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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 September 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 21
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
BALANCE SHEETS (UNAUDITED)
September 30, December 31,
1997 1996
---- ----
ASSETS
CASH AND CASH EQUIVALENTS $ 3,843,000 $ 3,436,000
CASH INVESTMENTS 3,888,000 3,893,000
RESTRICTED CASH 327,000 308,000
ACCOUNTS RECEIVABLE 1,546,000 715,000
PREPAID EXPENSES AND OTHER ASSETS 207,000 209,000
PROPERTIES AND IMPROVEMENTS 13,906,000 90,456,000
ACCUMULATED DEPRECIATION (5,127,000) (31,825,000)
------------ ------------
NET PROPERTIES AND IMPROVEMENTS 8,779,000 58,631,000
REAL ESTATE HELD FOR SALE 49,336,000 --
DEFERRED FINANCING COSTS 33,000 73,000
DEFERRED FRANCHISE FEES 148,000 171,000
------------ ------------
TOTAL ASSETS $ 68,107,000 $ 67,436,000
============ ============
LIABILITIES AND PARTNERS' EQUITY
ACCOUNTS PAYABLE $ 1,375,000 $ 1,107,000
ACCRUED PROPERTY TAXES 593,000 311,000
ACCRUED INTEREST 295,000 263,000
OTHER LIABILITIES 1,640,000 1,347,000
DEFERRED GAIN ON SALE OF PROPERTY 300,000 300,000
NOTES PAYABLE 42,351,000 42,518,000
------------ ------------
TOTAL LIABILITIES 46,554,000 45,846,000
------------ ------------
PARTNERS' EQUITY (DEFICIENCY):
GENERAL PARTNERS 59,000 59,000
LIMITED PARTNERS (59,932 Units outstanding) 21,494,000 21,531,000
------------ ------------
TOTAL PARTNERS' EQUITY 21,553,000 21,590,000
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 68,107,000 $ 67,436,000
============ ============
See notes to financial statements (unaudited).
Page 2 of 21
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Nine Months Ended
September 30,
---------------------------
1997 1996
---- ----
REVENUES:
Hotel operations $ 18,748,000 $ 17,639,000
Interest and other 261,000 331,000
------------ ------------
Total revenues 19,009,000 17,970,000
------------ ------------
EXPENSES:
Hotel operations:
Rooms 3,674,000 3,480,000
Administrative 2,140,000 2,264,000
Marketing 1,939,000 1,948,000
Energy 887,000 907,000
Repair and maintenance 1,014,000 1,040,000
Management fees 747,000 632,000
Property taxes 568,000 551,000
Other 717,000 653,000
------------ ------------
Total hotel operations 11,686,000 11,475,000
Depreciation and other amortization 1,621,000 2,196,000
Interest 3,248,000 3,263,000
General and administrative 656,000 972,000
------------ ------------
Total expenses 17,211,000 17,906,000
------------ ------------
NET INCOME $ 1,798,000 $ 64,000
============ ============
NET INCOME PER LIMITED PARTNERSHIP ASSIGNEE UNIT $29 $ 1
== ===
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $30 $58
=== ===
See notes to financial statements (unaudited).
Page 3 of 21
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended
September 30,
---------------------------
1997 1996
---- ----
REVENUES:
Hotel operations $ 6,494,000 $ 6,156,000
Interest and other 82,000 107,000
------------ ------------
Total revenues 6,576,000 6,263,000
------------ ------------
EXPENSES:
Hotel operations:
Rooms 1,248,000 1,207,000
Administrative 710,000 743,000
Marketing 651,000 675,000
Energy 284,000 274,000
Repair and maintenance 337,000 336,000
Management fees 263,000 234,000
Property taxes 215,000 121,000
Other 253,000 198,000
------------ ------------
Total hotel operations 3,961,000 3,788,000
Depreciation and other amortization 130,000 718,000
Interest 1,082,000 1,084,000
General and administrative 248,000 435,000
------------ ------------
Total expenses 5,421,000 6,025,000
------------ ------------
NET INCOME $ 1,155,000 $ 238,000
============ ============
NET INCOME PER LIMITED PARTNERSHIP ASSIGNEE UNIT $19 $ 4
=== ===
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $10 $43
=== ===
See notes to financial statements (unaudited).
