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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K Amended
(X)Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the annual period ended December 31, 1996
or
( )Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number 0-14956
VMS National Hotel Partners
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(Exact name of registrant as specified in its charter)
Illinois 36-3370590
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
630 Dundee Road, Suite 220, Northbrook, Illinois 60062
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(Address of principal executive offices) (Zip Code)
(847)714-9600
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) 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]
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PART I
Item 1 Business
General
VMS National Hotel Portfolio I ("Partnership I") and VMS National Hotel
Portfolio II ("Partnership II") are limited partnerships formed November 1,
1985 under the Uniform Limited Partnership Act of the state of Illinois.
Collectively, Partnership I and Partnership II are referred to as the
"Partnerships".
The Partnerships were formed to purchase a combined 99.9% interest in VMS
National Hotel Partners (the "Operating Partnership"), an Illinois general
Partnership formed in October, 1985. The term of the Operating Partnership
shall continue until December 31, 2035 unless sooner terminated; the term of
each of the Partnerships shall continue until December 31, 2035 unless sooner
terminated. The Operating Partnership was formed to acquire, own, operate and
dispose of up to 28 separate Holiday Inn hotels throughout the United States
(collectively, the "Hotels"). Only 24 hotels were purchased; no further
purchases of hotels will be made by the Operating Partnership. The Operating
Partnership conveyed ownership interest in certain of the Hotels to separate
partnerships so that each owns and operates a separate Hotel (collectively, the
"Sub- Partnerships") (as used herein, the term "Operating Partnership "
includes the Sub-Partnerships where the context requires). The general
partners of the Operating Partnership, in addition to the Partnerships, are VMS
Realty Investment, Ltd., an Illinois limited partnership and VMS Realty, Inc.,
an Illinois corporation (all of the capital stock of which is owned by VMS
Realty Partners). The Operating Partnership is the Managing General Partner of
each of the Sub-Partnerships and has at least a 99% general partnership
interest in each such Sub-Partnerships. Various other affiliates of the
Managing General Partner are minority general partners of, and own the
remaining general partnership interests in each such Sub-Partnerships. During
1995, 1994, 1993 and 1992, nine (one in 1995, two in 1994, two in 1993 and four
in 1992) of the hotels were sold. On May 10, 1996, the Operating Partnership
and affiliated sub-partnerships filed petitions for relief under Chapter 11 of
the federal bankruptcy laws in the United States Bankruptcy Court for the
Northern District of Illinois. This filing excludes Partnership I and
Partnership II. Pursuant to the Plan of Reorganization, the deeds to the
remaining hotels were transferred to the senior lender on September 26, 1996 in
consideration for the cancellation of the senior indebtedness (the "Transfer").
For further information relating to the Transfer and the financing arrangements
of the properties, see Notes 1 and 5 to the combined financial statements.
The Managing General Partner of each of the Partnerships is VMS Realty
Investment, Ltd., an Illinois limited partnership (the "Managing General
Partner"). Effective January 1, 1987 Morris/Stone Associates assigned its
ownership in the Partnerships to VMS Realty Investment, Ltd. Prudential-Bache
Properties, Inc. is also a general partner of Partnership I (the "Minority
General Partner").
As described in Section 4 of the Amended and Restated Agreement of General
Partnership of VMS National Hotel Partners, dated November 1, 1985 (the
"Operating Partnership Agreement"), the Operating Partnership was formed to
engage in no business other than the ownership, operation, lease and sale of
all the Hotels which it had already purchased. Section 15 of the Operating
Partnership Agreement provides that upon the sale of all or substantially all
of the assets of the Operating Partnership, the Operating Partnership will be
dissolved. Proceeds received by the Operating Partnership from the sale or
refinancing of any or all of the Hotels shall be distributed to Partnership I
and Partnership II in accordance with the participating interest of each such
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Item 1 Business (continued)
partnership in the Operating Partnership; none of such proceeds will be
reinvested by the Operating Partnership in additional Hotels or other assets.
Collectively, the limited partnership interests of the Partnerships are
referred to as the "Units". Partnership I offered and sold 514 Units of
limited partnership interests at a price of $150,000 per limited partnership
interest. The 514 Units represent total equity of $77,100,000 sold through
Prudential-Bache Securities, Inc. In 1985, Partnership II offered and sold 135
Units of limited partnership interests at a price of $150,000 per limited
partnership interest. The 135 Units represent total equity of $20,250,000 sold
through VMS Securities, Inc., an affiliate of the Managing General Partner of
each of the Partnerships. Since the Operating Partnership had originally
intended to purchase 28 Hotels and only 24 Hotels were purchased, each Limited
Partner was rebated $15,000 per Unit, payable over 5 years, reflecting the
reduced total purchase price of all Hotels purchased by the Operating
Partnership.
Each of the Partnerships used the net offering proceeds of their respective
offerings to make required contributions to the Operating Partnership and pay
for offering, financing and acquisition costs and commissions and the Managing
General Partner's fees. The participation interests in the Operating
Partnership of Partnership I and Partnership II are approximately 79.12% and
20.78%, respectively.
The Partnerships have no employees. All hotel workers were employed by the
management company, American General Hospitality, Inc. The Partnerships are
not parties to any collective bargaining agreements.
Recent Developments - Partnerships
During 1994, the Partnerships sold two hotels (the Jackson Inn and the Detroit
Clarion Inn) as well as a gas station attached to the Milwaukee South Holiday
Inn. As a result of these sales, the Partnerships received a total of
$123,200, and a total of $2,052,768 in principal was repaid on the senior debt.
