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 June 30, 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 0-17660
METRIC PARTNERS
GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3050708
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One California Street
San Francisco, California 94111-5415
- --------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 678-2000
(800) 347-6707 in all states
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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Page 1 of 20
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
BALANCE SHEETS (UNAUDITED)
June 30, December 31,
1996 1995
------------ ------------
ASSETS
CASH AND CASH EQUIVALENTS $ 7,077,000 $ 10,248,000
CASH INVESTMENT 1,969,000 --
RESTRICTED CASH 308,000 302,000
ACCOUNTS RECEIVABLE 1,871,000 1,034,000
PREPAID EXPENSES AND OTHER ASSETS 182,000 196,000
PROPERTIES AND IMPROVEMENTS 88,726,000 87,885,000
ACCUMULATED DEPRECIATION (30,392,000) (28,935,000)
------------ ------------
NET PROPERTIES AND IMPROVEMENTS 58,334,000 58,950,000
DEFERRED FINANCING COSTS 100,000 127,000
DEFERRED FRANCHISE FEES 193,000 214,000
------------ ------------
TOTAL ASSETS $ 70,034,000 $ 71,071,000
============ ============
LIABILITIES AND PARTNERS' EQUITY
ACCOUNTS PAYABLE $ 937,000 $ 1,022,000
ACCRUED PROPERTY TAXES 401,000 391,000
ACCRUED INTEREST 244,000 344,000
OTHER LIABILITIES 1,369,000 1,095,000
DEFERRED GAIN ON SALE OF PROPERTY 300,000 300,000
NOTES PAYABLE 42,624,000 42,669,000
------------ ------------
TOTAL LIABILITIES 45,875,000 45,821,000
------------ ------------
PARTNERS' EQUITY (DEFICIENCY):
GENERAL PARTNERS 100,000 100,000
LIMITED PARTNERS (59,932 units outstanding) 24,059,000 25,150,000
------------ ------------
TOTAL PARTNERS' EQUITY 24,159,000 25,250,000
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 70,034,000 $ 71,071,000
============ ============
See notes to financial statements (unaudited).
Page 2 of 20
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended
June 30,
--------------------------------
1996 1995
------------ ------------
REVENUES:
Hotel operations $ 11,483,000 $ 12,633,000
Interest and other 224,000 149,000
------------ ------------
Total revenues 11,707,000 12,782,000
------------ ------------
EXPENSES:
Hotel operations:
Rooms 2,273,000 2,449,000
Administrative 1,521,000 1,477,000
Marketing 1,273,000 1,223,000
Energy 633,000 653,000
Repair and maintenance 704,000 631,000
Management fees 398,000 653,000
Property taxes 430,000 454,000
Other 455,000 457,000
------------ ------------
Total hotel operations 7,687,000 7,997,000
Depreciation and other amortization 1,478,000 1,828,000
Interest 2,179,000 2,503,000
General and administrative 537,000 294,000
------------ ------------
Total expenses 11,881,000 12,622,000
------------ ------------
NET INCOME (LOSS) $ (174,000) $ 160,000
============ ============
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP ASSIGNEE UNIT $ (3) $ 1
============ ============
CASH DISTRIBUTIONS PER LIMITED
PARTNERSHIP ASSIGNEE UNIT $ 15 $ 15
============ ============
See notes to financial statements (unaudited).
Page 3 of 20
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended
June 30,
----------------------------
1996 1995
---------- ----------
REVENUES:
Hotel operations $6,076,000 $6,590,000
Interest and other 112,000 73,000
---------- ----------
Total revenues 6.188,000 6,663,000
---------- ----------
EXPENSES:
Hotel operations:
Rooms 1,135,000 1,268,000
Administrative 825,000 730,000
Marketing 648,000 634,000
Energy 286,000 290,000
Repair and maintenance 379,000 311,000
Management fees 199,000 341,000
Property taxes 239,000 235,000
Other 215,000 237,000
---------- ----------
Total hotel operations 3,926,000 4,046,000
Depreciation and other amortization 714,000 898,000
Interest 1,086,000 1,251,000
General and administrative 318,000 159,000
---------- ----------
Total expenses 6,044,000 6,354,000
---------- ----------
NET INCOME $ 144,000 $ 309,000
========== ==========
NET INCOME PER LIMITED
PARTNERSHIP ASSIGNEE UNIT $ 2 $ 4
========== ==========
CASH DISTRIBUTIONS PER LIMITED
PARTNERSHIP ASSIGNEE UNIT $ 7 $ 7
========== ==========
See notes to financial statements (unaudited).
Page 4 of 20
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) (UNAUDITED)
For the Six Months Ended June 30, 1996 and 1995
General Limited
Partner Partners Total
------------ ------------ ------------
BALANCE, JANUARY 1, 1996 $ 100,000 $ 25,150,000 $ 25,250,000
NET INCOME (LOSS) 18,000 (192,000) (174,000)
CASH DISTRIBUTIONS (18,000) (899,000) (917,000)
------------ ------------ ------------
BALANCE, JUNE 30, 1996 $ 100,000 $ 24,059,000 $ 24,159,000
============ ============ ============
BALANCE, JANUARY 1, 1995 $ (68,000) $ 23,916,000 $ 23,848,000
NET INCOME 86,000 74,000 160,000
CASH DISTRIBUTIONS (18,000) (899,000) (917,000)
------------ ------------ ------------
BALANCE, JUNE 30, 1995 $ -- $ 23,091,000 $ 23,091,000
============ ============ ============
See notes to financial statements (unaudited).
Page 5 of 20
<PAGE>
<TABLE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
For the Six Months Ended
June 30,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ (174,000) $ 160,000
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 1,572,000 1,923,000
Cost associated with note payable change (see Footnote 5) 74,000 --
Changes in operating assets and liabilities:
Accounts receivable (837,000) (282,000)
Prepaid expenses and other assets 14,000 52,000
Accounts payable, accrued expenses, and other liabilities 99,000 315,000
------------ ------------
Net cash provided by operating activities 748,000 2,168,000
------------ ------------
INVESTING ACTIVITIES
Purchase of cash investment (1,969,000) --
Capital improvements (841,000) (935,000)
Restricted cash - increase (6,000) --
------------ ------------
Net cash used by investing activities (2,816,000) (935,000)
------------ ------------
FINANCING ACTIVITIES
Notes payable principal payments (186,000) (179,000)
Cash distribution to partners (917,000) (917,000)
------------ ------------
Cash used by financing activities (1,103,000) (1,096,000)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,171,000) 137,000
Cash and cash equivalents at beginning of period 10,248,000 5,142,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,077,000 $ 5,279,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash during the period $ 2,185,000 $ 2,440,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES
Note payable increase (see Footnote 5) $ 74,000 $ -
============ ============
</TABLE>
See notes to financial statements (unaudited).
