FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-31905, eff 10/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996, or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from.............to.............
Commission file number 0-16491
GROWTH HOTEL INVESTORS II
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2997382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 239-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
No established trading market for the Limited Partnership Units exists and
therefore a current market value for such Units cannot be readily determined.
DOCUMENTS INCORPORATED HEREIN BY REFERENCE:
(1) Prospectus of the Registrant dated October 10, 1986, and thereafter
supplemented, incorporated in Parts I and IV.
(2) Items 2-4 and 8 of the Schedule 14D-9 of the Registrant, as filed with the
Securities and Exchange Commission on February 29, 1996, as amended by Amendment
No. 1 thereto filed with the Securities and Exchange Commission on March 7, 1996
and as further amended by Amendment No. 2 thereto filed with the Securities and
Exchange Commission on March 14, 1996 incorporated in Parts I and II.
GROWTH HOTEL INVESTORS II,
a California Limited Partnership
PART I
Item 1. Business:
Growth Hotel Investors II, a California Limited Partnership (the "Registrant" or
the "Partnership"), was organized in 1984 under the California Uniform Limited
Partnership Act. The managing general partner of the Registrant is Montgomery
Realty Company-85 ("MRC-85" or the "Managing General Partner"), a California
general partnership of which NPI Realty Management Corp. ("NPI Realty"), a
Florida corporation, is the managing general partner, and Fox Realty Investors
("FRI"), a California general partnership, is the co-general partner. The
associate general partner of the Registrant is GHI Associates, a California
limited partnership, of which FRI is the general partner and Prudential-Bache
Properties, Inc. is the limited partner. On November 15, 1995, Montgomery
Realty Corporation, a California corporation, withdrew as a general partner of
MRC-85 and NPI Realty was admitted as a general partner. In February 1996, NPI
Realty became the managing general partner of MRC-85. Prior to February 1996,
FRI was the managing general partner of MRC-85. NPI Realty and the managing
general partner of FRI are wholly-owned subsidiaries of National Property
Investors, Inc., a Delaware corporation ("NPI, Inc.").
The Registrant's Registration Statement on Form S-11 (No. 33-4566) filed
pursuant to the Securities Act of 1933, as amended (the "Act"), was declared
effective by the Securities and Exchange Commission (the "Commission") on
October 10, 1986. The Registrant marketed its securities pursuant to its
Prospectus dated October 10, 1986, and thereafter supplemented (hereinafter the
"Prospectus"). The Prospectus was filed with the Commission pursuant to Rule
424(b) of the Act.
The principal business of the Registrant is to acquire primarily through joint
ventures, hold for investment, and ultimately sell hotels. The Registrant is a
"closed" limited partnership real estate syndicate of the unspecified asset
type.
Beginning in October 1986, the Registrant offered $75,000,000 in Limited
Partnership Assignee Units ("Units" or "Limited Partnership Assignee Units").
The offering closed in October 1987 with a total funding of $58,982,000. The
net proceeds of this offering were used to purchase primarily through joint
ventures, twenty-four hotels, including eighteen acquired through a joint
venture, Growth Hotel Investors Combined Fund No. 1, a California Limited
Partnership ("Combined Fund"), with Growth Hotel Investors, a California Limited
Partnership ("GHI") affiliated with the Registrant's managing general partner,
and one wholly owned property. See "Item 2" below for a description of the
Registrant's properties. The acquisition activities of the Registrant were
completed on December 29, 1989, and since that time the principal activity of
the Registrant has been managing its portfolio. The Registrant's property
portfolio is geographically diversified, with hotels acquired located in twelve
states. In October 1989, GHI - Eden Prairie Associates, a 70 percent owned joint
venture which owned the Hampton Inn - Eden Prairie, was dissolved and the
Registrant assumed the joint venture partner's interest in the property. In
1995, the Registrant acquired its joint venture partner's interest in the joint
ventures which owned each of Hampton Inn-Kansas City and Hampton Inn-Dublin. In
addition, the Registrant acquired all of the economic rights of its joint
venture partner in the joint venture which owns the Hampton Inn-St. Louis hotel.
The Registrant is involved in only one industry segment, as described above.
The Registrant does not engage in any foreign operations or derive revenues from
foreign sources.
Both the income and the expenses of operating the properties in which the
Registrant has an ownership interest are subject to factors outside of the
Registrant's control, such as oversupply of similar properties resulting from
overbuilding, increases in unemployment or population shifts or changes in
patterns of needs of users. In addition, there are risks inherent in owning and
operating hotels and other lodging facilities. Owning and operating hotels and
other lodging facilities involves a high degree of risk because such properties
are management and labor intensive and especially susceptible to the impact of
economic and other conditions outside the control of the Registrant.
Expenses, such as local real estate taxes and management expenses, are subject
to change and cannot always be reflected in room rate increases due to market
conditions. The profitability and marketability of developed real property may
be adversely affected by changes in general and local economic conditions and in
prevailing interest rates, and favorable changes in such factors will not
necessarily enhance the profitability or marketability of such property. Even
under the most favorable market conditions there is no guarantee that any
property owned by the Registrant can be sold or, if sold, that such sale can be
made upon favorable terms.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Managing General Partner is unable to predict the extent, if
any, to which such new legislation or regulations might occur and the degree to
which such existing or new legislation or regulations might adversely affect the
properties owned by the Registrant.
The Registrant monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases environmental testing has been performed, which resulted in no material
adverse conditions or liabilities. In no case has the Registrant received
notice that it is a potentially responsible party with respect to an
environmental clean up site.
The Registrant and the hotel management companies maintain property and
liability insurance on the properties. The Registrant believes such coverage to
be adequate.
The Registrant is affected by and subject to the general competitive conditions
of the lodging industry. In addition, each of the Registrant's properties
competes in an area which normally contains numerous other properties. In 1996,
markets in many areas remained depressed due in part to overbuilding and a
general reduction in travel which continues to depress lodging rental rates.
However, the moderately priced, limited service segment of the lodging industry,
which the Registrant's properties are part of, has strengthened due to travelers
economizing, allowing occupancy and rates, in general, to increase. An
oversupply of lodging properties, including those held by banks, savings
institutions, the Federal Deposit Insurance Corporation and the Resolution Trust
Corporation may affect the ability of the Registrant to sell its properties and
their sales prices.
On December 7, 1995, the Registrant acquired, effective for the 1996 calendar
year, all of the economic rights of its joint venture partner in GHI II Big
River Associates, a California partnership, the joint venture which owns the
Hampton Inn - St. Louis hotel, for $375,000. In addition, the Registrant was
granted an option to acquire for $10.00 all of its joint venture partner's
ownership interest in the joint venture at such time as the joint venture
partner is no longer a guarantor or otherwise liable for the loan secured by the
Hampton Inn - St. Louis.
The Registrant has no employees and is dependent on the Managing General Partner
and its affiliates for administration of all partnership activities. The
Partnership Agreement provides for reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The day to day management is dependent
on a third party management company.
The Registrant's affairs were managed by Metric Management, Inc. ("MMI") or its
predecessor from March 1988 to December 1993. On December 16, 1993, the
services agreement with MMI was modified and, as a result thereof, the
Registrant's general partner assumed responsibility for the cash management of
the Registrant as of December 23, 1993, and for investor relations services as
of April 1, 1994.
On December 6, 1993, NPI Equity Investments II, Inc., a Florida corporation
("NPI Equity II"), became the managing partner of FRI. As a result, NPI Equity
II became responsible for the operation and management of the business and
affairs of the Registrant and the other investment partnerships sponsored by
FRI. NPI Equity II is a wholly-owned subsidiary of NPI, Inc. The individuals
who had served previously as partners of FRI contributed their general
partnership interests in FRI to a newly formed limited partnership, Portfolio
Realty Associates, L.P. ("PRA"), in exchange for limited partnership interests
in PRA. In the foregoing capacity, such partners continue to hold, indirectly,
certain economic interests in the Registrant and such other investment
partnerships, but ceased to be responsible for the operation and management of
the Registrant and such other partnerships.
On October 12, 1994, NPI, Inc. sold one-third of the stock of NPI, Inc. to an
affiliate of Apollo Real Estate Advisors, L.P. ("Apollo"). On August 17, 1995,
the stockholders of NPI, Inc. entered into an agreement to sell all of the
issued and outstanding common stock of NPI, Inc. to IFGP Corporation, an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The transaction was
consummated on January 19, 1996. All of the funds used by Insignia and its
affiliates in consummating such transaction were drawn under a revolving credit
facility established for the benefit of Insignia with First Union National Bank
of South Carolina as Administrative Agent and Lehman Commercial Paper, Inc. as
Syndication Agent. Upon the Closing, the officers and directors of NPI, Inc.,
NPI Equity II and NPI Realty resigned and Insignia caused new officers and
directors of each of those entities to be elected. See "Item 10, Directors and
Executive Officers of the Registrant."
Each of NPI Realty and FRI are general partners of MRC-85. Pursuant to a Letter
Agreement dated November 15, 1995, NPI Realty was admitted, and Montgomery
Realty Corporation withdrew, as a general partner of MRC-85. NPI Realty is a
wholly-owned subsidiary of NPI, Inc. Pursuant to the Second Amended and
Restated Partnership Agreement of MRC-85, made and entered into effective as of
November 15, 1995, FRI, at the time a general partner of MRC-85, was then the
managing general partner of MRC-85. Pursuant to the Third Amended and Restated
General Partnership Agreement of MRC-85, dated as of February 15, 1996, NPI
Realty became the managing general partner of MRC-85, and thereby the indirect
managing general partner of the Registrant.
On February 15, 1996, Devon Associates, a New York general partnership,
commenced a tender offer (the "Offer") for up to 21,000 of the outstanding Units
at a purchase price of $750.00 per Unit. Due to the participation in the tender
offer by affiliates of NPI Realty, and the Managing General Partner's related,
existing and potential conflicts of interest, the Partnership, in its Schedule
14D-9 filed with Securities and Exchange Commission and sent to limited
partners, expressed no opinion and made no recommendation as to whether limited
partners should tender their Units pursuant to the Offer. The expiration of the
tender offers described above was midnight, New York time, on March 25, 1996.
See Items 2-4 of the Schedule 14D-9 of the Partnership, as filed with the
Commission on February 29, 1996, as amended by "Amendment No. 1" thereto, as
filed with the Commission on March 7, 1996, and as further amended by "Amendment
No. 2" thereto, as filed with the Commission on March 14, 1996 (collectively,
the "Schedule 14D-9"), for additional information with respect to the Offer and
the current and potential conflicts of interest of MRC-85, which Items 2-4 are
incorporated herein by reference. Devon Associates acquired 17,287 units with
respect to this offer.
