on the elements of comparison.
It is based on the premise that the market value of a property is directly
related to the prices paid for similar properties which have recently sold.
Inherent in this approach is the principle of substitution, which holds that
when a property is replaceable in the market, its price tends to be set at the
cost of acquiring an equally desirable substitute property, assuming that no
costly delay is encountered in making the substitution.
METHODOLOGY
Information was collected on a number of transactions involving the sale of
limited service hotels in the Midwestern, Middle Atlantic, Southern and New
England regions. The data was verified by USRC through sources deemed to be
reliable, and using commonly accepted appraisal methodology. Summary data for
these sales is presented within the table on the following page, from which
price trends may be identified for the extraction of value parameters. We
segregated the data by year of sale to lend additional perspective to our
analysis. Comparability in economic characteristics is the most important
criteria in analyzing these sales in relation to the subject property.
However, it is also extremely important to recognize that hotels are distinct
physical entities by virtue of their age and design, visibility and
accessibility, their services, as well as the uses within the neighborhood.
Thus, the Sales Comparison Approach, when utilized to value a hotel such as the
subject, can at best only establish a reasonable range of parameters within
which the typical investor operates.
Two techniques were utilized in this valuation approach. First, a Linear
Regression Analysis was performed to demonstrate that sale price is a function
of income. Next, an Effective Rooms Revenue Multiplier was developed, which
adjusts the sale prices of the comparables based on differences in rooms
revenue. The presentation of these techniques are followed by an estimate of
market value via the Sales Comparison Approach.
<PAGE> 51
TABLE VII-I
SUMMARY OF IMPROVED SALE COMPARABLES
SELECT NATIONWIDE LIMITED-SERVICE HOTELS
<TABLE>
<CAPTION>
Date Sales Price
Property Name Location of Sale Age Sales Price # Rms per Room Ro
------------- -------- ------- --- ----------- ----- ----------- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comfort Inn Mt. Pleasant SC 8-95 1987 $4,100,000 122 $33,607 12.51%
Hampton Inn Flint MI 7-95 1986 $4,300,000 124 $34,677 9.40%
Days Inn Manistee MI 6-95 nav $2,700,000 92 $29,348 11.00%
Days Inn Savannah GA 5-95 1987 $5,031,000 120 $41,925 12.69%
Days Inn Richmond IL 4-95 1988 $1,600,000 60 $26,667 11.31%
Wentworth Inn Traverse City MI 4-95 nav $3,125,000 95 $32,895 9.70%
Best Western Florence SC 3-95 1992 $3,025,000 76 $39,803 15.70%
Hampton Inn Tallahassee FL 1-95 1993 $3,964,440 93 $42,628 10.80%
Hampton Inn Naperville IL 12-94 1987 $6,835,000 130 $52,577 12.00%
Shoney's Inn Hilton Head Island SC 12-94 1989 $5,050,000 138 $36,594 11.09%
Ramada Limited Lima OH 12-94 1974 $1,900,000 121 $15,702 nav
Hampton Inn Gastonia NC 11-94 1989 $6,910,000 109 $63,394 11.30%
Knights Inn Indianapolis IN 11-94 1984 $1,350,000 99 $13,636 12.00%
Hampton Inn Shelby NC 11-94 1989 $3,000,000 78 $38,462 10.69%
Knights Inn North Columbus OH 10-94 1986 $2,000,000 115 $17,391 11.50%
Comfort Inn Abingdon VA 10-94 1987 $2,600,000 80 $32,500 11.50%
Shoney's Inn Columbia SC 10-94 1987 $1,950,000 122 $15,984 11.90%
Hampton Inn Hilton Head Island SC 10-94 1991 $4,250,000 125 $34,000 11.51%
Comfort Inn - North & South Romulus MI 10-94 1986 $4,200,000 254 $16,535 nav
Hampton Inn Albany NY 9-94 1990 $8,829,834 126 $70,078 nav
Comfort Inn University Durham NC 9-94 1987 $8,270,000 138 $59,928 9.80%
Country Inn Burnsville MN 8-94 1987 $2,300,000 88 $26,136 nav
Fairfield Inn James City VA 8-94 1980 $2,500,000 129 $19,380 12.60%
Fairfield Inn West Columbus OH 8-94 1989 $3,870,767 105 $36,864 9.80%
Comfort Inn Raleigh NC 8-94 1984 $4,600,000 149 $30,872 12.00%
Knights Inn Akron South Akron OH 7-94 1977 $1,400,000 110 $12,727 14.30%
Hampton Inn Charlotte NC 6-94 1990 $4,543,000 125 $36,344 12.00%
Mendota Motel Mendota MN 5-94 1953 $ 320,000 24 $13,333 nav
Hampton Inn Southfield MI 5-94 1986 $3,325,000 153 $21,732 13.35%
Comfort Inn Enterprise AL 5-94 1987 $3,000,000 78 $38,462 13.08%
Quality Inn Nashville TN 4-94 1974 $2,500,000 103 $24,272 nav
Comfort Inn Alexandria VA 4-94 1973 $2,400,000 92 $26,087 15.53%
Comfort Inn North Charleston SC 4-94 1986 $2,900,000 122 $23,770 14.21%
Comfort Inn Fort Mill SC 4-94 1986 $7,400,000 155 $47,742 12.00%
Drury Inn Joplin MO 4-94 nav $2,000,000 110 $18,182 17.33%
Hampton Inn Westlake OH 4-94 1990 $5,435,875 123 $44,194 10.20%
Comfort Inn Clemson SC 4-94 1987 $5,150,000 122 $42,213 11.00%
Hampton Inn - Victors Way Ann Harbor MI 4-94 1986 $5,300,000 153 $34,641 11.90%
Hampton Inn Durham NC 3-94 1987 $6,000,000 135 $44,444 11.20%
Comfort Inn Lynchburg VA 3-94 1974 $2,650,000 120 $22,083 12.42%
Hampton Inn Little Rock AK 3-94 1985 $3,500,000 122 $28,689 13.43%
Howard Johnson's Joplin MO 2-94 1963 $1,950,000 106 $18,396 18.82%
Hampton Inn Crestwood IL 1-94 1990 $3,575,000 123 $29,065 nav
Signature Inn Plymouth Twn MI 1-94 1989 $4,200,000 123 $34,146 10.95%
Springhouse Inn Porter IN 1-94 1989 $1,750,000 50 $35,000 nav
Comfort Inn Motel Rolling Meadows IL 12-93 1984 $1,683,000 103 $16,340 10.44%
Knights Inn Indianapolis IN 12-93 1983 $1,260,000 109 $11,560 13.30%
Comfort Inn Marietta GA 12-93 1989 $6,750,000 188 $36,290 11.02%
Hampton Inn Florence SC 12-93 1989 $4,791,234 122 $39,272 13.00%
Hampton Inn Matteson IL 12-93 1988 $4,950,000 127 $38,976 13.70%
Shoney's Inn Columbia SC 10-93 1987 $1,950,000 122 $15,984 11.90%
Signature Inn Middleburg Height OH 10-93 1989 $4,800,000 136 $35,294 12.50%
Signature Inn Canton OH 10-93 1989 $3,000,000 124 $24,194 12.00%
Econo Lodge Motel Indianapolis IN 10-93 nav $1,100,000 106 $10,377 17.80%
Comfort Inn Conyers GA 8-93 1989 $3,350,000 83 $40,361 14.04%
Hampton Inn Greenville NC 7-93 1986 $3,482,000 121 $28,777 12.24%
Signature Inn Kalamazoo MI 5-93 1989 $3,500,000 125 $28,000 13.90%
Hampton Inn - Green Rd. Ann Arbor MI 5-93 1988 $4,250,000 130 $32,692 nav
Knights Inn Canton OH 5-93 1983 $1,650,000 101 $16,337 15.50%
Days Inn Madisonville KY 2-93 1969 $2,450,000 141 $17,376 14.10%
Ramada Inn Jacksonville FL 2-93 1971 $1,700,000 150 $11,333 13.20%
Signature Inn Warren MI 1-93 1986 $2,500,000 128 $19,531 11.70%
Save Inn/Days Inn Broadview Heights OH 1-93 1980 $1,600,000 109 $14,679 14.10%
</TABLE>
<TABLE>
<CAPTION>
Gross Room Income
Property Name Occupancy ADR Revenue REVPAR Per Room ERRM
------------- --------- --- ---------- ------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
Comfort Inn 80.0% $46.00 $1,638,704 $36.80 $4,204 2.50
Hampton Inn 73.9% $45.84 $1,533,217 $33.88 $3,260 2.80
Days Inn nav nav $ 900,000 $26.80 $3,228 3.00
Days Inn 90.0% $52.00 $2,049,840 $46.80 $5,320 2.45
Days Inn 51.0% $44.00 $ 491,436 $22.44 $3,016 3.25
Wentworth Inn nav nav $ 820,000 $23.65 $3,191 3.81
Best Western 83.1% $47.26 $1,089,435 $39.27 $6,249 2.78
Hampton Inn 75.0% $56.00 $1,425,690 $42.00 $4,604 2.78
Hampton Inn 75.0% $55.00 $1,957,313 $41.25 $6,309 3.49
Shoney's Inn 65.0% $55.00 $1,800,728 $35.75 $4,058 2.80
Ramada Limited 41.0% $33.50 $ 606,806 $13.73 nav 3.13
Hampton Inn 83.0% $52.00 $1,717,121 $43.16 $7,164 4.02
Knights Inn 51.6% $36.20 $ 674,973 $18.68 $1,636 2.00
Hampton Inn 66.0% $45.00 $ 845,559 $29.70 $4,112 3.55
Knights Inn North 55.9% $28.00 $ 656,993 $15.85 $2,000 3.04
Comfort Inn 71.9% $43.00 $ 902,778 $30.92 $3,738 2.88
Shoney's Inn 59.0% $33.50 $ 880,135 $19.77 $1,902 2.22
Hampton Inn 78.7% $44.53 $1,598,933 $35.05 $3,913 2.66
Comfort Inn - North & South 76.0% $31.44 $2,215,250 $23.89 nav 1.90
Hampton Inn 71.6% $63.03 $2,075,505 $45.13 nav 4.25
Comfort Inn University 83.1% $48.17 $2,016,274 $40.03 $5,873 4.10
Country Inn 67.0% $50.14 $1,079,033 $33.59 nav 2.13
Fairfield Inn 53.5% $43.13 $1,086,465 $23.07 $2,442 2.30
Fairfield Inn West 80.0% $45.85 $1,405,761 $36.68 $3,613 2.75
Comfort Inn nav nav $1,650,000 $30.34 $3,705 2.79
Knights Inn Akron South 47.0% $37.00 $ 698,209 $17.39 $1,820 2.01
Hampton Inn 75.0% $45.00 $1,539,844 $33.75 $4,361 2.91
Mendota Motel 60.0% $14.50 $ 76,212 $ 8.70 nav 4.20
Hampton Inn 59.0% $49.00 $1,614,479 $28.91 $2,901 2.06
Comfort Inn 81.0% $40.76 $ 939,954 $33.02 $5,031 3.19
Quality Inn 63.0% $44.50 $1,053,976 $28.04 nav 2.37
Comfort Inn 75.0% $42.00 $1,057,770 $31.50 $4,051 2.19
Comfort Inn 65.0% $41.00 $1,186,725 $26.85 $3,378 2.44
Comfort Inn 74.3% $50.21 $2,111,441 $37.32 $5,729 3.50
Drury Inn 70.0% $33.31 $ 936,178 $23.32 $3,151 2.14
Hampton Inn 68.0% $51.60 $1,575,276 $35.09 $4,508 3.45
Comfort Inn 72.0% $47.00 $1,506,895 $33.84 $4,643 3.42
Hampton Inn - Victors Way 68.0% $51.34 $1,949,616 $34.91 $4,122 2.72
Hampton Inn 91.1% $43.85 $1,968,406 $39.95 $4,978 3.05
Comfort Inn 60.0% $42.00 $1,103,760 $25.20 $2,743 2.35
Hampton Inn 68.0% $42.78 $1,295,396 $29.09 $3,853 1.84
Howard Johnson's 68.0% $34.12 $ 897,670 $23.20 $3,462 2.17
Hampton Inn 64.0% $58.00 $1,666,502 $37.12 nav 2.15
Signature Inn 59.6% $48.54 $1,298,805 $28.93 $3,739 3.23
Springhouse Inn 63.0% $62.00 $ 712,845 $39.06 nav 2.45
Comfort Inn Motel nav nav $ 975,873 $25.96 $1,706 1.72
Knights Inn 46.3% $37.00 $ 688,298 $17.30 $1,537 1.83
Comfort Inn 70.0% $45.00 $2,138,535 $31.50 $3,999 3.16
Hampton Inn 90.0% $44.00 $1,763,388 $39.60 $5,105 2.72
Hampton Inn 74.0% $56.00 $1,920,951 $41.44 $5,340 2.58
Shoney's Inn 59.0% $33.50 $ 880,135 $19.77 $1,902 2.22
Signature Inn 65.0% $51.00 $1,645,566 $33.15 $4,412 2.92
Signature Inn 60.0% $44.80 $1,216,589 $26.88 $2,903 2.47
Econo Lodge Motel 50.5% $30.79 $ 601,589 $15.55 $1,847 1.83
Comfort Inn 85.0% $47.57 $1,224,963 $40.43 $5,667 2.73
Hampton Inn nav nav $1,302,192 $29.48 $3,522 2.80
Signature Inn 62.5% $49.94 $1,424,070 $31.21 $3,892 2.50
Hampton Inn - Green Rd. 67.5% $52.94 $1,695,602 $35.73 nav 2.51
Knights Inn 70.0% $33.00 $ 851,582 $23.10 $2,532 1.94
Days Inn nav nav $1,254,348 $24.37 $2,450 1.95
Ramada Inn 65.0% $43.00 $1,530,263 $27.95 $1,496 1.10
Signature Inn 49.9% $46.52 $1,084,534 $23.21 $2,285 2.30
Save Inn/Days Inn 62.0% $27.50 $ 678,334 $17.05 $2,070 2.36
</TABLE>
<TABLE>
<CAPTION>
Property Name Comments
------------- --------
<S> <C>
Comfort Inn Purchase price includes $500,000 of renovations.
Hampton Inn East of I-475 near several office properties, restaurants and retail stores.
Days Inn
Days Inn Purchase price includes $406,000 of renovations.
Days Inn
Wentworth Inn
Best Western Located at the southeast quarter of I-95 and Hwy 52.
Hampton Inn
Hampton Inn In heavy office/commercial area, no highway exposure.
Shoney's Inn
Ramada Limited Good exposure from I-75. Originally constructed as full-service.
Hampton Inn Five story, interior corridor.
Knights Inn Far east side of Minneapolis.
Hampton Inn Off U.S. Highway 74, 40 miles west of downtown Charlotte.
Knights Inn North 8 miles north of downtown Columbus. Exit 117 of I-71.
Comfort Inn
Shoney's Inn Was converted to a Hampton Inn.
Hampton Inn
Comfort Inn - North & South 2 properties - Both in vicinity of Detroit Airport.
Hampton Inn Five miles from Albany Airport.
Comfort Inn University Between Chapel Hill and Durham.
Country Inn
Fairfield Inn Average Condition, Occupancy and ADR below Avg at time of sale.
Fairfield Inn West Near intersection of I-270 and I-70.