Page 4 of 21
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF PARTNERS' EQUITY (UNAUDITED)
For the Nine Months Ended September 30, 1997 and 1996
General Limited
Partner Partners Total
------- -------- -----
BALANCE, JANUARY 1, 1997 $ 59,000 $ 21,531,000 $ 21,590,000
NET INCOME 37,000 1,761,000 1,798,000
CASH DISTRIBUTIONS (37,000) (1,798,000) (1,835,000)
------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1997 $ 59,000 $ 21,494,000 $ 21,553,000
============ ============ ============
BALANCE, JANUARY 1, 1996 $ 100,000 $ 25,150,000 $ 25,250,000
NET INCOME (LOSS) 30,000 34,000 64,000
CASH DISTRIBUTIONS (71,000) (3,498,000) (3,569,000)
------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1996 $ 59,000 $ 21,686,000 $ 21,745,000
============ ============ ============
See notes to financial statements (unaudited).
Page 5 of 21
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
September 30,
---------------------------
1997 1996
---- ----
OPERATING ACTIVITIES
Net Income $ 1,798,000 $ 64,000
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,772,000 2,339,000
Cost associated with note payable change -- 74,000
Changes in operating assets and liabilities:
Accounts receivable (831,000) (517,000)
Prepaid expenses and other assets 2,000 (5,000)
Accounts payable, accrued expenses, and
other liabilities 875,000 679,000
------------ ------------
Net cash provided by operating activities 3,616,000 2,634,000
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of cash investments 3,893,000 1,969,000
Purchase of cash investment (3,888,000) (5,862,000)
Capital improvements (1,083,000) (1,783,000)
Restricted cash - increase (19,000) (6,000)
------------ ------------
Net cash used by investing activities (1,097,000) (5,682,000)
------------ ------------
FINANCING ACTIVITIES
Notes payable principal payments (277,000) (273,000)
Cash distribution to partners (1,835,000) (3,569,000)
------------ ------------
Cash used by financing activities (2,112,000) (3,842,000)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 407,000 (6,890,000)
Cash and cash equivalents at beginning of period 3,436,000 10,248,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,843,000 $ 3,358,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash during the period $ 3,098,000 $ 3,211,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES
Note payable increase $ -- $ 74,000
============ ============
See notes to financial statements (unaudited).
Page 6 of 21
<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 Nine Months Ended September 30,
---------------------------------------
1997 1996
---- ----
Partnership management fees $160,000 $133,000
Reimbursement of administrative expense 225,000 206,000
-------- --------
Total $385,000 $339,000
======== ========
3. Net Income Per Limited Partnership Assignee Unit
The net income per limited partnership assignee Unit is computed by dividing the
net income 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 September 30, 1997 matures in March 1998 and bears interest
at an effective rate of 5.6% per annum.
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/or defendant in
legal proceedings related to the hotel, loans secured by the hotel and the land
lease at the Residence Inn - Nashville. 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 nine months ended September
30, 1997 and 1996, of the eight properties were as follows:
1997 1996
---- ----
Hotel operating revenues $15,305,000 $14,695,000
Hotel operating expenses $9,441,000 $9,118,000
Depreciation and other amortization $1,238,000 $1,823,000
Interest $2,602,000 $2,608,000
No depreciation and amortization of deferred franchise fees for the eight
properties are recorded after June 30, 1997.
Page 7 of 21
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Item should be read in conjunction with Financial Statements and other
Items contained elsewhere in this Report.
Properties
A description of the properties in which the Partnership has an ownership
interest, along with the occupancy and room rate data, follows:
<TABLE>
OCCUPANCY AND ROOM RATE SUMMARY
<CAPTION>
Average Occupancy Average Daily Room Rate
(%) ($)
----------------------- --------------------------
Nine Three Nine Three
Months Months Months Months
Ended Ended Ended Ended
Date Sept. 30, Sept. 30, Sept. 30, Sept. 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 73 75 68 72 79.06 68.78 86.91 75.41
Ontario, California
Residence Inn - Fort Wayne 80 06/88 84 91 91 90 67.15 66.87 70.17 71.01
Fort Wayne, Indiana
Residence Inn - Columbus (East) 80 06/88 90 87 94 90 74.78 74.97 78.98 77.91
Columbus, Ohio
Residence Inn - Indianapolis (North) 88 06/88 79 81 78 86 79.75 78.76 85.04 80.57
Indianapolis, Indiana
Residence Inn - Lexington 80 06/88 92 93 91 95 78.01 70.19 80.80 73.51
Lexington, Kentucky
Residence Inn - Louisville 96 06/88 90 88 95 93 91.45 87.13 91.64 92.57
Louisville, Kentucky
Residence Inn - Winston-Salem 88 06/88 84 85 91 85 79.74 75.48 78.50 73.39
Winston-Salem, North Carolina
Residence Inn - Nashville (Airport) 168 05/89 82 77 90 85 87.50 78.58 98.83 92.46
Nashville, Tennessee
Residence Inn - Altamonte Springs 128 03/90 85 86 76 85 92.73 84.77 100.01 87.56
Altamonte Springs, Florida
</TABLE>
Results of Operations
Net income increased $1,734,000 and $917,000 for the first three quarters and
third quarter of 1997, respectively, when compared to the same periods in 1996.