On March 13, 1996, the Registrant received a letter advising that the
Partnership's and Growth Hotel Investors' ("GHI") joint venture partner in
certain of the hotel properties was offering $147,000,000 in cash for all 28
hotel properties directly or indirectly owned by the Partnership and GHI. See
"Amendment No. 2" to the Partnership's Statement on Schedule 14D-9, as filed
with the Commission on March 14, 1996, for a more complete description of this
offer, which "Amendment No. 2" is hereby incorporated by reference herein. By
the terms of the offer, the offer expired on March 31, 1996. The Managing
General Partner determined that before the offer could be recommended, if at
all, to the Partnership's limited partners further analysis of the hotel
properties and their value was needed. This offer was subsequently rejected.
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed above, the Registrant and Growth
Hotel Investors ("GHI"), the Registrant's joint venture partner in the combined
Fund properties, marketed all of their properties for sale. In this regard, the
Registrant and GHI retained Bear, Stearns & Co Inc. to assist in the marketing
of such properties. As of March 14, 1997, the Registrant, the Combined Fund, the
joint ventures in which the Registrant has a controlling interest, GHI, and the
joint ventures in which GHI has a controlling interest, and Equity Inns
Registrant, L.P. (the "Buyer") entered into certain purchase and sale agreements
pursuant to which the Buyer agreed to purchase from these entities the twenty-
four hotels described herein as well as four additional hotels owned directly or
indirectly by GHI for an aggregate purchase price of $182 million, subject to
adjustment. The closing of these sales, which is anticipated to occur during
the second quarter of 1997, is subject to many conditions including, favorable
completion by the Buyer of its due diligence review and the Registrant and GHI
receiving consent to the sale from their respective limited partners holding a
majority of the outstanding limited partnership interests in the Registrant and
GHI. Accordingly, there can be no assurance that the sale will be consummated
with the Buyer or any other potential buyer.
Item 2. Properties:
The following table sets forth the Partnership's investments in properties:
Date of
Property Purchase Use
Growth Hotel Investors II
Hampton Inn-Kansas City (1) 12/87 Hotel / 122 rooms
Kansas City, Missouri
Hampton Inn - Eden Prairie (2) 12/87 Hotel / 124 rooms
Eden Prairie, Minnesota
Hampton Inn - Dublin (3) 04/88 Hotel / 123 rooms
Dublin, Ohio
Hampton Inn - North Dallas (4) 07/88 Hotel / 160 rooms
Additon, Texas
Hampton Inn - St. Louis (4) 07/89 Hotel / 124 rooms
Maryland Heights, Missouri
Hampton Inn - Colorado Springs 12/89 Hotel / 128 rooms
Colorado Springs, Colorado
Growth Hotel Investors
Combined Fund No. 1 (6)
Hampton Inn-Memphis-I-40 East(5) 12/86 Hotel / 117 rooms
Memphis, Tennessee
Hampton Inn-Columbia-West 12/86 Hotel / 121 rooms
West Columbia, South Carolina
Hampton Inn-Spartanburg 12/86 Hotel / 112 rooms
Spartanburg, South Carolina
Hampton Inn-Little Rock-North 12/86 Hotel / 123 rooms
North Little Rock, Arkansas
Hampton Inn-Amarillo 12/86 Hotel / 116 rooms
Amarillo, Texas
Hampton Inn-Greenville 12/86 Hotel / 123 rooms
Greenville, South Carolina
Hampton Inn-Charleston-Airport 12/86 Hotel / 125 rooms
North Charleston, South Carolina
Hampton Inn-Memphis-Poplar 12/86 Hotel / 126 rooms
Memphis, Tennessee
Hampton Inn-Greensboro 12/86 Hotel / 121 rooms
Greensboro, North Carolina
Date of
Property Purchase Use
Growth Hotel Investors
Combined Fund No. 1(6) (continued)
Hampton Inn-Birmingham 12/86 Hotel / 123 rooms
Birmingham, Alabama
Hampton Inn-Atlanta-Roswell 03/87 Hotel / 129 rooms
Roswell, Georgia
Hampton Inn-Chapel Hill 03/87 Hotel / 122 rooms
Chapel Hill, North Carolina
Hampton Inn-Dallas-Richardson 03/87 Hotel / 130 rooms
Richardson, Texas
Hampton Inn-Nashville
-Briley Parkway(5) 03/87 Hotel / 120 rooms
Nashville, Tennessee
Hampton Inn-San Antonio-Northwest 06/87 Hotel / 123 rooms
San Antonio, Texas
Hampton Inn-Madison Heights 12/87 Hotel / 126 rooms
Madison Heights, Michigan
Hampton Inn-Mountain Brook(5) 12/87 Hotel / 131 rooms
Birmingham, Alabama
Hampton Inn-Northlake(5) 09/88 Hotel / 130 rooms
Atlanta, Georgia
(1) In May, 1995, the joint venture which owned this property was dissolved and
the Registrant assumed the joint venture partner's interest in the property.
(2) In October, 1989, the joint venture which owned this property was dissolved
and the Registrant assumed the joint venture partner's interest in the
property.
(3) In October, 1995, the joint venture which owned this property was dissolved
and the Registrant assumed the joint venture partner's interest in the
property.
(4) Property is owned by a joint venture in which the Registrant has a
controlling interest.
(5) The property is subject to a land lease extending as follows:
Year Option
Lease Period
Property Expires (Years)
Hampton Inn - Memphis-I-40 East 2004 20
Hampton Inn - Nashville-Briley Parkway 2006 20
Hampton Inn - Mountain Brook 2007 50
Hampton Inn - Northlake 2008 40
(6) The Registrant and an affiliated partnership have invested in a joint
venture, the Combined Fund, which has majority interest in the properties
listed. The Registrant has the majority interest in the Combined Fund.
Schedule of Properties:
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Growth Hotel Investors II:
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
<S> <C> <C> <C> <C> <C>
Hampton Inn - Kansas City $ 6,460 $ 2,196 5-39 yrs S/L 4,407
Hampton Inn - Eden Prarie 6,142 1,947 5-39 yrs S/L 4,235
Hampton Inn - Dublin 6,313 2,307 5-39 yrs S/L 4,165
Hampton Inn - North Dallas 6,727 2,175 3-30 yrs S/L 4,527
Hampton Inn - St. Louis 7,124 2,204 3-30 yrs S/L 4,433
Hampton Inn - Colorado Springs 4,034 1,448 5-39 yrs S/L 2,556
Growth Hotel Investors Combined
Fund No. 1:
Hampton Inn - Memphis-I-40 East 4,379 1,769 5-30 yrs S/L 2,130
Hampton Inn - Columbia-West 4,807 1,845 5-30 yrs S/L 2,377
Hampton Inn - Spartanburg 4,177 1,616 5-39 yrs S/L 2,058
Hampton Inn - Little Rock-North 4,701 1,600 5-39 yrs S/L 2,496
Hampton Inn - Amarillo 2,707 919 5-39 yrs S/L 1,388
Hampton Inn - Greenville 4,587 1,608 5-30 yrs S/L 2,401
Hampton Inn - Charleston-Airport 5,023 1,808 5-39 yrs S/L 2,577
Hampton Inn - Memphis-Poplar 6,300 2,006 5-30 yrs S/L 3,643
Hampton Inn - Greensboro 4,559 1,600 5-39 yrs S/L 2,422
Hampton Inn - Birmingham 5,269 1,757 5-30 yrs S/L 2,835
Hampton Inn - Atlanta-Roswell 5,734 1,621 5-30 yrs S/L 4,097
Hampton Inn - Chapel Hill 4,851 1,445 5-30 yrs S/L 3,433
Hampton Inn - Dallas-Richardson 5,826 1,542 5-30 yrs S/L 4,264
Hampton Inn - Nashville-Briley
Parkway 4,773 1,728 5-30 yrs S/L 2,982
Hampton Inn - San Antonio-
Northwest 5,198 1,523 5-30 yrs S/L 3,594
Hampton Inn - Madison Heights 6,939 2,454 5-30 yrs S/L 4,421
Hampton Inn - Mountain Brook 5,481 2,380 5-30 yrs S/L 3,051
Hampton Inn - Northlake 4,949 2,179 5-30 yrs S/L 2,835
$127,060 $43,677 77,327
</TABLE>
See "Note A" of the financial statements included in "Item 8." for a description
of the Partnership's depreciation policy.
Schedule of Mortgages:
<TABLE>
<CAPTION>
Growth Hotel Investors II:
Principal
Balance at Principal
December 31, Interest Period Maturity Balance Due
Property 1996 Rate Amortized Date At Maturity
<S> <C> <C> <C> <C> <C>
Hampton Inn - Kansas City $ -- N/A N/A N/A $ --
Hampton Inn - Eden Prarie 2,603 11.50% 30 yrs 4/1/98 2,566
Hampton Inn - Dublin -- N/A N/A N/A --
Hampton Inn - North Dallas 2,927 11.63% (1) 7/1/97 2,927
Hampton Inn - St. Louis 3,500 (3) (3) 12/1/16 (3)
Hampton Inn - Colorado Springs -- N/A N/A N/A --
Growth Hotel Investors Combined
Fund No. 1
Hampton Inn -
Memphis-I-40 East (2) 1,771 10.00% 30 yrs 7/97 1,757
Hampton Inn -
Columbia-West (2) 2,062 10.00% 30 yrs 7/97 2,045
Hampton Inn -
Spartanburg (2) 1,767 10.00% 30 yrs 7/97 1,753
Hampton Inn -
Little Rock-North (2) 2,015 10.00% 30 yrs 7/97 1,999
Hampton Inn -
Amarillo (2) 1,120 10.00% 30 yrs 7/97 1,112
Hampton Inn -
Greenville (2) 2,054 10.00% 30 yrs 7/97 2,037
Hampton Inn -
Charleston-Airport (2) 2,144 10.00% 30 yrs 7/97 2,127
Hampton Inn -
Memphis-Poplar (2) 2,798 10.00% 30 yrs 7/97 2,775
Hampton Inn -
Greensboro (2) 1,982 10.00% 30 yrs 7/97 1,966
Hampton Inn -
Birmingham (2) 2,426 10.00% 30 yrs 7/97 2,406
Hampton Inn -
Atlanta-Roswell (2) 2,643 10.00% 30 yrs 7/97 2,622
Hampton Inn -
Chapel Hill (2) 2,257 10.00% 30 yrs 7/97 2,238
Hampton Inn -
Dallas-Richardson (2) 2,769 10.00% 30 yrs 7/97 2,746
Hampton Inn -
Nashville-Briley Parkway (2) 2,183 10.00% 30 yrs 7/97 2,165
Hampton Inn -
San Antonio-Northwest (2) 2,451 10.00% 30 yrs 7/97 2,432
Hampton Inn -
Madison Heights (2) 2,834 10.00% 30 yrs 7/97 2,811
Hampton Inn -
Mountain Brook 2,543 7.63% 30 yrs 8/97 2,516
Hampton Inn -
Northlake 2,366 7.63% 30 yrs 8/97 2,340
$49,215 $45,340
<FN>
(1) The mortgage payment is interest only.
