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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, 1997
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,
1997 1996
---- ----
ASSETS
CASH AND CASH EQUIVALENTS $ 7,092,000 $ 3,436,000
CASH INVESTMENTS -- 3,893,000
RESTRICTED CASH 323,000 308,000
ACCOUNTS RECEIVABLE 1,412,000 715,000
PREPAID EXPENSES AND OTHER ASSETS 129,000 209,000
PROPERTIES AND IMPROVEMENTS 13,830,000 90,456,000
ACCUMULATED DEPRECIATION (4,998,000) (31,825,000)
------------ ------------
NET PROPERTIES AND IMPROVEMENTS 8,832,000 58,631,000
REAL ESTATE HELD FOR SALE 49,128,000 --
DEFERRED FINANCING COSTS 47,000 73,000
DEFERRED FRANCHISE FEES 150,000 171,000
------------ ------------
TOTAL ASSETS $ 67,113,000 $ 67,436,000
============ ============
LIABILITIES AND PARTNERS' EQUITY
ACCOUNTS PAYABLE $ 1,268,000 $ 1,107,000
ACCRUED PROPERTY TAXES 393,000 311,000
ACCRUED INTEREST 284,000 263,000
OTHER LIABILITIES 1,450,000 1,347,000
DEFERRED GAIN ON SALE OF PROPERTY 300,000 300,000
NOTES PAYABLE 42,408,000 42,518,000
------------ ------------
TOTAL LIABILITIES 46,103,000 45,846,000
------------ ------------
PARTNERS' EQUITY (DEFICIENCY):
GENERAL PARTNERS 59,000 59,000
LIMITED PARTNERS (59,932 Units outstanding) 20,951,000 21,531,000
------------ ------------
TOTAL PARTNERS' EQUITY 21,010,000 21,590,000
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 67,113,000 $ 67,436,000
============ ============
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,
---------------------------
1997 1996
---- ----
REVENUES:
Hotel operations $ 12,254,000 $ 11,483,000
Interest and other 179,000 224,000
------------ ------------
Total revenues 12,433,000 11,707,000
------------ ------------
EXPENSES:
Hotel operations:
Rooms 2,426,000 2,273,000
Administrative 1,430,000 1,521,000
Marketing 1,288,000 1,273,000
Energy 603,000 633,000
Repair and maintenance 677,000 704,000
Management fees 484,000 398,000
Property taxes 353,000 430,000
Other 464,000 455,000
------------ ------------
Total hotel operations 7,725,000 7,687,000
Depreciation and other amortization 1,491,000 1,478,000
Interest 2,166,000 2,179,000
General and administrative 408,000 537,000
------------ ------------
Total expenses 11,790,000 11,881,000
------------ ------------
NET INCOME (LOSS) $ 643,000 $ (174,000)
============ ============
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP ASSIGNEE UNIT $10 $(3)
=== ===
CASH DISTRIBUTIONS PER LIMITED
PARTNERSHIP ASSIGNEE UNIT $20 $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,
---------------------------
1997 1996
---- ----
REVENUES:
Hotel operations $ 6,542,000 $ 6,076,000
Interest and other 77,000 112,000
------------ ------------
Total revenues 6,619,000 6,188,000
------------ ------------
EXPENSES:
Hotel operations:
Rooms 1,264,000 1,135,000
Administrative 745,000 825,000
Marketing 652,000 648,000
Energy 267,000 286,000
Repair and maintenance 364,000 379,000
Management fees 264,000 199,000
Property taxes 199,000 239,000
Other 241,000 215,000
------------ ------------
Total hotel operations 3,996,000 3,926,000
Depreciation and other amortization 739,000 714,000
Interest 1,083,000 1,086,000
General and administrative 236,000 318,000
------------ ------------
Total expenses 6,054,000 6,044,000
------------ ------------
NET INCOME $ 565,000 $ 144,000
============ ============
NET INCOME PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $ 9 $ 2
=== ===
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $10 $ 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 (UNAUDITED)
For the Six Months Ended June 30, 1997 and 1996
General Limited
Partner Partners Total
------- -------- -----
BALANCE, JANUARY 1, 1997 $ 59,000 $ 21,531,000 $ 21,590,000
NET INCOME 24,000 619,000 643,000
CASH DISTRIBUTIONS (24,000) (1,199,000) (1,223,000)
------------ ------------ ------------
BALANCE, JUNE 30, 1997 $ 59,000 $ 20,951,000 $ 21,010,000
============ ============ ============
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
============ ============ ============
See notes to financial statements (unaudited).