Comfort Inn Both interior and exterior corridors, renovated in 1993.
Knights Inn Akron South 6 miles south of downtown Akron. Good access and visibility from I-77.
Hampton Inn Near I-85 Interchange and UNC - Charlotte.
Mendota Motel
Hampton Inn Excellent visibility from NW Highway (Lodge Freeway), but confusing access.
Comfort Inn Access from I-84.
Quality Inn Good Interstate access and exposure.
Comfort Inn Two story, interior corridor, average condition.
Comfort Inn Located near the Charleston International Airport.
Comfort Inn Located within a commercial area with good access and visibility.
O[copy illegible] Inn 2 story masonry bldng on 5 acres of land.
Hampton Inn Upper-economy, limited-service property in suburban Cleveland.
Comfort Inn Interior Corridors, near Clemson University.
Hampton Inn - Victors Way North of I-94 at State Street Exit, on south side of Ann Harbor.
Hampton Inn Near Duke Univ. Medical Ctr and I-85.
Comfort Inn Near Blue Ridge Parkway.
Hampton Inn
Howard Johnson's Renovation in 1986.
Hampton Inn On primary commercial street in SW suburb of Crestwood.
Signature Inn Good visibility from I-275. Converted to Quality Inn in 1994.
Springhouse Inn South of I-94 in NW IN, poor visibility.
Comfort Inn Motel
Knights Inn
Comfort Inn Located in NW metro Atlanta, near Dobbins AFB & I-75/Cumberland Mall.
Hampton Inn Good access from I-95 and U.S. Highway 52.
Hampton Inn Upper-economy, limited-service property in suburban Chicago.
Shoney's Inn
Signature Inn Upper-economy, limited-service property in suburban Cleveland.
Signature Inn Upper-economy, limited-service property in suburban Canton.
Econo Lodge Motel East of I-465 on east side of Minneapolis.
Comfort Inn Located in Atlanta suburb.
Hampton Inn
Signature Inn Mid-size city; near interstates, employers, and retail.
Hampton Inn - Green Rd. Near cluster of lodging properties, west of hwy 23, north of I-94.
Knights Inn Near Belden Village Mall off I-77.
Days Inn Two story brick veneer.
Ramada Inn Property in Below Average Condition at Time of Sale.
Signature Inn Suburban Detroit property near employers; distressed mkt.
Save Inn/Days Inn Located off I-77 at exit 149B for State Route 82.
</TABLE>
Ro = Overall Rate REVPAR = Revenue Per Available Room
ADR = Average Daily Rate ERRM = Effective Rooms Revenue Multiplier
<PAGE> 52
SALES COMPARISON APPROACH VII-3
CRITERIA FOR COMPARABLE SELECTION
As indicated on the preceding summary charts, a total of 63 hotel sales were
utilized as comparable data. Physical factors such as location, sale date,
year of construction and size were considered. However, our analysis makes
comparisons of the transactions primarily along economic lines. In our
opinion, a buyer's criteria for the purchase of a hotel property is predicated
primarily on the property's income characteristics.
STATISTICAL MEASURES
Various statistical measures of the data are calculated and presented in the
following table. These basic descriptive statistics are measures of central
tendency and measures of variation or scatter.
Table VII-2
Statistical Measures
<TABLE>
<CAPTION>
Measurement Types ADR REVPAR INCOME/ROOM ERRM Ro (%)
<S> <C> <C> <C> <C> <C>
Sample Size: 57 63 54 63 54
Measures of Central Tendency
Mean $44.20 $29.95 $3,679 2.68 12.54
Median 45.00 30.34 3,721 2.66 12.50
Measures of Variation
Highest Value $63.03 $46.80 $7,164 4.25 18.82
Lowest Value 14.50 8.70 1,496 1.10 9.40
Data Range 48.53 38.10 5,668 3.15 9.42
Standard Deviation 8.98 8.46 1,362 0.65 1.97
Coefficient of Variability 20.3% 28.3% 37.0% 24.1% 15.7%
</TABLE>
The mean and median are both measures of central tendency. The mean is the
mathematical average of the numerical data. The median of a set of values is a
number such that half of the values are less than that number, and half of the
values are greater than that number.
In studying the measures of central tendency, consideration is given to the
advantages and disadvantages of each, as they relate to the data analyzed. One
of the major considerations is how symmetrical the distribution of the data is.
If the data is highly symmetrical, the distribution will be in the form of a
bell-shaped curve, with the mean and median coinciding. However, as the data
becomes more and more skewed or lopsided, the differences in these
<PAGE> 53
VII-4 SALES COMPARISON APPROACH
measures will become greater. In such a case, the median, by excluding the
extremes, may become a more meaningful measure of central tendency.
The measures of central tendency tell nothing about the variation or scatter
among the observed values. In any set of statistical data, the individual
numerical values will be dispersed to a greater or lesser degree around the
center. Obviously, the less the dispersion, the tighter the data clusters
around the center, and the more meaningful the measures of central tendency
become. One method of measuring dispersion is by calculating the average
distance the data points are from the mean. Since the individual deviations
from the mean can be positive or negative, depending on whether the data point
is above or below the mean, and adding these distances would always equal zero,
it is necessary to square the deviations before adding them. The square root
of the sum of these squared deviations, known as the standard deviation, is one
of the most popular measures of data dispersion.
An equally important descriptive statistic presented on the summary chart is
the coefficient of variability. This is calculated by dividing the standard
deviation by the mean. Since the standard deviation measures data dispersion,
the lower the ratio of the standard deviation (dispersion) to the mean, the
more tightly the data clusters around the mean. Generally speaking,
coefficients below 12% indicate that the data points are found close to the
mean, and that the mean is therefore a fairly good indicator of the tendency of
the data. On the preceding summary chart, the coefficients ranged between
15.7% and 37.0%, indicating significant data dispersion.
LINEAR REGRESSION ANALYSIS
A strong indication of how sale prices are influenced by revenue is found by
studying the relationship between the two. To illustrate, we have performed
two regression analyses. The first analysis graphs the data points relating to
the REVPAR and sale price per room for each of the sales. This "scatter plot"
is presented on the following page, and shows the positive linear trend in the
data. An analysis plotting income per room versus sale price per room
follows.
In the graph, the direct relationship is clearly evident. Hotels that generate
greater revenue per room sell for more, regardless of age, location, size,
appearance, or any other physical factors. This is not to say that those
physical and cosmetic factors do not influence price, but they do so only
insofar as they influence room rates, occupancy, operating expenses, and
ultimately net operating income.
<PAGE> 54
SALES COMPARISON APPROACH VII-5
Sales Regression Analysis
Sale Price/Room vs. REVPAR
Sale Price Per Room (Thousands)
[GRAPH]
$80 $60 $40 $20 $0
0 10 20 30 40 50
REVPAR ($)
Mathematically, the relative strength of the relationship between net income
and price per room can be found by submitting the two variables to a
correlation analysis. A perfect linear relationship would be indicated by a
correlation coefficient of 1 (positive relationship) or -1 (negative
relationship). Since very few markets are perfect, the correlation coefficient
will generally fall between -1.0 and 1.0. Correlation coefficients above .75
(or below -.75) generally reflect a good linear relationship, meaning that one
variable (price per room) can be predicted if given the second variable
(REVPAR).
When the REVPAR and price per room variables on the 63 sale properties were
submitted to a correlation analysis, the correlation coefficient (R squared)
was found to be 0.752, indicating that much of the variation in the dependent
variable (sale price per room) is explained by the independent variable
(REVPAR). This technique works best for limited service hotels since rooms
revenue is the only major source of income. The regression output is detailed
on the following chart.
<PAGE> 55
VII-6 SALES COMPARISON APPROACH
Table VII-3
Regression Output
Comparable Sale Data Sample
<TABLE>
<S> <C>
Constant: ($10,101)
Standard Error of Y Estimate: 6,657
R Squared: 0.752
X Coefficient: 1,333
Standard Error of X Coefficient: 99.65
</TABLE>
The constant is the Y-axis intercept and is the value of the dependent variable
(sales price per room) when the independent variable (REVPAR) is zero (0). The
X Coefficient is the slope of the regression line. The X Coefficient measures
the amount of change in the dependent variable for every change in the
independent variable. Given the value of the independent variable (REVPAR), we
can estimate the value of the dependent variable (sale price per room) by using
the X Coefficient and constant.
Based on this information, REVPAR is a significant variable driving the value
of hotels. Although differences in physical characteristics exist, they only
affect value to the extent that they affect room rates and revenue. The
regression formula for the subject can be presented as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sale Price/Room = (X Coefficient X Subject REVPAR) + Constant
= (1,333 X $40.88) + -$10,101
Sale Price/Room = $44,392
</TABLE>
REVPAR was calculated based upon estimates presented in the Income
Capitalization Approach. Solving the regression equation yields a predicted
price for the subject, providing a total value estimate as follows:
<TABLE>
<S> <C> <C> <C>
$44,392 per room X 101 Rooms = $4,483,592
Rounded = $4,500,000
</TABLE>
The first analysis graphed the data points relating to the REVPAR and sale
price per room for each of the sales, while this second analysis considers net
income per room as the independent variable. The following "scatter plot"
shows the positive linear trend in the income per room versus sale price per
room.
<PAGE> 56
SALES COMPARISON APPROACH VII-7
In the graph, the direct relationship is clearly evident. Again, hotels that
generate greater net income per room sell for more, regardless of individual
market factors, such as age, location, size, appearance, or any other physical
factors.
Sales Regression Analysis
Sale Price/Room vs. Net Income/Room
Sale Price Per Room (Thousands)
[GRAPH]
$70 $60 $50 $40 $30 $20 $10 $0
0 2 4 6 8
Income Per Room (Thousands)
When the net income per room and price per room variables on 54 sale properties
were submitted to a correlation analysis, the correlation coefficient (R
squared) was found to be 0.874, indicating that much of the variation in the
dependent variable (sale price per room) is explained by the independent
variable (income per room). This R squared, or correlation, is higher than
that of the REVPAR regression. The regression output is detailed on the
following chart.
<PAGE> 57
VII-8 SALES COMPARISON APPROACH
Table VII-4
Regression Output
Comparable Sale Data Sample
<TABLE>
<S> <C>
Constant: ($919)
Standard Error of Y Estimate: 4,457
R Squared: 0.874
X Coefficient: 8.462
Standard Error of X Coefficient: 0.445
</TABLE>
Based on this information, net income per room is also a significant variable
driving the value of hotels. Although differences in physical characteristics
exist, they only affect value to the extent that they affect room rates,
revenue, and expenses. The regression formula for the subject can be presented
as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sale Price/Room = (X Coefficient X Subject Inc./Rm.) + Constant
= (8.462 X $5,772) + -$919
Sale Price/Room = $47,924
</TABLE>
Net income per room for the subject was estimated in the Income Capitalization
Approach. Solving the regression equation yields a predicted price for the
subject, providing a total value estimate as follows:
<TABLE>
<S> <C> <C> <C>
$47,924 per room X 101 Rooms = $4,840,324
Rounded = $4,800,000
</TABLE>
EFFECTIVE ROOMS REVENUE
We also employed an effective rooms revenue multiplier (ERRM) analysis. This
method is generally used as a check of reasonableness for the linear regression
method.
The ERRM is a factor derived by dividing the sales price of the comparable sale
by the rooms revenue (number of guest rooms available annually multiplied by
the average daily room rate times the occupancy factor). As with the above
approach, room revenue projections for the first full year after purchase were
utilized to reflect the buyer's anticipation of rooms revenues at the time of
purchase. The principal advantage of using economic units of comparison is
that rental income is directly reflected. Therefore, differences between
properties which could involve adjustments, based on subjective judgment
estimates, have been resolved by the free action of the market place. If the
comparable properties have some advantage over the subject in terms of age,
condition accessibility, location or physical characteristics, the difference
in actual revenues presumably
<PAGE> 58
SALES COMPARISON APPROACH VII-9
reflects the extent of this advantage. The primary disadvantage of a straight
ERRM multiple is that it does not take into consideration variations in food
and beverage revenues and potential profits. However, rooms revenue profit
margins are typically significantly higher than that of food and beverage,
making this disadvantage somewhat less relevant. The fact that the subject is
a limited service hotel and most of the comparables except are limited service
properties, also mitigates this disadvantage.
The following table summarizes the Effective Rooms Revenue Multipliers for the
comparable sales.
TABLE VII-5
EFFECTIVE ROOMS REVENUE MULTIPLIERS
<TABLE>
<S> <C>
Median 2.66
Mean 2.68
Highest 4.25
Lowest 1.10
Data Range 3.15
Number in Sample 63
</TABLE>
The mean of the comparable sales' ERRM is 2.68, while they ranged between 1.10
and 4.15. To supplement this information, we analyzed USRC's internal study
that was performed in the Spring of 1995. This investor survey indicated ERRMs
ranging from 1 to 5, with an average of 2.7. The average of this survey
generally supports the average of the reported sales.
Based on the foregoing analysis, and in consideration of the stability and
income potential of the subject, we estimated an ERRM of 2.8 to be most
appropriate for the subject. Applying this to the effective room revenue
estimate for our stabilized year yields the following:
$1,507,000 rooms revenue X 2.8 ERRM = $4,219,600
Rounded to $4,200,000
<PAGE> 59
VII-10 SALES COMPARISON APPROACH
CORRELATION OF SALES COMPARISON APPROACH
The preceding value indications derived in the Sales Comparison Approach
reflect an overall value range of $4,200,000 to $4,800,000 for the fee simple
estate. The basis of value was 63 limited service hotel sales located
throughout the United States.
Two linear regression analyses were performed: one based upon a REVPAR model
and one based on net income. The net income model, with a higher correlation
coefficient of 0.874 was judged to provide the better indicator of value at
$4,800,000.
The ERRM analysis is based upon more subjectivity, and provided a value
indication of $4,200,000, which is at the lower end of the statistical
analyses.
Accordingly, it is our opinion that the market value of the going concern of
the fee simple estate, as indicated by the Sales Comparison Approach, in the
subject (including the contributory value of the furniture, fixtures, and
equipment), as of February 28, 1996 is:
FOUR MILLION EIGHT HUNDRED THOUSAND DOLLARS
$4,800,000
<PAGE> 60
RECONCILIATION VIII-1
RECONCILIATION
Two of the traditional approaches to value -- Income Capitalization Approach
and the Sales Comparison Approach -- were used to estimate the market value of
the subject property. The indications of value as of February 28, 1996, are as
follows:
_______________________________________________________________________________
<TABLE>
<S> <C>
INCOME CAPITALIZATION APPROACH $4,800,000
SALES COMPARISON APPROACH $4,800,000
</TABLE>
_______________________________________________________________________________
These two approaches represent alternative ways of viewing market phenomena. A
final estimate of value is selected as the dominant tendency or most probable
outcome from a range of possible outcomes.
Within the Income Capitalization Approach, direct capitalization was used to
provide an indication of value. An analysis of the subject's occupancy and
average daily rate was made. Both income and expense estimates were based
primarily upon an analysis of historic data provided from the subject hotel in
addition to data from comparable hotels operating at comparable levels.
Current investment parameters and market conditions were also considered. The
capitalization rate was within the range of the investment criteria of
investors as well as comparable sales.