In connection with the sales, the Partnerships recorded a $3,970,666 provision
for loss on property and improvements in 1993 and a loss on sale of property
and improvements of $5,941,286 in 1994. In addition, during 1994 the Operating
Partnership received $1,490,273 as payment in full of the principal balance of
a note receivable sale of the Seattle Crowne Plaza which was not previously
recognized by the Operating Partnership. The Operating Partnership also,
received $292,990 accrued interest related to the note receivable. Of the
total proceeds received, the Operating Partnership retained $57,413 which was
applied towards repayment of closing costs and $1,725,850 was repaid on the
principal of the first mortgage. The principal portion of the note receivable
has been recorded as a reduction of the 1994 loss on sale of property and
improvements.
During 1995, the Partnerships sold the Milwaukee West Quality Inn. As a result
of this sale, the Partnerships received $36,000 towards repayment of the
Closing Payment and $1,582,967 in principal was repaid on the senior debt. In
connection with this sale, the Partnerships recorded a provision for loss on
property and improvements of $886,000 in 1994 and a loss on sale of property
and improvements of $510,012 in 1995.
An additional hotel has been under contract for sale since the first quarter of
1995. This hotel has been classified as property and improvements held for
sale at December 31, 1995 and 1994, and the Partnership recognized a loss of
$2,452,000 at December 31, 1994 representing the excess carrying value of this
hotel over its estimated sales price.
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Item 1 Business (continued)
On August 13, 1993, the Operating Partnership filed for Chapter 11 bankruptcy
protection in the United States Bankruptcy Court for the Central District of
California. The initial filing included only the 18 hotels directly owned by
the Operating Partnership at that date and excluded Portfolio I and Portfolio
II.
On May 6, 1994, VMS National Hotel Partners settled in the United States
Bankruptcy Court, Northern District of Illinois, the case with Associated
Business Telephone Systems. The settlement of this case benefitted the Plan of
Reorganization and the management negotiations with the mortgage holders.
On May 9, 1994, the United States Bankruptcy Court, Northern District of
Illinois, confirmed the Plan of Reorganization (the "Plan") subject to the
final negotiations of the Second Amended and Restated Note Purchase and Loan
Agreement and certain other events. On July 27, 1994, the Second Amended and
Restated Note Purchase and Loan Agreement of the Plan of Reorganization ("Loan
Agreement") was consummated and the remaining terms of the Plan were finalized
on August 11, 1994. Under the Plan, the Debtors (VMS National Hotel Partners)
are to sell properties in accordance with the provisions as set forth in the
Loan Agreement.
The Plan contemplated that certain of the Operating Partnership properties may
be sold by May 1996, and the remaining properties are to be sold by November
1996. Pursuant to the Plan, certain of the Operating Partnership properties
may be sold only if certain sales prices set forth in the Plan and Loan
Agreement are obtained.
On May 10, 1996, the Operating Partnership and affiliated sub-partnerships
filed petitions for relief under Chapter 11 of the federal bankruptcy laws in
the United States Bankruptcy Court for the Northern District of Illinois. This
filing excludes Partnership I and Partnership II. Pursuant to the Plan of
Reorganization, the deeds to the remaining hotels were transferred to the
senior lender on September 26, 1996 in consideration for the cancellation of
the senior indebtedness.
As a result of the Transfer, the Operating Partnership recognized an
extraordinary gain of $214,542,473 for financial reporting purposes, which
represents the excess of the remaining senior debt, related accrued interest,
other operating liabilities and net cash received by the Operating Partnership
of $810,160 (in conjunction with this transfer, the Operating Partnership
received amounts in lieu of sales advisory fees totaling $1,025,000 from the
senior lender, net of $214,840 of operating cash transferred to the senior
lender), over the carrying value of the property and improvements and operating
assets transferred. In addition, the Operating Partnership recognized an
extraordinary gain of $47,013,597 from the cancellation of the junior mortgage
indebtedness pursuant to the Plan of Reorganization.
The combined financial statements of the Operating Partnership reflect the
financial reporting guidance prescribed by the AICPA Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code", which was adopted by the Operating Partnership for the periods from
January 1, 1994 to August 11, 1994 and from May 10, 1996 to September 26, 1996.
Items of income or expense that were realized or incurred as a result of the
reorganization are included in the Combined Statement of Operations as
reorganization items. During 1996 and 1994
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$410,000 and $2,504,215 respectively, were paid for professional, consulting
and other fees for the administration of Chapter 11 proceedings.
In the short term, the Partnerships will continue to maintain a cash reserve
for the payment of the remaining Partnerships' obligations and contingent
liabilities. In the long term, the Partnerships will wind-up their affairs and
will distribute any remaining Partnerships' funds to their Limited Partners
after paying all Partnerships' expenses and the Partnerships will be dissolved
at that time.
Item 3 Legal Proceedings
As disclosed in the prior reports on Form 10-Q or Form 10-K ("Prior Public
Filings"), the Partnerships including the General Partners, VMS Realty Partners
L.P., certain officers and directors of VMS Realty Partners L.P., and certain
other affiliates of the Partnerships are parties to certain pending legal
proceedings (other than litigation matters covered by insurance policies). The
adverse outcome of certain of the legal proceedings disclosed in this Report
and the Prior Public Filings could have a materially adverse effect on the
present and future operations of the Partnerships.
Summarized below are certain developments in legal proceedings filed against
VMS Realty Partners, now known as VMS Realty Partners L.P. and its affiliates
which were disclosed in the Prior Public Filings. The inclusion in this Report
of any legal proceeding or developments in any legal proceeding is not intended
as a representation by the Partnership that such particular proceeding is
material. For those actions summarized below in which the plaintiffs are
seeking damages, the amount of damages being sought is an amount to be proven
at trial unless otherwise specified. There can be no assurance as to the
outcome of any of the legal proceedings summarized in this Report or in Prior
Public Filings.