(2) The Partnership mortgages encumbering these hotels are cross
collateralized. The principal balance due at maturity is $34,991,000.
(3) The mortgage encumbering this property is financed by a private activity
revenue with a variable interest rate.
</TABLE>
Schedule of Rental Rates and Occupancy:
The following chart sets forth the occupancy rate at the Registrant's properties
for the years ended December 31, 1996, 1995 and 1994.
Average
Occupancy Rate (%)
for the Year Ended
December 31,
1996 1995 1994
Property:
Growth Hotel Investors II:
Hampton Inn-Kansas City 76% 82% 83%
Hampton Inn-Eden Prairie 71% 75% 76%
Hampton Inn-Dublin 70% 72% 72%
Hampton Inn-North Dallas 76% 78% 79%
Hampton Inn-St. Louis 68% 71% 75%
Hampton Inn-Colorado Springs 79% 77% 75%
Growth Hotel Investors Combined
Fund No. 1:
Hampton Inn-Memphis-I-40 East 77% 80% 82%
Hampton Inn-Columbia-West 76% 81% 84%
Hampton Inn-Spartanburg 63% 69% 70%
Hampton Inn Little Rock-North 78% 79% 78%
Hampton Inn-Amarillo 66% 75% 77%
Hampton Inn-Greenville 77% 81% 80%
Hampton Inn-Charleston-Airport 75% 76% 80%
Hampton Inn-Memphis-Poplar 83% 84% 87%
Hampton Inn-Greensboro 80% 86% 87%
Hampton Inn-Birmingham 76% 82% 83%
Hampton Inn-Atlanta-Roswell 73% 82% 82%
Hampton Inn-Chapel Hill 85% 87% 82%
Hampton Inn-Dallas-Richardson 76% 78% 76%
Hampton Inn-Nashville-Briley Parkway 81% 87% 88%
Hampton Inn-San Antonio-Northwest 63% 62% 72%
Hampton Inn-Madison Heights 73% 71% 72%
Hampton Inn-Mountain Brook 78% 79% 80%
Hampton Inn-Northlake 74% 81% 76%
The following chart sets forth the average daily room rates at the Registrant's
properties for the years ended December 31, 1996, 1995 and 1994:
Average
Daily Room Rates
for the Year Ended
December 31,
1996 1995 1994
Property:
Growth Hotel Investors II:
Hampton Inn-Kansas City $ 61.60 $ 55.41 $51.87
Hampton Inn-Eden Prairie 58.80 56.96 54.33
Hampton Inn-Dublin 58.68 53.91 49.05
Hampton Inn-North Dallas 64.29 61.89 56.83
Hampton Inn-St. Louis 61.36 58.12 56.57
Hampton Inn-Colorado Springs 58.25 53.07 47.45
Growth Hotel Investors Combined
Fund No. 1:
Hampton Inn-Memphis-I-40 East 54.40 53.49 50.32
Hampton Inn-Columbia-West 59.13 54.42 51.17
Hampton Inn-Spartanburg 54.15 47.83 42.89
Hampton Inn Little Rock-North 52.59 48.79 45.52
Hampton Inn-Amarillo 53.39 50.55 47.12
Hampton Inn-Greenville 59.19 52.30 47.62
Hampton Inn-Charleston-Airport 56.14 53.48 50.16
Hampton Inn-Memphis-Poplar 67.46 64.64 60.18
Hampton Inn-Greensboro 64.12 57.99 51.50
Hampton Inn-Birmingham 61.12 58.65 55.01
Hampton Inn-Atlanta-Roswell 66.70 58.54 54.17
Hampton Inn-Chapel Hill 62.30 56.14 50.95
Hampton Inn-Dallas-Richardson 57.15 50.82 46.63
Hampton Inn-Nashville-Briley Parkway 67.33 62.03 56.98
Hampton Inn-San Antonio-Northwest 57.87 57.67 57.19
Hampton Inn-Madison Heights 59.58 54.04 51.21
Hampton Inn-Mountain Brook 63.02 58.17 54.92
Hampton Inn-Northlake 61.84 54.86 52.33
Real estate taxes and rates in 1996 for each property were:
1996 1996
Billing Rate
Growth Hotel Investors II:
Hampton Inn-Kansas City $ 67,179 7.61%
Hampton Inn-Eden Prairie 205,777 6.55%
Hampton Inn-Dublin 79,436 5.84%
Hampton Inn-North Dallas 165,492 2.34%
Hampton Inn-St. Louis 79,559 8.45%
Hampton Inn-Colorado Springs 75,601 8.80%
Growth Hotel Investors Combined
Fund No. 1:
Hampton Inn-Memphis-I-40 East $ 92,604 3.18%
Hampton Inn-Columbia-West 32,373 26.85%
Hampton Inn-Spartanburg 29,274 26.83%
Hampton Inn Little Rock-North 22,600 5.95%
Hampton Inn-Amarillo 68,224 2.16%
Hampton Inn-Greenville 75,943 29.67%
Hampton Inn-Charleston-Airport 55,684 22.66%
Hampton Inn-Memphis-Poplar 125,349 3.18%
Hampton Inn-Greensboro 39,791 1.24%
Hampton Inn-Birmingham 64,361 9.26%
Hampton Inn-Atlanta-Roswell 60,950 3.55%
Hampton Inn-Chapel Hill 76,512 1.78%
Hampton Inn-Dallas-Richardson 98,719 1.57%
Hampton Inn-Nashville-Briley Parkway 55,433 4.50%
Hampton Inn-San Antonio-Northwest 74,163 2.15%
Hampton Inn-Madison Heights 83,993 2.65%
Hampton Inn-Mountain Brook 71,562 9.90%
Hampton Inn-Northlake 52,909 4.15%
Item 3. Legal Proceedings:
William Wallace, Mildred Wallace, Edith G. Martin, Paul Allemang and Gwen
Allemang, on behalf of themselves and all others similarly situated, and
derivatively on behalf of Growth Hotel Investors, a California limited
partnership and Growth Hotel Investors II, a California limited partnership
("GHI II"), Plaintiff v. Devon Associates, Montgomery Realty-85, GHI Associates,
Cayuga Associates L.P., Cayuga Capital Corp., Insignia Financial Group, Inc.,
L.P., and Fleetwood Corp., Defendants and Growth Hotel Investors ("GHI"), a
California limited partnership, and Growth Hotel Investors II, a California
limited partnership, Nominal Defendant, Supreme Court of the State of New York,
County of New York, Case No. 9600866.
On February 21, 1996, William and Mildred Wallace, holders of Units of GHI and
Edith G. Martin and Paul and Gwen Allemang, holders of Units of the Registrant,
commenced an action on behalf of themselves and others similarly situated, and
derivatively on behalf of the Registrant and GHI, in the Supreme Court of the
Sate of New York, County of New York, against, among others, MRC-85 and certain
of its affiliates pertaining to the tender offer for up to 15,000 partnership
Units of GHI and up to 21,000 partnership Units of the Registrant which
commenced February 15, 1996. The action alleges, among other things, that the
tender offers constitute (a) a breach of fiduciary duty owed to limited partners
of the partnerships, and (b) a breach of the provisions of the partnership
agreements of such partnerships. The action, which is sought to brought as a
class action on behalf of all limited partners, seeks to enjoin the tender
offers as well as monetary damages in an unspecified amount.
R & S Asset Partners, a Florida general partnership, and Jessie B. Small, on
their own behalves, on behalf of all others similarly situated, and derivatively
on behalf of the Nominal Defendants, Plaintiffs, v. Devon Associates, Cayuga
Associates, L.P., Cayuga Capital Corp., Fleetwood Corp., Carl C. Icahn, Michael
L. Ashner, Martin Lifton, Arthur N. Queler, Insignia Financial Group, Inc.,
IFGP, Corp., National Properties Investors, Inc., NPI Equity Investments II,
Inc., Fox Realty Investors, Portfolio Realty Associates, L.P., Emmet J. Cashin,
Jr., Jarold A. Evans, W. Patrick McDowell, Apollo Real Estate Advisors, L.P.,
and Montgomery Realty Company-85, Defendants, and Growth Hotel Investors, a
California Limited Partnership, and Growth Hotel Investors II, a California
Limited Partnership, Nominal Defendants, Superior Court of the State of
California, County of Los Angeles, Case No. BC145220.
On February 28, 1996, R&S Asset Partners, holders of Units of GHI, and Jesse B.
Small, holder of Units of the Registrant, commenced an action on behalf of
themselves and others similarly situated, and derivatively on behalf of the
Registrant and GHI, in the Superior Court of the State of California, County of
Los Angeles, against, among others, MRC-85 and certain of its affiliates
pertaining to the tender offer for up to 15,000 partnership Units of GHI and up
to 21,000 partnership Units of the Registrant which commenced February 15, 1996.
The action alleges, among other things, that the tender offers constitute (a) a
breach of fiduciary duty owed to limited partners of the partnerships, (b)
negligent misrepresentation pertaining to the disclosure set forth in the offer
to purchase, (c) common law fraud, and (d) a breach of the provisions of the
partnership agreements of such partnerships. The action, which is sought to
brought as a class action on behalf of all limited partners, seeks to enjoin the
tender offers as well as monetary damages in an unspecified amount.
On March 15, 1996, counsel for the plaintiffs and defendants in the Wallace and
the R&S Partners Actions agreed in principle to settle these actions, which
settlement has subsequently received final court approval. In connection with
the settlement MRC-85 agreed to take such actions as are reasonably necessary
and consistent with its fiduciary duties to procure offers for the purchase of
the Partnership's and GHI's assets which maximize the value of the limited
partner assignee units. MRC-85 further agreed to deal fairly and in good faith
with persons expressing an interest in making a bona fide offer to purchase such
assets and, subject to its fiduciary duty, provide such bona fide offers with
access to the Partnership's and GHI's books and records for due diligence
purposes. MRC-85 also agreed that if it determined that an offer to purchase
its assets is acceptable, MRC-85 will prepare a plan of liquidation and submit
such plan to the Partnership's partners for approval. Also in connection with
the settlement, the plaintiffs will release all claims they may have arising out
of the tender offers. As required by the settlement, the Partnership and GHI
are coordinating with class counsel with respect to the sale of such assets and
consent of limited partners. See "Item 1, Business" for information relating to
the terms of the proposed sale of the Partnership and GHI's assets.
Item 4. Submission of Matters to a Vote of Security Holders:
No matter was submitted to a vote of unit holders during the period covered by
this Report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters:
The Limited Partnership Assignee Unit holders are entitled to certain
distributions as provided in the Partnership Agreement. No established trading
market for Limited Partnership Assignee Units exists, nor is any expected to
develop.