Page 6 of 20
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Reference to 1995 Audited Financial Statements
These unaudited financial statements should be read in conjunction with
the Notes to Financial Statements included in the 1995 audited financial
statements.
The financial information contained herein reflects all normal and
recurring adjustments that are, in the opinion of management, necessary
for a fair presentation.
2. Transactions with the Managing General Partner and Affiliates
In accordance with the Partnership Agreement, the Partnership is charged
by the managing general partner and affiliates for services provided to
the Partnership. The amounts are as follows:
For the Six Months Ended
June 30,
---------------------
1996 1995
-------- --------
Partnership management fees $ 80,000 $ 80,000
Reimbursement of administrative expenses 125,000 92,000
-------- --------
Total $205,000 $172,000
======== ========
3. Net Income (Loss) Per Limited Partnership Assignee Unit
The net income (loss) per limited partnership assignee unit is computed by
dividing the net income (loss) allocated to the limited partners by 59,932
assignee units outstanding.
4. Cash Investments
The Partnership considers cash investments to be those investments with an
original maturity date of more than three months at the time of purchase.
The cash investment at June 30, 1996 matures in August 1996 at an
effective interest rate of 5.4% per annum.
5. Note Payable and Land Lease
On April 15, 1996, the Partnership made a payment of approximately
$176,000 to the lender of the underlying mortgage of the wrap note on the
Residence Inn - Nashville (Airport). The payment was made to cure defaults
issued by that lender to the holder of the wrap note for non-payment of
the debt and impound payments due on January 1, 1996 and February 1, 1996.
As described in Part II Item 1 - Legal Proceedings, the Partnership is now
the direct obligor to the first note holder and the note payable balance
has been increased by $74,000, the difference between the balance of the
first note and the balance of the wrap note on April 15, 1996. The $74,000
cost incurred to prevent foreclosure and to eliminate the wrap note was
recorded in the second quarter of 1996 as a general and administrative
expense in these financial statements.
The terms of the first note vary slightly from those of the wrap note. The
interest rate is 9.5% per annum on the first note compared to 9.9433% on
the wrap note and monthly payments of interest and principal are
approximately $2,600 lower on the first note. Similar to the wrap note,
the first note matures in April 1998 and requires a balloon payment.
As a further consequence of the Partnership becoming a direct obligor to
the first note holder, the payments due under the land lease on Residence
Inn - Nashville (Airport) are reduced by $50,000 per year.
Page 7 of 20
<PAGE>
6. Adaption of Accounting Pronouncement
In March, 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This Statement 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
during the holding period are less than the assets' carrying amount.
Statement No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The Partnership adopted Statement No. 121
in the first quarter of 1996. No impairment losses were required to be
recorded as a result of adopting Statement No. 121.
7. Legal Proceedings
The Partnership is a plaintiff and counterclaim defendant in legal
proceedings relating to the management agreement at the Residence Inn -
Ontario, a defendant and counterclaim plaintiff in legal proceedings
seeking damages for alleged failure to consummate a settlement of the
Residence Inn - Ontario case, and a plaintiff and/or defendant in other
legal proceedings related to the Residence Inn - Nashville; see Part II,
Item 1, Legal Proceedings, for a detailed description of these matters.
Page 8 of 20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Item should be read in conjunction with Financial Statements and other
Items contained elsewhere in this Report.
Properties
A description of the properties in which the Partnership has an ownership
interest, along with the occupancy and room rate data, follows:
<TABLE>
OCCUPANCY AND ROOM RATE SUMMARY
<CAPTION>
Average Average
Occupancy Rate (%) Daily Room Rate (%)
Six Three Six Three
Months Months Months Months
Date Ended Ended Ended Ended
of June 30, June 30, June 30, June 30,
Name and Location Rooms Purchase 1996 1995 1996 1995 1996 1995 1996 1995
----------------- ----- -------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residence Inn - Ontario 200 04/88 76 78 79 75 68.34 68.07 67.91 68.25
Ontario, California
Residence Inn - Fort Wayne 80 06/88 91 92 91 96 64.82 59.81 65.03 59.06
Fort Wayne, Indiana
Residence Inn - Columbus (East) 80 06/88 86 88 90 86 73.44 67.87 74.03 70.26
Columbus, Ohio
Residence Inn - Indianapolis (North) 88 06/88 78 78 79 79 77.76 75.21 81.86 80.73
Indianapolis, Indiana
Residence Inn - Lexington 80 06/88 93 79 95 81 68.48 72.37 73.00 75.22
Lexington, Kentucky
Residence Inn - Louisville 96 06/88 85 83 86 91 84.15 78.73 89.16 81.29
Louisville, Kentucky
Residence Inn - Winston-Salem 88 06/88 85 85 84 90 76.54 69.68 81.96 69.15
Winston-Salem, North Carolina
Residence Inn - Nashville (Airport) 168 05/89 72 78 78 86 76.06 76.43 80.51 80.05
Nashville, Tennessee
Residence Inn - Atlanta (1) 128 10/89 N/A 79 N/A 80 N/A 88.58 N/A 89.33
(Perimeter West)
Atlanta, Georgia
Residence Inn - Altamonte Springs 128 03/90 86 85 84 82 86.94 80.38 83.89 78.20
Altamonte Springs, Florida
</TABLE>
(1) Property was sold in October 1995.
Page 9 of 20
<PAGE>
Results of Operations
Net loss was $174,000 in the first half of 1996 compared to net income of
$160,000 for the same period in 1995 and net income was $144,000 in the second
quarter of 1996 compared to net income of $309,000 in the second quarter of
1995. The changes were primarily attributable to the sale of the Partnership's
Residence Inn-Atlanta (Perimeter West) in the fourth quarter of 1995, increased
loss at the Residence Inn - Nashville and an increase in the Partnership's
general and administrative expenses which was partially offset by improved
performance at other properties.
Revenues from hotel operations decreased 9% and 8% in the first half and second
quarter of 1996, respectively, compared to the same periods in 1995 primarily
due to the loss of income from the Residence Inn - Atlanta which was only
partially offset by 4% and 5% increases, for the first half and second quarter,
respectively, in hotel operating revenues from the Partnership's remaining nine
hotels.