Page 5 of 20
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended
June 30,
----------------------------
1997 1996
---- ----
OPERATING ACTIVITIES
Net Income (Loss) $ 643,000 $ (174,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,589,000 1,572,000
Cost associated with note payable change -- 74,000
Changes in operating assets and liabilities:
Accounts receivable (697,000) (837,000)
Prepaid expenses and other assets 80,000 14,000
Accounts payable, accrued expenses, and
other liabilities 367,000 99,000
------------ ------------
Net cash provided by operating activities 1,982,000 748,000
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of cash investments 3,893,000 --
Purchase of cash investment -- (1,969,000)
Capital improvements (799,000) (841,000)
Restricted cash - increase (15,000) (6,000)
------------ ------------
Net cash provided (used) by investing activities 3,079,000 (2,816,000)
------------ ------------
FINANCING ACTIVITIES
Notes payable principal payments (182,000) (186,000)
Cash distribution to partners (1,223,000) (917,000)
------------ ------------
Cash used by financing activities (1,405,000) (1,103,000)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,656,000 (3,171,000)
Cash and cash equivalents at beginning of period 3,436,000 10,248,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,092,000 $ 7,077,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash during the period $ 2,047,000 $ 2,185,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES
Note payable increase $ -- $ 74,000
============ ============
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 1996 Audited Financial Statements
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the 1996 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,
------------------------
1997 1996
---- ----
Partnership management fees $ 106,000 $ 80,000
Reimbursement of administrative expense 150,000 125,000
--------- ---------
Total $ 256,000 $ 205,000
========= =========
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.
There were no cash investments at June 30, 1997.
5. 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 in legal proceedings seeking damages for alleged
failure to consummate a settlement of the Residence Inn - Ontario case, a
plaintiff and defendant in legal proceedings related to the hotel and the
land lease at the Residence Inn - Nashville and a plaintiff in legal
proceedings related to sales and use tax assessments by the State of
Tennessee. Additionally, the Managing and Associate General Partners of the
Partnership and certain of their affiliates and certain current and former
employees of the Managing General Partner or its affiliates are plaintiffs
and defendants in legal proceedings related to the Residence Inn -
Nashville. See Part II, Item 1, Legal Proceedings, for a detailed
description of these matters.
6. Real Estate Held for Sale
The Partnership has adopted a plan to market for sale eight of its nine
remaining hotels. The hotels being marketed for sale are the Residence Inns
- Ontario, Fort Wayne, Columbus (East), Indianapolis (North), Lexington,
Louisville, Winston Salem and Altamonte Springs. Pursuant to FAS 121, these
eight hotels were classified as real estate held for sale on June 30, 1997
and are presented at the lower of carrying value or fair market value less
estimated cost to dispose. The revenues and expenses for the six months
ended June 30, 1997 and 1996, of the eight properties were as follows:
For the Six Months Ended
June 30,
------------------------
1997 1996
---- ----
Hotel operating revenues $10,113,000 $9,693,000
Hotel operating expenses $ 6,258,000 $6,119,000
Depreciation and other amortization $ 1,238,000 $1,222,000
Interest $ 1,735,000 $1,740,000
Page 7 of 20
<PAGE>
No further depreciation and amortization of deferred costs for the eight
properties will be provided after June 30, 1997.
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 Daily
Rate Room Rate
(%) (%)
Six Three Six Three
Months Months Months Months
Ended Ended Ended Ended
Date June 30, June 30, June 30, June 30,
of --------- --------- ---------- -----------
Name and Location Rooms Purchase 1997 1996 1997 1996 1997 1996 1997 1996
----------------- ----- -------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residence Inn - Ontario 200 04/88 75 76 74 79 78.65 68.34 78.21 67.91
Ontario, California
Residence Inn - Fort Wayne 80 06/88 80 91 87 91 65.41 64.82 64.38 65.03
Fort Wayne, Indiana
Residence Inn - Columbus (East) 80 06/88 87 86 88 90 72.51 73.44 75.21 74.03
Columbus, Ohio
Residence Inn - Indianapolis (North) 88 06/88 80 78 87 79 77.19 77.76 80.64 81.86
Indianapolis, Indiana
Residence Inn - Lexington 80 06/88 92 93 96 95 76.62 68.48 82.55 73.00
Lexington, Kentucky
Residence Inn - Louisville 96 06/88 87 85 87 86 91.35 84.15 96.15 89.16
Louisville, Kentucky
Residence Inn - Winston-Salem 88 06/88 81 85 85 84 80.44 76.54 81.63 81.96
Winston-Salem, North Carolina
Residence Inn - Nashville (Airport) 168 05/89 78 72 88 78 86.08 76.06 89.12 80.51
Nashville, Tennessee
Residence Inn - Altamonte Springs 128 03/90 90 86 87 84 92.78 86.94 91.64 83.89
Altamonte Springs, Florida
Page 8 of 20
</TABLE>
<PAGE>
Results of Operations
Net income was $643,000 for the first half of 1997 compared to net loss of
$174,000 for the same period in 1996 and net income increased by $421,000 from
$144,000 for the second quarter of 1996 to $565,000 for the second quarter of
1997. The improved results are primarily attributable to substantially improved
operations at the Residence Inn - Nashville, which experienced weak operations
throughout 1996. In addition, operations improved at the Residence Inns -
Altamonte Springs, Lexington, and Indianapolis. Revenues from hotel operations
increased 7% and 8% in the first half and second quarter of 1997, respectively,
as compared to the same periods of 1996 due to substantial increases at five of
the hotels. Hotel operating expenses increased by 1% and 2% for the first half
and second quarter of 1997, respectively, when compared to 1996. The slight
increases resulted from escalating room costs and management fees, which were
partially offset by decreases in administrative expenses, particularly at the
Residence Inn - Nashville, and decreases in property tax, energy, and repairs
and maintenance expenses. Interest income decreased in 1997 compared to 1996 as
a result of lower cash balances due to the distribution of a portion of the
sales proceeds from the Residence Inn - Atlanta (Perimeter West) in August 1996.