During the years ended December 31, 1996 and 1995, the Registrant has made the
following cash distributions with respect to the Units to holders thereof as of
the dates set forth below in the amounts set forth opposite such dates:
Distribution with Amount of Distribution
Respect to Quarter Ended Per Unit (*)
1996 1995
March 31 $14.38 $14.38
June 30 $14.38 $14.38
September 30 $14.38 $14.38
December 31 $14.38 $14.38
(*) The amounts listed represent distributions of cash from operations. (See
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations", for information relating to the Partnership's
future distributions.)
As of December 31, 1996, there were 3,240 holders of record owning an aggregate
of 58,982 Units.
Item 6. Selected Financial Data:
The following represents selected financial data for the Registrant for the
years ended December 31, 1996, 1995, 1994, 1993, and 1992. The data should be
read in conjunction with Item 8, "Consolidated Financial Statements." This data
is not covered by the independent auditors' report.
For the Year Ended December 31,
1996 1995 1994 1993 1992
(in thousands except per unit data)
Total Revenues $51,790 $50,541 $47,164 $ 43,458 $ 40,075
Income Before Minority
Interest in Joint Ventures'
Operations and Extraordinary $ 7,092 $ 7,948 $ 6,348 $ 3,270 $ 355
Item
Minority Interest In Joint Ventures'
Operations (1,603) (2,236) (1,417) (546) 413
Extraordinary Item - Gain On
Extinguishment Of Debt -- -- 98 -- --
Net Income $ 5,489 $ 5,712 $ 5,029 $ 2,724 $ 768
Net Income Per Limited
Partnership Assignee Unit (1):
Income Before Extraordinary Item $ 91.19 $ 94.91 $ 81.92 $ 45.25 $ 12.76
Extraordinary Item - Gain On
Extinguishment of Debt -- -- 1.63 -- --
Net Income (Loss) $ 91.19 $ 94.91 $ 83.55 $ 45.25 $ 12.76
Total Assets $94,689 $95,138 $99,974 $100,254 $101,930
Notes Payable $49,215 $50,139 $56,885 $ 57,740 $ 58,305
Cash Distributions Per Limited
Partnership Assignee Unit (actual
amount based on admission to
partnership) $ 58 $ 58 $ 58 $ 51 $ 35
(1) $1,000 original contribution per unit, based on weighted average limited
partnership assignee units outstanding during the period, after allocation
to the general partner.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Liquidity and Capital Resources
All of the Registrant's properties are hotels. The Registrant receives hotel
operating revenues and is responsible for operating expenses, administrative
expenses, capital improvements and debt service payments. The Registrant uses
working capital reserves provided from any undistributed cash flow from
operations as its primary source of liquidity. All of the Registrant's
properties generated positive cash flow during the year ended December 31, 1996.
During 1996, the Registrant distributed $57.52 per unit ($3,393,000 in total) to
the holders of limited partnership units and $69,000 to the general partner.
At December 31, 1996, the Partnership had unrestricted cash of approximately
$8,302,000 compared to approximately $7,105,000 for the year ended December 31,
1995. Net cash provided by operating activities increased due to the
Partnership incurring costs of approximately $1,425,000 during 1995 in relation
to the buyout agreement as discussed in "Note F" to the Financial Statements.
Net cash used in investing activities increased due to an increase in property
and improvements and replacements, along with a decrease in receipts of
restricted cash. Net cash used in financing activities decreased due to the
satisfaction of the mortgages on the Hampton Inn-Dublin and Kansas City
properties in 1995.
Working capital reserves are invested in money market accounts. The Managing
General Partner believes that, if market conditions remain relatively stable,
cash flows from operations, when combined with working capital reserves, will be
sufficient to fund essential capital improvements, regular debt service payments
(not including the balloon payments) and cash distributions to partners during
the next twelve months and the foreseeable future. On October 1, 1995, the
Registrant satisfied the first mortgage encumbering its Hampton Inn - Dublin
property in the amount of approximately $3,257,000. The mortgage was due to
mature in April 1996. On December 1, 1995, the Registrant satisfied the first
mortgage encumbering its Hampton Inn-Kansas City property in the amount of
approximately $2,718,000. The mortgage was due to mature in January 1996.
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed below, the Registrant and GHI,
the Registrant's joint venture partner in the Combined Fund properties, marketed
all of their properties for sale. In this regard, the Registrant and GHI
retained Bear, Stearns & Co Inc. to assist in the marketing of such properties.
As of March 14, 1997, the Registrant, the Combined Fund, the joint ventures in
which the Registrant has a controlling interest, GHI, and the joint ventures in
which GHI has a controlling interest, and Equity Inns Registrant, L.P. (the
"Buyer") entered into certain purchase and sale agreements pursuant to which the
Buyer agreed to purchase from these entities the twenty-four hotels described
herein as well as four additional hotels owned directly or indirectly by GHI for
an aggregate purchase price of $182 million, subject to adjustment. The closing
of these sales, which is anticipated to occur during the second quarter of 1997,
is subject to many conditions including, favorable completion by the Buyer of
its due diligence review and the Registrant and GHI receiving consent to the
sale from their respective limited partners holding a majority of the
outstanding limited partnership interests in the Registrant and GHI.
Accordingly there can be no assurance that the sale will be consummated with the
Buyer or any other potential buyer.
The Managing General Partner plans to liquidate the partnership upon the sale of
the investment properties, which includes payment of debt. If a sale does not
consummate before the debt matures; the Managing General Partner plans to
negotiate extensions for those encumbrances.
If the sale of the hotel properties is not consummated the sufficiency of
existing liquid assets to meet future liquidity and capital expenditure
requirements will be directly related to the level of capital expenditures
required at the properties to adequately maintain the physical assets and other
operating needs of the Partnership. Such assets are currently thought to be
sufficient for any near-term needs of the Partnership. The mortgages
encumbering the Partnership's investment properties totaled approximately
$49,215,000 at December 31, 1996. Two of the mortgages, Hampton Inn-Mountain
Brook and Hampton Inn-Northlake matured on August 1, 1996. The Managing General
Partner has been successful in extending these mortgages to August 1, 1997. The
other consolidated joint venture's remaining mortgages of approximately
$35,276,000 matured on December 1, 1996. The Managing General Partner has been
successful in extending these mortgages to July 1, 1997. The Partnership's
Hampton Inn-North Dallas matured on December 1, 1996. The Managing General
Partner has been successful in extending this mortgage to July 1, 1997. The
Partnership's remaining properties have balloon payments due in 1998 and 2016.
Cash distributions were made during 1996 and 1995, totaling approximately
$3,462,000. Approximately $3,393,000 was paid to the limited partners and
approximately $69,000 was distributed to the general partners. Future cash
distributions will depend on the level of cash generated from operations,
property sales and the availability of cash reserves.
The Partnership is currently working on a product improvement plan (PIP) which
is being coordinated with Hampton Inns, Inc. Under this plan capital
expenditures and maintenance expenses may result in a material capital program
during 1997, but no amounts are available at this time. There are also certain
routine capital expenditures and maintenance expenses which have been budgeted.
These capital expenditures and maintenance expenses will be incurred with cash
available from operations or from the capital reserve accounts.
On May 1, 1995, the Registrant acquired the 25% minority interest in the joint
venture which owned the Hampton Inn-Kansas City property for $300,000 and on
October 1, 1995, the Registrant acquired the 30% minority interest in the joint
venture which owned the Hampton Inn - Dublin property for $75,000. In addition,
the Registrant purchased, effective January 1, 1996, all economic rights of its
joint venture partner in the Hampton Inn - St. Louis hotel for $375,000.
On February 15, 1996, Devon Associates, a New York general partnership,
commenced a tender offer (the "Offer") for up to 21,000 of the outstanding Units
at a purchase price of $750.00 per Unit. Devon Associates acquired 17,287 units
with respect to this offer.
On February 21, 1996, and February 28, 1996, holders of Units of the Registrant
commenced an action against MRC-85 and certain of its affiliates in connection
with the tender offers. (See Item 3, "Legal Proceedings"). On March 15, 1996,
counsel for the plaintiffs and defendants in the Wallace Action and the R & S
Partners Action agreed in principle to settle these actions, which settlement
has received final court approval with no adverse effect on the Partnership.
On March 13, 1996, the Partnership received a letter advising that the
Partnership's and Growth Hotel Investors' ("GHI") joint venture partner in
certain of the hotel properties was offering $147,000,000 in cash for all 28
hotel properties directly or indirectly owned by the Partnership and GHI. By
the terms of the offer, the offer expired on March 31, 1996. The Managing
General Partner determined that before the offer could be recommended, if at
all, to the Partnership's limited partners further analysis of the hotel
properties and their value was needed. This offer was subsequently rejected.
Results of Operations
1996 Compared to 1995
The Partnership's net income for the year ended December 31, 1996, was
approximately $5,489,000 as compared to approximately $5,712,000 for the year
ended December 31, 1995. The decrease in net income is attributable to a
decrease in interest income and an increase in general and administrative
expenses. The decrease in interest income is due to a decrease in restricted
cash available for investments during the year. The increase in general and
administrative expenses is due to an increase in legal fees, cost reimbursements
and additional administrative costs associated with the potential sale of the
Partnership properties and the liquidation of the Partnership. The increase in
expense reimbursements for the year ended December 31, 1996, is directly
attributable to the combined transition efforts of the Greenville, South
Carolina, and Atlanta, Georgia, administrative offices during the year end
close, preparation of the 1995 10-K and tax return (including the limited
partner K-1's), filing the first two quarterly reports and transition of asset
management responsibilities to the new administration. Partially offsetting the
decrease in income was a decrease in the minority interest to joint venture
partners. This decrease is due to a decline of approximately $977,000 in net
income of the Partnerships consolidated joint venture, Growth Hotel Investors
Combined Fund No. 1, caused by an increase in expenses of approximately
$2,148,000 which was partially offset by an increase in revenues of
approximately $1,171,000. Expenses increased at all of these properties except
for the Hampton Inn-Atlanta Roswell property, primarily due to higher
maintenance expenses. The increased maintenance expenses are due to exterior
painting projects at the Hampton Inn-Sycamore, Chapel Hill, Charleston,
Birmingham, Nashville and Memphis properties. The increase in revenues is due to
higher average daily room rates at all eighteen of these properties, which was
offset by decreases in occupancy at all of the Partnership's properties but
three. They were Hampton Inn-Colorado Springs, San Antonio-Northwest, and
Madison Heights.
1995 Compared to 1994
Operating results, before minority interest in joint ventures' operations and
extraordinary item, improved by $1,600,000 for the year ended December 31,
1995, as compared to 1994, due to an increase in revenues of $3,377,000 which
was partially offset by an increase in expenses of $1,777,000.