Hotel operating expenses decreased 4% and 3% in the first half and second
quarter of 1996, respectively, compared to the same periods in 1995 primarily as
a result of the sale of the Residence Inn - Atlanta. Hotel operating expenses,
exclusive of the effect of the sale of one hotel, increased 9% and 10% in the
first half and second quarter of 1996, respectively, compared to the same
periods in 1995 primarily due to a significant increase in administrative
expenses incurred at the Residence Inn - Nashville to counteract weak market
conditions and to enable the hotel to maintain a competitive position in the
challenging operating environment. Also, the administrative expenses at the
Residence Inn Nashville increased due to the additional accrual of $83,000 (from
$40,000 to 123,000) for potential payments to the State of Tennessee, as a
result of a sales and use tax audit covering the period 1989-1993 (See Residence
Inn Nashville, below). Overall management fee expense decreased compared to 1995
due to the restructured agreements with Marriott. Interest and other income
increased by $75,000 and $39,000 in the first half and second quarter of 1996
when compared to the same periods in 1995, primarily due to higher cash
balances, specifically the proceeds from the sale of the Residence Inn-Atlanta,
invested in interest bearing instruments. Depreciation and amortization
decreased in the first half and second quarter of 1996 compared to the same
periods in 1995 due to the sale of one hotel as well as fully depreciated
furnishings at certain of the other hotels. Interest expense in 1996 decreased
in comparison to 1995 due to the sale of one hotel. General and administrative
expense increased $243,000 and $159,000 in the first half and second quarter of
1996, respectively, compared to the same periods in 1995 primarily due to
increases in legal costs associated with the Residence Inn - Nashville. In
addition, the $74,000 additional loan obligation assumed as a result of the
Partnership becoming the direct obligor to the first note on the Residence Inn -
Nashville, was recorded as a Partnership expense in the second quarter of 1996.
See Footnote 5 to the Financial Statements.
On an ongoing basis, the Partnership monitors the markets where the hotels are
located and reviews potential opportunities for the sale of the properties.
During the second quarter of 1995, the Partnership initiated discussions with
several potential purchasers regarding the sale of the Residence Inn-Atlanta
(Perimeter West). After a series of negotiations, the Partnership entered into a
contract for sale with a non-affiliated buyer and on October 3, 1995 the sale of
the property was recorded. The proceeds from sale were added to the
Partnership's working capital reserve. On August 15, 1996, a portion of the
proceeds from this sale, in the amount of approximately $2,000,000, will be
distributed pro rata to the assignee limited partnership unit holders as of July
31, 1996. The General Partners will receive a distribution of approximately
$41,000 as their allocated share of these proceeds as per the terms of the
Partnership Agreement. The remaining proceeds will continue to be held in
reserve for the Partnership's future capital improvement and working capital
needs.
During the second and third quarters of 1995 the Partnership worked with
Marriott in an effort to restructure contracts on certain Partnership hotels
under their management. An agreement was reached whereby Marriott reduced
overall management fees, as well as the length of the contract terms. In
addition, the Partnership is permitted to terminate the contract after a
five-year term in connection with a sale of the hotels. A termination fee would
be payable if the purchaser were not to continue the Residence Inn by Marriott
franchise. In exchange, the Partnership executed new agreements with Marriott
for the management of the Residence Inns located in Altamonte Springs,
Nashville, and Ontario. Effective January 1, 1996, Marriott manages all nine of
the Partnership's remaining hotels. The following discussion provides
information concerning the operations of the Partnership's nine remaining
hotels.
Residence Inn - Ontario: Room revenues decreased slightly for the first half of
1996 in comparison to the same period of 1995, due to a slight decline in
occupancy and to special extended stay room rate concessions required to
maintain business with the hotel's largest client. Expenses increased 4%
Page 10 of 20
<PAGE>
resulting primarily from an increase in administrative costs. The local economy
continues to improve and several significant construction projects are underway
in the vicinity of the hotel. The operator's marketing efforts are currently
concentrating on securing business from these projects while they are in
progress as well as from their future tenants upon completion.
Residence Inn - Columbus East: Room revenues increased 6% for the first half of
1996 compared to the same period of 1995, which was only partially offset by a
very slight increase in expenses. Room rates increased substantially for the
period while occupancy reflected a decline of two percentage points. Market
conditions in the Columbus area remain stable and relatively unchanged. The
primary focus of the operator is to replace low rated government business
(government per diem is far below current rates) by expanding the hotel's
account base of small and medium-sized businesses and clients.
Residence Inn - Fort Wayne: Room revenues increased 8% in comparison to the same
period of 1995, due to a solid increase in room rates, which was partially
offset by an increase in expenses. Expense increases were primarily attributable
to marketing and property tax costs. Occupancy remained relatively stable for
the period. The Fort Wayne economy continues to grow, positively impacting the
Partnership's hotel. Several new large businesses have opened and others are in
the process of expanding their operations in the area. Recent marketing efforts
have involved a combined campaign with other Marriott hotels in the city, a
strategy which has already produced new patronage.
Residence Inn - Indianapolis (North): Room revenues increased by 4% for the
first half of 1996 in comparison to the same period last year, which was
partially offset by a comparable increase in expenses. Occupancy remained stable
while room rates reflected a moderate increase. Although the overall
Indianapolis economy has remained stable, occupancy rates at other hotels in the
vicinity of the Partnership's property have declined. To maintain competitive
market position, the sales and marketing staff is currently focusing on
increasing the extended-stay patronage base.
Residence Inn - Lexington: Room revenues increased by 11% for the first half of
this year (the largest increase in the portfolio), as compared to the first six
months of 1995, due primarily to a 14% increase in occupancy. The increase in
occupancy was partially offset by a modest decline in room rates and an
operating expense increase of 10%, primarily a result of increased
administrative and marketing costs. The local economy remains stable with
unemployment rates at 2%. Large companies are continuing to create and expand
business in the area. Competition, however, remains strong as several hotels are
offering substantially reduced rates, thereby forcing the Partnership's property
to reduce rates to remain competitive.
Residence Inn - Louisville: Room revenues increased 9% for the first half of the
year, as compared to the same period of the prior year, which was only partially
offset by an increase in expenses of 4%. Occupancy increased slightly and room
rates reflected a favorable increase. Lexington's economy remains stable and
business at the hotel has improved due to additional patronage from existing
accounts and from several conventions. The marketing strategy for the hotel has
focused on securing additional relocation business.
Residence Inn - Winston-Salem: Room revenues increased 10% for the first half of
1996 as compared to the same period in 1995, which was only partially offset by
an increase in expenses. The expense increases were incurred for room operating
costs, marketing, and energy related costs due to severe winter weather
conditions. Occupancy at the property remained stable while room rates reflected
a favorable increase. The operator's marketing efforts include direct sales with
a focus on increasing relocation and extended stay patronage.