The Sales Comparison Approach reflects the value of the subject property based
upon an analysis of recent sales of similarly improved properties and reflects
the actions of buyers and sellers of comparable properties in the market. Both
the physical and economic units of comparison were included within the
analysis. The sales indicated a range of price per room which provided an
indication of value for the subject. Less weight was placed on the Sales
Comparison Approach due to the lack of recent truly comparable sales in the
market. However, the conclusion via this approach supported our conclusion via
the Income Capitalization Approach.
MARKET VALUE
Because the subject property represents an investment capable of attracting
investor capital, we have utilized the value estimate produced by the Income
Capitalization Approach. The Sales Comparison Approach provides additional
support for the conclusion. Subject to all conditions and explanations
contained in this report, and based upon our analyses of the subject property
and the market, together with our experience and knowledge acquired in
appraising similar properties, it is our opinion that the market value of the
fee simple interest of the going concern in the 101-room subject (including the
contributory value of the
<PAGE> 61
VIII-2 RECONCILIATION
existing furniture, fixtures, and equipment), expressed in terms of financial
arrangements equivalent to cash, as of February 28, 1996, is:
FOUR MILLION EIGHT HUNDRED THOUSAND DOLLARS
$4,800,000
CONTRIBUTORY VALUE OF THE FURNITURE, FIXTURES, AND EQUIPMENT
The final estimate of value stated above includes the estimated value of the
furniture, fixtures, and equipment (FF&E) for the hotel. Based on a report
published by Hospitality Valuation Services, Inc., the cost of new FF&E in a
standard limited-service hotel such as the subject property is typically in the
range of $5,100 to $9,500 per available room in 1994 dollars. We consider the
FF&E cost of $7,000 per unit, or $707,000 to be reasonable for the subject
property.
We have estimated the effective age of the FF&E to be approximately five years
old which takes into account the older case goods, as well as the more recently
replaced soft goods. Based on an expected economic life of ten years, the
amount of total depreciation attributable to the FF&E is $353,500. The
contributory value of the FF&E, based upon this analysis, included in the
estimated value of the property, is $353,500, or rounded to $350,000.
Therefore, it is our opinion that the contributory value of the furniture,
fixtures and equipment, as of February 28, 1996, is:
THREE HUNDRED FIFTY THOUSAND DOLLARS
$350,000
<PAGE> 62
CERTIFICATION IX-1
We certify to the best of our knowledge and belief
o The statements of fact contained in this report are true and correct.
o The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
o We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
o This appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
o Our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of a subsequent event.
o Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
o We certify that, to the best of our knowledge and belief, the reported
analyses, opinions and conclusions were developed, and this report has
been prepared in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
o We certify that the use of this report is subject to the requirements
of the Appraisal Institute relating to review by its duly authorized
representatives.
o As of the date of this report, James A. Powers, MAI and Robert J.
Feeley, MAI, have completed the requirements of the continuing
education program of the Appraisal Institute.
o Jeffrey H. Walker has made a personal inspection of the property that
is the subject of this report. James A. Powers and Robert J. Feeley
have not inspected the property.
o No one other than the undersigned provided significant professional
assistance to the person(s) signing this report.
<TABLE>
<S> <C>
------------------------------------------ ------------------------------------------
James A. Powers, MAI, CRE Robert J. Feeley, MAI
Indiana Certified General Appraiser #379951
--------------------------------------------
Jeffrey H. Walker, CHSE
</TABLE>
<PAGE> 63
ADDENDUM I
<PAGE> 64
CORRECTED CORPORATE WARRANTY DEED
THIS INDENTURE WITNESSETH, That Signature Inns, Inc. ("Grantor"), a
corporation organized and existing under the laws of the State of Indiana,
conveys and warrants to Cracker Barrel Old Country Store, Inc., a Tennessee
corporation, for the sum of One Hundred Dollars ($100.00) and other valuable
consideration, the receipt of which is hereby acknowledged, the following
described real estate in Marion County, State of Indiana, to-wit:
A part of the South half of Section 14, Township 16 North, Range 2 East of the
second Principal Meridian in Marion County, Indiana, more particularly
described as follows:
Commencing at the Southeast corner of the Southwest Quarter; thence North
89o52'51" West along the South line of said Section 14 a distance of 230.11
feet; thence North 00o07'08" East a distance of 15.77 feet to the Northerly
right-of-way line of State Road 100 as per plans for State Road No. 100,
Project No. I-01-1(29), dated 1959, the right-of-way grant of which is recorded
as Instrument No. 37922 in Deed Record 1751 in the Office of the Recorder of
Marion County, Indiana; (the following three (3) courses are along said
Northerly right-of-way line); thence North 34o49'59" East a distance of 122.92
feet; thence South 89o52'51" East parallel with the South line of Section 14 a
distance of 75.58 feet to the point of curvature of a curve to the left whose
center bears North 00o07'09" East and whose radius equals 624.16 feet; thence
Northeasterly along said curve to the left through a central angle of 25o49'52"
an arc distance of 281.40 feet to the end point of said curve from which point
the center bears North 29o42'45" East; thence North 00o35'01" East a distance
of 37.72 feet to the POINT OF BEGINNING: thence continuing North 00o35'01" East
a distance of 478.12 feet; thence South 43o43'43" East a distance of 423.94
feet; thence South 46o16'20" West a distance of 193.43 feet to the point of
curvature of a curve to the right whose center bears North 43o43'40" West and
whose radius equals 110.22 feet; thence Southwesterly along said curve to the
right through a central angle of 21o17'01" an arc distance of 40.94 feet to the
end point of said curve from which point the center bears North 22o26'39" West,
said point also being the point of curvature of a non-tangent curve to the left
whose center bears South 82o32'13" West and whose radius equals 60.00 feet;
thence Northerly, Westerly and Southerly along the arc of said curve to the
left through a central angle of 160o50'24" an arc distance of 168.43 feet to
the end point of said curve from which point the center bears South 78o18'11"
East, said point being also the point of curvature of a curve to the right
whose center bears North 78o18'11" West and whose radius equals 140.00 feet;
thence Southerly, along said curve to the right through a central angle of
8o36'09" an arc distance of 21.02 feet to the end point of said curve from
which point the center bears North 69o42'02" West, said point being also the
point of beginning; contains 1.704 acres (74,209 square feet), more or less.
<PAGE> 65
LOT NUMBER 9
HAYNES MALL SUBDIVISION - SECTION TWO
U.S. Route 31, South of Stellie Street
Kokomo, Indiana
A part of the Southeast Quarter of Section 13, Township 23 North, Range 3 East,
in Harrison Township, Howard County, State of Indiana, more particularly
described as follows:
From the Northeast Corner of the Southeast Quarter of said Section 13, on and
along the East Line of the Southeast Quarter of said Section 13 on an assumed
bearing of South 00 Degrees 00 Minutes 00 Seconds West, a distance of 18.00
feet to a point; thence, South 51 Degrees 51 Minutes 00 Seconds West, on and
along a line parallel to the North line of the Southeast Quarter of said
Section 13, a distance of 50.00 feet to a point on the Westerly Right-of-Way
Line of Old U.S. Route 31; thence South 00 Degrees 00 Minutes 00 Seconds West,
on and along a line parallel to the East Line of the Southeast Quarter of said
Section 13, a distance of 32.04 feet to a point which is located 50.00 feet
Southerly of the North Line of the Southeast Quarter of said Section 13, as
measured perpendicularly thereto; thence South 87 Degrees 51 Minutes 00 Seconds
West on and along a line parallel to the north Line of the Southeast Quarter of
said Section 13, a distance of 50.04 feet to the Northeast Corner of Lot Number
1 in Haynes Mall Subdivision, the plat of which has been recorded on Page 230
of Plat Book Number 8 in the office of the Howard County Recorder, said
Northeast Corner being the point of Intersection of the South Right-of-Way Line
of Alto Road and the West Right-of-Way Line of Ilaynex Mall Boulevard, the
Right-of-Way of which was dedicated in said Plat; thence South 80 Degrees 00
Minutes 00 Seconds East on and along the West Right-of-Way Line of Ilaynes Mall
Boulevard, on and along a line parallel to the east Line of the Southeast
Quarter of said Section 13, a distance of 567.94 feet to the Southeast Corner
of Lot Number 4 in said Subdivision, said Southeast Corner being at the point
of Intersection of the West Right-of-Way Line of Haynes Mall Boulevard, and the
North Right-of-Way Line of Stellite Street, the Rights-of-Way of which have been
dedicated by said plat; thence continue South 00 Degrees 00 Minutes 00 Seconds
East, on and along a line parallel to the East Line of the Southeast Quarter of
said Section 13 a distance of 30.00 feet to the Northeast Corner of Lot Number 5
in the Haynes Mall Subdivision; thence South 00 Degrees 00 Minutes 00 Seconds
East, on and along the West Right-of-Way Line of Haynes Mall Boulevard, a
distance of 50.4 feet to a point; thence South 01 Degrees 14 Minutes 10 Seconds
West on and along the West Right-of-Way Line of Haynes Mall Boulevard, a
distance of 59.58 feet to the Southeast Corner of Lot Number 5, as platted in
Haynes Mall Subdivision, Section One, said point being the Northeast Corner of
Lot Number 6 in said addition; thence continue South 01 Degrees 14 Minutes 10
Seconds West, on and along the West Right-of-Way Line of Haynes Mall Boulevard a
distance of 118.02 feet to a point; thence South 06 Degrees 51 Minutes 05
Seconds West on and along the West Right-of-Way Line of Haynes Mall Boulevard, a
distance of 1.10 feet to a point, said point being the Southeast Corner of lot
Number 6 as platted in Section One of the Haynes Mall Subdivision; thence North
90 Degrees 00 minutes 00 Seconds West, on and along the South Line of said Lot
Number 6 a distance of 0.51 feet to the Northeast Corner of Lot Number 7 as
platted in Section Two of the Haynes Mall Subdivision, said point being on the
West Right-of-Way Line of Haynes Mall Boulevard; thence deflect to the left
through a central angle of 81 Degrees 54 Minutes 33 Seconds to a line of bearing
South 08 Degrees 05 Minutes 27 Seconds West; thence on and along the West
Right-of-Way Line of Haynes Mall Boulevard as platted in Section Two of Haynes
Mall Subdivision, on and along a curve to the left, said curve having a central
angle of 00 Degrees 28 Minutes 56 Seconds and a radius of 5283.84 feet, a
distance measured along said curve of 52.89 feet to a point, said curve being
sublended by a chord having a line of bearing South 07 Degrees 50 Minutes 52
Seconds West and a chord length of 52.89 feet, said last described point being
the Point of Beginning.
From the Point of Beginning on and along the West Right-of-Way Line of Haynes
Mall Boulevard on and along a curve to the left, said curve having a central
angle of 3 Degrees 00 Minutes 36 Seconds and a radius of 6283.64 feet, a
distance measured along said curve of 330.12 feet, said curve being sublended by
a chord having a bearing of South 06 Degrees 06 Minutes 13 Seconds West and a
chord length of 330.08 feet; thence deflect to the right through a central angle
of 85 Degrees 24 Minutes 05 Seconds to a line of bearing North 90 Degrees 00
Minutes 00 Seconds West; thence North 90 Degrees 00 Minutes 00 Seconds West a
distance of 375.73 feet to a point; thence North 00 Degrees 00 Minutes 00
Seconds East a distance of 328.10 feet to the Southwest Corner of Lot Number 9
in Haynes Mall Subdivision Section Two; thence North 90 Degrees 00 Minutes 00
Seconds East, on and along the South Boundaries of Lots Number 8 and 7 in Haynes
Mall Subdivision Section Two, a distance of 411.83 feet to the point of
beginning.
Containing 2.9597 acres.
1/2" Iron Pin Found 500 Deg-00-Min 00 Sec 793.90 1/2" Iron Pin Found
- -------------------------------------------------------------------------------
10.00 158.30" 326.20" 307.40"
- -------------------------------------------------------------------------------
North Limit of 150' Wide
Legal Drain Easement Granted to
the Howard County Drainage Board [ILLEGIBLE]
for the William Rawlings Legal Drain
<PAGE> 66
SOUTH PARCEL: Part of the Northeast Quarter of Section 21, Township 17 North,
Range 4 East in Marion County, Indiana, including part of Lots 1, 2, 3 and 4 in
Block 4, part of the vacated alley lying West of and adjoining said lots, part
of the vacated alley between said Lots 2 and 3, and part of vacated Third
Street in P. Ashbrook and A. Homan's Second Addition to the Town of
Allisonville, Indiana, the plat of which is recorded in Land Record "G", page
472 in the Office of the Recorder or Marion County, Indiana, more particularly
described as follows:
Beginning on the West line of the Northeast Quarter of Section 21, Township 17
North, Range 4 East, 717.105 feet North 00 degrees 55 minutes 38 seconds West
(assumed bearing) from the Southwest corner thereof; thence North 00 degrees
55 minutes 38 seconds West on and along said West line 130.00 feet; thence
North 89 degrees 04 minutes 22 seconds East 301.86 feet to the Westerly right
of way line of Access Road #3 as shown on plans for I.S.M.C. Project
#1-465-4(146)122 dated 1965; thence South 14 degrees 53 minutes 54 seconds West
on and along said West right of way line 237.32 feet to a point that is South
68 degrees 24 minutes 23 seconds East of the Beginning Point; thence North 68
degrees 24 minutes 23 seconds West 256.72 feet to the Beginning Point;
containing 1.145 acres, more or less.
Subject to any legal easements or rights of way.
MOTEL PARCEL: Part of the Northeast Quarter and part of the North Half of the
Northwest Quarter of Section 21, Township 17 North, Range 4 East in Marion
County, Indiana, including part of Lot 4 in Block 4 and part of the vacated
alley lying West of and adjoining said lot in P. Ashbrook and A. Homan's Second
Addition to the Town of Allisonville, Indiana, the plat of which is recorded in
Land Record "G", page 472 in the Office of the Recorder of Marion County,
Indiana, more particularly described as follows:
Beginning on the West line of the Northeast Quarter of Section 21, Township 17
North, Range 4 East, 847.105 feet North 00 degrees 55 minutes 38 seconds West
(assumed bearing) from the Southwest corner thereof; thence North 89 degrees 04
minutes 22 seconds East 301.86 feet to the Westerly right of way line of Access
Road #3, as shown on plans for Indiana State Highway Commission Project
#1-465-4(146)122 dated 1965: thence North 14 degrees 53 minutes 54 seconds East
(this and the following 6 courses are on and along said Westerly right of way
line of Access Road #3) 61.85 feet to the point of curvature of a curve having a
radius length of 125.00 feet which bears North 75 degrees 06 minutes 06 seconds
West; thence Northwesterly along said curve 113.68 feet to the point of tangency
thereof; thence North 37 degrees 12 minutes 23 seconds West 54.21 feet; thence
North 40 degrees 04 minutes 09 seconds West 100.12 feet; thence North 37 degrees
12 minutes 23 seconds West 100.00 feet; thence North 34 degrees 20 minutes 40
seconds West 100.12 feet; thence North 37 degrees 12 minutes 23 seconds West
148.65 feet to the East line of the North Half of the Northwest Quarter of said
Section 21; thence South 49 degrees 29 minutes 42 seconds West 32.91 feet to a
point that is 25.00 feet South 89 degrees 11 minutes 38 seconds West of said
East line; thence South 00 degrees 04 minutes 42 seconds West parallel with said
East line 75.00 feet to the South line of the North Half of said Northwest
Quarter; thence North 89 degrees 11 minutes 38 seconds East on and along said
South line 25.00 feet to the West line of the Northeast Quarter aforesaid;
thence South 00 degrees 55 minutes 38 seconds East on and along said West line
476.92 feet to the Beginning Point; containing 2,636 acres, more or less.