General and administrative expenses decreased substantially in 1997 as compared
to 1996 due to the recognition in 1996 of a $74,000 cost associated with the
additional loan obligation on the Residence Inn - Nashville. In addition, legal
expenses decreased in the first half of 1997 compared to the same period in
1996.
In a letter to investors dated December 10, 1996, the Partnership reported that
it intends to proceed with the marketing for sale of the remaining hotels in the
Partnership's Portfolio. The Partnership has since interviewed and chosen a real
estate broker to market the properties for sale. In July of 1997 the broker
actively began marketing eight of the nine remaining hotels for sale. Upon
review and legal consultation, the Partnership decided to forgo the marketing of
the Residence Inn - Nashville at this time pending resolution of certain legal
issues (see Part II, Item 1 for more details in this regard). Investors will be
kept appraised as to the status of operations and the potential sale of
properties either through regularly scheduled reports or special communications.
The following discussion provides information concerning the operations of the
Partnership's remaining nine hotels:
Residence Inn - Ontario: Room revenues increased 10% for the first six months of
1997 as compared to the same period of the prior year. Occupancy declined
slightly, to 75%, while the average daily room rate climbed $10.31 to $78.65.
These increases were offset in part by an increase of 12% in the hotel's
operating expenses, primarily due to increases in room expenses. Through the
second quarter, Lockheed continued to provide the hotel's largest share of
business; however, the facility closed in July. Business generated by Lockheed
employee relocations has increased temporarily, but is expected to terminate by
December. Expansion of other businesses in the area continues, however, arising
from firms moving into the new Mills Shopping Center and from the
recently-opened California Speedway. Additionally, the convention center under
construction across the street from the hotel is scheduled to open in late 1997.
Two nearby discount extended-stay hotels continue to provide intense competition
for the Partnership's hotel by consistently discounting rates. A new all-suite
hotel also opened during the quarter, which is anticipated to place pressure on
occupancy and room rates at the Residence Inn
Residence Inn- Columbus (East): Room revenues remained unchanged for the first
half of 1997 as compared to the same period of the prior year. Occupancy
increased slightly, to 87%, while the average daily room rate declined $0.93 to
$72.51. Although the Columbus economy continues to expand, most of the growth
has been centered in the north and northeast quadrants of the city, with very
little change in the east where the Partnership's hotel is located. The sales
staff has been very active in its attempts to increase business, particularly
through sales blitzes and telemarketing campaigns. The hotel also continues to
pursue business from one of its former large corporate patrons which had
recently signed a contract with a competing hotel. Primary competition continues
to be from a nearby Holiday Inn, although another extended stay hotel is
currently under construction approximately 1/2 mile from the Partnership's
property, and a neighboring hotel is scheduled for an extensive multi-million
dollar renovation. Competition arising from these projects is expected to
increase dramatically by year-end.
Residence Inn - Fort Wayne: Room revenues for the first half of 1997 decreased
12% as compared to the same period of the prior year, primarily resulting from a
substantial decline in occupancy of 11%, to 80%. This decrease was only
partially offset by a marginal increase of $0.59 in the average daily room rate
to $65.41, and a decrease of 17% in operating expenses, primarily due to lower
property taxes. The Fort Wayne hotel market has begun to recover from a slump
caused by labor disputes in the auto industry, but competition from existing
hotels and apartment complexes has increased. A new discount extended-stay hotel
is currently under construction, and is positioned to capture rate-conscious
business from the auto industry and the Fort Wayne airport. The hotel's sales
and marketing staff are focusing on maintaining the existing client base while
Page 9 of 20
<PAGE>
continuing to research leads on new business from local newspapers, as well as
through the offering of relocation packages.
Residence Inn - Indianapolis: Room revenues increased by 2% for the first six
months of 1997 as compared to the same period of the prior year. Occupancy also
increased by 2% to 80% while the average daily room rate remained relatively
stable. Significant savings in operating expenses, coupled with a large property
tax refund contributed to the overall positive operations and improved operating
results of the hotel. The local economy remains strong with low unemployment
rates. Competition in the market has, however, increased as two hotels opened
during the first quarter, and a third hotel opened this summer. In addition,
four more hotels are scheduled to come on line by the end of the year. The
marketing strategy for the hotel is focused on increasing the extended-stay
patronage base. In addition, a new banner was added at the property, increasing
visibility and, in turn, higher-rated short-term summer leisure business.
Residence Inn - Lexington: Room revenues increased substantially, by 11%, for
the first six months of the year, as compared to the same period of 1996.
Occupancy remained strong, at 92%, the highest rate in the Portfolio, while the
hotel's general operating expenses declined by 6%. The economy in Lexington
remains strong, and the Partnership's hotel continues to dominate the
extended-stay market. Additionally, a new system of "special event rates" was
implemented, providing for top rates for special events, regardless of the
length of stay, a strategy which has been accepted by patrons. The high
occupancy generated last quarter by flood relief workers has been replaced by a
significant increase this quarter in long-term corporate training business. The
property's landscaping was upgraded during the quarter, which served to
significantly increase its curbside appeal. Although the hotel currently enjoys
little direct competition, construction began on a new 200-suite extended-stay
hotel in July, which will likely impact the Partnership's hotel when the new
rooms come on line.