Of the increases, approximately $600,000, for each period, is the result of
depreciation not being recorded after June 30, 1997 on the real estate assets
held for sale (see Note 6 to the financial statements). In addition, operations
improved substantially at the Residence Inn - Nashville for both the nine and
three months ended September 30, 1997 in comparison to the same period in 1996.
For the nine months ended September 30, 1997, operations also improved
substantially at the Residence Inns - Lexington and Altamonte Springs.
Revenues from hotel operations increased 6% and 5% in the nine and three months
ended September 30, 1997, respectively, compared to the same periods in 1996,
due to improved operations at seven of the hotels. Hotel operating expenses
increased 2% and 5% for the nine and three months ended September 30, 1997,
respectively, when compared to the same periods in 1996. For the nine months
ended September 30, 1997, room operating expenses increased, particularly at the
Residence Inn - Ontario, and the management fees increased at all but two of the
properties as a result of the overall substantially improved operations. These
increases were offset by lower administrative costs (particularly at the
Page 8 of 21
<PAGE>
Residence Inn - Nashville- see discussion below), and lower expenses for energy,
repairs and maintenance. For the three months ended September 30, 1997, there
were increases in all but administrative and marketing costs, when compared to
the same period of 1996. Expense increases were experienced in room costs,
particularly at the Residence Inns - Ontario and Nashville. The increase in
property taxes is primarily due to a substantial tax refund having been recorded
at the Residence Inn - Fort Wayne in 1996. Interest income decreased in 1997 as
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 for
both the nine and three months ended September 30, 1997. The decrease is
primarily due to the write-off of a $194,000 receivable in the third quarter of
1996 and the recognition in the second quarter of 1996 of a $74,000 cost
associated with the additional loan obligation on the Residence Inn - Nashville.
In addition, for the nine month period ended September 30, 1997, the legal
expenses decreased in comparison to the same period of 1996.
Investors were notified in a letter dated December 10, 1996 that the Partnership
intended to proceed with the marketing for sale of the remaining hotels in its
portfolio. At the beginning of the third quarter a 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 pending resolution of certain legal proceedings (see Part II,
Item 1 for more details in this regard). The Partnership has received offers
from potential purchasers which are currently under review. 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.
It is unlikely that a sale transaction would be completed in 1997. In addition,
the plaintiff in one of the legal proceedings relating to the Residence Inn -
Nashville referenced above, has filed a motion for an injunction prohibiting the
distribution of proceeds from the sale of the Partnership's hotels pending a
final judgement in the case. A hearing on this motion has been set for December
17, 1997.
The following discussion provides information concerning the operations of the
Partnership's remaining nine hotels:
Residence Inn - Ontario: Room revenues increased 9.5% for the first nine months
of 1997 as compared to the same period of the prior year. Occupancy declined by
two percentage points, to 73%, while the average daily room rate rose by $10.28
to $79.06. The increase in room revenue was offset in part by an increase of
12.9% in the hotel's operating expenses, primarily due to increases in room and
administrative expenses. The closure of the nearby Lockheed facility resulted in
a drop in occupancy, although average daily room rates increased as the
low-rated government business terminated. The local economy continues its steady
growth, as the numerous construction projects in the area transition into their
operating phases. Business from the racing events at the Ontario Speedway has
contributed significantly to the hotel's positive operations. Strong competition
continues to come from two existing local competitors, and one new hotel, which
opened last quarter. Construction began on another extended-stay hotel which
will also compete directly with the Partnership's hotel. Recent marketing
efforts included several client appreciation activities, which have resulted in
expanded business.