Subject to any legal easements or rights of way.
I, the undersigned, hereby certify that the within plat represents a survey of
the above described real estate and that corners were located and marked as
indicated.
Certified September 14, 1982
/s/ ALLAN H. WEIHE
- ---------------------------------------- [SEAL]
Allan H. Weihe, Reg. L.S.-Indiana #10398
WEIHE ENGINEERS INC. ALLAN H. WEIHE, P.E., L.S.
[LOGO] 10505 NORTH COLLEGE AVENUE PRESIDENT
INDIANAPOLIS, INDIANA 48280
<PAGE> 67
[PHALT RAMP DETAIL ILLUSTRATION]
LEGAL DESCRIPTION - LOT NUMBERED TWO (2)
- ----------------------------------------
Lot Numbered Two (2) in Wilson's Commercial Subdivision as platted upon part of
the Southwest Quarter of Section Twenty-four (24), Township Twenty-three (23)
North, Range Four (4) West, in Fairfield Township, Tippecanoe County, Indiana.
Subject to all easements of record.
LEGAL DESCRIPTION - PART OF LOT NUMBERED ONE (1)
- ------------------------------------------------
A part of Lot Numbered One (1) in Wilson's Commercial Subdivision as platted up
on part of the Southwest Quarter of Section Twenty-four (24), Township
Twenty-three (23) North, Range Four (4) West, in Fairfield Township, Tippecanoe
County, Indiana, being more completely described as follows, to wit:
Beginning at the Northwest corner of Lot Numbered 2 in Wilson's Commercial
Subdivision, said point being marked by a re-bar; thence South 1 degree-04
feet-00 inches West along the west line of said Lot Numbered 2 a distance of
117.00 feet to a PK Nail; thence North 88 degrees-56 feet-00 inches West a
distance of 340.00 feet to a PK Nail on the west line of Lot Numbered 1 in said
sub-division; thence North 1 degree-04 feet-00 inches East along said west line
a distance of 115.52 feet to the northwest corner of said Lot Numbered 1, said
point being marked by a re-bar; thence South 89 degrees-11 feet-00 inches East
along the north line of said Lot Numbered 1 a distance of 340.00 feet to a
re-bar and the point of beginning, containing 0.91 acres.
A sign easement being ten (10) feet in even width along the north side of the
following described line:
Commencing at the northwest corner of Lot Numbered 1 in Wilson's Commercial
Subdivision, said point being marked by a re-bar; thence South 1
degree-04 feet-00 inches West along the west line of said lot a distance
of 115.52 feet to a PK Nail and the point of beginning of the herein described
line; thence South 88 degrees-56 feet-00 inches East a distance of 192.00 feet
to the point of termination of the herein described line.
The above described tract being subject to all other easements of record.
<PAGE> 68
LOT NO. 1 (MAP ILLUSTRATION)
Situated in the Northeast Quarter of Township 2 North, Range 18 West,
United States Military Lands, City of Columbus, Franklin County, Ohio, being
all of Lot No. 2 (3.612 acres) as said Lot is numbered and delineated upon the
recorded plat of "SHROCK HILL CENTRE" of record in Plat Book 62, Page 99,
Recorder's Office, Franklin County, Ohio.
NOTES
-------
Bearings shown hereon conform to that system used on the recorded plat
of Schrock Hill Centre.
No part of the premises shown on this survey plat is located in any
Flood Hazard Boundary Area as determined from F.E.M.A. maps.
- -------------------------------------------------------------------------------
HOCKADEN AND ASSOCIATES, INC. DATE BY
CONSULTING ENGINEERS
883 N. CASSADY AVENUE
COLUMBUS, OHIO 43219
PHONE: (614) 252-0993
VERIFY
<PAGE> 69
[MORRISON AND ASSOCIATES, INC. LETTERHEAD]
January 21, 1982
Don Marsh and William Marsh
A part of the West Half of the Southeast Quarter of Section 31 Township 21
North Range 10 East, more particularly described as follows, to-wit.
Beginning at a point in the East line of the West Half of the Southeast Quarter
of Section 31 Township 21 North Range 10 East four hundred and fourteen
hundredths (400.14) feet North of the Southeast Corner of the said West Half of
the Southeast quarter; thence South 84 degrees-48 feet-00 inches West and on
and along the North line of Relocated Bethel Pike two hundred ninety seven
(297.0) feet; thence North 00 degrees-48 feet-00 inches East and on and along
the East line of Chadam Lane one hundred twenty five and eight tenths (125.8)
feet; thence continuing North 8 degrees-09 feet-19 inches West and on and along
the East line of Chadam Lane one hundred sixty five and fifteen hundredths
(165.15) feet; thence continuing Northwesterly on a curve to the left, said
curve having a radius of 855.0 feet and along chord having a bearing of North
16 degrees-11 feet-58 inches West, a distance of one hundred seventy eight and
seventy three hundredths (178.73) feet; thence North 67 degrees-39-04 inches
East three hundred ninety nine and sixty nine hundredths (399.69) feet to the
East line of the said West Half of the Southeast Quarter; thence 00 degrees-16
feet-12 inches West and on the said East line five hundred eighty five (585.0)
feet to the point of beginning. Estimated to contain 3.894 acres, more or less.
EXHIBIT A
<PAGE> 70
(10) INDY NORTH
I, the undersigned Registered Land Surveyor, do hereby certify that the
included plat correctly represents a survey performed under my direction during
January, 1988, a part of the Southeast Quarter of Section 18, Township 17
North, Range 3 East, situated in Pike Township, Marion County, Indiana, being
more particularly described as follows, towit:
TRACT "A"
Commencing at the Northwest corner of the Southeast Quarter of said Section 18,
thence North 80 degrees 20 minutes 03 seconds East along the North line of said
Quarter Section a distance of 939.66 feet to the POINT OF BEGINNING; thence
South 00 degrees 20 minutes 30 seconds East a distance of 314.23 feet along the
East right-of-way of Waldemar Road; thence North 89 degrees 29 minutes 03
seconds East, 278.86 feet; thence North 70 degrees 23 minutes 48 seconds East,
123.21 feet; thence North 29 degrees 24 minutes 43 seconds East, 101.34 feet;
thence North 70 degrees 44 minutes 53 seconds East, 178.03 feet; thence North
19 degrees 46 minutes 30 seconds West, 136.55 feet along the limited access
right-of-way line of U.S. Highway #421 to a point on the North line said
quarter section; thence South 89 degrees 29 minutes 03 seconds West along said
North line, 568.46 feet; to the point of beginning, containing 3.604 acres,
more or less.
I further certify that the property is not located in a flood hazard area, as
shown on the Flood Insurance Rate Map, Community Panel Number 180159-0010C.
I further certify that there are building(s) situated on the above-described
real estate and that the building(s) located on the adjoining property do not
encroach upon said real estate, except as indicated.
CERTIFIED: January 8, 1988 /s/ DAVID J. STOEPPELWERTH
----------------------------------
David J. Stoeppelwerth
Registered Land Surveyor
No. S0474
<PAGE> 71
ADDENDUM II
<PAGE> 72
[PICTURE]
[PICTURE]
<PAGE> 73
[PICTURE]
[PICTURE]
<PAGE> 74
[PICTURE]
[PICTURE]
<PAGE> 75
ADDENDUM III
<PAGE> 76
COMPANY PROFILE
- -------------------------------------------------------------------------
<PAGE> 77
U S REALTY CONSULTANTS, INC. (USRC) was originally formed in January of 1983 as
a Columbus-based firm specializing in commercial real estate appraisal and
market analysis. With regional offices located in Atlanta, Georgia and
Chicago, Illinois, USRC has now grown to be one of the premier real estate
appraisal and consulting practices in the United States.
As we continue our phenomenal growth, our professionals continue to be involved
in literally hundreds of assignments annually, involving millions of dollars of
real estate. Our practice now includes three major areas of services to the
real estate industry: Hospitality & Resort Industry Services, Golf and Country
Club Services, and Real Estate Appraisal Services.
o Hospitality & Resort Industry Services - Evolving from a diversified
background of hospitality and resort market analysts, appraisers, and
operational specialists, USRC has established a hospitality & resort
consulting practice second to none. Our professionally-trained
hoteliers, resort, and golf course specialists, all having achieved
outstanding academic credentials, have over forty combined years of
industry experience. However, our constant involvement in the
consulting and appraising of hotels, motels, restaurants, resorts, and
golf courses have enabled us to be current with, as well as adaptive to,
the ever-changing dynamics of the industry. As a result, our
professionals combine current and in-depth industry experience with
strong analytical and communication skills to yield practical and
effective results tailored to the specific engagement, thus providing
our clients the best in hospitality & resort consulting services.
o Real Estate Appraisal Services - USRC is unique in that it was part of a
movement to pioneer the development of a national real estate appraisal
practice. We specialize in the valuation of real estate portfolios,
which are disbursed both geographically and by property type. Our
valuation expertise is in commercial real estate with emphasis on
office, industrial, retail, mixed-use, hotel, resort, golf course, other
special-use and multifamily projects. These characteristics qualify us
as one of the leading appraisal organizations in the nation.
o Golf and Country Club Services - USRC has recently developed a
burgeoning practice devoted to golf-related and recreational facilities.
The services offered under this practice include valuation and
consultation for private country clubs, daily-fee golf courses,
surrounding residential development, and resort destinations.
The rapid expansion of USRC's experience and capabilities closely parallels the
growth and ever-changing requirements of the clients we serve. The Firm's
emphasis on programs of professional learning ensure that industry requirements
are being met by our people. Clients become the beneficiaries of this
continually expanding knowledge. Many USRC individuals also serve on senior
committees of national and state professional societies and associations,
enabling them to stay current with developing trends in the profession and to
participate in framing new rules and standards.
<PAGE> 78
USRC's clients benefit from the advantage of working with a local firm, yet have
access to the experience and much of the resources of a national firm. With 20
professional staff members - five holding the coveted designation, Member of the
Appraisal Institute (MAI) - and five specifically trained in the analysis of
hotels, restaurants, resorts, and golf courses - and growing, we are determined
to provide the "quality client service" that our customers expect.
U S REALTY CONSULTANTS, INC., with over 55 combined years of real estate
valuation experience, serves many of the nation's most prominent pension funds,
investment managers and advisors, life insurance companies, financial
institutions, and governmental agencies providing quality appraisal and
litigation support services in relation to their real estate needs.
Some of the more significant marketplaces in which USRC holds experience and
important local market knowledge include:
o Albuquerque o Fort Worth o Portland, OR
o Aspen o Houston o Providence
o Atlanta o Indianapolis o Raleigh
o Austin o Kansas City o Sacramento
o Birmingham o Los Angeles o San Diego
o Boston o Louisville o San Francisco
o Charlotte o Minneapolis o San Jose
o Chicago o Milwaukee o Seattle
o Cincinnati o Nashville o St. Louis
o Cleveland o New Orleans o Tampa
o Colorado Springs o Oakland o Toledo
o Columbus o Orlando o Toronto, Ontario
o Dallas o Philadelphia o Washington, D.C.
o Dayton o Phoenix o West Palm Beach
o Denver o Pittsburgh o Wilmington
o Des Moines o Portland, ME o Caribbean
o Detroit
<PAGE> 79
PROFESSIONAL
STAFF
QUALIFICATIONS
--------------------------------------------------------------
<PAGE> 80
James Powers is the founder and President of U S REALTY
CONSULTANTS, INC., overseeing the company from its inception
in 1983. Mr. Powers in now actively involved in the
valuation of all income-producing property types, including
multi-property portfolio appraisal. In addition, he is
called upon to provide expert witness testimony in courts
JAMES A. throughout the country. Mr. Powers is a specialist in the
POWERS, MAI, securitization of real estate through Real Estate Investment
CRE Trusts.
PRESIDENT Mr. Powers received his MAI designation from the Appraisal
Institute in 1974, and is a Certified General Appraiser in
the State of Ohio.
EDUCATION
Bachelor of Science (Major: Engineering), United States
Military Academy, West Point, New York, 1960
Instructor, Lecturer, Real Estate Appraisal
and Investment Topic
Chairman, Education Committee, Columbus Board of
Realtors, 1971 - 1972
PROFESSIONAL AFFILIATIONS
Member, Counselors of Real Estate
Appraisal Institute
Director, Ohio Chapter 1988
Society of Real Estate Appraisers:
Past President, Columbus Chapter 1978 - 1979
American Society of Appraisers:
Past President, Columbus Chapter 1974 - 1975
National Association Review Appraisers
National Association of Real Estate Boards
Ohio Association of Real Estate Boards
Columbus Board of Realtors
Real Estate Securities and Syndications Institute
National Association Corporate Real Estate Executives
Past Chairman, St. Ann's Hospital Board of Trustees,
during the Concept and Implementation Phase of the
Hospital's relocation and redevelopment.
<PAGE> 81
Robert J. Feeley, MAI is Vice President of U S REALTY
CONSULTANTS, INC. He joined the firm in January, 1984 shortly
after the firm's inception in 1983. Mr. Feeley's experience
ROBERT J. includes appraisal and portfolio analysis of investment-grade
FEELEY real estate, valuation of participating debt instruments,
appraisal services for asset valuation and loan underwriting
of FSLIC- and FDIC-insured institutions, and third-party
VICE PRESIDENT appraisal reviews.
Mr. Feeley has extensive experience in the appraisal of both
CBD and suburban office buildings, apartments,
office/warehouse, hotel, retail centers ranging from
neighborhood centers to regional malls, marinas and mixed-use
properties. He has been a member of the Appraisal Institute
since 1993.
EDUCATION
Bachelor of Science, The Ohio State University, 1979
Master of Business Administration with emphasis in real
estate, The Ohio State University, 1983
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Society of Real Estate Appraisers
Delegate to the 1988 and 1989 Young Advisory Council of the
Society of Real Estate Appraisers
PROFESSIONAL AFFILIATIONS
Appraisal Institute
STATE CERTIFICATION
Mr. Feeley holds certification as a General Real Estate
Appraiser in the following states:
State of Indiana, July 1992
State of Kentucky, June 1993
State of Ohio, July 1991
<PAGE> 82
Jeffrey Walker joined the firm in 1992, serving as Director of
Hospitality Development. Mr. Walker's previous experience
includes various hotel and restaurant positions. Most recently
he served as Director of Sales and Marketing with Hyatt Hotels
JEFFREY H. Corporation, where he received the "Hyatt Director of Sales of
WALKER, CHSE the Year" award in 1991.
Mr. Walker is now involved in consulting work for lenders,
DIRECTOR owners, developers and operators. His areas of specialization
HOSPITALITY include hotel marketing consulting, operational review, market
DEVELOPMENT study and analysis, yield management, and advertising and public
relations support for hotels.