Revenues improved by $3,377,000 for the year ended December 31, 1995, as
compared to 1994, due to increases of $3,348,000 in hotel operations and $29,000
in interest income. Hotel operations improved due to increases in average daily
room rates at all properties. Occupancy remained relatively stable on an overall
basis. The largest increases in hotel operating revenues were at the
Registrant's Chapel Hill, Colorado Springs, Dublin, Northlake, Greensboro, and
North Dallas properties. Interest and other income remained relatively
constant.
Expenses increased by $1,777,000 for the year ended December 31, 1995, as
compared to 1994, due to increases in hotel operating expenses of $1,822,000
and depreciation expense of $386,000, which were partially offset by decreases
in interest expense of $59,000 and general and administrative expenses of
$372,000. Hotel operating expenses increased primarily due to an overall
increase in the cost of goods and services, coupled with increases in management
and franchise fees (in proportion to increased revenues) and $375,000 paid to
buy out an incentive management fee agreement at the Registrant's Colorado
Springs property during 1995. Depreciation expense increased due to fixed asset
additions, which was partially offset by a portion of the Registrant's prior
year assets becoming fully depreciated. Interest expense decreased due to the
satisfaction of mortgages encumbering the Registrant's Dublin and Kansas City
properties during 1995. General and administrative expenses declined due to a
decrease in asset management costs associated with the amendment of the
Registrant's services agreement in January 1995, which was partially offset by
the amortization of the cost of the buyout of the service agreement.
As part of the ongoing business plan of the Partnership the Managing General
Partner monitors the hotel market environment of its investment properties to
assess the feasibility of increasing rates, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rates and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of concessions and room rate reductions
to offset softening market conditions, there is no guarantee that the Managing
General Partner will be able to sustain such a plan.
Item 8. Consolidated Financial Statements and Supplementary Data:
GROWTH HOTEL INVESTORS II
List of Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Operations - Years Ended December 31, 1996, 1995
and 1994
Consolidated Statements of Changes in Partners' Capital - Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995
and 1994
Notes to Consolidated Financial Statements
To the Partners
Growth Hotel Investors II,
a California Limited Partnership
Greenville, South Carolina
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Growth Hotel
Investors II, a California Limited Partnership, (the "Partnership") as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, partners' equity and cash flows for each of the three years in the
period ended December 31, 1996. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Growth
Hotel Investors II, a California Limited Partnership, as of December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Imowitz Koenig & Co., LLP
New York, N.Y.
February 28, 1997, except for Note N,
which is dated March 14, 1997
GROWTH HOTEL INVESTORS II
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31, December 31,
1996 1995
Assets
Cash and cash equivalents $ 8,302 $ 7,105
Restricted cash 208 902
Deferred costs 1,692 2,008
Accounts receivable and other assets 1,104 1,376
Investment properties:
Land 15,725 15,640
Buildings and related personal property 111,335 106,243
127,060 121,883
Less accumulated depreciation (43,677) (38,136)
83,383 83,747
Total assets $ 94,689 $ 95,138
Liabilities and Partners' Capital (Deficit)
Accounts payable and other liabilities $ 2,271 $ 2,303
Due to affiliate of the joint venture partner 827 819
Notes payable 49,215 50,139
Minority interest in joint ventures 2,374 3,902
Partners' Capital (Deficit):
General partners' (227) (268)
Limited partners' (58,982 units outstanding) 40,229 38,243
40,002 37,975
Total liabilities and partners' capital $ 94,689 $ 95,138
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1996 1995 1994
Revenues:
Hotel operations $51,456 $50,046 $46,698
Interest income 334 495 466
Total revenues 51,790 50,541 47,164
Expenses (including $627, $598 and $584
paid to the general partner and
affiliates in 1996, 1995 and 1994):
Hotel operations 32,594 31,041 29,219
Interest 4,983 5,461 5,520
Depreciation 5,541 5,103 4,717
General and administrative 1,580 988 1,360
Total expenses 44,698 42,593 40,816
Income before minority interest in joint
ventures' operation and extraordinary item 7,092 7,948 6,348
Minority interest in joint
ventures' operations (1,603) (2,236) (1,417)
Income before extraordinary item 5,489 5,712 4,931
Extraordinary item:
Gain on extinguishment of debt -- -- 98
Net income $ 5,489 $ 5,712 $ 5,029
Net income allocated to
general partners (2%) $ 110 $ 114 $ 101
Net income allocated to
limited partners (98%) 5,379 5,598 4,928
$ 5,489 $ 5,712 $ 5,029
Net income per limited partnership unit:
Income before extraordinary item $ 91.19 $ 94.91 $ 81.92
Extraordinary item - gain on
extinguishment of debt -- -- 1.63
Net income $ 91.19 $ 94.91 $ 83.55
Cash distribution per limited
partnership unit $ 57.53 $ 57.53 $ 57.53
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
Limited General Limited
Partnership Partners' Partners' Total
Units (Deficit) Equity Equity
Original capital contributions 58,982 $ -- $58,982 $58,982
Partners' (deficit) equity at
December 31, 1993 58,982 $(345) $34,503 $34,158
Net income for the year ended
December 31, 1994 101 4,928 5,029
Distributions paid to partners (69) (3,393) (3,462)
Partners' (deficit) equity at
December 31, 1994 58,982 (313) 36,038 35,725
Net income for the year
ended December 31, 1995 114 5,598 5,712
Distributions paid to partners (69) (3,393) (3,462)
Partners' (deficit) equity at
December 31, 1995 58,982 (268) 38,243 37,975
Net income for the year
ended December 31, 1996 110 5,379 5,489
Distributions paid to partners (69) (3,393) (3,462)
Partners' (deficit) capital at
December 31, 1996 58,982 $(227) $40,229 $40,002
See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 5,489 $ 5,712 $ 5,029
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,857 5,463 4,932
Minority interest in joint ventures' operations 1,603 2,236 1,417
Deferred costs paid -- (1,425) --
Gain on extinguishment of debt -- -- (98)
Change in accounts:
Accounts receivable and other assets (103) (533) 39
Accounts payable and other liabilities (24) 366 (86)
Net cash provided by operating activities 12,822 11,819 11,233
Cash Flows From Investing Activities
Property and improvement and replacements (4,677) (4,264) (2,205)
Purchase of minority interest in joint ventures -- (375) --
Proceeds from maturity of cash investments -- -- 2,376
Restricted cash decrease (increase) 694 1,339 (333)
Net cash used in investing activities (3,983) (3,300) (162)
Cash Flows From Financing Activities
Satisfaction of note payable -- (5,975) (150)
Notes payable principal payments (924) (771) (655)
Joint venture partner distributions (3,256) (2,982) (2,275)
Cash distributions to partners (3,462) (3,462) (3,462)
Net cash used in financing activities (7,642) (13,190) (6,542)
Increase (Decrease) in Cash and Cash Equivalents 1,197 (4,671) 4,529
Cash and Cash Equivalents at Beginning of Year 7,105 11,776 7,247
Cash and Cash Equivalents at End of Year $ 8,302 $ 7,105 $11,776
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4,957 $ 4,996 $ 5,345
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
Purchase of joint venture partners' interests-
Note E. Gain on extinguishment of debt in
1994 - Note I.
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
GROWTH HOTEL INVESTORS II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Summary Of Significant Accounting Policies
Organization:
Growth Hotel Investors II (the "Partnership" or the "Registrant") limited
partnership organized in 1984 under the laws of the State of California to
invest in, acquire, manage and ultimately sell limited service hotels which are
franchised by Hampton Inns, Inc. ("Hampton"), a wholly owned subsidiary of the
Promus Companies, Inc. The Partnership owns properties in Colorado, Minnesota,
Missouri and Ohio and has joint venture interests in partnerships which own
properties in Alabama, Arkansas, Georgia, Michigan, North Carolina, South
Carolina, Tennessee and Texas. The general partner is Montgomery Realty
Company-85 ("MRC-85"), a California general partnership. The general partners
of MRC-85 are Fox Realty Investors ("FRI"), a California general partnership,
and NPI Realty Management Corp. ("NPI Realty"), a Florida corporation. On
February 13, 1996 NPI Realty, which acquired its interest in MRC-85 from
Montgomery Realty Corporation on November 15, 1995, became the managing general
partner of MRC-85. The associate general partner is GHI Associates of which FRI
is the general partner and Prudential-Bache Properties, Inc. is the limited
partner. Capital contributions of $58,982,000 ($1,000 per unit) were made by
the limited partners.
On December 6, 1993, NPI Equity Investment II, Inc. ("NPI Equity" or the
"Managing General Partner") became the managing partner of FRI and assumed
operational control over Fox Capital Management Corporation ("FCMC"), an
affiliate of FRI. As a result, NPI Equity became responsible for the operation
and management of the business and affairs of the Partnership and the other
investment partnerships sponsored by FRI and/or FCMC. The individuals who had
served previously as partners of FRI and as officers and directors of FCMC
contributed their general partnership interests in FRI to a newly formed limited
partnership, Portfolio Realty Associates, L.P. ("PRA"), in exchange for limited
partnership interests in PRA. In the forgoing capacity, such partners continue
to hold indirectly certain economic interests in the Partnership and such other
investment partnerships, but ceased to be responsible for the operation and
management of the Partnership and such other partnerships. NPI Equity and NPI
Realty are wholly-owned subsidiaries of National Property Investors, Inc. ("NPI
Inc.").
On January 19, 1996, the stockholders of NPI, Inc., the sole shareholder of NPI,
Inc. sold all of the issued and outstanding stock of NPI, Inc. to an affiliate
of Insignia Financial Group, Inc. ("Insignia").
On February 15, 1996, Devon Associates ("Devon") offered to purchase up to
21,000 limited partnership outstanding units of the Partnership. Devon
Associates acquired 17,287 units, with respect to these offers. An affiliate of
the Managing General Partner has an interest in Devon Associates.
Principles of Consolidation:
The consolidated financial statements include the Partnership and joint ventures
in which the Partnership has or had a controlling interest, including Growth
Hotel Investors Combined Fund No. 1, a California Limited Partnership (the
"Combined Fund"), in which the Partnership has a majority (approximately 68%)
interest. The general partners are the Partnership and Growth Hotel Investors,
Ltd. ("GHI") which are affiliated through their general partners. The Combined
Fund was organized to acquire a majority interest in a joint venture,
Hampton/GHI Associates No. 1., which was formed to acquire, manage and
ultimately sell eighteen hotels which are a franchise of Hampton. Cash is
distributed first to the Partnership as a priority return on its invested
capital prior to distributions to Hampton. Income before depreciation and
amortization is allocated between the Combined Fund and Hampton in the same
ratio as their respective cash distributions. Depreciation and amortization are
allocated on he basis of residual interests except for the expenses related to
acquisition and loan fees paid by the Combined Fund which are allocated 100
percent to the Combined Fund. The residual interests in Hampton/GHI Associates
No. 1 are 80 percent for the Combined Fund and 20 percent for Hampton.
