FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period.........to.........
(Amended by Exchange Act Rel. No. 312905, eff. 4/26/93)
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
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's phone number)
Indicate by check mark whether the Registrant (1) has filed all documents and
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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
GROWTH HOTEL INVESTORS II
STATEMENT OF NET ASSETS IN LIQUIDATION
(in thousands)
March 31, December 31,
1998 1997
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 4,153 $ 4,228
Restricted escrow 3,468 3,432
7,621 7,660
Liabilities
Accounts payable and state withholding taxes payable 1,281 1,351
Accounts payable affiliates 6 9
Distribution payable to General Partners 291 291
Fees due to General Partners 532 532
Estimated costs during period of liquidation 198 107
2,308 2,290
Net assets in liquidation $ 5,313 $ 5,370
Note:The Statement of Net Assets in Liquidation at December 31, 1997, has
been derived from the audited financial statements at that date but does
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See Notes to Consolidated Financial Statements
b)
GROWTH HOTEL INVESTORS II
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(Unaudited)
Three Months Ended March 31, 1998
(in thousands)
Net assets in liquidation at beginning of period $ 5,370
Changes in net assets in liquidation
attributed to:
Decrease in cash and cash equivalents (75)
Increase in restricted escrow 36
Decrease in accounts payable and other 70
Decrease in accounts payable affiliate 3
Increase in estimated costs during the period
of liquidation (91)
Net assets in liquidation at end of period $ 5,313
See Notes To Consolidated Financial Statements
c)
GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31, 1997
(in thousands, except unit data)
Revenues:
Hotel operations $ 11,552
Interest income 89
Total revenues 11,641
Expenses:
Hotel operations 7,742
Mortgage interest 1,196
Depreciation 1,463
General and administrative 219
Total expenses 10,620
Income before minority interest in joint
venture's operation 1,021
Minority interest in joint ventures' operations (422)
Net income $ 599
Net income allocated to general partners (2%) $ 12
Net income allocated to limited partners (98%) 587
Net income $ 599
Net income per limited partnership unit $ 9.97
See Notes to Consolidated Financial Statements
d)
GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
Three Months Ended March 31, 1997
(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, 1996 58,982 $ (227) $ 40,229 $ 40,002
Net income for the three
months ended March 31, 1997 -- 12 587 599
Distributions -- (17) (848) (865)
Partners' (deficit) equity at
March 31, 1997 58,982 $ (232) $ 39,968 $ 39,736
See Notes to Consolidated Financial Statements
e)
GROWTH HOTEL INVESTORS II
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, 1997
(in thousands)
Cash flows from operating activities:
Net income $ 599
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,514
Minority interest in joint ventures' operations 422
Change in accounts:
Accounts receivable and other assets (331)
Accounts payable and other liabilities 809
Net cash provided by operating activities 3,013
Cash flows from investing activities:
Property and improvement and replacements (1,044)
Restricted cash increase (36)
Net cash used in investing activities (1,080)
Cash flows from financing activities:
Notes payable principal payments (169)
Cash distribution to partners (865)
Due (from) to affiliate (270)
Net cash used in financing activities (1,304)
Net increase (decrease) in cash and cash equivalents 629
Cash and cash equivalents at beginning of period 8,302
Cash and cash equivalents at end of period $ 8,931
Supplemental information:
Interest paid $ 1,194
See Notes to Consolidated Financial Statements
f)
GROWTH HOTEL INVESTORS II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
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
Limited Partnership Units ("the Units") at a purchase price of $750.00 per Unit.
An affiliate of the Managing General Partner has an interest in Devon
Associates. Devon Associates acquired 17,302 Units with respect to this offer.
The Partnership sold its investment properties on June 24, 1997 to an unrelated
third party, Equity Inns Partnership, L.P., a Tennessee limited partnership. The
properties were sold in accordance with the settlement of the class action
lawsuit brought in connection with the tender offer made by Devon Associates.
The Partnership's last hotel property, the Hampton Inn - Mountain Brook, was
sold to Equity Inns on August 1, 1997.