EDUCATION
Bachelor of Science, James Madison University, 1985
Completed credit requirements for the following AI courses:
1A1 Real Estate Appraisal Principles
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Ohio Hotel and Motel Association
The Ohio Restaurant Association
PROFESSIONAL AFFILIATIONS
Ohio Hotel and Motel Association, Allied Board of Directors
Columbus Hotel and Motel Association, member
Hotel Sales and Marketing Association, International, member
Greater Washington (D.C.) Society of Association Executives,
1988-92
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 2-98025
SIGNATURE VII LTD. LIMITED PARTNERSHIP
(Exact name of small business issuer in its charter)
Indiana 35-1636684
------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East 96th Street, Suite 450, Indianapolis, Indiana 46240
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (317) 581-1111
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None
-----
Securities registered pursuant to Section 12(g) of the Exchange Act: None
-----
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form. No disclosure will be contained, to
the best of Registrant's knowledge, in any definitive proxy or information
statements incorporated by reference herein. [ x ]
Issuer's revenues for the most recent fiscal year $3,471,397
Aggregate Market Value of Units Held by Non-Affiliates: Unknown
(See Item 5)
Documents Incorporated By Reference: None
-----
Transitional Small Business Disclosure Format (check one):
Yes ; No X
----- ------
<PAGE>
PART I
------
Item 1. Business of Signature VII Ltd. Limited Partnership.
------ --------------------------------------------------
A. Organization.
-------------
Signature VII Ltd. Limited Partnership (hereinafter sometimes referred to
as either the "Partnership" or the "Registrant") was originally organized
pursuant to a Certificate and Agreement of Limited Partnership dated April 22,
1985, which was filed for record with the Marion County, Indiana, Recorder on
April 24, 1985, in accordance with the Indiana Uniform Limited Partnership Act
(I.C. Section 23-4-2-1 et seq.). On July 1, 1988, the Partnership filed a
Certificate of Limited Partnership under the Revised Uniform Limited
Partnership Act ("INRULPA"), thereby electing to be governed under the
provisions of INRULPA. As a result, effective on July 1, 1988, the
Partnership became a partnership governed by INRULPA rather than by the ULPA.
Subsequent to its organization, the Partnership commenced an SEC
registered, public offering of Units of limited partnership interest (the
"Units") at $10,000 per Unit, with a minimum subscription of one Unit pursuant
to a Registration Statement which originally became effective on July 11,
1985. The offering was concluded on June 30, 1986, and a total of 451 Units,
aggregating $4,510,000, was sold in the offering to 396 purchasers who became
the limited partners of the Partnership. In addition to the capital
contributions of the Limited Partners, Signature Inns, Inc., the General
Partner of the Partnership, contributed $1,503,333 (i.e. 25% of the capital
contributions) to the Partnership.
B. The General Partner.
-------------------
The General Partner of the Partnership is Signature Inns, Inc. ("General
Partner"), an Indiana corporation, which was incorporated on March 31, 1978.
C. The General Partner's Affiliated Partnerships and Joint Ventures.
----------------------------------------------------------------
The General Partner, directly or through a wholly-owned subsidiary, is the
general partner of a total of 21 Indiana limited partnerships and joint venture
partnerships. The partnerships own an aggregate of 23 Signature Inn hotels
totaling 2,748 rooms. Each of those 23 operating hotels and one additional
eighty-one room hotel currently under construction are operated under
long-term management and franchise agreements with the General Partner, from
which the General Partner derives substantial fee revenue.
-1-
<PAGE>
D. The General Partner's Subsidiaries.
----------------------------------
The General Partner has four, wholly-owned subsidiary corporations.
Signature Securities Corporation ("SSC"), is an SEC/NASD registered "limited"
broker-dealer which previously was engaged in the offer and sale of direct
participation programs (e.g., limited partnership real estate offerings) of
partnerships affiliated with Signature Inns, Inc. SSC has marketed thirteen
limited partnership programs. However, SSC has not offered limited partnership
interests since 1989.
The Signature Franchise Corporation ("SFC") subsidiary was organized in
connection with the 1992 Debt Restructuring. SFC never engaged in any
business operations.
The P & N Corporation ("P & N") subsidiary was organized in late 1993 and
acts as the general partner of the Peoria/Normal Signature Limited
Partnership, which owns and operates the Normal and Peoria, Illinois,
Signature Inn hotel properties , the Knoxville Signature Limited Partnership
which owns and operates the Knoxville, Tennessee, Signature Inn hotel property
and Meridian Signature Limited Partnership which owns land and a hotel under
construction in Indianapolis, Indiana. Those properties are managed and
franchised under management and franchise agreements between the partnerships
and the General Partner.
The S.I.E. Corporation subsidiary was organized in December 1995 and acts
as general partner for Signature Northwestern Ltd. - I.
E. Location of Signature Inn Hotels.
--------------------------------
The General Partner's ownership interest in the following affiliated
hotel partnerships ranges between 5% and 50%, depending upon the capital
contributions made to the particular partnership and other factors relating to
the structuring of the partnership. All mortgage loans on partnership
properties are non-recourse to the General Partner.
-2-
<PAGE>
<TABLE>
<CAPTION>
GENERAL PARTNER'S AFFILIATED SIGNATURE INN HOTEL
PARTNERSHIPS AND JOINT VENTURES
Partnership Date Organized Location of Hotel(s)
- ----------- -------------- --------------------
<S> <C> <C>
Signature I Ltd. 01/16/81 Fort Wayne, IN
Signature II Ltd. 11/12/81 Indianapolis, IN
Signature III Ltd. 02/04/82 Lafayette, IN
Signature IV Ltd. 08/27/82 Muncie, IN
Signature V Ltd. 03/09/84 Cincinnati, OH
Signature Southport 04/23/84 Indianapolis, IN
Joint Venture
Signature Northwestern 12/31/84 Indianapolis, IN
Ltd. - I
Signature VI Ltd. 01/16/85 Indianapolis, IN
Signature VII Ltd. 04/24/85 Columbus, OH,
and Kokomo, IN
Signature VIII Ltd. 11/05/85 Evansville, IN
Signature IX Ltd. 07/01/86 Terre Haute, IN
Signature Elkhart Ltd. 07/02/86 Elkhart, IN
Signature X Ltd. 09/19/86 Florence, KY,
and Sharonville, OH
Signature XI Ltd. 09/26/86 Miamisburg
(i.e., Dayton), OH
Signature XII Ltd. 10/03/86 South Bend, IN
Signature XIV Ltd. 12/12/86 Louisville, KY
Signature XVII Ltd. 09/20/88 Indianapolis (North), IN
Signature XXI Ltd. 06/12/89 Bettendorf, IA
Peoria/Normal Signature 12/16/93 Normal, IL
Limited Partnership and Peoria, IL
Knoxville Signature 05/04/94 Knoxville, TN
Limited Partnership
Meridian Signature July 96 Carmel, IN
Limited Partnership Planned opening
</TABLE>
-3-
<PAGE>
F. The Signature Inn Hotel Concept.
-------------------------------
The Signature Inn concept has been continuously improved since 1981 and
has been favorably received by the traveling public. The Signature Inn
concept is predicated upon a simple principle of providing first-class service
to its hotel Guests on a consistent basis in all hotels. In order to
accomplish this type of service, Signature has developed a guest services
program entitled "Legendary Service," which involves the employment of
individuals who are goal and team oriented, possess a positive mental
attitude, a good work ethic, have a sincere desire to serve our Guests and
portray the clean-cut "Signature Look." Those employees are then trained
under the Legendary Service program to provide efficient, friendly and
courteous service. The Legendary Service program also requires that, in the
event a problem cannot be resolved to the satisfaction of a guest, the guest
will receive a money-back guarantee.
In addition to the Legendary Service provided by the employees to hotel
Guests, the Signature concept is also identified by the physical features and
specialized services offered to Guests. Signature Inn hotels have large,
spacious, well furnished and attractively decorated lobby-registration areas.
The guest rooms are attractively decorated and designed to have a high
aesthetic appeal and to provide convenience and comfort. Signature rooms
feature a queen or king-sized bed and a recliner chair. Special services and
amenities offered by Signature Inn hotels include:
<TABLE>
<S> <C>
Newspaper delivered to room HBO, cable and in-room movies Fax
Machines Meeting rooms
Large desk in all rooms Interview centers
Free local calls Guest storage facilities Free
Breakfast Express Business center facilities
Professional conference center No-Smoking rooms
Outdoor or indoor swimming pool Guest spa rooms
Guest voice mail
</TABLE>
Other than the professional conference center, meeting rooms, in-room movies
and long distance charges for fax machines, all items on the foregoing list
are furnished to the guest on a complimentary basis.
Although each Signature Inn hotel offers high quality lodging
accommodations and services to the public, Signature Inn hotels do not offer
restaurant, bar or lounge facilities. As with many other economy/limited
service hotels, the General Partner eliminated what it considered to be the
lower profit margin departments of "food and beverage" and the unproductive
and costly, large public areas associated with full service hotels.
-4-
<PAGE>
However, the Signature Inn hotels are generally located adjacent to or near
quality restaurants for the convenience of their Guests. Because Signature
Inns do not have restaurants inside the hotels, Signature Inn hotels, like
other economy/limited service hotels, generally have a significantly lower
break-even threshold and are not as labor and management intensive as
All-Suite or Full Service hotels.
G. Hotel Industry Overview and Partnership Hotel Results.
-----------------------------------------------------
Signature Inn hotels operate in the "upper economy/limited service"
segment of the hotel industry. The following table illustrates average
occupancy and average daily room rates ("ADR") for the years indicated of the
Partnership hotels and the Signature Inn chain (23 hotels) compared to "upper
economy chains" and the industry:
<TABLE>
<CAPTION>
Occupancy ADR
--------- ---
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Columbus 64.7% 61.1% 59.6% $56.39 $53.59 $50.36
Kokomo 81.4% 69.3% 62.5% $55.30 $52.68 $49.35
Signature Inn
Chain 67.2% 67.9% 66.2% $55.81 $53.45 $50.48
Upper Economy
Chains* 64.4% 65.4% 64.4% $47.39 $46.08 $44.31
Hotel Industry* 65.5% 65.1% 63.1% $67.34 $63.64 $61.31
</TABLE>
*Source: Smith Travel Research.
---------------------
The General Partner believes an important indicator of hotel performance
within a segment of the industry is "revenue per available room" (REV PAR),
which combines both the occupancy and the average daily room rate achieved.
REV PAR for the years indicated for the Signature Inn chain and the "upper
economy chains" is as follows:
<TABLE>
<CAPTION>
REV PAR
-------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Signature Inn Chain $37.50 $36.29 $33.42
Upper Economy Chains $30.52 $28.87 $27.38
</TABLE>
The upper economy/limited service hotels have performed better than all
other segments in the industry during the past several years. It is
management's belief that the economy/limited service hotel segment will
continue to be the fastest growing segment in the U.S. hotel industry.
Accordingly, management believes that the Signature Inn chain of hotels are
competitively positioned within the domestic lodging industry.
-5-
<PAGE>
The hotel industry experienced declines in average occupancy rates for
several years prior to 1991 brought on by room supply growth exceeding room
demand, and annual average daily rate increases less than inflation due to
significant discounting of room rates. In 1992, the industry began to improve
with increasing average occupancy and larger average daily rate gains.
Through 1995, this favorable trend has continued. However, continuation of
this positive trend in the hotel industry is dependent in large part on demand
growth in relation to supply growth over the next several years. Room demand
growth continues to increase faster than supply growth, although recently the
supply growth appears to be accelerating.
H. Trademarks.
----------
The mark "Signature Inn" with related logo was registered by the General
Partner with the Indiana Secretary of State effective on October 8, 1980. In
addition, on October 4, 1982, the mark "Signature Inn" (with logo) was
registered on the principal register of the United States Patent and Trademark
Office. On September 18, 1984, the mark "Signature Inn", only, and the
stylized "S" logo, only, were registered on the principal register of the
United States Patent and Trademark Office. On February 14, 1990, the
declarations of five years use for each of the marks was accepted by the
United States Patent and Trademark Office. These registrations are now in
effect until a renewal date of September 18, 2004. Another mark, "We Help You
Get Down to Business," which is used by Signature Inns in its hotel
operations, was registered with the United States Patent and Trademark Office
on October 12, 1982. An additional mark, "Sincerely Yours," was registered in
1990 with the United States Patent and Trademark Office. The mark "Breakfast
Express" was registered with the U.S. Patent and Trademark Office on November
3, 1992. The Mark "There's Something Personal About a Signature" was
registered with the U.S. Patent and Trademark Office on April 30, 1991.
On June 1, 1989, Signature Inns, Inc. entered into an agreement with a
Canadian group which had owned the Canadian trademark registration of
"Signature Inn." Under the agreement, the Canadian registration of the mark
"Signature Inn" became the property of Signature Inns, Inc.
I. The General Partner's Corporate Account Sales and Marketing.
-----------------------------------------------------------
The General Partner systematically develops regional and national
accounts consisting of corporations and travel agency consortiums which
use one or more Signature Inn hotels in the chain on a regular basis.
Many of these publish their own corporate travel directories, stipulating
hotel locations which have been approved for lodging accommodations.
-6-
<PAGE>
Signature Inns appears in numerous corporate and travel consortium
directories, including the following: Maritz, Carlson/Wagonlite,
BTI Americas, ABC Corporate Services, Rosenbluth Travel, General Motors,
Ameritech, and Navistar. In addition, a National Sales Director and
Director of Hotel Sales work with and assist hotel employees responsible
for local sales efforts in Signature Inn markets. This corporate marketing
program gives Signature Inn hotels excellent visibility to business customers
who are likely to utilize Signature Inns on a systematic and chain-wide basis.
J. The General Partner's Centralized Reservation System.
----------------------------------------------------
Signature Inn hotels utilize Teleservice Resources, a subsidiary of AMR
Company based in Dallas/Fort Worth, Texas, to provide central reservation
services. The 800 number utilized by Signature as its central reservation
number allows the public in the United States and Canada to make toll-free
reservations by telephone, and travel agents can make electronic reservations
by using one of several electronic airline reservation systems.
K. The General Partner's Hotel Advertising.
---------------------------------------
The General Partner utilizes the services of Lord, Sullivan & Yoder, Inc.
Advertising of Columbus, Ohio, to provide full-service advertising for the
Signature Inn chain and to direct the chain's advertising program. Lord,
Sullivan & Yoder, Inc. assists in the formulation of the Signature Inn chain
and individual hotel advertising programs and budgets. The General Partner
also utilizes Montgomery Zukerman Davis, Inc., a full-service advertising firm
located in Indianapolis, Indiana, for public relations activities.
L. The General Partner's Employees.
-------------------------------
Including its five executive officers, the General Partner employs
twenty-five full-time employees at its corporate office. In addition, the
general and assistant general manager at each of the 23 operating Signature
Inns are employees of the General Partner. The General Partner also employs
approximately seventy-five full-time employees at three of the hotels managed
by the General Partner. The General Partner believes it has an excellent
relationship with its employees.
M. Seasonality.
-----------
Demand for hotel accommodations varies seasonally in the General
Partner's current market areas. Typically, demand for hotel accommodations
and, correspondingly, occupancy rates for each of the Signature Inn hotels
within the Signature chain will be higher during the period from March through
October and lower during the period from November through February.