A. VMS Limited Partnership Litigation
1. Settlement of Consolidated Class Actions
Forty-three actions were filed by investors in various limited partnerships
against VMS Realty Partners, now known as VMS Realty Partners, L.P. and
certain entities and individuals related to VMS Realty Partners, now known as
VMS Realty Partners, L.P.. Also named were certain selling agents, surety
companies, appraisers, accountants, attorneys, and other parties that were
involved in the syndication, sale, and management of the limited partnership
interests and properties. Thirty-eight of these actions (i.e., all of the
actions filed in federal court) were consolidated for pretrial and discovery
purposes in the United States District Court for the Northern District of
Illinois under the caption In Re VMS Limited Partnership Securities Litigation,
No. 90 C 2412 (Judge James B. Zagel) (the "Consolidated Actions"). In
addition, for settlement purposes, one action (the "New Action") was filed on
behalf of all investors in approximately 100 non-publicly-traded VMS-sponsored
syndicated limited partnerships against those defendants in the Consolidated
Actions that had reached a Settlement Agreement with the class. The nature of
these actions was described in the Prior Public Filings.
After a final fairness hearing, on July 2, 1991 the United States District
Court gave final approval to the Settlement Agreement. The order dismissed
with prejudice all settling defendants from all of the Consolidated Actions and
dismissed the New Action in full. No appeals were filed and the Settlement
became effective on August 12, 1991. The terms of the Settlement Agreement
were described in the Prior Public Filings.
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Item 3 Legal Proceedings (continued)
Subsequent to the effective date of the Settlement Agreement, the respective
general partner of the various VMS sponsored syndicated limited partnerships
has filed collection actions against the limited partners who remain in default
in the payment of their installment promissory notes which were given to the
limited partnership in consideration for the limited partner's partnership
interest.
2. CIGNA Claims
One of the non-settling defendants, CIGNA Securities, Inc. ("CIGNA"), has
asserted claims against VMS Realty Partners, now known as VMS Realty Partners,
L.P. and its affiliated entities for contribution and indemnification in cases
in which CIGNA is a defendant.
CIGNA subsequently entered into a class-action settlement agreement with a
class of investors in the consolidated actions who had purchased their interest
from CIGNA. As previously reported, on May 19, 1993, CIGNA and VMS executed a
mutual release, effective when the CIGNA class-action settlement is effective.
The CIGNA class action settlement is now effective and, pursuant to the terms
of the mutual release, CIGNA settling parties released the VMS released persons
of and from all claims and liabilities relating to or arising out of the
released claims in the VMS class-action settlement, including contractual
claims for indemnification. In exchange, the VMS settling parties released the
CIGNA released persons of and from all claims and liabilities relating to or
arising out of the released claims in the VMS class-action settlement,
including contractual claims for indemnification. However, the settling
parties expressly reserved all common law and contractual claims for
contribution and/or indemnification arising out of or relating to claims
brought by investors who opted out of both the VMS and CIGNA settlements,
except to the extent such claims are barred by; (1) Section 4.02(A) of the VMS
settlement agreement and the court's July 15, 1991 order approving the VMS
class-action settlement agreement, or (2) Section 4.2(A) of the CIGNA
class-action settlement agreement and any court order approving the CIGNA
settlement agreement. In addition, now that the CIGNA class-action settlement
agreement is effective, CIGNA's claims pending in the consolidated actions have
been dismissed, except the Corkery action which is brought by opt-outs from
both settlement agreements.
Paul J. Corkery; Ronnie Rone; Max C. Jordan; F.J. Vollmer; Paula Boedeker;
Norbert Braeuer; Dales Y. Foster; Billy J. Harris; Bob White; Gordon Flesch;
Travis Barton, Jr.; Satish A. Dhaget; Varsha S. Dhaget; Alan J. Young; Dennis
J. Cavanaugh; F. Jim Slater; Lois W. Rosebrook, Trustee; Sundaram V. Ramanan;
Chitraleka Ramanan; Jeffrey A. Matz; Charles C. Voorhis III; Gerald C. Miller;
Prince George's Orthopedic Associates, P.A.; John A. Martinez; Tom Rubattino;
Susan Rubattino; Harold W. Stark and William C. Riedesel v. VMS Realty
Partners; United States Fidelity and Guaranty Company; CIGNA Securities, Inc.;
Boettcher & Company, Inc.; and A.G. Edwards & Sons, Inc., CA. No. Ca 4-90 087-E
(U.S. District Court, N.D. Texas), filed February 5, 1990, removed to 90 C
3841, United States District Court for Northern District of Illinois, Eastern
Division. CIGNA filed a Counterclaim against plaintiffs, Cross-Claims against
VMS Realty Partners and A.G. Edwards & Sons, Inc., and a Third-Party Complaint
against LaSalle/Market Streets Associates, Ltd., Chicago Wheaton Partners,
Peter Morris, Joel Stone, Robert Van Kampen, Residential Equities, Ltd., Van
Kampen Stone, Inc., VMS Realty Management, Inc., VMS Realty, Inc., and VMS
Mortgage Co. in this action. On December 21, 1995, the court dismissed
Plaintiff's action against the VMS entities and CIGNA Securities, Inc.
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Item 3 Legal Proceedings (continued)
B. Other Litigation
NAHOP Partners, L.P. and VMS National Hotel Partners v. G.B. Pacific, Inc.