Residence Inn - Louisville: Room revenues increased by 11% for the first half of
1997 as compared to the same period of 1996, resulting primarily from an
increase of $7.20 in the average daily room rate to $91.35. The hotel's
occupancy for the period rose to 87%, an increase of 2%. Administrative
expenses, primarily a sales and use tax levied against the hotel by the State of
Kentucky, were significantly higher, resulting in a slight decline in overall
operating results. Although the Louisville economy has remained strong, the
Partnership's hotel continues to face strong competition in the local market.
Several other extended-stay hotels offer suites at discounted rates, capturing
much of the lower-rated business. Two new hotels opened recently in the market,
and plans were confirmed for two more to open in 1998, with a third under
consideration.
Residence Inn - Winston-Salem: Room revenues remained relatively unchanged for
the period, as compared to the first half of 1996. Occupancy declined 4%, to
81%, as compared to the same period of the prior year; however the decrease was
offset by an increase in the average daily room rate of $3.90 to $80.44, which
resulted in a slight improvement in operating results for the period. The
Winston-Salem economy is beginning to show signs of stability after the economic
decline which followed the relocation of several large corporate divisions from
the area. Corporate business is showing signs of improvement, and the hotel has
garnered some new business from this segment. Marketing efforts are currently
concentrated on increasing patronage from mid-term stay clients. Primary
competition for the Partnership's hotel is from a local apartment complex
offering units for short-term stays. Additionally, one new discount
extended-stay hotel opened in the market with 111 rooms, targeting the most
rate-sensitive clients. Three more hotels are anticipated to open by year-end.
Residence Inn - Nashville: Room revenues increased by nearly 18% for the first
half of the year, due in large part to an increase in the average daily room
rate of $10.02 to $86.08, and an increase in occupancy of 6%, to 78%. The
hotel's operating expenses declined by 7%, due in part to $83,000 recorded in
the first half of 1996 related to the sales and use taxes discussed below.
Overall operating results for the period were positive and markedly improved
over the same period of 1996. The improvement in operations was partially due to
a significant increase in business arising from conventions. High rated,
short-term patronage has also increased, in part due to advertisements aimed at
attracting business from wedding parties and other groups. Competition in the
already tight market will increase, as a new extended-stay hotel is scheduled to
open in September of 1997, just two blocks from the Partnership's hotel, and
another hotel, a direct competitor, is undergoing an extensive renovation.
Additionally, Opryland theme park added 100 new rooms to its hotel, which will
likely impact the patronage from that source previously captured by the
Partnership's hotel. The exterior of the hotel was recently completely
repainted, and draperies and art work were upgraded in all of the suites. The
hotel continues to face additional sales and use taxes levied against it by the
State of Tennessee covering the period from 1989 through 1993. The estimated
liability for the potential payment of these taxes totaled $217,000 (including
interest) at June 30, 1997. The Partnership filed a lawsuit against the State
disputing these taxes, and a trial is scheduled for the fourth quarter of this
year.
Page 10 of 20
<PAGE>
Residence Inn - Altamonte Springs: Room revenues increased by 8% for the first
six months of 1997 as compared to the same period of 1996. The average daily
room rate increased by $5.84, to $92.78 for the period, and occupancy increased
4%, to 90%, providing for improved positive operating results for the period.
The increases were only partially offset by an increase of 7% in operating
expenses. Market conditions continue to be favorable for the Partnership's
hotel. Strong demand from the corporate (particularly from relocations and
training) and leisure sectors has permitted the hotel to post the best second
quarter results in its history. The local economy continues to expand at a rapid
pace with several corporations moving into Altamonte Springs and nearby Lake
Mary. Several hotels currently compete with the Residence Inn - Altamonte
Springs, although demand remains high and on occasion patronage has been turned
down for Monday through Thursday nights. There remains significant new
competition on the near horizon, however, as two new extended-stay hotels are
currently under construction, and three others are expected to break ground by
the end of the year. There are also preliminary plans for a new hotel less than
1/2 mile from the Partnership's property, and an existing hotel has announced
plans for an additional 67 suites. Two local apartment complexes are also
planing to dedicate more units to their short-term lease inventory. The hotel's
sales staff is focusing its strategies on direct sales and attentive customer
service, soliciting business from weekend wedding groups, and hosting special
events for nearby leading real estate companies. Renovations recently completed
at the hotel include a new fence around the property, landscaping of the sun
deck area, and a new roof for one of the buildings.
Partnership Liquidity and Capital Resources
First Half of 1997
As presented in the Statement of Cash Flows, cash was provided by operating
activities. Cash was provided by investing activities from proceeds from sale of
cash investments and was used for capital improvements. 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 six and
three months ended June 30, 1997 and 1996 (as shown in the tables on pages 13
and 14) 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 1997, all of the Partnership's nine remaining hotel properties generated
positive project operations before deduction for capital improvements. 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 1997, the Partnership spent $799,000 on capital
improvements. The majority was spent on room renovations at the Residence Inns -
Nashville, Columbus, Indianapolis, Ontario, and Winston-Salem. In addition,
capital was spent on extensive stairway work at the Residence Inn - Nashville.