-7-
<PAGE>
N. Competition.
-----------
The operation of hotels is an extremely competitive business. The General
Partner as a management General Partner and its affiliated hotel partnerships
as owners of hotels are each in competition with numerous management companies
and hotel chains in their respective areas of operation of varying quality and
size, including national and regional chains, and hotels which have available
to them greater name recognition and financial resources than the General
Partner. The General Partner believes its management possesses adequate
experience and that the Signature Inn concept is sufficiently recognized to
enable the chain to compete successfully against its competitors.
O. Refurbishing.
------------
To meet competition in the industry and to maintain economic values,
continuing expenditures must be made for modernizing, refurbishing and
maintaining existing facilities prior to the expiration of their anticipated
useful lives. If such expenditures are not made, the value and profitability
of the property may be diminished. Each affiliated hotel limited partnership
establishes reserve funds in connection with the operation of its hotel for
refurbishing which are based upon specified percentages of hotel revenues.
P. Energy and Environmental Factors.
--------------------------------
Present and future regulations issued to meet federal or local
antipollution standards, limitations on or rationing of gasoline usage,
gasoline shortages, or other effects of any future energy crisis or shortage
of natural resources may affect adversely utilization of one or more of the
Signature Inn hotel properties by travelers or increase the cost of operating
such properties and thus adversely affect the General Partner's operations.
Further, environmental studies required to be performed by the General Partner
and its affiliated partnerships in connection with the acquisition of
properties in order to avoid potential liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Super Fund Amendments and Reauthorization Act of 1986, add to the costs
and risks of acquisition of real estate sites generally.
Q. Americans With Disabilities Act.
-------------------------------
The General Partner believes that all Signature Inn hotels within the
Signature Inn chain currently are in compliance with the Americans With
Disabilities Act and does not anticipate that future compliance with this
regulation will require substantial cash resources.
-8-
<PAGE>
R. Miscellaneous.
-------------
Neither the General Partner nor any of its affiliated limited
partnerships are dependent upon a single customer or a very few customers, the
loss of any one of which would not have a material adverse effect on the
General Partner. All raw materials utilized by the General Partner and its
affiliated limited partnerships in the construction or refurbishing of their
respective hotels are believed to be readily available at competitive prices.
The General Partner is not engaged in any material research or development
activities.
S. The Partnership's Hotels.
------------------------
The business of the Partnership consists exclusively of the ownership and
operation of two Signature Inn hotels located in Columbus, Ohio, and Kokomo,
Indiana. A listing of these hotels, the number of rooms, location and opening
dates is as follows:
<TABLE>
<CAPTION>
Location of Hotel Number of Rooms Opening Date
----------------- --------------- ------------
<S> <C> <C>
I-270 & Cleveland Rd. 125 02/27/86
Columbus, Ohio
U.S. Hwy. 31 & Alto Rd. 102 04/04/86
Kokomo, Indiana
</TABLE>
Each of the foregoing properties is operated as a franchisee of the
General Partner. The Partnership has entered into a standard Signature Inn
Individual Hotel License Agreement with respect to each of the hotels. By the
terms of those franchise agreements, the Partnership pays to the General
Partner monthly franchise fees (i.e., royalties) equal to 4% of the gross
receipts of each of the hotels, and, in addition, contributes an additional
3.5% of gross receipts to advertising and reservation funds administered by
the General Partner to finance advertising programs and a reservation system.
The initial term of each of the franchise agreements is 10 years, and the
Partnership has an option to renew each of those agreements for an additional
term of 5 years. Under the terms of the franchise agreement, the Partnership
is authorized to use the name "Signature Inn," as well as other trademarks and
logos associated with the Signature system, and the General Partner provides
various services in relation to that system.
-9-
<PAGE>
Each of the Partnership's hotels is managed by the General Partner
pursuant to a Management Agreement entered into between the Partnership and
the General Partner. Under the Management Agreements, the General Partner
establishes policies for the Partnership's employees having direct
responsibility for the hotel's operation. In addition, the General Partner
establishes room rates, directs the promotional activity of the Partnership's
employees, supervises the purchase and replacement of equipment and supplies,
supervises maintenance activities and selects vendors, suppliers and
independent contractors. In addition, the General Partner performs all
bookkeeping and administrative duties in connection with each of the hotels
and administers payments and reports to the Limited Partners.
The Partnership is required to pay to the General Partner as compensation
for its management services an amount equal to 5% of the gross receipts per
month for each of the hotels. This compensation is in addition to the cost of
compensating the Partnership's own employees and the costs of goods and
services acquired by the Partnership from independent contractors. However,
the management fee covers all of the General Partner's overhead for which
there is no separate charge.
A non-recourse mortgage loan of $2,767,426 at December 31, 1995, is
secured by property and equipment of the Columbus Signature Inn and is payable
in monthly installments of $26,438, including interest at 10%. The interest
rate and monthly installments are adjustable at six-month intervals to 3.25%
above the six-month U.S. Treasury Bill rate, based on a maturity in 2016.
The interest rate is subject to a minimum of 10% and a maximum of 14.5%
through September 1996 and 15% to maturity in 2001.
In January 1995, mortgage loans of $1,972,977, secured by property and
equipment of the Kokomo Signature Inn, were paid in full with the proceeds of
a non-recourse mortgage loan of $2,350,000. The new mortgage loan is payable
in monthly installments of $23,431, including interest at 10.48%. At December
31, 1995, the mortgage loan balance was $2,250,007. The interest rate and
monthly installments are adjustable at two-year intervals to 3.75% above
the two-year U.S. Treasury Bill rate, based on a twenty-year amortization
to maturity in 2004. The interest rate is subject to a maximum of 14.48%.
Beginning in April 1996, an annual principal payment is required equal to
the lesser of defined cash flow or $25,000. A payment of $25,000 is due in
April 1996.
In the opinion of Partnership management, both hotel properties are
adequately insured.
The Partnership previously owned and operated a 125-room Signature Inn
hotel in Warren, Michigan, which had been financed by a non-recourse mortgage
loan from Chrysler Capital Corporation. The Warren, Michigan, Signature Inn
was sold under Michigan foreclosure procedures in January 1992. Because the
Warren hotel loan was "non-recourse," the foreclosure of the Warren hotel did
not affect, in any way, the Partnership's operations of its other two
properties, nor did such foreclosure affect the viability of the Partnership.
Moreover, the financial performance of the Partnership was enhanced by virtue
of the elimination of Warren's cash flow deficits, which had a continuing
adverse effect on the Partnership's operations.
-10-
<PAGE>
T. Reserves.
--------
Although the Partnership attempts to maintain adequate working capital
reserves, the Partnership's working capital reserves historically have been
marginally adequate. In the past, the General Partner has advanced funds to
the Partnership. The General Partner may be unable or unwilling to make
future advances to the Partnership.
U. Employees.
---------
As of December 31, 1995, the Partnership employed approximately 50
employees, approximately ten (10) of whom are employed on a part-time basis.
V. Summary of Partnership Agreement.
--------------------------------
The following is a brief summary of certain provisions of the Partnership
Agreement.
(1) Powers of the General Partner. Signature Inns, Inc. (the "General
Partner") has full, exclusive, and complete authority and discretion in the
management and control of the business of the Partnership. (Sections 9.01 and
9.02.) Limited Partners have no right or power to take part in the management
of, or to bind, the Partnership. (Section 14.01.)
(2) Liabilities of the Limited Partners. The Partnership Agreement
provides that no Limited Partner shall be liable for any debts or obligations
of the Partnership in excess of the amount of his/her Capital Contribution
which has not been previously returned to him/her (Section 14.03), except
that, under applicable law, the Limited Partners may be required to return
(with interest) amounts distributed to them as a return of their Capital
Contributions if the Partnership is unable to pay creditors who extended
credit to the Partnership prior to the date of any such return of capital.
(Section 6.03.) In addition, all undistributed Cash Available for
Distribution and proceeds of the sale or financing of Partnership Properties
which would otherwise be distributed to the Partners are available, along with
all Partnership assets, to creditors to satisfy the debts and obligations of
the Partnership until actually distributed. (Section 14.03.)
Upon payment in full of the subscription price, Units acquired by Limited
Partners pursuant to the Partnership Agreement become fully paid and
nonassessable. (Section 6.06.) No Limited Partner has the right to withdraw
all or any portion of his Capital Contribution until the full and complete
winding up and liquidation of the business of the Partnership, except as
otherwise provided by law. (Section 6.03.)
-11-
<PAGE>
(3) Meetings and Voting Rights of the Limited Partners. Meetings of the
Limited Partners may be called at any time by the General Partner or by one or
more Limited Partners holding more than 25% of the Units. Limited Partners
can vote at any meeting and the Limited Partners can act without a meeting by
written consent, provided that written consents are delivered to the General
Partner. Limited Partners are entitled to one vote for each Unit held.
(Section 14.04.)
Limited Partners may, with the affirmative vote of those holding more
than 50% of the Units, take action on the following matters: (a) the approval
or disapproval of the sale or exchange of all or substantially all of the
Partnership's properties; (b) dissolution of the Partnership; (c) removal of a
General Partner or any successor General Partner; (d) election of new General
Partner upon the removal, retirement, bankruptcy, insolvency or death of a
General Partner or any successor General Partner; (e)amendment of the
Partnership Agreement (Section 14.01.).
The right of the Limited Partners to amend the Partnership Agreement,
however, is limited with respect to amendments affecting limited liability of
the Limited Partners and the rights and interests of the General Partner.
(Section 14.02.) Amendments receiving the requisite vote will be executed by
the General Partner on behalf of all Limited Partners acting pursuant to the
power of attorney contained in the Partnership Agreement. (Section 17.01.)
(4) Reserves. The General Partner shall make an initial provision for
adequate reserves (by retention of proceeds from the sale of Units and Cash
Flow from operations) for working capital in an amount equal to approximately
5% of the "Project Cost" of each hotel and for replacements of furniture,
fixtures, and equipment in the amount set forth under Section 9.02(1).
(5) Books and Records. The General Partner is required to maintain at
the Partnership's principal office full and accurate records for the
Partnership, and all Limited Partners shall have the right to inspect and
examine such books and records at all reasonable times and upon reasonable
notice. (Section 13.01.) Annual audits of the Partnership's affairs will be
conducted by such firm of independent certified public accountants as may from
time to time be engaged by the Partnership. (Section 13.02.) (6)
Limited Transferability of Units. There are a number of restrictions on the
transferability of Units, including, among others, the following: Units may
not be subdivided after purchase; and investors transferring less than all of
their Units must transfer a number of Units such that, after the transfer,
both the transferor and the transferee shall own not less than one Unit. A
transfer fee in an amount sufficient to cover transfer costs will be
established by the General Partner, and payment thereof shall be a condition
to effectiveness of a transfer. All transfers of Units must be pursuant to
assignment documentation satisfactory in form and substance to the General
Partner. No Unit may be sold, assigned or exchanged if the sale of such Unit,
when added to the total of all other Units sold or exchanged within the period
of 12 consecutive months prior to the proposed date of sale or exchange,
would, in the opinion of counsel for the Partnership, result in the
termination of the Partnership under Section 708 of the Internal Revenue Code
(dealing with transfers of 50% or more of the outstanding interests of a
partnership) unless the Partnership and the transferring holder shall have
received a ruling by the Internal Revenue Service that the proposed sale or
exchange will not cause such termination. (Section 15.03.)
-12-
<PAGE>
An Assignee of Units shall not become a substituted Limited Partner in
place of his/her assignor unless there is compliance with, among others, the
following additional conditions: (i) the written consent of the General
Partner to such substitution shall have been obtained, which consent in the
General Partner's absolute discretion may be withheld and (ii) the Assignee
shall have expressly agreed to become a party to the Partnership Agreement.
(Section 15.04.)
(7) Assignability of General Partner's Interest. With the consent of
the General Partner and Limited Partners holding more than 50% of the Units,
the General Partner may designate a successor or additional General Partners,
in each case with such participation in such General Partner's interest as
such General Partner and such successor or additional General Partners may
agree upon, provided that the interests of the Limited Partners are not
affected thereby.
A General Partner may withdraw from the Partnership at any time upon 60
days prior written notice to the Limited Partners and any other General
Partner or may transfer his interest to an entity controlling, controlled by,
or under common control with it; provided, however, that in either such event,
if it is determined that the Partnership business is to be continued rather
than dissolved and liquidated upon the happening thereof, the withdrawal or
transfer shall be effective only after receipt by the
Partnership of an opinion of legal counsel to the effect that such withdrawal
or transfer will not cause the Partnership to be classified as an association
taxable as a corporation rather than as a partnership for federal income tax
purposes. (Section 15.01.)
(8) Dissolution and Termination. The Partnership is to continue until
April 22, 2035, but may be dissolved earlier as provided in the Partnership
Agreement or by law. (Article V.) The Partnership Agreement provides that
the withdrawal, bankruptcy, insolvency, death, or removal by the Limited
Partners of the General Partner will dissolve the Partnership unless the
General Partner, or, if there is no remaining General Partner, the Limited
Partners, by a majority vote in interest, elect to continue the business of
the Partnership. (Section 18.01.) The Limited Partners also can dissolve the
Partnership by a vote of a majority in interest without removing the General
Partner. (Section 18.01.) In the event the Partnership is dissolved, the
assets of the Partnership shall be liquidated as promptly as is consistent
with obtaining the fair market value thereof; the proceeds therefrom, together
with assets distributed in kind, shall be distributed first to creditors to
satisfy debts and liabilities of the Partnership other than loans or advances
made by Partners to the Partnership, then to the establishment of reserves
deemed reasonably necessary to satisfy contingent or unforeseen liabilities or
obligations of the Partnership or of the General Partner arising out of or in
connection with the Partnership, then to the repayment of loans or advances
made by any of the Partners to the Partnership, with the balance, if any, to
be distributed among the Partners as provided in the Partnership Agreement
(Section 19.01. and "Distribution Policies") and upon completion of the
foregoing the Partnership shall be terminated.
-13-
<PAGE>
(9) Distribution Policies.
(a) Time of Distributions and Allocation Among Limited Partners.
The Partnership makes annual distributions of all Cash Available for
Distribution, if any. Net proceeds of sale of Partnership Properties (and of
refinancing thereof, where the proceeds of such refinancing are not to be
reinvested in the acquisition of additional Properties) will be distributed as
soon as possible following their receipt.
The record date for determining the Limited Partners entitled to
participate in a distribution shall be the last day of the calendar month
preceding the date of distributions.
Each distribution will be allocated to the Limited Partners in the
ratio which the number of Units owned by each of them bears to the total
number of Units outstanding, subject to adjustment with respect to Units
issued by the Partnership during the fiscal year.
(b) Allocations and Distributions to the General Partner and
Limited Partners.
Allocation of Income and Loss and Distributions of Cash. The
following table sets forth (1) the allocation of Partnership income, gains,
losses, deductions, and credits between the General Partner and the Limited
Partners (as a group) and (2) the
entitlements of the General Partner and the Limited Partners (as a group) to
cash distributions. The information set forth with respect to each category,
both before and after "Reallocation Date."
With respect to distributions of Cash Available for Distribution
under Section 8.01 of the Agreement, "Reallocation Date" refers to the date on
which the Limited Partners have received an amount equal to 150% of their
Capital Contributions as a result of the distribution to them of Cash
Available for Distribution under Section 8.01 of the Agreement. With respect
to distribution of Net Proceeds under Section 8.02, "Reallocation Date" refers
to the date on which the Limited Partners have received an amount equal to
100% of their Capital Contributions as a result of the distribution to them of
Net Proceeds under Section 8.02 of the Agreement.