Counterclaim: G.B. Pacific, Inc. v. VMS National Hotel Partners, an Illinois
general partnership, VMS Realty, Inc., an Illinois corporation, and NAHOP
Partners Limited Partnership, a Delaware limited partnership. Case Number
Adversary 96A01746 to 96B12185 (U.S. Bankruptcy Court for the Northern District
of Illinois, Eastern Division). VMS National Hotel Partners and G.B. Pacific,
Inc. (the "Parties") entered into a Purchase and Sales Agreement dated December
21, 1993 for the Holiday Inn Van Nuys ("Sales Contract"). In November, 1995,
the Parties entered into a First Amendment to the Purchase and Sales Agreement.
VMS National Hotel Partners and G.B. Pacific, Inc. did not obtain an order
approving the Sales Contract in VMS National Hotel Partners' first bankruptcy
proceeding (case number 93B17061). VMS National Hotel Partners and NAHOP
Partners, L.P. seek a declaratory judgment declaring the Sales Contract between
VMS National Hotel Partners and G. B. Pacific, Inc. terminated prior to
September 27, 1996, the date the Holiday Inn Van Nuys was transferred to NAHOP
Partners, L.P. G.B. Pacific, Inc. filed counterclaims for specific performance
of assumed contract and actual breach of assumed contract.
Michigan Department of Transportation v. VMS Michigan-Detroit Hotel Limited
Partnership, an Illinois limited partnership, Holiday Inns, Inc., a Tennessee
corporation, Security Pacific National Bank, VMS Short Term Income Trust, a
Massachusetts business trust, MellonBank, NA, VMS Hotel Mortgage, Inc., an
Illinois corp., Bank of Montreal, Holiday Inn Detroit-Metro Airport, Romulus
Chamber of Commerce, VMS Hotel Investment Trust, ABTS Investment Corporation,
and NEC America, Inc., Case No. 93-304774 CC (State of Michigan, Circuit Court
for the County of Wayne), which was filed in February, 1993. Pursuant to 1980
PA 87, as amended, plaintiff is specifically authorized and empowered to secure
fee simple or lesser estates in real property for highway purposes. This
complaint was filed for the acquisition of a portion of property owned by VMS
Michigan-Detroit Hotel Limited Partnership. Plaintiff made a good faith
written offer to purchase the property and the defendants have not accepted
such offer. The Michigan Department of Transportation took the portion of the
property in exchange for $120,155.00. This action is in the process of being
dismissed.
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Partnerships' main sources of funds were the operations or dispositions of
its hotel properties. These properties, in the aggregate, had been incurring
deficits after debt service payments due to an inability to reach rental rates
and occupancies originally projected. In addition to affecting the
Partnerships' ability to meet debt service payments, these deficits have
contributed to an overall decrease in value of the Operating Partnership's
properties.
As discussed more fully below, the Partnerships have restructured of the debt
service requirements of its properties. On March 1, 1990, the Partnerships
suspended debt service payments required by the terms of the first and third
mortgage notes; on December 1, 1990 the Partnership suspended debt service
payments on the second mortgage notes, which, prior to that time had been
limited to the extent of cash flow.
As previously reported, as of November 14, 1991, an agreement was reached with
the first and second mortgage note holders and Holiday Inns, Inc. as managing
agent to restructure the first and
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Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
second mortgage debt. In connection with the restructure, the Partnerships
paid $5,000,000 (the "Closing Payment") to partially pay down the principal of
the $279,000,000 first mortgage. Additionally, the first mortgage ("Senior
Debt") documents were modified as follows:
(i) through December 31, 1992, interest at the rate of 10% was paid only to
the extent of available cash flow, with payment of the shortfall being deferred
until December 31, 1992 and thereafter being paid out of available cash flow
after the payment of interest on the Senior Debt at the rate of 10%;
(ii) the sale of certain hotels free and clear of the lien of the Senior Debt
was permitted under certain conditions, including a minimum aggregate price
with the proceeds thereof being generally distributed first, in 1992 a total of
$2,023,000 to Holiday Inns, Inc. in complete satisfaction of a $4,046,000
working capital advance made by HII to the Partnerships, second, to the
Partnerships repayment of the Closing Payment, and third, in repayment of the
Senior Debt, with amounts owing with respect to the Scheduled Hotels but not
fully repaid at the time of the sale remaining outstanding and collateralized
by the remaining Hotels; and
(iii) events of default under the Senior Debt documents included the failure
to (x) generate available cash flow for 1992 of at least 5% of the Senior Debt
principal amount, and (y) sell ten scheduled hotels by December 31, 1992. The
Partnerships were unable to meet the above requirements to avoid the events of
default. During 1995 and 1994, the Partnerships made cash flow payments
(representing interest) of $7,500,000 and $5,500,000, respectively. The
Managing General Partner of the Partnerships had been negotiating with the
first mortgage noteholders to attempt to further restructure the terms of the
mortgage loan agreements. These negotiations resulted in the consummation of
the Second Amended and Restated Note Purchase and Loan Agreement on July 27,
1994.
On May 10, 1996, the Operating Partnership and affiliated sub-partnerships
filed petitions for relief under Chapter 11 of the federal bankruptcy laws in
the United States Bankruptcy Court for the Northern District of Illinois. This
filing excludes Partnership I and Partnership II. Pursuant to the Plan of
Reorganization, the deeds to the remaining hotels were transferred to the
senior lender on September 26, 1996 in consideration for the cancellation of
the senior indebtedness.
In 1991, the second mortgage documents were modified to (I) permit the sale of
hotels free and clear of any obligations under the management agreement, (ii)
waive interest accrued from December 31, 1989 through November 14, 1991, and
(iii) provide for payment of interest at 12%, but only to the extent of
available cash flow after the payment of all interest and principal due on the
first mortgage, with any shortfall being waived.