As previously reported, the Partnership had filed a lawsuit against the former
owner of the Residence Inn - Ontario over the terms of the prior management
contract. Although a verbal settlement was negotiated in the first quarter of
1993, finalization of the settlement has not occurred, and as a result of other
legal proceedings involving the Partnership and affiliates of the former owner,
consummation of the settlement may not be possible. Please refer to Part II,
Item 1 of the Form 10-Q for detailed information regarding the status of these
lawsuits and other related lawsuits seeking damages for the Partnership's
alleged failure to consummate the settlement and which may affect the
consummation of the settlement. In addition, in the second quarter of 1997,
additional lawsuits were filed in connection with allegations by affiliates of
the former owner that the General Partner and certain of its affiliates and
current and former officers improperly induced the Partnership to breach the
settlement. The General Partner believes these allegations are without merit.
Please see Part II, Item 1 of the Form 10-Q for additional information regarding
these actions.
Residence Inn- Columbus (East): Room revenues increased by 2.4 % for the first
three quarters of 1997 as compared to the same period of the prior year.
Occupancy increased 3%, to 90%, while the average daily room rate remained
relatively unchanged, at $74.78. Although the Columbus economy remains strong,
growth appears to have slowed in the immediate area of the Partnership's hotel.
A heavy equipment manufacturer had planned to open a large training facility
nearby this quarter, although it now appears that the opening will not occur
until 1998. Marketing efforts have included participation in a trade show and
two major sales blitzes. The hotel continues to compete with a nearby Holiday
Inn, which offers room rate discounts for customers who also commit to use
utilize other hotel amenities such as meeting or conference rooms. A full
service hotel, adjacent to the Residence Inn, is undergoing an extensive
renovation and will be re-opening under a new name, and an additional new
extended-stay hotel is expected to open in November.
Page 9 of 21
<PAGE>
Residence Inn - Fort Wayne: Room revenues for the first nine months of 1997
decreased 7.9% as compared to the same period of the prior year, primarily
resulting from a decline in occupancy of 7%, to 84%. The average daily room rate
remained essentially unchanged at $67.15, while operating expenses declined 8.2%
due to decreases in room, administrative and marketing costs. The Fort Wayne
economy continues to improve, with new businesses moving into the area and
existing ones expanding operations. Five hotels currently provide the bulk of
competition for the Partnership's hotel, and several nearby apartment complexes
are placing more focus on corporate apartments, reserved for 30-90 day stays. A
new hotel opened in October of this year and will likely become a strong
competitor, while another is undergoing an extensive renovation, due to be
completed by year end. The hotel's marketing staff continues to focus on the
maintenance of strong relationships with the existing large clients and a
comprehensive campaign aimed at attracting new business.
Residence Inn - Indianapolis: Room revenues remained relatively stable for the
first nine months of 1997 as compared to the same period of the prior year.
Occupancy decreased by 2%, to 79% while the average daily room rate increased by
$0.99, to $79.75. At this time, rooms are coming on line in the Indianapolis
hotel market at a more rapid rate than current demand. During the last twelve
months, six new hotels opened in the area, and an existing operation added 30
new suites. In addition, one new extended-stay hotel is anticipated to open by
the end of the year, and a total of ten others are either in the planning or
development stages. Marketing efforts are currently concentrating on attracting
business from local software companies which conduct training business requiring
extended stays.
Residence Inn - Lexington: Room revenues increased by 8.8%, for the first nine
months of the year, as compared to the same period of 1996. Occupancy, although
reflecting a slight decrease, remained strong, at 92%, the highest rate in the
Portfolio. Operations were negatively impacted by an accident involving an
employee, causing a charge to administrative costs equal to the amount of the
hotel's insurance deductible. Economic conditions in Lexington remain stable.
Long-term stay business for the Partnership's hotel continues to come primarily
from several large corporate clients which have used the hotel consistently over
the past several years. The horse racing industry has also proven to be a
continuous source of patronage, at high "special event" rates. The Partnership's
Residence Inn maintains a solid position in the market, although construction
began during the quarter on a 200-suite hotel which will likely prove to be a
strong source of competition. No date for completion has yet been announced.
Plans have also been approved for two new extended-stay hotels in South
Lexington. The sales strategy continues to focus on the maintenance of strong
communication with the hotel's largest accounts to retain this important segment
of the patronage base.