During the remainder of 1997, depending on sales activity, the Partnership
anticipates spending approximately $1,000,000 on capital improvements, which are
necessary to keep the properties competitive in their respective markets and are
required under the agreements with Marriott.
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 in separate interest-bearing accounts with additions made monthly
based on revenues and expenditures which are based on approved capital
expenditure budgets by the Partnership. 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.
As previously reported, resale transactions reached 4.9% of the total number of
outstanding Units as of February 26, 1997, at which point the Managing General
Partner suspended the processing of resale transactions for the remainder of the
calendar year. This action was taken by the Managing General Partner in
accordance with its fiduciary responsibility and with the advice of Counsel to
protect the Partnership's tax status as a limited partnership. IRS regulations
provide that should 5% or more of the outstanding assignee limited partnership
Units be traded in a calendar year, the partnership could be classified as a
publicly traded partnership for federal tax purposes, and could therefore be
Page 11 of 20
<PAGE>
taxed as a corporation. Gemisys, the Partnership's Servicing and Transfer Agent,
has been instructed to return all paperwork regarding such transactions to the
originators. The Partnership regrets this suspension, but believes that such
action is in the best interest of the Partnership and its investors.
Conclusion
The Partnership established an estimated value for the assignee Units in the
Partnership as of December 31, 1996. 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 reasonable. The value of the
properties as determined by the appraisal process, in combination with the book
value of other Partnership assets, resulted in an estimated net asset value of
each assignee Unit of $503 as of December 31, 1996. As of December 31, 1995, the
value of the properties as determined by the appraisal process, in combination
with the book value of other Partnership assets, resulted in an estimated net
asset value of each assignee Unit of $521. It should be noted 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.
The change in value (from December 31, 1995 to December 31, 1996) was primarily
due to the distribution of a portion of the proceeds from the sale of the
Residence Inn - Atlanta, in the amount of $33.37 per Unit in conjunction with
the August 1996 regular quarterly distribution, and to only modest changes in
values of the hotels over the past year.
This valuation is an estimate of the assignee Unit value only which has been
made as of December 31, 1996 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 $191 to $466 in 1997 (through
February 26, 1997, at which time trading was suspended, as discussed above). 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 1997 was made at an
annualized rate of 4%, and a cash distribution from second quarter operating
results will be made to investors at an annualized rate of 4%. The cash
distribution for the first quarter of 1996 was made at an annualized rate of 3%;
cash distributions from operations for the second, third and fourth quarters of
1996 were made at an annualized rate of 4%.
Page 12 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, 1997
(000's)
<CAPTION>
Columbus Fort
Ontario (East) Wayne Indianapolis Lexington Louisville
------- ------ ----- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $2,108 $851 $700 $914 $945 $1,279
Telephone and other 121 40 33 32 48 71
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 2,229 891 733 946 993 1,350
Interest and other 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 2,229 891 733 946 993 1,350
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Hotel operations:
Rooms 403 215 152 224 152 245
Administrative 245 122 91 88 133 193
Marketing 245 91 75 98 97 142
Energy 109 62 48 43 40 44
Repair and maintenance 102 54 34 66 66 64
Management fees 98 26 22 32 45 44
Property taxes 47 42 20 (19) 23 37
Other 74 25 23 27 35 42
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 1,323 637 465 559 591 811
Depreciation and other
amortization 259 115 120 141 139 148
Interest 428 138 145 168 163 188
General and administrative 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 2,010 890 730 868 893 1,147
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME(LOSS) 219 1 3 78 100 203
Plus non-cash items - net 259 117 122 144 141 151
Less notes payable
principal payments 0 10 10 12 12 13
----------- ----------- ----------- ----------- ----------- -----------
Project operations 478 108 115 210 229 341
Capital Improvements 166 56 8 83 43 10
----------- ----------- ----------- ----------- ----------- -----------
Project operations after
capital improvements $312 $52 $107 $127 $186 $331
=========== =========== =========== =========== =========== ===========
Occupancy 75% 87% 80% 80% 92% 87%
ADR $78.65 $72.51 $65.41 $77.19 $76.62 $91.35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winston Altamonte
Salem Nashville Atlanta Springs Partnership Total
----- --------- ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $964 $2,027 $0 $1,888 $0 $11,676
Telephone and other 59 114 0 60 0 578
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 1,023 2,141 0 1,948 0 12,254
Interest and other 0 0 0 0 179 179
------------ ----------- ----------- ----------- ----------- -------------
Total revenues 1,023 2,141 0 1,948 179 12,433
------------ ----------- ----------- ----------- ----------- -------------
EXPENSES:
Hotel operations:
Rooms 220 457 0 358 0 2,426
Administrative 119 229 0 210 0 1,430
Marketing 109 241 0 190 0 1,288
Energy 53 103 0 101 0 603