Residence Inn - Nashville (Airport): Room revenues decreased 5% and occupancy
declined 6% for the first six months of 1996, in comparison to the same period
of last year. Operating expenses increased 25% due to substantially higher
administrative costs, and to the costs of repairs and maintenance which were
necessary to enable the property to maintain market position. The administrative
costs reflect an increase of $83,000 (from $40,000 to $123,000), in the
potential liability for payment of an assessment by the State as a result of a
sales and use tax audit covering the period from 1989 - 1993. The Partnership
has filed a complaint with the State and is evaluating its options as this time.
The Nashville market remains intensely competitive, as several new extended-stay
hotels have come on line in the area, and another property is under
construction. In order to compete in this market Marriott, which began managing
the property at the beginning of the year, teamed up with staffs from other
local Marriott products for joint sales campaigns. In addition, the operator is
pursuing long-term business from clients currently providing consistent
short-term patronage.
Page 11 of 20
<PAGE>
Residence Inn - Altamonte Springs: Room revenues increased by 10% for the first
half of 1996 in comparison to the same period of 1995, which was only partially
offset by a 7% increase in expenses, due primarily to higher administrative and
marketing costs. The local economy remains strong with new business moving into
the nearby business center and local industrial parks; however, competition is
expected to increase dramatically, as construction is planned for five new
hotels. The operator continues to pursue a comprehensive marketing strategy
involving direct sales, telemarketing, and the distribution of promotional
flyers.
Partnership Liquidity and Capital Resources
First Half of 1996
As presented in the Statement of Cash Flows, cash was provided by operating
activities. Cash was used by investing activities for capital improvements and
purchase of cash investments. Cash was used by financing activities for
distributions to partners and principal payments on notes payable.
The results of project operations before capital improvements for the first six
months of 1996 and 1995 (as shown in the tables on pages 14 and 15) are
determined by net income or loss adjusted for non-cash items such as
depreciation and amortization and reduced by principal payments made on the
notes payable. The project operations before capital improvements is an
indication of the operational performance of the property. During the first half
of 1996, eight of the Partnership's nine remaining hotel properties generated
positive project operations before deduction for capital improvements, while the
Residence Inn - Nashville (Airport) experienced negative operations. The
Partnership, after taking into account results of project operations before
capital improvements, interest income, and general and administrative expenses,
on an accrual basis, experienced positive results from operations for the
period. Project operations should not be considered as an alternative to net
income or loss (as presented in the financial statements) as an indicator of the
Partnership's operating performance or as an alternative to cash flow as a
measure of liquidity. The project operations after capital improvements for any
given period may not be indicative of the property's general performance as
capital improvements are likely to be made in large amounts associated with
renovation programs.
In the first half of 1996, the Partnership spent $841,000 on capital
improvements. The majority was spent on room renovations at the Residence Inns -
Nashville, Louisville and Indianapolis, stairway work and exterior painting at
the Residence Inn - Lexington, doors and entry way improvements at the Residence
Inn - Fort Wayne, HVAC units at the Residence Inn - Louisville and for lock
upgrades at the Residence Inns - Columbus, Indianapolis, Lexington, Louisville
and Winston Salem. In the remainder of 1996, the Partnership anticipates
spending approximately $1,950,000 on capital improvements. These improvements
are necessary to keep properties competitive in their respective markets and are
required under the management agreements.
In accordance with, and as is customary in the management of hotels, a
percentage of revenues is placed in capital replacement funds. The capital
replacement funds are used to fund on-going capital improvements as well as room
or other major renovation programs. In general, the capital replacement funds
are being held at the individual properties with additions, generally made
monthly, based on revenues and expenditures which are based on approved capital
expenditure budgets by the Partnership. Unused funds are being held in
interest-bearing accounts. To the extent not available from an individual
property's capital replacement fund, a capital improvement or renovation may be
funded from the Partnership's working capital reserve.
The Partnership became aware that on February 12, 1996, a third party made an
unsolicited offer, to a large number of unit holders of the Partnership, to
purchase up to 1,200 units, representing approximately 2% of the outstanding
units, at a price of $205 per unit. Under applicable securities laws, the
Partnership was required to notify its investors of the Partnership's views
regarding this offer. A letter dated February 15, 1996 was provided to investors
in fulfillment of that requirement. It should be noted that the Partnership did
not take a position with respect to the offer but rather advised the holders of
the assignee limited partnership units to consult their personal financial
advisors on the matter, as the desirability of the offer to any unit holder
could differ greatly depending upon such unit holder's financial, tax, and other
individual circumstances.
Unit holders were also advised that the Partnership and its Transfer Agent would
take such action as the Partnership deemed appropriate to ensure that resale
transactions did not result in the termination of the Partnership for tax
purposes, cause the Partnership to be classified as a publicly traded
Page 12 of 20
<PAGE>
partnership or cause the Partnership to be taxed as a corporation. In order to
protect its status as a partnership for federal income tax purposes, secondary
market activity in its units will be limited to less than 5% of the outstanding
units per year.
Gemisys, the Partnership's Transfer Agent, informed the Partnership that resale
transactions of Assignee Units in the Partnership reached 4.9 percent as of
April 9, 1996 which is near the five percent maximum percentage which, under IRS
guidance, may be traded in a calendar year without jeopardizing the
Partnership's tax status. In order to protect its tax status as a partnership
for Federal income tax purposes, the Partnership informed Gemisys that it would
no longer recognize resales of limited partnership assignee units in 1996.
Investors were notified of such suspension of trading in accordance with Section
12.3 of the Partnership Agreement by way of a special communication dated April
10, 1996.
Conclusion
The Partnership established an estimated value for the assignee units in the
Partnership as of December 31, 1995. Appraisals of the hotels were commissioned
and undertaken by a firm which is a recognized appraiser and consultant to the
hotel industry. The primary methodology employed in the appraisals used in the
evaluation, which was selected by the appraiser and, not pursuant to any
instructions from the Partnership, was the income approach to value utilizing a
discounted cash flow analysis. In conjunction with the preparation of the
appraisals, a discount rate was determined by the appraiser based on several
relevant factors, including, but not limited to, the current investment climate
for hotel properties, local hotel market and economic conditions, comparisons of
occupancy and room rates with prevailing market rates for similar properties and
the status of the management contract for each hotel. The Partnership believes
that the assumptions utilized in the process were not unreasonable. The value of
the properties as determined by the appraisal process, in combination with the
book value of other Partnership assets, has resulted in an estimated net asset
value of each assignee unit of $521 as of December 31, 1995. It should be noted,
however, that appraised values represent the opinion of the appraisal firm as of
the date of the appraisals and are based on market conditions at the time of the
appraisals and on assumptions concerning future circumstances which may or may
not be accurate.