As discussed above, the Partnerships were permitted under the debt
restructuring agreement to sell certain hotels; using the proceeds as outlined
in the agreement. During 1995, 1994, 1993, and 1992, the Partnerships sold
nine such hotels (Milwaukee West Quality Inn was sold in 1995, Jackson Inn and
Detroit Clarion were sold in 1994, Warren Inn and Stamford Crowne Plaza were
sold in 1993 and Troy Holiday Inn, San Francisco Golden Gateway, Elmhurst
Holiday Inn and Seattle Crowne Plaza were sold in 1992) to unaffiliated third
parties. As a result of these sales, HII received a total of $225,382 in 1993
and $988,419 in 1992 towards repayment of its working capital advance, the
Partnerships received a total of $36,000 in 1995, $123,200 in 1994, $205,364 in
1993 and $1,562,761 in 1992 towards repayment of the Closing Payment and a
total of
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Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operation (continued)
$1,582,967 in 1995, $2,052,768 in 1994, $3,377,263 in 1993 and $45,855,461 in
1992 in principal was repaid on the Senior Debt.
During 1994, the Partnerships received the principal and accrued interest
receivable from a note receivable which related to the 1992 sale of the Seattle
Crowne Plaza in the amount of $1,490,273 and $292,990, respectively. The
principal portion collected has been recognized as a reduction of the 1994 loss
on sale of property and improvements. The Partnerships received $57,413 of the
proceeds for repayment of the closing costs and $1,725,850 in principal was
repaid on the senior debt.
As shown on the Combined Statement of Cash Flows, cash and cash equivalents
decreased $5,332,256 from December 31, 1995 to December 31, 1996 and decreased
$3,660,487 from December 31, 1994 to December 31, 1995. The decrease from
1995 to 1996 is a combination of cash used in operating activities of
$4,286,185; cash used in investing activities of $1,094,448 and cash provided
by financing activities of $48,377. The decrease from 1994 to 1995 is a
combination of cash provided by operating activities of $2,146,704; cash used
in investing activities of $4,546,076; and cash used in financing activities of
$1,261,115.
Cash used in operating and reorganization activities in 1996 was primarily
attributable to the loss before extraordinary item for the year and decrease in
accrued interest payable, offset by a decrease in prepaid expenses and an
increase in accounts payable and accrued expenses. The use of cash in
investing activities in 1996 was primarily attributable to capital improvements
offset by net proceeds from the Transfer. Cash provided by financing
activities was primarily attributable partners' capital contributions.
In the short term, the Partnerships will continue to maintain a cash reserve
for the payment of the remaining Partnerships' obligations and contingent
liabilities. In the long term, the Partnerships will wind-up their affairs and
will distribute any remaining Partnerships' funds to their Limited Partners
after paying all Partnerships' expenses and the Partnerships will be dissolved
at that time.
Cash provided by operating activities in 1995 was attributed to the decrease in
accounts payable offset by the increase in accrued interest payable and
adjustments for depreciation and loss on sale of property and improvements and
to the net loss for the year. The use of cash in investing activities in 1995
was primarily attributable to capital improvements which offset net proceeds
from the hotel sale. The use of cash in financing activities in 1995 was
primarily attributable to debt service payments offset by partners' capital
contributions.
Cash used in operating and reorganization activities in 1994 was primarily
attributed to the net loss for the year and the decrease in accounts payable
and accrued expenses, offset by the increase in accrued interest payable and
the adjustments for depreciation and loss on sale of property and improvements
and provision for loss on property and improvements held for sale. The use of
cash in investing activities in 1994 was primarily attributed to capital
improvements which offset net proceeds from hotel sales and note receivable.
The use of cash in financing activities in 1994 was primarily attributable to
debt service payments offset by partners' capital contributions.
Portfolio Performance Review
The Hotels' results have been at levels below those originally forecasted.
This variance from forecast is partially due to the sale of the hotels, but has
also primarily resulted from a significant
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Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
increase in the supply of competing rooms in the markets in which these Hotels
are located since the Partnerships' purchase of the hotels from Holiday Inns,
Inc. The scope of the competition has gone substantially beyond that which the
independently conducted feasibility studies performed in 1985 envisioned. This
increased competition has resulted in lower than anticipated occupancy and room
rates at a number of the Hotels, including the Crowne Plaza, and a consequent
reduction in net operating income before debt service.
Additionally, the Partnerships' business and the fulfillment of their
investment objectives are, to a significant extent, dependent upon the business
activities, financial condition and management expertise of VMS Realty Partners
and its affiliates. Thus, in order to avoid adverse impacts on the
Partnerships, VMS Realty Partners must have financial resources sufficient to
meet its needs. At the present time, VMS Realty Partners, like many real
estate development companies nationwide, experienced liquidity problems.
Results of Operations
For the years ended December 31, 1996 and 1995, the Operating Partnership owned
and operated 15 hotels (excluding one hotel sold in the third quarter of 1995)
located in 8 states throughout the continental United States. However, overall
revenues and expenses of the Partnerships decreased in 1996 due to the Transfer
on September 26, 1996. The Operating Partnership had previously owned and
operated 24 Holiday Inn Hotels in 11 states.
This analysis compares the results of operations for the years ended December
31, 1996, 1995, and 1994. Total 1996 operating revenues for the Hotels
decreased approximately $17.2 million, or 21.5%, to $62.8 million in 1996 from
$80.0 million in 1995 due to the Transfer. However, total hotel revenues for
1996 exceeded revenues for the same period during 1995 by 1.9% due to higher
hotel occupancies (72.8% in 1996 versus 70.9% in 1995) and average daily rates
(a rate of $62.68 in 1996 versus a rate of $59.35 in 1995). The average
occupancy for the portfolio during 1996 increased 1.9% as compared to 1995.