Repair and maintenance 69 134 0 88 0 677
Management fees 42 64 0 111 0 484
Property taxes 34 87 0 82 0 353
Other 36 152 0 50 0 464
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 682 1,467 0 1,190 0 7,725
Depreciation and other
amortization 141 253 0 175 0 1,491
Interest 165 431 0 340 0 2,166
General and administrative 0 0 0 0 408 408
------------ ----------- ----------- ----------- ----------- -------------
Total expenses 988 2,151 0 1,705 408 11,790
------------ ----------- ----------- ----------- ----------- -------------
NET INCOME(LOSS) 35 (10) 0 243 (229) 643
Plus non-cash items - net 143 253 0 259 0 1,589
Less notes payable
principal payments 12 65 0 48 0 182
------------ ----------- ----------- ----------- ----------- -------------
Project operations 166 178 0 454 (229) 2,050
Capital Improvements 57 349 0 27 0 799
------------ ----------- ----------- ----------- ----------- -------------
Project operations after
capital improvements $109 ($171) $0 $427 ($229) $1,251
============ =========== =========== =========== =========== =============
Occupancy 81% 78% 90% 82%
ADR $80.44 $86.08 $92.78 $81.37
</TABLE>
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
=========== =========== =========== =========== =========== ===========
Occupancy 76% 86% 91% 78% 93% 85%
ADR $68.34 $73.44 $64.82 $77.76 $68.48 $84.15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
============ =========== =========== =========== =========== =============
Occupancy 85% 72% 0% 86% 82%
ADR $76.54 $76.06 $0.00 $86.94 $75.17
</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 Three Months Ended June 30, 1997
(000's)
<CAPTION>
Columbus Fort
Ontario (East) Wayne Indianapolis Lexington Louisville
------- ------ ----- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $1,056 $447 $375 $517 $535 $679
Telephone and other 59 15 18 19 21 35
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 1,115 462 393 536 556 714
Interest and other 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 1,115 462 393 536 556 714
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Hotel operations:
Rooms 209 109 70 109 78 119
Administrative 113 65 48 58 72 120
Marketing 116 48 39 52 48 73
Energy 55 27 19 22 16 22
Repair and maintenance 51 31 18 32 36 35
Management fees 48 13 12 20 32 25
Property taxes 24 22 10 13 11 15
Other 42 13 14 15 17 24
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 658 328 230 321 310 433
Depreciation and other
amortization 130 58 60 71 70 74
Interest 214 69 73 84 81 94
General and administrative 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 1,002 455 363 476 461 601
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME(LOSS) 113 7 30 60 95 113
Plus non-cash items - net 130 59 61 73 71 75
Less notes payable
principal payments 0 5 5 6 6 6
----------- ----------- ----------- ----------- ----------- -----------
Project operations 243 61 86 127 160 182
Capital Improvements 65 51 6 52 34 2
----------- ----------- ----------- ----------- ----------- -----------
Project operations after
capital improvements $178 $10 $80 $75 $126 $180
=========== =========== =========== =========== =========== ===========
Occupancy 74% 88% 87% 87% 96% 87%
ADR $78.21 $75.21 $64.38 $80.64 $82.55 $96.15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winston Altamonte
Salem Nashville Atlanta Springs Partnership Total
----- --------- ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $514 $1,211 $0 $921 $0 $6,255
Telephone and other 32 63 0 25 0 287
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 546 1,274 0 946 0 6,542
Interest and other 0 0 0 0 77 77
------------ ----------- ----------- ----------- ----------- -------------
Total revenues 546 1,274 0 946 77 6,619
------------ ----------- ----------- ----------- ----------- -------------
EXPENSES:
Hotel operations:
Rooms 117 256 0 197 0 1,264
Administrative 52 120 0 97 0 745
Marketing 56 128 0 92 0 652
Energy 23 36 0 47 0 267
Repair and maintenance 38 74 0 49 0 364
Management fees 28 38 0 48 0 264
Property taxes 17 47 0 40 0 199
Other 18 77 0 21 0 241
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 349 776 0 591 0 3,996
Depreciation and other
amortization 63 127 0 86 0 739
Interest 82 216 0 170 0 1,083
General and administrative 0 0 0 0 236 236
------------ ----------- ----------- ----------- ----------- -------------
Total expenses 494 1,119 0 847 236 6,054
------------ ----------- ----------- ----------- ----------- -------------
NET INCOME(LOSS) 52 155 0 99 (159) 565
Plus non-cash items - net 64 127 0 128 0 788
Less notes payable
principal payments 6 33 0 25 0 92
------------ ----------- ----------- ----------- ----------- -------------
Project operations 110 249 0 202 (159) 1,261
Capital Improvements 57 220 0 22 0 509
------------ ----------- ----------- ----------- ----------- -------------
Project operations after
capital improvements $53 $29 $0 $180 ($159) $752
============ =========== =========== =========== =========== =============
Occupancy 85% 88% 87% 85%
ADR $81.63 $89.12 $91.64 $83.11
</TABLE>
Page 15 of 20
<PAGE>
<TABLE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Three 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 $1,005 $446 $397 $481 $466 $617
Telephone and other 70 18 23 23 34 44
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 1,075 464 420 504 500 661
Interest and other 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 1,075 464 420 504 500 661
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Hotel operations:
Rooms 165 101 87 110 69 106
Administrative 127 61 47 55 66 59
Marketing 109 43 40 62 59 71
Energy 55 17 19 24 18 21
Repair and maintenance 48 30 24 36 32 33
Management fees 31 14 9 15 15 24
Property taxes 28 19 53 18 12 19
Other 41 21 13 11 13 19
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 604 306 292 331 284 352