-14-
<PAGE>
<TABLE>
<CAPTION>
General Limited General Limited
Partner % Partner % Partner % Partner %
Before Before Before Before
Item Reallocation Reallocation Reallocation Reallocation
- ---- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Income, 25% 75% 50% 50%
Losses,
Deductions
and Credits
Cash 25% 75% 50% 50%
Available for
Distribution
(From
Operations)
Net Proceeds 25% 75% 50% 50%
from
Sales,
Financing and
Refinancing
of Properties
</TABLE>
(c) Allocation of Net Income and Net Losses Among the Limited Partners.
Net income and net loss shall be allocated among the Limited Partners in
proportion to the number of Units owned by each of them as of the last day of
the year, subject to adjustment with respect to Units issued by the
Partnership or transferred by Partners during the year.
(10) Reports to Limited Partners.
Within 75 days after the end of the fiscal year (December 31) of the
Partnership, the General Partner will deliver to each Limited Partner such
information as is necessary for the preparation by each Limited Partner of
his/her federal income tax return and state income or other tax returns
with regard to jurisdictions in which properties are located.
-15-
<PAGE>
Within 90 days after the end of each Partnership fiscal year, the General
Partner will deliver to each Limited Partner an annual report which will
include audited financial statements of the Partnership prepared in accordance
with generally accepted accounting principles. Such financial statements will
include a profit and loss statement, a balance sheet, a statement of cash
flows, and a statement of changes in Partners' capital. The annual report for
each year will report on the Partnership's activities for that year, set forth
the compensation paid to the General Partner and its Affiliates with a
statement of the services performed in consideration therefor, and contain
such other information as is deemed reasonably necessary by the General
Partner to advise the Limited Partners of the affairs of the Partnership.
Each Limited Partner will be furnished within 60 days after the end of
the first six-month period of each Partnership year, an unaudited semi-annual
financial report for that period including a profit and loss statement, a
balance sheet, and a statement of cash flows. The foregoing reports for any
period in which fees are paid to the General Partner or its Affiliates for
services shall set forth the fees paid and the services rendered.
W. The General Partner's Past Financial Difficulties, Restructurings,
Refinancings and Capital Appreciation Fee.
-----------------------------------------------------------------
In October, 1989, the General Partner's primary development lender and
lead bank on its line of credit refused to renew on normal terms the General
Partner's line of credit, which had previously been routinely renewed on an
annual basis. In March 1990, the bank refused to further renew the line of
credit at all. The Bank's refusal to renew the line of credit caused the
General Partner to terminate two on-going public offerings of affiliated
limited partnership interests and prevented the General Partner from
structuring and syndicating any such offerings after 1989. As a result, nine
hotels in their "start-up" phase were not adequately financed and their
operation caused the General Partner to exhaust substantially all of its cash
resources and historically adequate working capital reserves. In order to
protect the General Partner's assets from threatened action by the lenders,
and to provide sufficient time to structure alternative financing
arrangements, the General Partner initiated a Chapter 11 bankruptcy proceeding
in April, 1990. As the debtor-in-possession, the General Partner continued in
possession and control of its nine hotel properties and other assets.
-16-
<PAGE>
In March 1991, a Court order and judgment were entered confirming the
General Partner's Plan of Reorganization ("Confirmed Plan"). The General
Partner made the required payments under the Confirmed Plan throughout the
balance of 1991. During the latter part of 1991, occupancy and average daily
room rate levels for the nine General Partner-owned hotels, as a group, were
substantially lower than the levels which had been projected as a basis of the
General Partner's Confirmed Plan. As a result, the General Partner's
operating results were significantly adversely affected. The cash flow from
the General Partner's operations, together with the cash balances on hand at
the confirmation of the Confirmed Plan, were not sufficient to allow the
General Partner to continue to service its indebtedness under the terms of the
Confirmed Plan. In January 1992, the General Partner suspended debt service
payments to four banks, resulting in material defaults under the Confirmed
Plan.
During 1992 and 1993, the General Partner transferred ownership of a
total of six General Partner-owned hotels to construction mortgage lenders in
lieu of foreclosure and in full release and discharge of the mortgage
indebtedness owing by the General Partner on those hotels. In addition, three
previously affiliate-owned hotels were also reconveyed to the respective
mortgage lenders. As a result, during those two years, the number of
Signature Inn hotels operating in the Signature Inn chain decreased from 32
hotels to 23 hotels.
In December 1992, the General Partner and its lead bank entered into a
comprehensive Restructure Agreement, pursuant to which indebtedness owing by
the General Partner in the aggregate principal amount of $35,242,000 was
significantly modified and restructured and warrants for preferred stock were
issued to the bank (the "Restructuring"). In November 1993, the General
Partner entered into an Addendum to Restructure Agreement (the "Addendum").
Under the terms of the Addendum, the General Partner's primary bank granted to
the General Partner the right and option, exercisable not later than December
31, 1993, to pay $6,000,000 in cash in full settlement, satisfaction, release
and discharge of all indebtedness and other obligations owing by the General
Partner under the Restructure Agreement, including the warrant obligations
under the Restructuring. As a condition to the option, the General Partner
was required to convey to a to-be-formed affiliated limited partnership (the
"Partnership") the General Partner's Normal and Peoria hotels, thereby
eliminating the mortgage indebtedness owing on those hotels.
In December 1993, the General Partner, with Banc One Capital Corporation
of Columbus, Ohio ("BOCC"), acting as financial advisor, completed the
settlement, satisfaction, release and discharge of all obligations under the
Restructuring (the"Refinancing"). The necessary funds required by the
Refinancing were provided by the following sources:
-17-
<PAGE>
(a) Bank One, Indianapolis, N.A. ("Bank One") provided a "senior"
credit facility in the principal amount of $2,500,000, with an initial
maturity date of December 31, 1995, renewable annually thereafter on May 31 of
each year for a two-year term.
(b) Banc One Capital Partners II Limited Partnership ("BOCP II")
provided a variable rate subordinated loan in the principal amount of
$1,800,000, with a final maturity date of December 16, 1998 ("the
"Subordinated Loan").
(c) The General Partner provided approximately $1,200,000, which
represented the amount which the General Partner, as seller, realized upon the
sale of its Normal and Peoria Hotel Properties to Peoria/Normal Signature
Limited Partnership.
(d) The General Partner also provided approximately $1,000,000 from
its general, unrestricted corporate cash balances.
The gain to the General Partner from debt extinguishment in connection
with the Refinancing eliminated entirely the General Partner's shareholders'
deficit and restored a positive shareholders' equity.
In connection with the Subordinated Loan, the General Partner agreed to
pay to BOCP II a "Capital Appreciation Fee" equal to 25% of the value of the
General Partner, measured according to three alternative calculations, not
earlier than 36 months nor later than 72 months after December 16, 1993. In
August, 1995, the General Partner entered into a Repayment Agreement with BOCP
II pursuant to which (a) the unpaid principal balance of the Subordinated Loan
was repaid in full, together with all accrued interest thereon, and (b) the
General Partner paid, and BOCP II accepted, a payment of $900,000 in full
satisfaction of the General Partner's Capital Appreciation Fee obligation,
subject to adjustment to the original terms of the Capital Appreciation Fee in
the event of a Private Sale of the General Partner, as defined in the original
fee agreement, on or before December 16, 1996.
In connection with the BOCP II subordinated debt financing, BOCP II
required the General Partner's officers to commit to invest at least $500,000
in the General Partner's Common Stock. In order to facilitate such
investment, allow the other shareholders an opportunity to avoid possible
dilution of their interests in the General Partner and to raise additional
equity for the General Partner, the General Partner filed a Registration
Statement with the Securities and Exchange Commission on April 12, 1994,
pursuant to which the General Partner's existing shareholders were issued
non-transferrable rights to purchase an additional five (5) shares of the
General Partner's Common Stock for each one (1) share currently held at a
purchase price of twenty cents ($.20) per share. In addition to the
investment by Management, a total of 1,808,520 shares of Common Stock were
issued, for an aggregate purchase price of $361,704, pursuant to the rights
offering.
-18-
<PAGE>
X. Certain Affiliated Partnerships' Operating Losses.
-------------------------------------------------
A number of the General Partner's affiliated partnerships have
experienced financial difficulties in varying degrees, in most cases
principally resulting from operating losses and cash flow deficits experienced
by certain hotels owned by such partnerships.
Signature XVI Ltd., the owner of a Signature Inn hotel in Lexington,
Kentucky, filed a voluntary petition under Chapter 11 of the Bankruptcy Code
on September 26, 1991. Because Signature XVI Ltd. was not able to secure
replacement financing, the mortgage lender on the Lexington property obtained
title to the Lexington hotel in July, 1992. The Signature XVI Ltd.
partnership was thereafter terminated and dissolved.
Signature XXI Ltd., which owned Signature Inn hotels in Bettendorf, Iowa,
and Auburn Hills, Michigan, filed a voluntary petition under Chapter 11 of the
Bankruptcy Code on July 26, 1991. A foreclosure and sale of the Auburn Hills
property took place in February 1992, with the mortgage holder taking title to
the Auburn Hills property. The Signature XXI Ltd. Plan of Reorganization was
confirmed by the Bankruptcy Court on November 2, 1992 and provided for the
continuation of the Partnership and its operation of the Bettendorf hotel.
The Bettendorf mortgage loan was restructured, retroactive to January 1, 1992,
into three non-recourse replacement notes maturing December, 1995, with an
option to extend the maturity to December, 1997.
Defaults have also existed with respect to hotel financings involving
Signature XI Ltd.'s Dayton, Ohio, hotel project and Signature XVII Ltd.'s
Indianapolis, Indiana, hotel project. The defaults with respect to those
hotels were cured under restructured financing arrangements with the
Partnership's lenders completed in 1994.
Item 2. Description of Properties. A description of the location and
general character of the Partnership's hotels and related facilities and other
property is set forth under Item 1.
Item 3. Legal Proceedings. With the exception of the prior Chapter 11
bankruptcy proceedings of Signature Inns, Inc. and the prior Chapter 11
bankruptcy proceedings of Signature XVI Ltd. and Signature XXI Ltd.,
affiliates of the Registrant, described earlier, all of which matters have
been resolved, neither the Registrant nor any of its subsidiaries nor any of
its affiliates, is or was a party to, nor is their property the subject of,
any material pending legal, administrative, judicial, or similar proceeding.
The Registrant and certain of its affiliated limited partnerships are
involved, from time to time, in routine litigation incidental to their
businesses. There are no proceedings to which any director, officer, nominee
or affiliate of the Registrant or its subsidiaries or affiliates is a party
adverse to the Registrant or its subsidiaries or affiliates or has a material
adverse interest to the Registrant or its subsidiaries or affiliates.
-19-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders. No matter
was submitted to a vote of the security holders of the Registrant during the
fourth quarter of the fiscal year covered by this Form 10-KSB Report.
PART II
-------
Item 5. Market for the Registrant's Equity and Related Equity Holder
Matters. The Registrant's common equity consists of Units of limited
partnership interest in the Partnership. There is only one class of Units,
and all Units have the same rights and the same interests in income, loss,
distributions and capital of the Partnership. Each Unit represents a total
required capital contribution of $10,000. Units are not subject to assessment
for additional contributions. Holders of the Units possess certain limited
voting rights (with respect to those matters which are submitted to a vote of
the Limited Partners) and rights to certain distributions. Such voting and
distribution rights will be based upon the number of Units owned by each
Limited Partner. The Partnership Agreement contains a number of restrictions
on the transferability of the Units. The General Partner does not have the
right and is not obligated to redeem or repurchase the Units, and the
Partnership Agreement prohibits the holders of the Units from withdrawing
their respective capital contributions.
The Registrant's Units are not listed on any securities exchange and are
not subject to any quotations under the "NASDAQ" system. The Units are not
actively traded in any established public trading market. Units are expected
to be transferable, if at all, only in privately negotiated transactions.
Accordingly, the Registrant is unable to furnish any information with respect
to ranges of high and low bid quotations for the Units during the past two
years.
The following table sets forth the number of Units outstanding and the
approximate number of holders or record of the Units as of the date of this
report:
<TABLE>
<CAPTION>
Number of Number of
Outstanding Units Holders of Record
----------------- -----------------
<S> <C>
451 393
</TABLE>
-20-
<PAGE>
ITEM 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain combined operating data for the years ended December 31, 1995, 1994
and 1993 is as follows for the two Partnership owned hotels - Columbus (125
rooms) and Kokomo (101 rooms):
<TABLE>
<CAPTION>
Occupancy Average Daily Rate
--------- ------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Combined 72.2% 64.8% 60.9% $55.90 $53.18 $49.91
</TABLE>
Results of Operations
- ---------------------
1995 compared to 1994
Room and other hotel revenues increased $488,329 or 16.5% over 1994, due
primarily to the increase in room revenues. The average occupancy increased
7.4 percentage points, or 11.4% due primarily to the increased performance of
the Kokomo hotel. Hotel guests have favorably accepted the enclosure of the
Kokomo pool and related improvements made in early 1995. The average daily
rate increased $2.72, or 5.1% due to chain-wide rate policy changes. Revenue
per available room (REVPAR), which is the combination of occupancy and the
average daily rate, increased to $40.36, or 17.1% over 1994. Interest income
increased $13,908 over 1994 due to higher yields on greater investable cash
balances.
Hotel operations and payroll costs totaling $1,760,604 represented an increase
of $200,778 or 12.9% from 1994 due to the increase in the occupancy of the
hotels of 11.4% along with increased costs of operating the hotels associated
with inflation. Management and franchise fees, along with advertising and
reservation contributions, are calculated as a percentage of revenues, as
defined, and accordingly, fluctuate directly with hotel revenues. These
costs, totaling $428,258, increased $60,956 or 16.6% from 1994.
Interest expense decreased $3,620 or .7% from 1994. This slight decrease is
due to the scheduled amortization reduction of the notes, offset slightly by
interest expense on additional borrowings on the Kokomo hotel during early
1995 to facilitate improvements. Additionally, the mortgage loan on the
Kokomo hotel was refinanced in January 1995 at a lower interest rate than the
retired indebtedness.
-21-
<PAGE>
Depreciation and amortization of $283,613 represented an increase of $30,437
over 1994. Depreciation expenses increased due to substantial improvements
added in late 1994 and early 1995.
1994 compared to 1993
Room and other hotel revenues increased $325,524 or 12.4% over 1993, due
primarily to the increase in room revenues. The average occupancy increased
3.9 percentage points, or 6.4% due primarily to the increased performance of
the Kokomo hotel in an improving local economic market. The average daily
rate increased $3.27, or 6.6% due to chain-wide policy rate changes. Revenue
per available room (REVPAR) increased to $34.46, or 13.4% over 1993. Interest
income increased $6,374 over 1993 due to higher yields on greater investable
cash balances.
Hotel operations and payroll costs of $1,559,826 represented an increase of
$87,852 or 6.0% from 1993 due to the increase in the occupancy of the hotels
of 6.4% along with increased costs of operating the hotels associated with
inflation. Management and franchise fees, along with advertising and
reservation contributions, totaling $367,302, increased $41,096 or 12.6% from
1993.
Interest expense decreased $12,998 or 2.5% from 1993. This slight decrease is
due to the scheduled amortization reduction of the notes.