Additionally, several hotels in the chronically sluggish Los Angeles area
generated higher revenues, due to an improvement in the local economy. Total
1995 operating revenues for the Hotels decreased approximately $444,000, or
0.5%, to $80.0 million in 1995 from $80.4 million in 1994. The decrease from
1994 to 1995 is attributable to the hotel sales, offset by an increase in
average daily room rates (a rate of $59.35 in 1995 versus a rate of $55.99 in
1994).
Overall daily room rates increased in 1996 and 1995 primarily as a result of
the implementation of the Encore/Hiro Software; a revenue maximizing package
which analyzes the inventory of rooms and the term of stay of hotel guests.
In addition, over the last three years, moderate economic growth and limited
new construction of full-service, mid-scale hotels have created a relationship
where the rate of growth in demand for hotel rooms has exceeded the rate of
growth in supply, driving up the price of hotel occupancy and related room
revenues.
Total 1996 direct costs and expenses for the Hotels decreased approximately
$8.5 million, or 25.2%, to $25.2 million in 1996 from $33.7 million in 1995 due
to the Transfer. However, direct costs and expenses associated with the Hotels
for 1996 decreased by 1.5% relative to the same period in 1995 due to the sale
of one hotel in 1995. These costs and expenses were significantly lower as a
percentage of revenues due to higher average daily rates described above and
greater operating efficiencies due to downsizing. Consistent with the
decreases in operating revenue in
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<PAGE> 11
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
1995, the direct costs and expenses related to the operations of the hotels
also decreased approximately $2.3 million, or 6.2%, to $33.7 million in 1995
from $36.0 million in 1994.
Unallocated expenses, exclusive of mortgage interest expense and the provision
to reflect impairment in the value of property and improvements, related to
hotel operations decreased approximately $20.4 million, or 46.8%, to $23.2
million in 1996 from $43.6 million in 1995. This decrease has four components.
First, approximately $9.2 million due to the Transfer. Second, approximately
$10.4 million due to the adoption of FASB Statement No. 121 as of January 1,
1996 resulting in no depreciation expense being recorded for 1996. Third, the
Partnerships received approximately $366,200 in business interruption insurance
proceeds in 1996, which is shown as a reduction of administrative and general
expense. Finally, approximately $450,000 included in administration and
general expense during 1995 incurred for real estate tax analysis, appraisals
and other consulting services were not incurred for the same time period in
1996. Unallocated expenses decreased approximately $1.2 million, or 2.7%, to
$43.6 million in 1995 from $44.8 million in 1994 primarily attributed to the
sale of hotels previously discussed. Administrative and general expenses
increased approximately $427,000 in 1995 from 1994 due to increases in labor
costs, bad debt write-offs, and credit card fees; in addition, management fees
increased approximately $302,000 from 1994 due to higher revenues and cash
flows, as defined by the management agreement. Property operations and
maintenance decreased in 1995 and 1994 due to significant cost cutting by the
property manager. Depreciation expense decreased approximately $1.7 million,
or 14.1%, to $10.4 million in 1995 from $12.1 million in 1994 due to components
of the properties' improvements being fully depreciated and the sale of the
hotels previously discussed. In 1995, the Partnership recorded a provision to
reflect impairment in the value of property and improvements of $38.2 million
being charged to unallocated expenses.
Mortgage interest expense decreased in 1996 approximately $5.8 million, or
26.0%, to $16.5 million in 1996 from $22.3 million in 1995 due to the Transfer.
However, mortgage interest expense recorded in 1996 was comparable for the same
period of time in 1995. Total 1995 mortgage interest expense decreased from
approximately $7.1 million, or 24.1%, to $22.3 million in 1995 from $29.4
million in 1994 due to approximately $5.7 million of 1993 contractual interest
being recorded in 1994 in accordance with SOP 90-7.
Partnership revenues decreased in 1996 approximately $81,000, or 41.8%, to
$113,000 in 1996 from $194,000 in 1995 due to a large increase in fiscal year
1994 primarily due to the interest income received in 1994 from the collection
of the note receivable related to the 1992 sale of the Seattle Crowne Plaza.
General Partners fees decreased in 1996 approximately $428,000, or 29.5%, to
$1.0 million in 1996 from $1.45 million in 1995 due to the decrease in hotel
revenues from the Transfer. General Partners fees increased in1995 to
approximately $25,000, or 1.8%, to $1.45 million in 1995 from $1.42 million in
1994 due to an increase in the fee of .75% during 1994. These fees are based
on gross revenues.
In 1996, the Partnerships recorded an extraordinary gain of $261.6 million for
extinguishment of debt related to the Transfer. No similar gains were recorded
in 1995 or 1994.
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<PAGE> 12
INFLATION
Inflation had no significant impact for years ended December 31, 1996, 1995 and
1994 and is not anticipated to have a significant impact on the hotel
operations in the foreseeable future. Furthermore, inflation generally does
not affect the contractually fixed long-term financing under which the hotels
were purchased. Continued inflation should allow for increased values of the
hotels over time as revenues and replacement costs continue to increase.
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<PAGE> 13
PART III
Item 10 Directors and Executive Officers of the Registrant
(a, b, c, d & e) The General Partners of the Partnerships are:
VMS Realty Investment, Ltd., an Illinois General Partnership, the Managing
General Partner of the Partnerships.