Depreciation and other
amortization 126 55 54 65 66 75
Interest 214 69 73 84 82 95
General and administrative 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 944 430 419 480 432 522
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME(LOSS) 131 34 1 24 68 139
Plus non-cash items - net 126 57 54 66 67 77
Less notes payable
principal payments 2 5 4 6 6 6
----------- ----------- ----------- ----------- ----------- -----------
Project operations 255 86 51 84 129 210
Capital Improvements 28 23 3 76 121 85
----------- ----------- ----------- ----------- ----------- -----------
Project operations after
capital improvements $227 $63 $48 $8 $8 $125
=========== =========== =========== =========== =========== ===========
Occupancy 79% 90% 91% 79% 95% 86%
ADR $67.91 $74.03 $65.03 $81.86 $73.00 $89.16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winston Altamonte
Salem Nashville Atlanta Springs Partnership Total
----- --------- ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $507 $1,012 $0 $835 $0 $5,766
Telephone and other 31 38 0 29 0 310
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 538 1,050 0 864 0 6,076
Interest and other 0 0 0 0 112 112
------------ ----------- ----------- ----------- ----------- -------------
Total revenues 538 1,050 0 864 112 6,188
------------ ----------- ----------- ----------- ----------- -------------
EXPENSES:
Hotel operations:
Rooms 104 216 0 177 0 1,135
Administrative 65 252 (13) 106 0 825
Marketing 57 114 0 93 0 648
Energy 26 59 0 47 0 286
Repair and maintenance 36 95 0 45 0 379
Management fees 27 32 0 32 0 199
Property taxes 17 29 0 44 0 239
Other 16 59 0 22 0 215
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 348 856 (13) 566 0 3,926
Depreciation and other
amortization 64 122 0 87 0 714
Interest 84 216 0 169 0 1,086
General and administrative 0 0 0 0 318 318
------------ ----------- ----------- ----------- ----------- -------------
Total expenses 496 1,194 (13) 822 318 6,044
------------ ----------- ----------- ----------- ----------- -------------
NET INCOME(LOSS) 42 (144) 13 42 (206) 144
Plus non-cash items - net 64 122 0 128 74 835
Less notes payable
principal payments 6 40 0 21 0 96
------------ ----------- ----------- ----------- ----------- -------------
Project operations 100 (62) 13 149 (132) 883
Capital Improvements 43 231 0 54 0 664
------------ ----------- ----------- ----------- ----------- -------------
Project operations after
capital improvements $57 ($293) $13 $95 ($132) $219
============ =========== =========== =========== =========== =============
Occupancy 84% 78% 84% 84%
ADR $81.96 $80.51 $83.89 $77.10
</TABLE>
Page 16 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 proceedings described below
(other than the sales tax related case). Terms defined in the description of one
case may be used in the description of the other cases.]
This lawsuit relates to disputes in connection with management of the
Partnership's Residence Inn - Ontario by an entity controlled by Kenneth E.
Nelson ("Nelson") from April 1988 to February 1991. In March 1993, the
Partnership and Nelson verbally agreed to settle the SF Lawsuit at a settlement
conference (the "SF Settlement"), whereby the Partnership would 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. Various disagreements between the
Partnership and Nelson regarding the SF Settlement arose after March 1993 and
documents to effectuate the SF Settlement 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 in 1986 and voided the conveyance.
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"). As discussed in more detail below (see "Nashville Case I"),
subsequent to a judicial sale held on July 24, 1996, the Court ruled in a
confirmation hearing held in August 1996 that the Land would be sold to Orlando
Residence, Ltd ("Orlando"). In December, 1996, the Tennessee Court of Appeals
reversed the judgement underlying the judicial sale; this reversal may result in
NLC regaining ownership of the Land pending the outcome of a new trial. Unless
NLC regains ownership of the Land, the Partnership will not be able to purchase
the Land as agreed in the SF Settlement.
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 Elm Hill Pike, Inc. ("2300") (formerly known as Nashville Residence
Corporation until 1986) was the original owner of the Hotel (including the
Land). 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
and the Partnership, alleging that the sale of the Hotel and the Land by 2300 to
NLC in 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 a judgment against 2300. In August 1993, the Court dismissed this
action against the Partnership. The Partnership's only material continuing
interest in the case is its effect on ownership of the Land and the Lease.
In August 1994, the Court held that the sale of the Hotel by 2300 to NLC was a
fraudulent conveyance and voided the conveyance. The defendants appealed the
judgment for Orlando in this case to the Tennessee Court of Appeals, but the
judgment was not stayed pending appeal. Oral argument on this appeal was held on
November 1, 1996, and in December 1996, the Court of Appeals reversed the
judgement for Orlando, sending the case back to the lower court for further
proceedings.
Prior to this reversal, 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 was a credit sale, with the purchase price due in six months.
This sale was held on July 24, 1996. At a confirmation hearing in August 1996,
the Court ordered the Land to be sold to Orlando. The Court further ordered that
Orlando was to become the landlord under the Lease. Because of this reversal and
the refusal of the Tennessee Supreme Court to hear an appeal from Orlando, NLC
may regain ownership of the Land and again be the landlord under the Lease,
pending the outcome of a new trial.