This valuation is an estimate of the assignee unit value only which has been
made as of December 31, 1995 based on the methodology described herein and does
not represent a market value. There can be no assurance that the sales of the
assets in the current market or at any time in the future would yield net
proceeds which on a per assignee unit basis would be equal to or greater than
the estimated value. Further, there can be no assurance that sales of assignee
units now or in the future would yield net proceeds equal to or greater than
this value. The assignee units are illiquid and there is no formal liquid market
where they are regularly traded. However, the Partnership is aware that some
resales have taken place in the informal secondary market. In this informal
market, transactions may or may not take place in any time period and occur at a
price negotiated between buyer and seller. We have no knowledge concerning how a
particular price may be determined. Resale transactions of which the Partnership
has knowledge reflect prices ranging from $200 to $340 in 1996 (through April 9,
1996). In 1995, sixty-five resale transactions of which the Partnership had
knowledge were recorded at a simple average price (not weighted) of $244 per
assignee unit. The Partnership's knowledge of these transactions is based solely
on the books and records of its Transfer Agent.
The Partnership anticipates that it will have sufficient resources to meet its
capital and operating requirements into the foreseeable future. A cash
distribution to investors for the first quarter of 1996 was made at an
annualized rate of 3%. A cash distribution for the second quarter of 1996 will
be made at an annualized rate of 4%. Cash distributions for 1995 were made
quarterly, at an annualized rate of 3%. On August 15, 1996, a portion of the
proceeds from the sale of the Residence Inn-Atlanta (Perimeter West), in the
amount of $2,041,000, will be distributed to the assignee limited partnership
holders and the General Partners.
Page 13 of 20
<PAGE>
<TABLE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Six Months Ended June 30, 1996
(000's)
<CAPTION>
Columbus Fort
Ontario (East) Wayne Indianapolis Lexington Louisville
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $1,918 $ 851 $ 797 $ 898 $ 853 $1,154
Telephone and other 125 42 48 40 68 81
------ ------ ------ ------ ------ ------
Hotel operations 2,043 893 845 938 921 1,235
Interest and other 0 0 0 0 0 0
------ ------ ------ ------ ------ ------
Total revenues 2,043 893 845 938 921 1,235
------ ------ ------ ------ ------ ------
EXPENSES:
Hotel operations:
Rooms 329 192 164 212 153 211
Administrative 233 127 90 126 163 117
Marketing 216 87 95 113 113 135
Energy 116 50 52 57 49 46
Repair and maintenance 96 51 39 65 65 59
Management fees 61 27 26 28 28 43
Property taxes 55 32 69 37 24 39
Other 80 35 28 22 36 42
------ ------ ------ ------ ------ ------
Hotel operations 1,186 601 563 660 631 692
Depreciation and other
amortization 251 109 107 128 129 148
Interest 428 139 146 169 164 190
General and administrative 0 0 0 0 0 0
------ ------ ------ ------ ------ ------
Total expenses 1,865 849 816 957 924 1,030
------ ------ ------ ------ ------ ------
NET INCOME(LOSS) 178 44 29 (19) (3) 205
Plus non-cash items - net 251 112 109 131 132 151
Less notes payable
principal payments 3 9 9 11 11 12
------ ------ ------ ------ ------ ------
Project operations 426 147 129 101 118 344
Capital Improvements 28 49 27 91 156 148
------ ------ ------ ------ ------ ------
Project operations after
capital improvements $ 398 $ 98 $ 102 $ 10 ($ 38) $ 196
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
Winston Altamonte
Salem Nashville Atlanta Springs Partnership Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $ 957 $ 1,725 $ 0 $ 1,749 $ 0 $ 10,902
Telephone and other 56 65 0 56 0 581
-------- -------- -------- -------- -------- --------
Hotel operations 1,013 1,790 0 1,805 0 11,483
Interest and other 0 0 0 0 224 224
-------- -------- -------- -------- -------- --------
Total revenues 1,013 1,790 0 1,805 224 11,707
-------- -------- -------- -------- -------- --------
EXPENSES:
Hotel operations:
Rooms 206 459 0 347 0 2,273
Administrative 134 360 (8) 179 0 1,521
Marketing 114 213 0 187 0 1,273
Energy 58 112 0 93 0 633
Repair and maintenance 65 182 0 82 0 704
Management fees 41 54 0 90 0 398
Property taxes 29 57 0 88 0 430
Other 30 139 0 43 0 455
-------- -------- -------- -------- -------- --------
Hotel operations 677 1,576 (8) 1,109 0 7,687
Depreciation and other
amortization 126 256 0 224 0 1,478
Interest 167 439 0 337 0 2,179
General and administrative 0 0 0 0 537 537
-------- -------- -------- -------- -------- --------
Total expenses 970 2,271 (8) 1,670 537 11,881
-------- -------- -------- -------- -------- --------
NET INCOME(LOSS) 43 (481) 8 135 (313) (174)
Plus non-cash items - net 128 256 0 302 74 1,646
Less notes payable
principal payments 11 69 0 51 0 186
-------- -------- -------- -------- -------- --------
Project operations 160 (294) 8 386 (239) 1,286
Capital Improvements 57 231 0 54 0 841
-------- -------- -------- -------- -------- --------
Project operations after
capital improvements $ 103 ($ 525) $ 8 $ 332 ($ 239) $ 445
======== ======== ======== ======== ======== ========
</TABLE>
Page 14 of 20
<PAGE>
<TABLE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Six Months Ended June 30, 1995
(000's)
<CAPTION>
Columbus Fort
Ontario (East) Wayne Indianapolis Lexington Louisville
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $1,944 $ 803 $ 737 $ 868 $ 771 $1,056
Telephone and other 117 30 38 49 59 74
------ ------ ------ ------ ------ ------
Hotel operations 2,061 833 775 917 830 1,130
Interest and other 20 0 0 0 0 0
------ ------ ------ ------ ------ ------
Total revenues 2,081 833 775 917 830 1,130
------ ------ ------ ------ ------ ------
EXPENSES:
Hotel operations:
Rooms 328 178 148 198 172 185
Administrative 185 146 100 150 119 127
Marketing 227 66 74 113 68 111
Energy 113 46 41 48 46 41
Repair and maintenance 87 43 26 59 61 54
Management fees 82 54 50 60 54 74
Property taxes 30 44 44 36 25 39
Other 92 21 24 25 29 37
------ ------ ------ ------ ------ ------
Hotel operations 1,144 598 507 689 574 668
Depreciation and other
amortization 247 102 101 130 120 143
Interest 428 140 146 170 165 191
General and administrative 0 0 0 0 0 0
------ ------ ------ ------ ------ ------