As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its financial statements at December 31,
1997 to the liquidation basis of accounting. Consequently, assets have been
valued at their estimated net realizable value and liabilities are presented at
their estimated settlement amounts, including estimated costs associated with
carrying out the liquidation. The valuation of assets and liabilities
necessarily requires many estimates and assumptions and there are substantial
uncertainties in carrying out the liquidation. The actual realization of assets
and settlement of liabilities could be higher or lower than amounts indicated
and is based upon the Managing General Partner's estimates as of the date of the
financial statements.
The statement of net assets in liquidation as of March 31, 1998, includes
approximately $198,000 of accrued costs, net of income, that the Managing
General Partner estimates will be incurred during the period of liquidation,
based on the assumption that the liquidation process will be completed during
1998. These costs principally include legal and administrative expenses.
Because the success in realization of assets and the settlement of liabilities
is based on the Managing General Partner's best estimates, the liquidation
period may be shorter than projected or it may be extended beyond the projected
period.
NOTE B - SALE OF PROPERTIES
On June 24, 1997, the Partnership, sold all of its investment properties,
consisting of the Hampton Inn-Kansas City, Hampton Inn-Eden Prairie, Hampton
Inn-Dublin, and Hampton Inn-Colorado Springs for a sales price of approximately
$20,162,000. The Partnership has a controlling interest in three joint venture
partnerships, GHI II Big River Associates, Hampton/GHI Associates No. 2 and
Growth Hotel Investors Combined Fund No. 1. On June 24, 1997, GHI II Big River
Associates sold its investment property, Hampton Inn-St. Louis for a purchase
price of approximately $5,057,000. Additionally, Hampton/GHI Associates No. 2
sold its investment property, Hampton Inn-North Dallas for a sales price of
$10,371,000. Finally, on June 24, 1997, Hampton/GHI Associates No. 1
("Hampton/GHI"), a joint venture in which Growth Hotel Investors Combined Fund
No. 1 owns 80%, sold 17 of its 18 investment properties, consisting of the
Hampton Inn- Memphis-I-40, Hampton Inn-Columbia West, Hampton Inn-Spartanburg,
Hampton Inn-Little Rock, Hampton Inn-Amarillo, Hampton Inn-Greenville, Hampton
Inn-Charleston, Hampton Inn-Memphis-Poplar, Hampton Inn-Greensboro, Hampton Inn-
Birmingham, Hampton Inn-Atlanta, Hampton Inn-Chapel Hill, Hampton Inn-Dallas,
Hampton Inn-Nashville, Hampton Inn-San Antonio, Hampton Inn-Madison Heights, and
Hampton Inn-Northlake for a purchase price of approximately $107,576,000. The
investment properties were sold to an unrelated third party, Equity Inns
Partnership, L.P., a Tennessee limited partnership. The properties were sold in
accordance with the settlement of the class action lawsuit brought in connection
with the tender offer made by Devon Associates. The Partnership's last hotel
property, the Hampton Inn-Mountain Brook, was sold on August 1, 1997 for a sales
price of approximately $8,758,000.
The aggregate purchase price for all 24 properties was approximately
$151,924,000. The Partnership received net proceeds, after satisfaction of
outstanding indebtedness and closing costs, from the sale of its investment
properties of approximately $19,771,000. In addition, the Partnership received
approximately $59,658,000 from its consolidated joint ventures in distributions
from the sale of its properties and from operations. The Partnership made
distributions of $68,464,000 ($1,160.76 per unit) to its limited partners and
approximately $1,688,000 to the General Partners from these net proceeds in
1997. Included in the distributions paid to the General Partners is
approximately $291,000 of accrued distributions of subordinated sales
incentives. It is anticipated that the Partnership will be dissolved during
1998 and the remaining cash and any funds from operations will be distributed to
the partners at that time.
The Partnership recognized a gain of approximately $67,008,000 due to the sale
of its investment properties and the properties in which the Partnership had a
controlling interest. Approximately $18,422,000 of the gain from the sale of
the properties in Growth Hotel Investors Combined Fund No. 1 was allocated to
the Partnership's joint venture partner, Growth Hotel Investors.