Prudential-Bache Properties, Inc., a Delaware Corporation, the Minority General
Partner of NHP I.
VMS Realty Investment, Ltd. is a limited partnership owned by Azel Realty
Corporation (100% owned by Robert D. Van Kampen), PRM Realty Corporation (100%
owned by Peter R. Morris), JAS Realty Corporation (100% owned by Joel A.
Stone), Brewster Realty Inc. (which is controlled by Messrs. Van Kampen and
Stone) and Residential Equities, Ltd. (which is 100% owned by Peter R. Morris)
and XCC Investment Corporation (a Delaware Corporation).
VMS Realty Partners ("VMS"), an affiliate of the General Partner, assisted the
Managing General Partner in the management and control of the Venture's affairs
through November 17, 1993, and Strategic Realty Advisors, Inc. ("SRA"), also an
affiliate of the General Partner, replaced VMS in assisting the Managing
General Partner effective November 18, 1993. VMS Realty Partners is an
Illinois general partnership whose partners are Van Kampen/Morris/Stone, Inc.
(100% owned by Robert D. Van Kampen, Peter R. Morris and Joel A. Stone),
Residential Equities, Ltd. (100% owned by Mr. Morris), XCC Investment
Corporation (a subsidiary of Xerox Credit Corporation) and Brewster Realty,
Inc. (100% owned by Messrs. Van Kampen and Stone). As VMS is a partnership
rather than a corporation, its Executive Committee operates in a similar manner
to a corporate board of directors. A substantial number of the officers of VMS
are also officers of entities affiliated with VMS. The principal executive
officers of VMS are the following:
Joel A. Stone.................... President and Chief Executive Officer and
Member of the Executive Committee
Peter R. Morris.................. Member of the Executive Committee
Robert D. Van Kampen............. Member of the Executive Committee
Stuart Ross...................... Member of the Executive Committee
The principal executive officers of SRA are the following:
Joel A. Stone.................... President and Chief Executive Officer
Richard A. Berman................ Senior Vice President/Secretary
Thomas A. Gatti.................. Senior Vice President
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<PAGE> 14
Item 10 Directors and Executive Officers of the Registrant (continued)
JOEL A. STONE, age 52, is President and Chief Executive Officer of Strategic
Realty Advisors, Inc., since November 1993. From the inception in 1981 of VMS
Realty Partners, he held the positions of President and then Chief Executive
Officer. Mr. Stone began his career as an Internal Revenue Agent and worked as
a certified public accountant and an attorney specializing in taxation and real
estate law. In 1972, Mr. Stone co-founded the certified public accounting firm
formerly known as Moss, Stone and Gurdak. In 1979, Mr. Stone joined the Van
Kampen group of companies, a privately held business engaged in investment
banking and in real estate activities. He served as Senior Vice President of
Van Kampen Merritt, Inc. until its sale to Xerox Corporation in 1984. An
alumnus of DePaul University, Mr. Stone earned a Bachelor of Science degree in
Accounting in 1966 and a Juris Doctorate in 1970. Mr. Stone is a member of the
Illinois Bar and a certified public accountant.
PETER R. MORRIS, age 47, is a member of the Executive Committee of VMS since
January, 1987, and is one of the three individuals owning the entities that
own VMS. From July 1970 to June 1973, Mr. Morris was employed by Continental
Wingate Company, Inc., a firm engaged in the development of inner city housing
projects, in the capacities of Vice President/Finance, Director/Consulting
Division and Executive Assistant to the President. He has published a book and
numerous articles relating to real estate development and syndication. Mr.
Morris has been involved in the real estate and finance business with Messrs.
Van Kampen and Stone since 1977. He received a Bachelor of Arts degree (summa
cum laude) from Princeton University in 1971 and a Juris Doctorate (cum laude)
from Harvard Law School in 1975.
ROBERT D. VAN KAMPEN, age 58, is a member of the Executive Committee of VMS
since January, 1987, and is one of the three individuals owning the entities
that own VMS. Mr. Van Kampen has been involved in various facets of the
municipal and corporate bond business for over 20 years. In 1967, he
co-founded the company now known as Van Kampen Merritt, Inc., which specializes
in municipal bonds and acts as a sponsor of unit investment trusts. The firm
was sold to Xerox Corporation in January 1984. Mr. Van Kampen is a general
partner of Van Kampen Enterprises. Mr. Van Kampen received his Bachelor of
Science degree from Wheaton College in 1960.
STUART ROSS, age 60, is a member of the Executive Committee of VMS. He is an
executive vice president of Xerox Corporation and chairman and chief executive
officer of Xerox Financial Services, Inc., a wholly owned subsidiary. Mr. Ross
joined Xerox in 1966 and has held a series of financial management positions.
he assumed his current position in May 1990. Prior to Xerox, Mr. Ross was a
financial representative for The Macmillan Publishing Company from 1963 to
1966, and a public accountant for Harris, Kerr, Forster & Company from 1958 to
1963. Mr. Ross is a director of Crum and Forster, Inc. and Ekco Group, Inc.,
and a trustee of the State University of New York at Purchase. He received a
bachelor of science degree in accounting from New York University in 1958 and a
master of business administrative degree from the City College of New York in
1966. Mr. Ross is a certified public accountant.
RICHARD A. BERMAN, age 45, is a Senior Vice President and General Counsel of
Strategic Realty Advisors, Inc. since November, 1993. From 1986 through 1993,
Mr. Berman was employed by VMS Realty Partners and was First Vice President and
Corporate Counsel. Prior to joining VMS Realty Partners, Mr. Berman was a
partner in the law firm of Gottlieb and Schwartz with his practice concentrated
in corporate and real estate law. He received a Juris Doctorate from
Northwestern University School of Law (Cum laude, 1976) and a Bachelor of Arts
degree from the University of Illinois (high honors, 1973). Mr. Berman is a
member of the Illinois Bar.