Total expenses 1,819 840 754 989 859 1,002
------ ------ ------ ------ ------ ------
NET INCOME(LOSS) 262 (7) 21 (72) (29) 128
Plus non-cash items - net 227 104 103 132 123 146
Less notes payable
principal payments 2 8 8 10 10 11
------ ------ ------ ------ ------ ------
Project operations 487 89 116 50 84 263
Capital Improvements 17 55 13 19 122 135
------ ------ ------ ------ ------ ------
Project operations after
capital improvements $ 470 $ 34 $ 103 $ 31 ($ 38) $ 128
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Winston Altamonte
Salem Nashville Atlanta Springs Partnership Total
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $ 873 $ 1,807 $ 1,506 $ 1,589 $ 0 $11,954
Telephone and other 48 90 101 73 0 679
------- ------- ------- ------- ------- -------
Hotel operations 921 1,897 1,607 1,662 0 12,633
Interest and other 0 7 9 0 113 149
------- ------- ------- ------- ------- -------
Total revenues 921 1,904 1,616 1,662 113 12,782
------- ------- ------- ------- ------- -------
EXPENSES:
Hotel operations:
Rooms 162 425 282 371 0 2,449
Administrative 136 179 178 157 0 1,477
Marketing 84 185 150 145 0 1,223
Energy 47 119 67 85 0 653
Repair and maintenance 56 106 68 71 0 631
Management fees 60 57 79 83 0 653
Property taxes 33 53 56 94 0 454
Other 28 133 33 35 0 457
------- ------- ------- ------- ------- -------
Hotel operations 606 1,257 913 1,041 0 7,997
Depreciation and other
amortization 125 322 230 308 0 1,828
Interest 168 450 309 336 0 2,503
General and administrative 0 0 0 0 294 294
------- ------- ------- ------- ------- -------
Total expenses 899 2,029 1,452 1,685 294 12,622
------- ------- ------- ------- ------- -------
NET INCOME(LOSS) 22 (125) 164 (23) (181) 160
Plus non-cash items - net 127 315 229 381 0 1,887
Less notes payable
principal payments 10 53 18 49 0 179
------- ------- ------- ------- ------- -------
Project operations 139 137 375 309 (181) 1,868
Capital Improvements 39 298 135 102 0 935
------- ------- ------- ------- ------- -------
Project operations after
capital improvements $ 100 ($ 161) $ 240 $ 207 ($ 181) $ 933
======= ======= ======= ======= ======= =======
</TABLE>
Page 15 of 20
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Metric Partners Growth Suite Investors, L.P. vs. Kenneth E. Nelson, The Nelson
Group, et al., San Francisco County Superior Court, Case No. 928065 (the "SF
Lawsuit"). [This lawsuit is related to the other five proceedings described
below. Terms defined in the description of one case may be used in the
description of the other cases.]
This lawsuit relates to management of the Partnership's Residence Inn - Ontario
by an entity controlled by Kenneth E. Nelson ("Nelson") from April 1988 to
February 1991. As a result of several defaults by the Nelson entity under the
management agreement, the Partnership gave notice of termination of the
management agreement and filed the SF Lawsuit in January 1991 seeking damages
and declaratory and injunctive relief against Nelson and certain related parties
(collectively, the "Nelson Parties"). The Nelson Parties counterclaimed for
damages and declaratory relief.
In March 1993, the Partnership and the Nelson Parties verbally agreed to settle
the SF Lawsuit at a settlement conference (the "SF Settlement"). Under this
settlement, the Partnership is to purchase the land (the "Land") underlying the
Partnership's Residence Inn - Nashville (the "Hotel") currently leased by the
Partnership from Nashville Lodging Company ("NLC"), an entity controlled by
Nelson. The Land purchase would be 100% seller-financed pursuant to a
non-recourse promissory note of the Partnership in the amount of $1,700,000. The
Court retained jurisdiction to enforce the terms of the SF Settlement.
Various disagreements between the Partnership and Nelson regarding the meaning
of several provisions of the SF Settlement arose after March 1993. A major
disagreement related to whether the SF Settlement required the Partnership to
purchase the Land subject to a certain lis pendens filed against the Land by
Orlando Residence Ltd. ("Orlando") (see the "Nashville Case I" below). In
February 1994, the Nelson Parties filed a motion to enforce the SF Settlement
which was granted and in June 1994, the Court ruled that the Partnership had
agreed to purchase the Land subject to the lis pendens filed by Orlando.
Following this ruling, the Partnership has attempted to negotiate and enter into
a settlement agreement and a land purchase agreement and related agreements (the
"Settlement Documents") among itself and Nelson and NLC and another Nelson
entity, 2300 Elm Hill Pike, Inc. ("2300"). To date, these parties have not been
able to reach agreement on all issues relating to the Settlement Documents.
After June 1994, numerous appearances before the Court were made in an effort to
resolve all issues regarding the Settlement Documents, but the Settlement
Documents were never completed or executed.
In July 1994, the Court in the Nashville Case I, discussed below, ruled that the
Hotel had been fraudulently conveyed to NLC by 2300 in 1986 and voided the
conveyance. At Orlando's request, the Court in the Nashville Case I ordered a
sale of the Land, subject to all prior encumbrances, including the ground lease
of the Land by the Partnership (the "Lease"), in order to satisfy Orlando's
judgements. As discussed in more detail below (see "Nashville Case I"), at a
judicial sale held on July 24, 1996, the high bid was submitted by Agincourt
Partners, an entity controlled by Nelson. The Partnership's ability to purchase
the Land as agreed in the SF Settlement is uncertain in view of the sale and
issues involved in confirmation of the sale.
Orlando Residence Ltd. vs. Metric Partners Growth Suite Investors, L.P. et al.,
Chancery Court for Davidson County, in Nashville, Tennessee, Case No.
92-3086-III ("Nashville Case I")
2300 (formerly known as Nashville Residence Corporation until 1986) was the
original owner of the Hotel (including the Land). In 1985, 2300's shareholders
severed their business relationships and 2300 executed a promissory note (the
"Note") in favor of Orlando. 2300 defaulted on the Note and in March 1990
Orlando obtained a judgment against 2300 on the Note. 2300 conveyed its interest
in the Hotel (including the Land) to NLC in 1986 by unrecorded quitclaim deed.
In April 1989, NLC sold the Hotel and leased the Land to the Partnership
pursuant to the Lease.