Depreciation and amortization of $253,176 represented a decrease of $13,031
over 1993. Depreciation expense decreased as certain depreciable assets
became fully depreciated during 1994 and 1993.
Liquidity and Capital Resources
- -------------------------------
The offering of partnership units was completed during 1986. A total of
$4,510,000 was raised from limited partner capital contributions at $10,000
per unit and $1,503,333 was contributed by the general partner. During the
year ended December 31, 1995, the Partnership's capital needs were met
primarily through operating cash flows and the refinancing of the Kokomo hotel
mortgage in January 1995. During the year ended December 31, 1994, capital
needs were met through operating cash flows.
At December 31, 1995, the Partnership had two variable rate mortgage loans
totaling approximately $5.0 million outstanding with maturities in 2001 and
2004. At maturity, the Partnership plans to obtain extensions or replacement
first mortgage financing to retire the outstanding indebtedness. At December
31, 1995, the Partnership had $853,930 of cash and cash equivalents, compared
to $533,943 at December 31, 1994. In addition, the Partnership set aside 4%
of monthly revenues, as defined, for future refurbishing needs of the hotels.
At December 31, 1995, the reserve funds amounted to $88,775 compared to
$131,419 at December 31, 1994. It is expected that future refurbishing needs
of the Partnership will be funded through the furniture and equipment
reserves, and operating cash flows as necessary.
-22-
<PAGE>
Cash provided by operating activities from the two hotels was $847,392 in 1995
compared to $578,904 in 1994. This increase is due primarily to the increase
in the financial performance of the hotels for 1995.
During 1995, the Partnership used $465,510 in investing activities compared to
$124,541 in 1994. Additions to the furniture and equipment reserve fund were
$162,738 in 1995 (including an additional $25,000 contribution from operating
cash) compared to $119,725 in 1994. The remaining increase is due to the
enclosure of the swimming pool and other substantial renovations at the Kokomo
hotel during early 1995.
Net cash used in financing activities was $61,895 in 1995 compared to $207,962
in 1994. In 1995, the primary factors were proceeds of the new mortgage loan,
principal repayments and financing costs, a net of $166,473, and distributions
to partners of $228,368.
The general partner believes that cash generated from the operation of the two
hotels, along with existing cash balances, will provide adequate liquidity for
the Partnership to meet its operating needs during the next twelve months.
Seasonality
- -----------
Demand for hotel accommodations varies seasonally in the two hotels' market
areas. Typically, demand for hotel accommodations and correspondingly,
occupancy rates for the hotels will be higher during the period from March
through October and lower during the period from November through February.
Inflation
- ---------
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the
Partnership's financial condition or results of operations for the periods
presented.
Item 7. Financial Statements. The balance sheets of the Registrant as
of December 31, 1995 and 1994, and the related statements of operations,
partners' equity and statement of cash flows for the years ended December 31,
1995 and 1994, together with the independent auditors' report thereon, which
statements meet the requirements of Regulation S-B, are attached as an exhibit
to this report.
-23-
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. None.
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control Persons.
The names, ages, positions and backgrounds of each officer, director, promoter
and control persons of Signature Inns, Inc., the General Partner of the
Partnership are as follows:
JOHN D. BONTREGER, 47 President, Chief Executive
Officer and Chairman of the Board
Mr. Bontreger has served as President, Chief Executive Officer and Chairman
of the Board of Signature Inns, Inc. since the General Partner's inception
on March 31, 1978.
DAVID R. MILLER, 54 Secretary, Executive Director of
Sales and Marketing and Director
Mr. Miller has been employed by Signature Inns, Inc. since August 1978
and has served as the Secretary (and Treasurer until May 1986) of the General
Partner since September, 1978. Since June 1984, he has been President of
Signature Securities Corporation. Since 1990, Mr. Miller has been the
Executive Director of Marketing responsible for hotel room sales programs and
the central reservation system.
MARK D. CARNEY, 39 Vice President Finance, Chief
Financial Officer and Director
Mr. Carney has been employed by Signature Inns, Inc. since September
1992 as Vice-President Finance and Chief Financial Officer. Mr. Carney was
previously employed with the public accounting firm KPMG Peat Marwick in
its real estate, hospitality and financial institution practices. He
received his CPA certification in 1982.
-24-
<PAGE>
BO HAGOOD, 46 Vice President Hotel Operations and
Director
Mr. Hagood has been employed by Signature Inns, Inc. since December 1980
starting as General Manager. In January 1984, he was promoted to Director of
Hotel Operations and then to Vice President Hotel Operations in 1987. Mr.
Hagood has been in the hospitality industry for over 20 years. Prior to
Signature Inns, Mr. Hagood managed several hotels for national chains.
MARTIN D. BREW, 35 Treasurer and Controller
Mr. Brew has been employed by Signature Inns, Inc. since April 1986. In
December 1987, Mr. Brew assumed the position of Controller and additionally,
in April 1992, he began serving as Treasurer. Prior to his employment with
Signature Inns, Mr. Brew worked four years with KPMG Peat Marwick. He
received his CPA certification in 1985.
ORUS E. WEAVER, 72 Director
Mr. Weaver has been an independent life insurance broker since 1981 and
previously assisted in the sale of securities of Signature Inns, Inc. in
various capacities. Mr. Weaver has been a member of the National Association
of Life Underwriters for almost twenty years.
GEORGE A. MORTON, 59 Director
Mr. Morton has been part owner of Morton Farms, Inc. since 1962, and
serves as Vice President and Secretary of that Company. From April 1987 to
January 1989, Mr. Morton served as Deputy Commissioner of Agriculture for the
State of Indiana. He served as the Indiana Director of Farmers Home
Administration from 1989 to 1993.
RICHARD E. SHANK, 63 Director
Mr. Shank has been self-employed in the real estate business since 1961.
Mr. Shank was an elected representative in the Indiana General Assembly for 21
years, and was a State Senator from 1976 to 1987. He served as Executive
Director of the Indiana Professional Licensing Agency during 1988.
-25-
<PAGE>
RICHARD L RUSSELL, 60 Director
Mr. Russell has been the Executive Director, Direct Regions of the
National Retail Hardware Association, and has been involved in the hardware
industry for nearly thirty years. He has also served as President or director
of several community and civic
organizations.
STEPHEN M. HUSE, 53 Director
Mr. Huse has been President and Chief Executive Officer, Huse Food Group,
Inc., in Bloomington, Indiana, since 1986. Mr. Huse is also a director of
Marsh Supermarkets, Inc., and a member of the Advisory Board of Society
National Bank, Central Indiana District, Indianapolis, Indiana.
Item 10. Executive Compensation. Not applicable. For a description and
listing of all fees and reimbursements paid by the Partnership to its General
Partner, see Note (3) of Notes to the Financial Statements of the Partnership.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Neither Signature Inns, Inc. nor any of its officers or directors, nor any of
its affiliates own any Units of limited partnership interest in the
Partnership. Signature Inns, Inc.'s general partnership interest in the
Partnership is described under Item 1.
Item 12. Certain Relationships and Related Transactions. There was no
transaction during the Registrant's last fiscal year of a kind described in
Item 404 of Regulation S-B to which the Registrant was a party or in which the
persons described in Item 404 had a direct or indirect material interest, nor
did any relationship of a kind described in Item 404 exists during the
Registrant's last fiscal year. No loans were made by the Registrant to its
General Partner or any officer, director or affiliate of its General Partner.
-26-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SIGNATURE VII LTD. LIMITED
PARTNERSHIP
By /s/
-------------------------------------
John D. Bontreger, President,
Chairman of the Board and Chief
Executive Officer of Signature
Inns, Inc., its General Partner
-27-
<PAGE>
<TABLE>
<CAPTION>
Item 13. Exhibits and Reports on Form 8-K.
--------------------------------
(a) EXHIBIT INDEX
-------------
<S> <C>
Title of Exhibit Reference
Plan of Acquisition,
Reorganization, etc. Not applicable
Partnership Agreement and
Certificate Incorporated by reference
to S-1 Registration
Statement
Instruments Defining Rights
of Security Holders Incorporated by reference
to S-1 Registration
Statement
Voting Trust Agreement Not applicable
Material Contracts Incorporated by reference
to Registrant's 1993 Form
10-KSB
Statement Regarding Computation
of Earnings Per Share Not applicable
Annual or Quarterly Reports,
Form 10-QSB Not applicable
Letter on Change in Certifying
Accounting Not applicable
Letter on Change in Accounting
Principals Not applicable
Subsidiaries of the Registrant Not applicable
Published Report Regarding
Matters Submitted to Vote Not applicable
Power of Attorney Not applicable
1995 Annual Report of
Signature VII Ltd.
Limited Partnership Exhibit A
</TABLE>
(b) No reports on Form 8-K were filed by the Registrant during the last
quarter of the period covered by this report.
-28-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Balance Sheets
(Unaudited)
June 30, December 31
1996 1995
-------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 613,710 853,930
Accounts receivable 54,936 39,587
Other current assets 87,869 72,014
------- -------
Total current assets 756,515 965,531
------- -------
Property and equipment:
Land 792,528 792,528
Land improvements 449,003 449,003
Buildings 5,563,526 5,563,526
Furniture and equipment 1,904,419 1,821,149
--------- ---------
8,709,476 8,626,206
Less accumulated depreciation 3,084,002 2,962,922
--------- ---------
Net property and equipment 5,625,474 5,663,284
Furniture and equipment reserves 55,867 88,775
Deferred costs, net of accumulated
amortization of
$126,397 and $120,715 89,061 84,904
--------- ---------
$6,526,917 6,802,494
========= =========
LIABILITIES AND PARTNERS EQUITY
Current liabilities:
Current portion of long-term debt 122,470 119,389
Accounts payable 73,212 60,394
Accrued payroll and related taxes 37,670 35,346
State and local taxes 156,469 137,492
--------- ---------
Total current liabilities 389,821 352,621
Long-term debt, less current portion 4,826,431 4,901,217
--------- ---------
Total liabilities 5,216,252 5,253,838
Partner's equity:
General partner (25% interest) 446,369 505,867
Limited partners (75% interest,
451 units 864,296 1,042,789
--------- ---------
authorized and outstanding) 1,310,665 1,548,656
--------- ---------
$6,526,917 6,802,494
========= =========
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Room revenue $922,917 895,098 1,726,960 1,562,590
Other hotel revenue 34,544 34,474 71,792 68,141
Interest 4,596 5,541 13,295 11,460
------- ------- --------- ---------
962,057 935,113 1,812,047 1,642,191
------- ------- --------- ---------
Cost and expenses:
Hotel operations 241,180 257,061 503,622 495,667
Salaries and benefits 203,424 190,405 378,507 357,564
Management and franchise fees 85,868 83,194 161,227 145,828
Advertising and reservations 33,393 32,354 62,699 56,711
Interest 129,454 128,305 257,919 254,361
Depreciation and amortization 68,249 64,547 136,497 129,080
Gain on disposal of equipment (249) - (249) -
------- ------- --------- ---------
761,319 755,866 1,500,222 1,439,211
------- ------- --------- ---------
Net income 200,738 179,247 311,825 202,980
General Partner (25% interest) 50,185 44,812 77,956 50,745
------- ------- --------- ---------
Limited partners (75% interest) $150,554 134,435 233,869 152,235
======= ======= ========= =========
Limited partner's interest
per unit $ 334 298 519 338
======= ======= ========= =========
Average number of limited partner
units outstanding 451 451 451 451
======= ======= ========= =========
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Statement of Partner's Equity
Six months ended June 30, 1996
(Unaudited)
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Balance at December 31, 1995 $ 505,867 1,042,789 1,548,656
Net income 77,956 233,869 311,825
Cash distributions (137,454) (412,362) (549,816)
----------- --------- ---------
Balance at June 30, 1996 $ 446,369 864,296 1,310,665
=========== ========= =========
Accumulated balances:
Capital contributions 1,503,333 4,510,000 6,013,333
Offering expenses - (474,671) (474,671)
Cash distributions (371,041) (1,113,270) (1,484,311)
Net loss (685,923) (2,057,763) (2,743,686)
----------- --------- ---------
Balance at June 30, 1996 $ 446,369 864,296 1,310,665
=========== ========= =========
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
-------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $311,825 202,980
Items which do not use (provide) cash:
Depreciation of property and equipment 130,815 123,263
Amortization of deferred costs 5,682 5,817
Write off of deferred loan costs - 12,666
Loss on disposal of equipment 249 -
Accrued revenue and other expenses, net 10,693 (45,820)
------- --------
Net cash provided by
operating activities 459,264 390,546
------- --------
Cash from investing activities:
Additions to furniture and equipment reserve (68,124) (59,320)
Other additions to property and equipment - (181,743)
Additions to deferred costs (9,839) -
------- --------
Net cash used in investing activities (77,963) (241,063)
------- --------
Cash flows from financing activities:
Payments on long-term debt (71,705) (56,956)
Proceeds from long-term debt - 200,905
Deferred financing costs - (48,502)
Cash distributions to partners (549,816) (228,368)
------- --------
Net cash used in financing activities (621,521) (132,921)
------- --------
Change in cash and cash equivalents (240,220) 16,562
------- --------
Cash and cash equivalents at beginning of period 853,930 533,943
------- --------
Cash and cash equivalents at end of period $613,710 550,505
======= ========
Additional disclosures:
Interest paid $257,919 254,361
======= ========
Additions to property and equipment from
furniture and equipment reserves $ 91,645 151,272
======= ========
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Exhibit 6
Signature VII Ltd. Limited Partnership:
Schedule 13E-3
Cross-Reference Sheet
<S> <C>
Solicitation and Information
Schedule 13E-3 Item: Statement Location:
Item 1.
(a) Section III, pp. 10-11
(b) Not applicable
(c) Section XVII, p. 38
(d) Section XII, p. 31
(e) Not applicable
(f) Not applicable
Item 2. Not applicable
Item 3. Not applicable
Item 4.
(a) Section IV, pp. 12-19
Section V, pp. 19-20
(b) Not applicable
Item 5.
(a) Section II, pp. 2-6
Section IV, pp. 12-19
Section V, pp. 19-20
Section VI, pp. 20-21
(b) Section II, p. 2
Section IV, pp. 12-19
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) Not applicable
(g) Not applicable
Item 6.
(a) Section II, p. 5
(b) Section II, p. 6
</TABLE>
Exhibit 6 - Page 1
<PAGE>
<TABLE>
<S> <C>
(c) Not applicable
(d) Not applicable
Item 7.
(a) Section II, pp. 2-5
(b) Section II, p. 3
(c) Section II, pp. 2-4
(d) Section II, pp. 4-5
Section X, pp. 26-29
Item 8.
(a) Not applicable
(b) Section II, pp. 6-8
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) Not applicable
Item 9. Section XV, pp. 32-36
Item 10.
(a) Not applicable
(b) Not applicable
Item 11. Not applicable
Item 12.
(a) Not applicable
(b) Not applicable
Item 13.
(a) Not applicable
(b) Not applicable
(c) Not applicable
Item 14.
(a) Not applicable
(b) Section VII, p. 22
Section XII, p. 31
</TABLE>
Exibit 6 - Page 2
<PAGE>
<TABLE>
<S> <C>
Item 15.
(a) Not applicable
(b) Not applicable
Item 16. Not applicable
Item 17. Not applicable
</TABLE>
Exhibit 6 - Page 3