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<PAGE> 15
THOMAS A. GATTI, age 40, is a Senior Vice President - Partnership Accounting of
Strategic Realty Advisors, Inc., effective November 18, 1993. Prior to this
time, Mr. Gatti was First Vice President - Partnership Accounting with VMS
Realty Partners, where he was employed since January, 1982. Prior to joining
VMS Realty Partners, he was with Coopers & Lybrand. Mr. Gatti received a
Bachelor of Science in Accounting from DePaul University in 1978. Mr. Gatti is
a Certified Public Accountant.
Prudential-Bache Properties, Inc.
Prudential-Bache Properties, Inc. (PBP), pursuant to the Partnership Agreement,
does not participate in or exercise control over the affairs of the
Partnership.
The directors and officers of PBP are as follows:
Thomas F. Lynch, III....President, Chief Executive Officer,
Chairman of the Board of Directors, and Director
Barbara J. Brooks.......Vice President - Finance and Chief
Financial Officer
Eugene D. Burak.........Vice President and Chief Accounting Officer
Chester A. Piskorowski..Senior Vice President
Frank W. Giordano.......Director
Nathalie P. Maio........Director
THOMAS F. LYNCH, III, age 38, is the President, Chief Executive Officer,
Chairman of the Board of Directors and Director of PBP. He is a Senior Vice
President of Prudential Securities Incorporated ("PSI"), an affiliate of PBP.
For the last five years, Mr. Lynch has been monitoring and managing certain of
the limited partnerships sold by PSI. Mr. Lynch also serves in various
capacities for other affiliated companies. Mr. Lynch joined PSI in November
1989.
BARBARA J. BROOKS, age 48, has been the Vice President-Finance and Chief
Financial Officer of PBP since 1990. Her responsibilities within PBP include
all recordkeeping, reporting and treasury aspects of various partnerships for
which PBP serves as the general partner. Ms. Brooks is also a Senior Vice
President of PSI and has held several positions within PSI and its affiliates
since 1983. She is a certified public accountant.
EUGENE D. BURAK, age 51, has been a Vice President of PBP since 1995. His
responsibilities within PBP include the financial reporting and treasury
aspects of various partnerships for which PBP serves as the general partner.
Mr. Burak is also a First Vice President of PSI. Prior to joining PSI in
September 1995, he was a management consultant for three years and was a Vice
President of Equitable Capital Management Corporation from March 1990 to May
1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 53, is a Senior Vice President of PBP. He is a
Senior Vice President of PSI and is the Senior Manager of the Specialty Finance
Asset Management area for the last five years. This area is responsible for
monitoring and maintaining the limited partnerships sold by PSI. Mr.
Piskorowski has held several positions within PSI since April 1972. Mr.
Piskorowski is a member of the New York and Federal Bars.
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<PAGE> 16
FRANK W. GIORDANO, age 54, is a Director of PBP. He is currently a Senior Vice
President and Senior Legal Counsel of PSI and for the preceding five years
Executive Vice President and General Counsel of Prudential Mutual Fund
Management LLC, an affiliate of PSI. Mr. Giordano also serves in various
capacities for other affiliated companies. He has been with PSI since July
1967.
NATHALIE P. MAIO, age 46, is a Director of PBP. She is currently and for the
last five years has been a Senior Vice President and Deputy General Counsel of
PSI and supervises non-litigation legal work for PSI. She joined PSI's Law
Department in 1983; presently, she also serves in various capacities for other
affiliated companies.
There are no family relationships among any of the foregoing directors or
officers. All of the foregoing officers and/or directors have indefinite
terms, serving from year to year unless and until successors are elected in
their stead.
(f) Legal Proceedings
See Item 3, Legal proceedings, for a discussion of legal proceedings during the
past five years which may be material to an evaluation of the ability or
integrity of any of the aforementioned directors or officers and VMS Realty
Partners and its affiliates.
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<PAGE> 17
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
(1)(2) The Combined Financial Statements and Financial Statement Schedule
listed in the accompanying Index to Combined Financial Statements
and Schedule on page F-1 are filed as a part of this report.
(3) The following exhibits are filed as part of this report:
(I) Agreement of Limited Partnership of VMS National Hotel
Portfolio I; (this exhibit is incorporated by reference to
the Form 10 dated September 5, 1986.)
(ii) Agreement of Limited Partnership of VMS National Hotel
Portfolio II; (this exhibit is incorporated by reference
to the Form 10 dated September 5, 1986.)
(iii) Amended and Restated Agreement of General Partnership of
VMS National Hotel Partners. (This exhibit is
incorporated by reference to the Form 10 dated September
5, 1986.)
(b) No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1996.
(c) See Item 14(a)(3) above.
(d) There are no additional financial schedules which are required to be
presented pursuant to Regulation S-X.
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<PAGE> 18
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VMS National Hotel Partners
(Registrant)
By: VMS National Hotel Portfolio I
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
By: /s/ Joel A. Stone
------------------------ Date: September 11, 1997
Joel A. Stone, President
By: /s/ Thomas A. Gatti Date: September 11, 1997
------------------------
Thomas A. Gatti, Senior Vice President
By: VMS National Hotel Portfolio II
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
By: /s/ Joel A. Stone Date: September 11, 1997
----------------------
Joel A. Stone, President
By: /s/ Thomas A. Gatti Date: September 11, 1997
-----------------------
Thomas A. Gatti, Senior Vice President
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