In October 1992, Orlando filed this lawsuit against NLC and its general
partners, Nelson and Nashville Residence Corporation ("NRC"), and the
Partnership, alleging that the sale of the Hotel and the Land by 2300 to NLC in
Page 16 of 20
<PAGE>
1986 and NLC's subsequent sale of the Hotel and lease of the Land to the
Partnership in 1989 were fraudulent conveyances, intended to hinder Plaintiff's
recovery of its Note judgment against 2300. In August 1993, the Court dismissed
this action against the Partnership. Orlando has previously stated that it might
appeal from the judgment in favor of the Partnership, but had not done so as of
July 31, 1996.
The Partnership cross-claimed against NLC for indemnity and breach of
representations and warranties under the purchase and sale agreement between NLC
and the Partnership and filed a third-party complaint against 2300. In April
1995, the Court awarded judgment in favor of the Partnership against NLC and
2300 for approximately $29,670 of the Partnership's legal fees in the case. GSI
has assigned this judgment to the title insurer which defended GSI in Nashville
Case I.
In August 1994, the Court held that the sale of the Hotel by 2300 to NLC was a
fraudulent conveyance and voided the conveyance. In September 1994, the Court
entered judgment in favor of Orlando against NLC and NRC for approximately
$500,000. These rulings do not directly adversely affect the equity interest of
the Partnership in the Hotel or its leasehold interest in the Land. In September
1995, the Court awarded punitive damages in favor of Orlando against Nelson, NLC
and NRC for $850,000.
The defendants, Nelson, NLC, and NRC, appealed the judgments for Orlando and the
Partnership in this case to the Tennessee Court of Appeals, but the judgments
were not stayed pending appeal. Defendants' brief in these appeals was filed in
July, 1996 and briefs for Orlando and the Partnership are due in August, 1996.
Oral argument was requested by the Defendants but has not yet been scheduled.
Orlando requested and the Court ordered a judicial sale of the Land, with the
sale subject to encumbrances of record, including the Lease. The sale is a
credit sale, with the purchase price due in six months. This sale was held on
July 24, 1996. Agincourt Partners, a Wisconsin partnership controlled by Nelson,
made the high bid of $1,500,000. Orlando has challenged the bid, and the
Partnership anticipates that the Court will schedule a confirmation hearing to
determine whether to confirm the sale. The Partnership has filed a motion for
interpleader, requesting the Court to allow it to pay Lease payments into Court
until it is established which party is entitled to them.
Metric Partners Growth Suite Investors, L.P. vs. Nashville Lodging Co., Orlando
Residence Ltd., and LaSalle National Bank, in the United States Bankruptcy
Court, Eastern District of Wisconsin, Case No. 96-20017 ("Interpleader Action").
In January 1996, NLC filed a petition with the U.S. Bankruptcy Court in
Milwaukee, Wisconsin, for reorganization under Chapter 11 of the Bankruptcy
Code. In connection with this filing, GSI filed an interpleader action against
NLC and Orlando (which had garnished payments due to NLC from the Partnership)
and LaSalle National Bank as the holder (the "Lender") of the underlying
mortgage of the Hotel (the "Underlying Mortgage"), asking the Court to determine
which parties were entitled to receive payments to be made by the Partnership to
NLC under the Lease and the promissory note (the "Wrap Note") held by NLC which
"wrapped around" the Underlying Mortgage. All payments due to NLC under the
Lease and the Wrap Note from the filing of this action through February 1996
were paid into the clerk of the Bankruptcy Court.
In February 1996, the Bankruptcy Court granted motions to dismiss the
reorganization proceeding filed by Orlando and the Lender. Following this
dismissal, in late February 1996, the parties to the interpleader action filed
by the Partnership agreed that all payments theretofore paid into the clerk of
the Bankruptcy Court pursuant to the Wrap Note and all payments due under such
Note on March 1, 1996 and in the future, to the extent such payments constituted
payments due under the Underlying Mortgage, would be paid directly to the Lender
until further order to the contrary by the Bankruptcy Court. The parties were
asked by the Bankruptcy Court to present their arguments as to the disposition
of payments due under the Lease and the portion of the Wrap Note payments to be
retained by NLC (the "NLC Payments"). The NLC Payments due for March and April
1996 were paid by the Partnership into the clerk of the Bankruptcy Court.
In April 1996, the Lender declared a default for, among other things, NLC's
failure to make the January and February 1996 debt service and tax escrow
payments for approximately $176,464 under the Underlying Mortgage (the
"Jan.-Feb. Payments") (such payments having been included in the amounts paid by
the Partnership into the clerk of the Bankruptcy Court). On April 15, 1996, GSI
paid the Jan.-Feb. Payments to cure these defaults. As a result, GSI has
notified NLC that pursuant to a certain Three Party Agreement (the "TPA") dated
Page 17 of 20
<PAGE>
April 24, 1989 among GSI, the Lender and NLC, GSI has elected to make all future
payments when and as due and otherwise perform all obligations of NLC under the
Underlying Loan for and in place of NLC and to assume all NLC's obligations
under the Underlying Loan. GSI further informed NLC that such payment and
assumption satisfies all of GSI's obligations under the Wrap Note. NLC denied
that it is in default of the Underlying Loan and has informed GSI by letter
dated April 12, 1996 that GSI had no right to exercise any rights it may have in
the event of a default by NLC, including any rights granted under the TPA. On
May 3, 1996, GSI filed a lawsuit in the Tennessee Chancery Court seeking a
judicial determination of the rights and obligations of GSI and NLC with respect
to the Underlying Loan, the Wrap Note and the Lease. See the "Nashville Case
III" below.
Orlando claimed that it was entitled to the Jan.-Feb. Payments since the claim
of the Lender to these payments was satisfied by GSI's payment to the Lender on
April 15, 1996. NLC also claimed it was entitled to the Jan.-Feb. Payments. GSI
disputed the claims of Orlando and NLC to the Jan.-Feb. Payments. At a hearing
held on June 21, 1996 to resolve all open matters in the Interpleader Action,
the Bankruptcy Court ruled that the Partnership was entitled to be reimbursed
from the interpled funds for its payment to the Lender of the Jan.-Feb. Payments
and that the balance of the interpled funds would be paid to Orlando under its
garnishment. All interpled funds having been disposed of, this case was
dismissed by the Bankruptcy Court.
Nashville Lodging Company vs. Metric Partners Growth Suite Investors, L.P. et
al., Circuit Court, State of Wisconsin, Case No. 94CV001212.
In February 1994, NLC served this lawsuit on the Partnership. NLC alleges fraud,
breach of settlement contract and breach of good faith and fair dealing and
seeks compensatory, punitive and exemplary damages in an unspecified amount for
the Partnership's failure to consummate the SF Settlement. In February 1994, the
Partnership filed an answer and requested that the Court stay the action pending
resolution of the SF Lawsuit including all appeals. The Court refused to stay
the action and discovery commenced. In February 1995, the Court determined that
the Partnership could be sued in Wisconsin but stayed the case until the
settlement of the SF Lawsuit has been finalized.