Page 17 of 20
<PAGE>
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 filed this 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 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 and trial has
been set for February 9, 1998. 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.
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").
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 senior
mortgage on the Hotel ("Senior Mortgage"), a note held by NLC "wrapped around"
the Senior Mortgage (the "Wrap Note") and the Lease as a consequence of GSI's
cure of certain defaults by NLC under the Senior Mortgage. GSI believed that as
a result of such cure, it became the direct obligor to the lender under the
Senior Mortgage and that the Wrap Note had been satisfied and the payments due
under the Lease reduced by $50,000 per year. GSI also sought 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 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. NLC and 2300 claimed damages from the Partnership and
asked the Court to permit acceleration of the Wrap Note and termination of 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 of NLC and 2300. At a hearing on this motion held in
August 1996 the Court granted the Partnership's motion. The defendants will
appeal all judgments for the Partnership in this case. The Partnership and the
defendants have agreed on an attorneys' fee award to the Partnership of $60,000,
but no payment is expected until the defendants' appeal is resolved.
Metric Realty et al vs. Kenneth E. Nelson and Nashville Lodging Co., San
Francisco County Superior Court, Case No. 987134 (the "Declaratory Relief
Action").
Kenneth E. Nelson and Nashville Lodging Co. vs. Metric Realty et al., U.S.
District Court for the Middle District of Tennessee, in Nashville, Case No.
3-97-0779 (the "Inducement Action").
Page 18 of 20
<PAGE>
In the second quarter of 1997, Nelson alleged that Metric Realty and GHI
Associates II, L.P., the Managing and Associate General Partners, respectively,
of the Partnership, and certain of Metric Realty's affiliates (the "Affiliates")
and certain former and current employees of Metric Realty or its affiliates (the
"Employees") had improperly induced the Partnership to breach the SF Settlement.
In May 1997, Metric Realty and GHI Associates II, L.P., the Affiliates and the
Employees filed the Declaratory Relief Action against Nelson and NLC to obtain a
judgment that the plaintiffs did not improperly cause the Partnership to breach
the SF Settlement. In June 1997, Nelson and NLC filed the Inducement Action in
the Chancery Court for Davidson County, in Nashville, Tennessee (the "Chancery
Court") against Metric Realty, GHI Associates II, L.P., the Affiliates and
certain of the Employees (the "Inducement Action Defendants"), seeking
unspecified compensatory, treble and punitive damages for the alleged improper
inducement of breach of contract.
No responsive pleadings have yet been filed to either action. However, the
Inducement Action Defendants removed the lawsuit from the Chancery Court to the
U.S. District Court for Tennessee on July 25, 1997. It is expected that Nelson
will attempt to have this action remanded to the Chancery Court. The Inducement
Action Defendants have also filed a motion to dismiss the complaint against the
Employees and one of the Affiliates named in the action based on lack of
jurisdiction and against the remaining Affiliates based on failure to state a
claim. In addition, the Inducement Action Defendants have moved for a stay of
the Inducement Action pending the outcome of the Declaratory Relief Action.
The legal and other expenses of the Inducement Action Defendants in both the
Declaratory Relief Action and the Inducement Action arising as a result of the
allegations made by Nelson will be paid by the Partnership pursuant to the
indemnification provisions of the Partnership's limited partnership agreement
and subject to the conditions set forth in those provisions.
Metric Partners Growth Suite Investors, L.P. vs. Joe Huddleston, Commissioner of
Revenue for the State of Tennessee, Chancery Court for Davidson County, in
Nashville, Tennessee, Case No. 94-1227-II.
GSI filed this action April 25, 1994 to challenge the assessment of a sales and
use tax deficiency by the State for the period 1989 through 1993 (the alleged
deficiency plus estimated accrued interest totaled $217,000 at June 30, 1997).
In general, the claimed deficiency relates primarily to sales tax alleged to be
owed in connection with (i) room rental to federal employees, (ii) telephone
calls by guests and (iii) food and beverage items used in the Hotel's
complimentary breakfast and evening social hour. In February 1997, GSI learned
that this case had been dismissed for failure to prosecute by its attorneys. On
April 25, 1997, the Court granted the Partnership's motion to reinstate the case
and a trial is scheduled for the fourth quarter of 1997.
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.
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: SSR Realty Advisors, Inc.,
a Delaware corporation,
its Managing General Partner
By: /s/ William A. Finelli
-------------------------------
William A. Finelli
Managing Director,
Principal Financial and Accounting Officer of
SSR Realty Advisors, Inc.
Date: August 11, 1997
---------------
Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,092,000
<SECURITIES> 0
<RECEIVABLES> 1,412,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,633,000
<PP&E> 91,255,000
<DEPRECIATION> 33,295,000
<TOTAL-ASSETS> 67,113,000
<CURRENT-LIABILITIES> 3,395,000
<BONDS> 42,408,000
0
0
<COMMON> 0
<OTHER-SE> 21,010,000
<TOTAL-LIABILITY-AND-EQUITY> 67,113,000
<SALES> 0
<TOTAL-REVENUES> 12,254,000
<CGS> 0
<TOTAL-COSTS> 7,725,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,166,000
<INCOME-PRETAX> 643,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 643,000
<EPS-DILUTED> 10
</TABLE>