Residence Inn - Louisville: Room revenues increased by 7.1% for the first three
quarters of 1997 as compared to the same period of 1996. The average daily room
rate increased by $4.32 to $91.45, and the occupancy for the period rose to 90%,
an increase of 2%. Hotel operating expenses were significantly higher, by 8.9%
as compared to the same period of 1996, primarily arising from a sales and use
tax levied against the hotel by the State of Kentucky. As evidenced by the
opening of a new Ford truck plant, the economy in Louisville continues to
exhibit solid growth. The opening, along with several large trade shows and
unusually heavy convention business have all contributed to the positive
operations at the hotel. Four extended-stay hotels currently compete directly
with the Partnership's hotel, as do several local apartment complexes offering
short-term leases. Additionally, two new all-suite hotels are anticipated to
open in 1998. Aggressive proactive direct sales strategies used by the marketing
staff have resulted in improved relationships with existing clients and have
generated new accounts.
Residence Inn - Winston-Salem: Room revenues increased by 5.1% for the first
nine months of the year, as compared to the same period of 1996, which was
offset only in part by an increase in operating expenses of 3.3%. Although
occupancy declined slightly, to 84%, as compared to the same period of the prior
year, the average daily room rate increased by $4.26 to $79.74. Although the
departure of several divisions of RJR from Winston-Salem initially caused a
downturn in the area's economy, it appears to be in recovery. The Partnership's
hotel has received additional new business from existing corporate clients,
particularly in the training sector, complimenting higher than usual patronage
from conventions. A new US Postal Service Facility is anticipated to open across
the street from the Residence Inn by mid-year 1998, which may provide new
business for the hotel. Competition, however, remains quite strong and is
growing in intensity, as currently there are six hotels under construction in
the market, with a total of 600 rooms.
Residence Inn - Nashville: Room revenues increased by 15.4% for the nine months
ended September 30, 1997, as compared to the same period of last year, due to an
increase in the average daily room rate of $8.92, to $87.50, and an increase in
occupancy of 5%, to 82%. Overall operating results for the period were positive
and markedly improved over the same period of 1996. The hotel's operating
expenses decreased 4.8% primarily die to a reduction in administrative expenses.
This reduction was caused by a favorable settlement regarding the disputed sales
and use taxes which were assessed by the State of Tennessee against the
Partnership. The Partnership proposed, and the State accepted, payment of
Page 10 of 21
<PAGE>
$122,000, and payment was made in November 1997. The accrual that the
Partnership had carried on its books for potential payment of this assessment
totaled $217,000 (including interest) at June 30, 1997. In the third quarter the
liability was reduced to the amount of the settlement, $122,000, resulting in a
credit of $95,000 to administrative expenses. As $141,000 of the potential
liability for the assessment had been recognized in the first nine months of
1996, the administrative expenses were unusually high in 1996 causing an
additional decrease when compared to 1996. Despite strong competition,
particularly from several new budget extended-stay hotels, the Partnership's
hotel has maintained its share of the market through aggressive sales campaigns.
Advertisements are routinely placed in national travel magazines which provide a
constant source of patronage. Direct sales calls, aimed particularly at
companies which may provide long-term or group business, have also proven
effective. The hotel's in-house maintenance staff has continued with projects
aimed at improving the curbside appeal of the property.
On May 3, 1996, the Partnership filed a lawsuit seeking a judicial determination
of the rights and obligations of the Partnership and the seller of the Residence
Inn-Nashville with respect to the wrap-around purchase money note issued by the
Partnership to the seller, the senior note "wrapped" by the purchase money note,
and the ground lease between the Partnership and the seller as a consequence of
the Partnership's cure of defaults by the seller under the senior note. In
August 1996, the Court in this action granted the Partnership's motion for
summary judgement. As a result, the wrap-around note has been satisfied and the
Partnership is now the direct obligator under the senior loan. However, the
seller is appealing from this ruling. Please refer to Part II, Item 1 for
detailed information regarding the lawsuit and other related actions.
Residence Inn - Altamonte Springs: Room revenues increased by 5.9% for the first
three quarters of 1997 as compared to the same period of 1996, which was only
partially offset by an increase of 5% in operating expenses. The average daily
room rate increased by $7.96, to $92.73 for the period, while occupancy
decreased only slightly to 85%. A drop in the amount of business generated from
sporting events combined with the normal decline in hotel occupancy typical for
the summer months in Florida contributed to the lower average occupancy. The
Partnership's hotel remained, however, ahead of its competition in both
occupancy and rates for the quarter. The hotel is beginning to see an increase
in competition arising from extended-stay hotels or apartment complexes which
offer lower rates in exchange for reduced service, a compromise more businesses
are accepting in order to reduce costs. Two new hotels are nearing completion,
with openings scheduled for early 1998, a third is expected to open by mid-year,
and a fourth by year-end 1998. Two others will likely begin construction in
1998.