Orlando Residence Ltd. vs. 2300 Elm Hill Pike, Inc. and Nashville Lodging
Company vs. Metric Partners Growth Suite Investors, L.P., Chancery Court for
Davidson County, in Nashville, Tennessee, Case No. 94-1911-I ("Nashville Case
II").
Orlando has filed an action against 2300 and NLC in the Davidson County Chancery
Court to attempt to execute on its judgment against Nelson, NLC and 2300 in
Nashville Case I by subjecting the Land to sale. In May 1995, 2300 and NLC filed
a third-party complaint against the Partnership, alleging it had refused to
purchase the Land as required by the SF Settlement. 2300 and NLC demand payment
by the Partnership of 2300 and NLC's costs of defending Nashville Case II and
indemnification for any loss resulting from the claims of Orlando, among other
claims of damage.
In September 1995, the Court dismissed this action by Orlando against 2300 and
NLC for lack of standing. However, the Court has refused to dismiss the
third-party action against the Partnership. In February 1996, the Court granted
a motion filed by 2300 and NLC for partial summary judgement, ruling that the
Partnership had breached the SF Settlement. The action will continue to
determine damages and other issues. The Partnership does not believe it breached
the SF Settlement and will appeal this ruling at an appropriate time. However,
no assurance can be given that its appeal will be successful. In any event, the
Partnership does not believe that any damages it might ultimately be required to
pay in this action will have a material adverse effect on the Partnership.
In June 1996, the Partnership filed a counterclaim, claiming damages for the
failure of NLC to complete the SF Settlement. The Partnership also added Nelson
and NRC as additional counterclaim defendants to the case. Nelson and NRC are
the general partners of NLC. In July 1996, the counterclaim defendants filed an
answer to the counterclaim and a motion for summary judgment dismissing the
counterclaim. A hearing on this motion is scheduled for September 6, 1996.
Metric Partners Growth Suite Investors, L.P., vs. Nashville Lodging Co., 2300
Elm Hill Pike, Inc., Orlando Residence, Ltd., and LaSalle National Bank, as
trustee under that certain pooling and servicing agreement, dated July 11, 1995,
for the holders of the WHP Commercial Mortgage Pass Through Certificates, Series
1995C1 and Robert Holland, Trustee, Chancery Court for Davidson County, in
Nashville, Tennessee, Case No. 96-1405-III ("Nashville Case III").
Page 18 of 20
<PAGE>
GSI filed this action May 3, 1996 to obtain, among other things, a judicial
determination of the rights and obligations of GSI and NLC under the Underlying
Loan, the Wrap Note and the Lease under the TPA as a consequence of GSI's cure
of defaults by NLC under the Underlying Loan. (See the "Interpleader Action"
above for information regarding the TPA, the defaults by NLC and GSI's cure of
such defaults.) GSI believes that as a result of these events, it has become the
direct obligor to the Lender under the Underlying Loan and that the Wrap Note
has been satisfied and the payments due under the Lease reduced by $50,000 per
year. GSI also seeks preliminary and permanent injunctive relief to prevent NLC
from attempting to accelerate or foreclose the Wrap Note and/or from attempting
to enforce any remedies with regard to the Lease in connection with this matter
and a judgment establishing that GSI is the owner of the Residence Inn-Nashville
(the "Hotel") subject only to the Lease and certain specified security
interests.
In May 1996, the Partnership obtained a temporary injunction staying NLC from
undertaking any efforts to exercise any remedies pursuant to the Wrap Note or
the Lease. NLC and 2300 filed an answer in June, together with a counterclaim
against the Partnership and a cross claim against the Lender and the Trustee
under the deed of trust on the Hotel. In their counterclaim and crossclaim, NLC
and 2300 allege that the Partnership breached the TPA and the Lease and that NLC
was not in default under the Underlying Loan, and accordingly, that the
Partnership should not be substituted for NLC as borrower under the Underlying
Loan. NLC and 2300 claim damages from the Partnership and ask the Court to
permit acceleration of the Wrap Note and termination of the Lease. NLC and 2300
further ask, if the Court finds that substitution of the Partnership for NLC
under the Underlying Loan is valid, that the Partnership be enjoined from
releasing the Lender from any defense to payment of the Underlying Loan. The
Partnership does not believe that there is any valid basis to permit
acceleration of the Wrap Note and termination of the Lease, even if the Court
should ultimately find that the Partnership's actions did not result in the
satisfaction of the Wrap Note, substitution of the Partnership for NLC as
borrower under the Underlying Loan and the reduction of rent due under the
Lease.
In July 1996, the Partnership filed a motion for summary judgment in this case,
asking that the Court award the relief sought by it and that the Court dismiss
the counterclaim and crossclaim of NLC and 2300. A hearing on this motion has
been set for August 30, 1996.
The ultimate disposition of these lawsuits cannot be predicted at this time;
however, based solely on the facts known to it as of the date hereof, the
Partnership does not believe the lawsuits will have a material adverse effect on
the Partnership.
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were required to be filed during the period covered
by this Report. On February 27, 1996, the Form 8-K, originally filed on October
3, 1995, reporting the disposition of the Residence Inn-Atlanta (Perimeter
West), was amended to include additional information concerning the disposition
of the asset.
Page 19 of 20
<PAGE>
SIGNATURE
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.
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
By: Metric Realty
an Illinois general partnership
its Managing General Partner
By: Metric Realty Corp.
a Delaware corporation
its managing general partner
By: /s/ Margot M. Giusti
----------------------------------
Margot M. Giusti
Executive Vice President, Finance and
Administration; Principal Financial
and Accounting Officer of Metric Realty Corp.
Date: August 8, 1996
----------------------
Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,046,000
<SECURITIES> 0
<RECEIVABLES> 1,871,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,099,000
<PP&E> 88,726,000
<DEPRECIATION> 30,392,000
<TOTAL-ASSETS> 70,034,000
<CURRENT-LIABILITIES> 2,951,000
<BONDS> 42,624,000
0
0
<COMMON> 0
<OTHER-SE> 24,159,000
<TOTAL-LIABILITY-AND-EQUITY> 69,734,000
<SALES> 0
<TOTAL-REVENUES> 11,483,000
<CGS> 0
<TOTAL-COSTS> 7,687,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,179,000
<INCOME-PRETAX> (174,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (174,000)
<EPS-PRIMARY> (3.00)
<EPS-DILUTED> 0.00
</TABLE>