Pursuant to the terms of the settlement agreement with respect to the class
actions brought by limited partners of the Partnership and Growth Hotel
Investors ("GHI"), an affiliated partnership, against, among others, the
Partnership, GHI and their general partners, the Partnership and GHI were
required to pay the plaintiff's attorneys' fees associated with such actions.
As a result, an aggregate of $1,800,000 ($1,217,000 of which is allocable to the
partnership) was paid in 1997 to the plaintiff's attorneys for fees and expense
reimbursements.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The managing general partner of the Partnership is Montgomery Realty Company-85
("MRC-85"). The general partners of MRC-85 are Fox Realty Investors ("FRI"),
and NPI Realty Management Corp. ("NPI Realty"). On February 13, 1996 NPI
Realty, which acquired its interest in MRC-85 from Montgomery Realty Corporation
on November 15, 1995, became the managing general partner of MRC-85. The
associate general partner is GHI Associates of which FRI is the general partner
and Prudential-Bache Properties, Inc. is the limited partner.
On January 19, 1996, all of the issued and outstanding shares of stock of
National Property Investors, Inc. ("NPI"), the sole shareholder of both NPI
Equity Investments II, Inc. ("NPI Equity"), the managing general partner of FRI,
and NPI Realty was acquired by an affiliate of Insignia Financial Group, Inc.
("Insignia"). In connection with these transactions, affiliates of Insignia
appointed new officers and directors of NPI Equity and NPI Realty.
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
The following expenses were paid or accrued to the General Partners and
affiliates during the three months ended March 31, 1998 and 1997:
1998 1997
(in thousands)
Reimbursement for services of affiliates $ 44 $ 38
In accordance with the partnership agreement, the general partner and affiliates
received a partnership management fee in the amount of 10 percent of cumulative
cash from operations available for distribution (as defined in the partnership
agreement). Fees paid or accrued pursuant to this agreement during the three
months ended March 31, 1997 was $96,000 and are included in general and
administrative expenses. There were no such fees paid during the three months
ended March 31, 1998.
In addition to the fees paid to the general partner and affiliates as set forth
above, the Partnership had 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 three months ended
March 31, 1997 was $1,349,000. In addition, affiliates of the joint venture
partners received reimbursement of expenses during the three months ended March
31, 1997 of $240,000. These expenses are included in operating expenses.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership. It is anticipated, however, that the Partnership
will be liquidated prior to the consummation of the AIMCO transaction. In any
event, it is not anticipated that this transaction will have a material effect
on the Partnership.
NOTE D - DISTRIBUTIONS
The Partnership distributed approximately $14 per unit (approximately $848,000
in total) to the holders of limited partnership units and approximately $17,000
to the general partners during the three months ended March 31, 1997.
NOTE E - COMMITMENT AND CONTINGENCIES
In connection with the sale of the properties owned by the Hampton/GHI's and the
liquidation of the joint ventures, the Partnership's joint venture partner,
Hampton Inns, Inc. ("Hampton"), was to be distributed a portion of the net sale
proceeds. However, pursuant to the terms of the Hampton/GHI's Joint Venture
Agreements, Hampton was obligated to contribute to Hampton/GHI's an amount equal
to the deficit of its tax capital accounts, which amount was in excess of the
amount to be distributed to Hampton. As a result, the Partnership set aside as a
reserve the amount which otherwise would have been distributed to Hampton.
Hampton/GHI's received such payment from Hampton for its deficit restoration
obligation on November 5, 1997 in the amount of approximately $9,163,000.
The classification of the funds received from Hampton is not clearly defined in
the partnership agreement. If the funds are classified as funds from
operations, the General Partners would be due a partnership management incentive
on the distribution of these funds in the amount of approximately $1,063,000.
The general partners have agreed to take 50% of such fee or $532,000, which has
been accrued at December 31, 1997 and March 31, 1998. In addition, the general
partners are entitled to a subordinated sales incentive of approximately
$582,000. The general partners have agreed to take 50% of such fee or $291,000.