All significant intercompany transactions and balances have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Advertising:
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $2,764,000 and
approximately $2,827,000 for the years ended December 31, 1996 and 1995,
respectively.
Fair Value:
In 1995, the Partnership implemented "Statement of Financial Accounting
Standards No. 107, Disclosure about Fair Value of Financial Instruments," as
amended by "SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments," which requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. The carrying amount of the Partnership's cash and cash equivalents
approximates fair value due to short-term maturities. The Partnership estimates
the fair value of its fixed rate mortgage by discounted cash flow analysis,
based on estimated borrowing rates currently available to the Partnership.
Investment Properties:
In 1995, the Partnership adopted "FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The effect of adoption was not material.
Cash and Cash Equivalents:
The Partnership considers all highly liquid investments with a maturity, when
purchased, of three months or less to be cash equivalents. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Depreciation:
Depreciation is computed using the straight-line method based on estimated
useful lives ranging from 3 to 39 years.
Deferred Costs:
Deferred costs represent the buyout of a services agreement, deferred financing
costs and deferred franchise fees. The buyout of the services agreement is
being amortized over the remaining term of the services agreement which is 8
years. Financing costs are deferred and amortized, as interest expense, over
the lives of the related loans, or expensed, if financing is not obtained.
Franchise fees paid in connection with the acquisition of the hotels are
deferred and are amortized over the lives of the franchise agreements, which
range from ten to twenty years. Land lease costs paid in connection with
acquisition of certain hotels are deferred and amortized over the lives of the
lease agreements.
Net Income Allocation:
In accordance with the partnership agreement the general partner was allocated
its two percent continuing interest in the Partnership's net income or loss,
taxable income or loss and cash distributions.
Net Income Per Limited Partnership Assignee Unit:
Net income per limited partnership assignee unit is computed by dividing net
income allocated to the limited partners by 58,982 assignee units outstanding.
Income Taxes:
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
Reclassification:
Certain reclassifications have been made to the 1995 and 1994 balances to
conform to the 1996 presentation.
Note B - Transactions With The General Partner and Affiliates:
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Balances and other transactions with affiliates of Managing General Partner in
1996, 1995, and 1994 are (in thousands):
1996 1995 1994
(in thousands)
Reimbursement for services of affiliates (primarily
included in general and administrative expenses) $242 $213 $199
In accordance with the partnership agreement, the general partner and affiliates
received a partnership management fee in the amount of 10 percent of cash from
operations available for distribution (as defined in the partnership agreement).
Fees paid pursuant to this agreement in 1996, 1995 and 1994 were $385,000 for
each year, and are included in general and administrative expenses. In
addition, an affiliate of the Managing General Partner was paid fees of $10,000
relating to successful real estate tax appeals on certain of the Partnership's
properties during the year ended December 31, 1994.
Note C - Related Party Transactions:
In addition to the fees paid to the general partner and affiliates as set forth
above, the Partnership has agreements with affiliates of its joint venture
partners, which provide for the management and operations of the joint venture
properties and services provided under each property's franchise agreement.
Fees paid pursuant to these agreements are generally based on a percentage of
gross revenues from operations of the property and for the years ended December
31, 1996, 1995 and 1994 were $6,034,000, $6,058,000, and $5,753,000,
respectively. In addition, affiliates of the joint venture partners received
reimbursement of expenses during the years ended December 31, 1996, 1995, and
1994 of $863,000, $986,000 and $971,000, respectively. These expenses are
included in operating expenses.
Note D - Restricted Cash
Restricted cash at December 31, 1996, represents funds provided for and
maintained by certain properties pursuant to the related notes payable
agreements, to meet future capital requirements and debt service payments.
Note E - Purchase of Joint Venture Partners' Interests
On May 1, 1995, the Partnership acquired the 25% minority interest in the joint
venture which owned the Hampton Inn - Kansas City hotel property for $300,000.
The carrying value of the property was increased by $293,000, which reflects the
purchase price of $300,000, offset by the $7,000 payable to the joint venture
partner on May 1, 1995.
On October 1, 1995, the Partnership acquired the 30% minority interest in the
joint venture which owned the Hampton Inn - Dublin hotel property for $75,000.
The carrying value of the property was increased by $123,000, which reflects the
purchase price of $75,000, and the $48,000 receivable from the joint venture
partner on October 1, 1995.
On December 7, 1995, the Partnership acquired all of the economic rights of its
joint venture partner in GHI II Big River Associates, a California partnership.
This purchase was effective January 1, 1996, at a cost of $375,000. The
Partnership had an 80% ownership interest in GHI-II Big River Associates, which
in turn, owned the Hampton Inn-St. Louis property. The carrying value of the
property was increased by $500,000 which reflects the purchase of $375,000 and
$125,000 receivable from the joint venture partner.
Note F - Deferred Costs
The Partnership paid $1,425,000 in January 1995, to Metric Management, Inc.
("MMI") amending their services agreement to provide for a reduction in the
monthly asset management fee from $54,500 to $7,000. This amendment eliminates
fees payable to MMI for its assistance in refinancings and sales of properties
owned by the Partnership and provides the Partnership with the ability to
terminate MMI's services at will.
The cost of the amendment is being amortized over the remaining term of the
service agreement of 8 years. For each of the years ended December 31, 1996 and
1995, approximately $143,000 has been amortized and is included in general and
administrative expenses.
At December 31, 1996 and 1995, accumulated amortization of deferred costs
relating to the service agreement totaled approximately $286,000 and
approximately $143,000, respectively.
At December 31, 1996 and 1995, accumulated amortization of deferred costs
relating to franchise fees totaled approximately $350,000 and $312,000,
respectively.
Note G - Notes Payable
Individual properties and improvements are pledged as collateral for the related
notes payable. The mortgages encumbering sixteen of the eighteen hotels owned
by the Combined Fund are cross collateralized. The notes currently bear
interest of approximately 12 percent, except for, the mortgage encumbering the
Partnership' St. Louis, Missouri property which is financed by a private
activity revenue bond. Interest is established monthly as provided in the
agreement. The average monthly interest rate on this note was 6.01 percent and
6.40 percent in 1996 and 1995, respectively.
On May 4, 1994, the Partnership paid approximately $150,000 in full
satisfaction, at a discount, the contingent purchase money note on the
Partnership's Hampton Inn-Colorado Springs property.
On October 1, 1995, the Partnership satisfied the mortgage encumbering its
Hampton Inn-Dublin property in the amount of $3,257,000. The mortgage was due
to mature in April 1996.
On December 1, 1995, the Partnership satisfied the mortgage encumbering its
Hampton Inn-Kansas City property in the amount of $2,718,000. The mortgage was
due to mature in January 1996.
The estimated fair value of the Partnership's aggregate debt is approximately
$49,215,000. This estimate is not necessarily indicative of the amounts the
Partnership might pay in actual market transactions.
The Partnership had balloon payments due in 1996 of approximately $43,202,000.
The Managing General Partner has obtained extensions on these mortgages until
July 1, 1997.
At December 31, 1996 and 1995, accumulated amortization of deferred financing
costs totaled approximately $74,000 and $1,319,000, respectively. Fully
amortized costs have been written off.
Principal payments subsequent to December 31, 1996 are required as follows (in
thousands):
1997 $43,142
1998 2,573
1999 --
2000 --
2001 --
Thereafter 3,500
Total $49,215
Note H- Minimum Future Rental Commitments
Minimum future rental commitments on operating leases (including four land
leases) at December 31, 1996 are payable as follows (in thousands):
1997 $ 380
1998 380
1999 384
2000 390
2001 399
Thereafter 1,887
Total $3,820
The land leases extend through 2004, 2006, 2007 and 2008, and contain options to
extend the lease periods 20, 20, 50 and 40 years, respectively. Rental expense
for these leases was $448,000, $478,000 and $481,000 in 1996, 1995 and 1994.
Note I - Extraordinary Item - Gain On Extinguishment of Debt
On May 4, 1994, the Partnership paid approximately $150,000 in full
satisfaction, at a discount, the contingent purchase money note on the
Partnership's Hampton Inn-Colorado Springs property. The Partnership recorded
an extraordinary gain on the extinguishment of debt of $98,000, representing
$50,000 of notes payable and $48,000 of accrued interest.