The Partnership holds a warranty reserve escrow account in the amount of
approximately $3,468,000 at March 31, 1998. This escrow must be held for the
period of one year from the closing date of the sale of the investment
properties. If the purchaser has not notified the Partnership of any amounts
owed to it, the Partnership will distribute such funds to its partners. At
March 31, 1998, no notification had been given from the purchaser that any
amounts were due the purchaser under the agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
On June 24 and August 1, 1997, the Partnership sold all of its investment
properties and joint venture properties (see "Item 1. Financial Statements Note
B - Sale of Properties" for information related to the sale). As a result of
the sale of its investment properties and the decision to liquidate the
Partnership, the Partnership changed its basis of accounting to the liquidation
basis of accounting for its financial statements at December 31, 1997.
Consequently, assets have been valued at their estimated net realizable value
(including subsequent actual transactions described below) and liabilities are
presented at their estimated settlement amounts, including estimated costs
associated with carrying out the liquidation. The valuation of assets and
liabilities necessarily requires many estimates and assumptions and there are
substantial uncertainties in carrying out the liquidation. The actual
realization of assets and settlement of liabilities could be higher or lower
than amounts indicated and is based upon the Managing General Partner's
estimates as of the date of the financial statements.
The statement of net assets in liquidation as of March 31, 1998, includes
approximately $198,000 of costs, net of income, that the Managing General
Partner estimates will be incurred during the period of liquidation, based on
the assumption that the liquidation process will be completed during the third
quarter of 1998. These costs include anticipated legal fees and administrative
expenses, net of estimated interest income. Because the success in realization
of assets and the settlement of liabilities is based on the Managing General
Partner's best estimates, the liquidation period may be shorter than projected
or it may be extended beyond the projected period.
No cash distributions were made in the first quarter of 1998. A cash
distribution of approximately $865,000 from cash from operations was made in
February 1997. Approximately $848,000 was paid to the limited partners and
$17,000 was distributed to the general partners.
In connection with the sale by Hampton/GHI Associates No. 1 and No. 2
("Hampton/GHI's") of their properties, the Partnership's joint venture partner,
Hampton Inns, Inc. ("Hampton"), was to be distributed a portion of the net sale
proceeds. However, pursuant to the terms of the Hampton/GHI's Joint Venture
Agreements, Hampton was obligated to contribute to Hampton/GHI's an amount equal
to the deficit of its tax capital accounts, which amount was in excess of the
amount to be distributed to Hampton. As a result, the Partnership set aside as
a reserve the amount which otherwise would have been distributed to Hampton.
The joint venture received such payment from Hampton for its deficit restoration
obligation on November 5, 1997 in the amount of approximately $9,163,000.
The classification of the funds received from Hampton is not clearly defined in
the partnership agreement. If the funds are classified as funds from
operations, the General Partners would be due a partnership management incentive
on the distribution of these funds in the amount of approximately $1,063,000.
The general partners have agreed to take 50% of such fee or $532,000, which has
been accrued at December 31, 1997 and March 31, 1998. In addition, the general
partners are entitled to a subordinated sales incentive of approximately
$582,000. The general partners have agreed to take 50% of such fee or $291,000.
The Partnership holds a warranty reserve escrow account in the amount of
approximately $3,468,000 at March 31, 1998. This escrow must be held for the
period of one year from the closing date of the sale of the investment
properties. If the purchaser has not notified the Partnership of any amounts
owed to it, the Partnership will distribute such funds to its partners. At
March 31, 1998, no notification had been given from the purchaser that any
amounts were due the purchaser under the agreement.
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 ("the Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27:
Financial Data Schedule, is filed as an exhibit to this report.
b) Reports on Form 8-K:
None were held during the quarter ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROWTH HOTEL INVESTORS II
By: MONTGOMERY REALTY COMPANY 85,
Its General Partner
By: NPI REALTY MANAGEMENT CORP.
Its Managing General Partner
/s/William H. Jarrard, Jr.
President and Director
/s/Ronald Uretta
Principal Financial Officer
and Principal Accounting Officer
Date: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Growth Hotel Investors II 1998 First Quarter 10-Q and is qualified in its
entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000791346
<NAME> GROWTH HOTEL INVESTORS II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,153
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,621
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,313
<TOTAL-LIABILITY-AND-EQUITY> 7,621
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
</FN>
</TABLE>