Note J - Reconciliation To Income Tax Method Of Accounting
The differences between the method of accounting for income tax reporting and
the accrual method of accounting used in the financial statements are as
follows:
1996 1995 1994
(in thousands, except unit data)
Net income - financial statements $ 5,489 $ 5,712 $ 5,029
Differences resulted from:
Minority interest in joint ventures' operations 390 353 296
Depreciation and other amortization (985) (777) (882)
Deferred costs -- (1,425) --
Other 24 (5) 53
Net income - income tax method $ 4,918 $ 3,858 $ 4,496
Taxable income per limited partnership
assignee unit after giving effect to the
allocation to the general partner $ 82 $ 64 $ 75
Partner's equity-financial statements $40,002 $37,975 $35,725
Differences resulted from:
Deferred sales commissions and organization
costs 2,078 2,078 2,078
Capital account adjustment 7 7 7
Minority interest in joint ventures' operations 7,890 7,500 7,147
Deferred costs (1,425) (1,425) --
Depreciation and other amortization (9,392) (8,407) (7,630)
Other 149 122 127
Partners' equity-income tax method $39,309 $37,850 $37,454
Note K- Investment Properties And Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost To Partnership
Buildings Cost Capitalized
And (Removed)
Related Subsequent To
Description Encumbrances Land Property Acquisition
(in thousands)
Growth Hotel Investors II:
<S> <C> <C> <C> <C>
Hampton Inn - Kansas City $ -- $ 589 $ 4,545 $ 1,326
Hampton Inn - Eden Prairie 2,603 880 4,426 836
Hampton Inn - Dublin -- 818 4,641 854
Hampton Inn - North Dallas 2,927 1,667 4,119 941
Hampton Inn - St. Louis 3,500 812 5,074 1,238
Hampton Inn - Colorado Springs -- 538 3,040 456
Growth Hotel Investors
Combined Fund No. 1:
Hampton Inn - Memphis I40 East 1,771 -- 3,838 541
Hampton Inn - Columbia-West 2,062 350 4,133 324
Hampton Inn - Spartanburg 1,767 275 3,545 357
Hampton Inn - Little Rock-North 2,015 524 3,862 315
Hampton Inn - Amarillo 1,120 501 1,810 396
Hampton Inn - Greenville 2,054 539 3,942 106
Hampton Inn - Charleston Airport 2,144 495 4,205 323
Hampton Inn - Memphis-Poplar 2,798 1,236 4,993 71
Hampton Inn - Greensboro 1,982 439 3,866 254
Hampton Inn - Birmingham 2,426 758 4,447 64
Hampton Inn - Atlanta-Roswell 2,643 1,207 4,668 (141)
Hampton Inn - Chapel Hill 2,257 930 3,926 (5)
Hampton Inn - Dallas-Richardson 2,769 1,371 4,766 (311)
Hampton Inn - Nashville-Briley 2,183 -- 4,796 (23)
Hampton Inn - San Antonio-Northwest 2,451 781 4,475 (58)
Hampton Inn - Madison Heights 2,834 963 5,323 653
Hampton Inn - Mountain Brook 2,543 -- 4,782 699
Hampton Inn - Northlake 2,366 -- 4,439 510
TOTAL $49,215 $15,673 $101,661 $ 9,726
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried
At December 31, 1996
Buildings
And Accumulated Year of Date Of Depreciable
Description Land Improvements Total Depreciation Construction Acquisition Life-Years
(in thousands)
Growth Hotel Investors II:
<S> <C> <C> <C> <C> <C> <C> <C>
Hampton Inn - Kansas City $ 618 $ 5,842 $ 6,460 $ 2,196 1987 12/09/87 5-39 Yrs
Hampton Inn - Eden Prairie 853 5,289 6,142 1,947 1987 12/30/87 5-39 Yrs
Hampton Inn - Dublin 831 5,482 6,313 2,307 1988 04/07/88 5-39 Yrs
Hampton Inn - North Dallas 1,667 5,060 6,727 2,175 1985 07/18/88 5-30 Yrs
Hampton Inn - St. Louis 897 6,227 7,124 2,204 1987 07/27/89 5-30 Yrs
Hampton Inn - Colorado Springs 490 3,544 4,034 1,448 1985 12/29/89 5-39 Yrs
Growth Hotel Investors
Combined Fund No. 1:
Hampton Inn - Memphis I40 East -- 4,379 4,379 1,769 1984 12/19/86 5-30 Yrs
Hampton Inn - Columbia-West 350 4,457 4,807 1,845 1985 12/19/86 5-30 Yrs
Hampton Inn - Spartanburg 275 3,902 4,177 1,616 1984 12/19/86 5-39 Yrs
Hampton Inn - Little Rock-North 524 4,177 4,701 1,600 1985 12/19/86 5-39 Yrs
Hampton Inn - Amarillo 501 2,206 2,707 919 1985 12/19/86 5-39 Yrs
Hampton Inn - Greenville 539 4,048 4,587 1,608 1985 12/19/86 5-30 Yrs
Hampton Inn - Charleston Airport 495 4,528 5,023 1,808 1985 12/19/86 5-39 Yrs
Hampton Inn - Memphis-Poplar 1,236 5,064 6,300 2,006 1985 12/19/86 5-30 Yrs
Hampton Inn - Greensboro 439 4,120 4,559 1,600 1986 12/19/86 5-39 Yrs
Hampton Inn - Birmingham 758 4,511 5,269 1,757 1987 12/19/86 5-30 Yrs
Hampton Inn - Atlanta-Roswell 1,207 4,527 5,734 1,621 1987 03/04/87 5-30 Yrs
Hampton Inn - Chapel Hill 930 3,921 4,851 1,445 1987 03/04/87 5-30 Yrs
Hampton Inn - Dallas-Richardson 1,371 4,455 5,826 1,542 1987 03/04/87 5-30 Yrs
Hampton Inn - Nashville Briley
Parkway -- 4,773 4,773 1,728 1987 03/04/87 5-30 Yrs
Hampton Inn - San Antonio-
Northwest 781 4,417 5,198 1,523 1987 06/23/87 5-30 Yrs
Hampton Inn - Madison Heights 963 5,976 6,939 2,454 1987 12/29/87 5-30 Yrs
Hampton Inn - Mountain Brook -- 5,481 5,481 2,380 1988 12/29/87 5-30 Yrs
Hampton Inn - Northlake -- 4,949 4,949 2,179 1988 09/15/88 5-30 Yrs
$15,725 $111,335 $127,060 $43,677
</TABLE>
Reconciliation of Investment Properties and Accumulated Depreciation:
Years Ended December 31,
1996 1995 1994
(in thousands)
Balance at beginning of year $121,883 $127,768 $125,563
Property improvements 4,677 4,264 2,205
Purchase of joint venture interests 500 415 --
Retirement of assets -- (10,564) --
Balance at end of year $127,060 $121,883 $127,768
Accumulated Depreciation
Balance at beginning of year $ 38,136 $ 43,597 $ 38,880
Additions charged to expense 5,541 5,103 4,717
Retirement of assets -- (10,564) --
$ 43,677 $ 38,136 $ 43,597
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1996 and 1995, is approximately $137,705,000 and $133,013,000. The
accumulated depreciation taken for Federal income tax purposes at December 31,
1996 and 1995, is approximately $61,140,000, and $54,466,000.
Note L - Commitment and Contingencies
William Wallace, Mildred Wallace, Edith G. Martin, Paul Allemang and Gwen
Allemang, on behalf of themselves and all others similarly situated, and
derivatively on behalf of Growth Hotel Investors ("GHI"), a California limited
partnership and the Partnership, Plaintiff v. Devon Associates, Montgomery
Realty-85, GHI Associates, Cayuga Associates L.P., Cayuga Capital Corp.,
Insignia Financial Group, Inc., L.P., and Fleetwood Corp., Defendants and Growth
Hotel Investors, a California limited partnership, and Growth Hotel Investors
II, a California limited partnership, Nominal Defendant, Supreme Court of the
State of New York, County of New York, Case No. 9600866.
On February 21, 1996, William and Mildred Wallace, holders of Units of GHI and
Edith G. Martin and Paul and Gwen Allemang, holders of Units of the Partnership,
commenced an action on behalf of themselves and others similarly situated, and
derivatively on behalf of the Registrant and GHI, in the Supreme Court of the
State of New York, County of New York, against, among others, MRC-85 and certain
of its affiliates pertaining to the tender offer for up to 21,000 partnership
Units of the Partnership and up to 15,000 partnership Units of GHI which
commenced February 15, 1996. The action alleges, among other things, that the
tender offers constitute (a) a breach of fiduciary duty owed to limited partners
of the partnerships, and (b) a breach of the provisions of the partnership
agreements of such partnerships. The action, which is sought to brought as a
class action on behalf of all limited partners, seeks to enjoin the tender
offers as well as monetary damages in an unspecified amount.
R&S Asset Partners, a Florida general partnership, and Jessie B. Small, on their
own behalves, on behalf of all others similarly situated, and derivatively on
behalf of the Nominal Defendants, Plaintiffs, v. Devon Associates, Cayuga
Associates, L.P., Cayuga Capital Corp., Fleetwood Corp., Carl C. Icahn, Michael
L. Ashner, Martin Lifton, Arthur N. Queler, Insignia Financial Group, Inc.,
IFGP, Corp., National Properties Investors, Inc., NPI Equity Investments II,
Inc., Fox Realty Investors, Portfolio Realty Associates, L.P., Emmet J. Cashin,
Jr., Jarold A. Evans, W. Patrick McDowell, Apollo Real Estate Advisors, L.P.,
and Montgomery Realty Company-85, Defendants, and Growth Hotel Investors, a
California Limited Partnership, and Growth Hotel Investors II, a California
Limited Partnership, Nominal Defendants, Superior Court of the State of
California, County of Los Angeles, Case No. BC145220.
On February 28, 1996, R&S Asset Partners, holders of Units of GHI, and Jesse B.
Small, holder of Units of the Partnership, commenced an action on behalf of
themselves and others similarly situated, and derivatively on behalf of the
Partnership and GHI, in the Superior Court of the State of California, County of
Los Angeles, against, among others, MRC-85 and certain of its affiliates
pertaining to the tender offer for up to 21,000 partnership Units of the
Partnership and up to 15,000 partnership Units of GHI which commenced February
15, 1996. The action alleges, among other things, that the tender offers
constitute (a) a breach of fiduciary duty owed to limited partners of the
partnerships, (b) negligent misrepresentation pertaining to the disclosure set
forth in the offer to purchase, (c) common law fraud, and (d) a breach of the
provisions of the partnership agreements of such partnerships. The action,
which is sought to brought as a class action on behalf of all limited partners,
seeks to enjoin the tender offers as well as monetary damages in an unspecified
amount.
On March 15, 1996, counsel for the plaintiffs and defendants in the Wallace and
the R&S Partners Actions agreed in principle to settle these actions, which
settlement has subsequently received final court approval. In connection with
the settlement MRC-85 agreed to take such actions as are reasonably necessary
and consistent with its fiduciary duties to procure offers for the purchase of
the Partnership's and GHI's assets which maximize the value of the limited
partner assignee units. MRC-85 further agreed to deal fairly and in good faith
with persons expressing an interest in making a bona fide offer to purchase such
assets and, subject to its fiduciary duty, provide such bona fide offers with
access to the Partnership's and GHI's books and records for due diligence
purposes. MRC-85 also agreed that if it determined that an offer to purchase
its assets is acceptable, MRC-85 will prepare a plan of liquidation and submit
such plan to the Partnership's partners for approval. Also in connection with
the settlement, the plaintiffs will release all claims they may have arising out
of the tender offers. As required by the settlement, the Partnership and GHI
are coordinating with class counsel with respect to the sale of such assets and
consent of limited partners.
Note M - Tender Offers
On February 15, 1996, Devon Associates ("Devon") offered to purchase up to
21,000 and 15,000 limited partnership outstanding units (the "Units") of the
Partnership, and GHI, respectively. Devon Associates acquired 17,287 and 13,396
units, with respect to these offers, respectively. The offer for the
Partnerships Units was at a purchase price of $750 and $705, respectively, per
unit, net to the seller in cash, without interest, upon the terms and conditions
set forth in the offer to purchase. Certain beneficial owners of Devon are
affiliated with the general partners of the Partnership and GHI. In addition,
an affiliate of Insignia is both a shareholder in the general partner of Cayuga
Associates, LP, the controlling general partner in Devon, and a limited partner
in Devon.
Note N - Subsequent Event
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed in "Note M", the Partnership and
GHI, the Partnership's joint venture partner in the Combined Fund properties,
marketed all of their properties for sale. In this regard, the Partnership and
GHI retained Bear, Stearns & Co. Inc. to assist in the marketing of such
properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint
ventures in which the Partnership has a controlling interest, GHI II, and the
joint ventures in which the Partnership has a controlling interest, and Equity
Inns Partnership, L.P. (the "Buyer") entered into certain purchase and sale
agreements pursuant to which the Buyer agreed to purchase from these entities
the twenty-four hotels described herein as well as four additional hotels owned
directly or indirectly by the Partnership for an aggregate purchase price of
$182 million, subject to adjustment. The closing of these sales, which is
anticipated to occur during the second quarter of 1997, is subject to many
conditions including, favorable completion by the Buyer of its due diligence
review and the Partnership and GHI receiving consent to the sale from their
respective limited partners holding a majority of the outstanding limited
partnership interests in the Partnership and GHI. Accordingly, there can be no
assurance that the sale will be consummated with the Buyer or any other
potential buyer.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:
None
PART III
Item 10. Directors, Executive Officers of Promoters and Control Persons:
Neither the Registrant nor Montgomery Realty Company-85 ("MRC"), the general
partner of the Registrant has any officers or directors. NPI Realty Management
Corp. ("NPI Realty"), the managing general partner of MRC, manages and controls
substantially all of the Registrant's affairs and has general responsibility and
ultimate authority in all matters affecting its business. NPI Realty is a
wholly owned subsidiary of National Property Investors, Inc. ("NPI, Inc."),
which in turn is owned by an affiliate of Insignia Financial Group, Inc.
("Insignia").
As of March 1, 1997, the names and positions held by the officers and directors
of NPI Realty are as follows:
Name Age Position
William H. Jarrard, Jr. 50 President and
Director
Ronald Uretta 40 Vice President and
Treasurer
John K. Lines, Esq. 37 Vice President and
Secretary
Kelley M. Buechler 39 Assistant Secretary
William H. Jarrard, Jr. has been Managing Director - Partnership Administration
of Insignia since January 1991. Mr. Jarrard served as Managing Director -
Partnership Administration & Asset Management from July 1994 until January 1996.
Ronald Uretta has been Insignia's Treasurer since January 1992. Since August
1996, he has also served as Chief Operating Officer. He also served as
Secretary from January 1992 to June 1994 and as Chief Financial Officer from
January 1992 to August 1996. Since September 1990, Mr. Uretta has also served as
the Chief Financial officer and controller of MAG.
John K. Lines, Esq. has been Vice President and Secretary of the Managing
General Partner since January 1996, Insignia's General Counsel since June 1994,
and General Counsel and Secretary since July 1994. From May 1993 until June
1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen
Financial Corporation, West Palm Beach, Florida. From October 1991 until May
1993, Mr. Lines was a Senior Attorney with Banc One Corporation, Columbus, Ohio.
From May 1984 until October 1992, Mr. Lines was an attorney with Squire Sanders
& Dempsey, Columbus, Ohio.
Kelley M. Buechler has been Assistant Secretary of the Managing General Partner
and Assistant Secretary of Insignia since 1991. During the five years prior to
joining Insignia in 1991, she served in similar capacities with U. S Shelter.
Item 11. Executive Compensation:
The Registrant is not required to and did not pay any compensation to the
officers or directors of NPI Realty or NPI Equity Investments II, Inc., the
managing general partner of Fox Realty Investors, a general partner of MRC. NPI
Realty does not presently pay any compensation to any of its officers or
directors. (See "Item 13," "Certain Relationships and Related Transactions").
Item 12. Security Ownership of Certain Beneficial Owners and Management:
The following table sets forth certain information regarding limited partnership
units of the Registrant owned by each person who is known by the Registrant to
own beneficially or exercise voting or dispositive control over more than 5% of
the Registrant's limited partnership units, by each of the directors and by all
directors and executive officers of the Managing General Partner as a group as
of March 1, 1997.
Name and address of Amount and nature of
Beneficial Owner Beneficial Owner % of Class
Devon Associates (1) (2) 17,287 29.317
All directors and executive
officers as a group
(four persons) -- --
(1) The business address for Devon Associates is 100 Jericho Quadrangle,
Suite 214, Jericho, New York 11753.
(2) Based upon information supplied to the Registrant by Devon Associates.
The Registrant is a limited partnership and has no officers or directors. The
managing general partner has discretionary control over most of the decisions
made by or for the Registrant in accordance with the terms of the Partnership
Agreement. Affiliates of the Registrant's general partner own less than one
percent of the Registrant's voting securities.
There are no arrangements known to the Registrant, the operation of which may,
at a subsequent date, result in a change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions:
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Balances and other transactions with affiliates of Managing General Partner in
1996, 1995, and 1994 are (in thousands):
1996 1995 1994
(in thousands)
Reimbursement for services of affiliates (primarily
included in general and administrative expenses) $242 $213 $199
In accordance with the partnership agreement, the general partner and affiliates
received a partnership management fee in the amount of 10 percent of cash from
operations available for distribution (as defined in the partnership agreement).
Fees paid pursuant to this agreement in 1996, 1995 and 1994 were $385,000 for
each year, respectively and are included in general and administrative expenses.
In addition, an affiliate of the Managing General Partner was paid fees of
$10,000 relating to successful real estate tax appeals on certain of the
Partnership's properties during the year ended December 31, 1994.
In accordance with the partnership agreement the general partner was allocated
its two percent continuing interest in the Partnership's net income or loss,
taxable income or loss and cash distributions.
In addition to the fees paid to the general partner and affiliates as set forth
above, the Partnership has agreements with affiliates of its joint venture
partners, which provide for the management and operations of the joint venture
properties and services provided under each property's franchise agreement.
Fees paid pursuant to these agreements are generally based on a percentage of
gross revenues from operations of the property and for the years ended December
31, 1996, 1995 and 1994 were $6,034,000, $6,058,000, and $5,753,000,
respectively. In addition, affiliates of the joint venture partners received
reimbursement of expenses during the years ended December 31, 1996, 1995, and
1994 of $863,000, $986,000 and $971,000, respectively. These expenses are
included in operating expenses.
On February 15, 1996, Devon Associates, a New York general partnership,
commenced a tender offer (the "Offer") for up to 21,000 of the outstanding Units
at a purchase price of $750.00 per Unit. Devon Associates acquired 17,287 units
with respect to this offer.
On March 13, 1996, the Partnership received a letter advising that the
Partnership's and Growth Hotel Investors' ("GHI") joint venture partner in
certain of the hotel properties was offering $147,000,000 in cash for all 28
hotel properties directly or indirectly owned by the Partnership and GHI. See
"Amendment No. 2" to the Partnership's Statement on Schedule 14D-9, as filed
with the Commission on March 14, 1996, for a more complete description of this
offer, which "Amendment No. 2" is hereby incorporated by reference herein. By
the terms of the offer, the offer expired on March 31, 1996. The Managing
General Partner determined that before the offer could be recommended, if at
all, to the Partnership's limited partners further analysis of the hotel
properties and their value was needed.
As required by the settlement of the class action brought in connection with the
tender offer made by Devon Associates discussed above, the Registrant and Growth
Hotel Investors ("GHI"), the Registrant's joint venture partner in the Combined
Fund properties, marketed all of their properties for sale. In this regard, the
Registrant and GHI retained Bear, Stearns & Co Inc. to assist in the marketing
of such properties. As of March 14, 1997, the Registrant, the Combined Fund, the
joint ventures in which the Registrant has a controlling interest, GHI, and the
joint ventures in which GHI has a controlling interest, and Equity Inns
Registrant, L.P. (the "Buyer") entered into certain purchase and sale agreements
pursuant to which the Buyer agreed to purchase from these entities the twenty-
four hotels described herein as well as four additional hotels owned directly or
indirectly by GHI for an aggregate purchase price of $182 million, subject to
adjustment. The closing of these sales, which is anticipated to occur during
the second quarter of 1997, is subject to many conditions including, favorable
completion by the Buyer of its due diligence review and the Registrant and GHI
receiving consent to the sale from their respective limited partners holding a
majority of the outstanding limited partnership interests in the Registrant and
GHI. Accordingly, there can be no assurance that the sale will be consummated
with the Buyer or any other potential buyer.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a)(1)(2) Financial Statements and Financial Statement Schedules
See Item 8 of this Form 10-K for Consolidated Financial Statements for
the Registrant, Notes thereto, and Financial Statement Schedules (A
table of contents to Consolidated Financial Statements and Financial
Statement Schedules is included in Item 8 and incorporated herein by
reference.)
2. NPI, Inc. Stock Purchase Agreement, dated as of August 17, 1995,
incorporated by reference to the Registrant's Current Report on Form
8-K dated August 17, 1995.
3.4. Agreement of Limited Partnership, incorporated by reference
to Exhibit A to the Prospectus of the Registrant dated October 10,
1986, and thereafter supplemented, included in the Registrant's
Registration Statement on Form S-11 (Reg. No. 33-4566).
16. Letter dated April 27, 1994 from the Registrant's Former
Independent Auditors incorporated by reference to the Registrant's
Current Report on Form 8-K dated April 22, 1994.
20 Letter, dated February 29, 1996, from the Registrant to its
limited partners, incorporated by reference to the Schedule 14D-9 of
Registrant filed with the Commission on February 29, 1996.
27 Financial Data Schedule
99(a) Schedule 14D-9 of the Registrant, as filed with the Commission on
February 29, 1996.
99(b) Amendment No. 1 to Schedule 14D-9 of Registrant, as filed with the
Commission on March 7, 1996.
99(c) Amendment No. 2 to Schedule 14D-9 of Registrant, as filed with the
Commission on March 14, 1996.
99(d) Letter Agreement, dated November 15, 1995 between Montgomery Realty
Corporation, Fox Realty Investors, NPI Equity Investments II,
Inc., and NPI Realty Management Corp. incorporated by reference to the
Schedule 14D-9 of Registrant filed with the Commission on February 29,
1996.
99(e) Second Amended and Restated Partnership Agreement of Montgomery Realty
Company 85, made and entered into to be effective as of November 15,
1995, by and between NPI Realty Management Corp. and Fox Realty
Investors incorporated by reference to the Schedule 14D-9 of
Registrant filed with the Commission on February 29, 1996.
99(f) Third Amended and Restated General Partnership Agreement of Montgomery
Realty Company-85, effective as of February 13, 1996, by and between
NPI Realty Management Corp. and Fox Realty Investors incorporated by
reference to the Schedule 14D-9 of Registrant filed with the
Commission on February 29, 1996.
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized this 18th day of March 1997.
GROWTH HOTEL INVESTORS II
By: MONTGOMERY REALTY COMPANY-85,
Its General Partner
By: NPI REALTY MANAGEMENT CORP.,
Its Managing General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Signature/Name Title Date
/s/ William H. Jarrard, Jr. President and March 18, 1997
William H. Jarrard, Jr. Director
/s/Ronald Uretta Principal Financial March 18, 1997
Ronald Uretta Officer and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Growth Hotel
Investors II 1996 Year-End 10-K and is qualified in its entirety by reference to
such 10-K filing.
</LEGEND>
<CIK> 0000791346
<NAME> GROWTH HOTEL INVESTORS II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,302
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 127,060
<DEPRECIATION> (43,677)
<TOTAL-ASSETS> 94,689
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 49,215
0
0
<COMMON> 0
<OTHER-SE> 40,002
<TOTAL-LIABILITY-AND-EQUITY> 94,689
<SALES> 0
<TOTAL-REVENUES> 51,790
<CGS> 0
<TOTAL-COSTS> 44,698
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,983
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,489
<EPS-PRIMARY> 91.19<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