Partnership Liquidity and Capital Resources
First Three Quarters 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 and for purchase of cash
investment. 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 nine and
three months ended September 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 nine
months 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 nine months of 1997, the Partnership spent $1,083,000 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 $700,000 on capital improvements, which are
necessary to keep the properties competitive in their respective markets and are
required under the agreements with Marriott.
Page 11 of 21
<PAGE>
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
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. Gemisys
will again begin accepting and processing resale transactions on January 2,
1998.
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.
All of the Partnership's properties are subject to mortgages which mature and
require balloon payments in April or July of 1998. The Partnership has requested
an extension from the lender with respect to the Residence Inn - Nashville.
Depending upon the outcome of the current negotiations to sell the other eight
hotels, the Partnership may begin the process to refinance those hotels during
the fourth quarter of 1997. The Partnership anticipates that the eight mortgages
can be refinanced at favorable rates and terms.
Page 12 of 21
<PAGE>
The Partnership anticipates that it will have sufficient resources to meet its
capital and operating requirements into the foreseeable future. Cash
distribution to investors for the first and second quarters of 1997 were made at
an annualized rate of 4%, and a cash distribution from third 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 13 of 21
<PAGE>
<TABLE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Nine Months Ended September 30, 1997
(000's)
<CAPTION>
Columbus Fort
Ontario (East) Wayne Indianapolis Lexington Louisville
------- ------ ----- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $3,099 $1,352 $1,132 $1,402 $1,439 $1,982
Telephone and other 176 53 55 48 83 108
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 3,275 1,405 1,187 1,450 1,522 2,090
Interest and other 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 3,275 1,405 1,187 1,450 1,522 2,090
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Hotel operations:
Rooms 615 315 229 347 226 354
Administrative 397 198 139 150 213 264
Marketing 357 142 118 151 145 207
Energy 166 86 62 65 60 62
Repair and maintenance 153 80 55 92 93 93
Management fees 122 42 49 48 74 91
Property taxes 73 73 32 (3) 35 56
Other 128 38 36 37 50 60
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 2,011 974 720 887 896 1,187
Depreciation and other
amortization 259 115 120 141 139 148
Interest 641 207 217 251 244 282
General and administrative 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 2,911 1,296 1,057 1,279 1,279 1,617
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME(LOSS) 364 109 130 171 243 473
Plus non-cash items - net 259 118 123 145 142 153
Less notes payable
principal payments 0 15 16 18 18 20
----------- ----------- ----------- ----------- ----------- -----------
Project operations 623 212 237 298 367 606
Capital Improvements 177 103 7 136 64 30
----------- ----------- ----------- ----------- ----------- -----------
Project operations after
capital improvements $446 $109 $230 $162 $303 $576
=========== =========== =========== =========== =========== ===========
Occupancy 73% 90% 84% 79% 92% 90%
ADR $79.06 $74.78 $67.15 $79.75 $78.01 $91.45
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winston Altamonte
Salem Nashville Atlanta Springs Partnership Total
----- --------- ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $1,491 $3,276 $0 $2,703 $0 $17,876
Telephone and other 91 167 0 91 0 872
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 1,582 3,443 0 2,794 0 18,748
Interest and other 0 0 0 0 261 261
------------ ----------- ----------- ----------- ----------- -------------
Total revenues 1,582 3,443 0 2,794 261 19,009
------------ ----------- ----------- ----------- ----------- -------------
EXPENSES:
Hotel operations:
Rooms 329 727 0 532 0 3,674
Administrative 173 302 0 304 0 2,140
Marketing 170 367 0 282 0 1,939
Energy 81 171 0 134 0 887
Repair and maintenance 95 214 0 139 0 1,014
Management fees 75 103 0 143 0 747
Property taxes 50 127 0 125 0 568
Other 55 234 0 79 0 717
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 1,028 2,245 0 1,738 0 11,686
Depreciation and other
amortization 141 383 0 175 0 1,621
Interest 248 646 0 512 0 3,248
General and administrative 0 0 0 0 656 656
------------ ----------- ----------- ----------- ----------- -------------
Total expenses 1,417 3,274 0 2,425 656 17,211
------------ ----------- ----------- ----------- ----------- -------------
NET INCOME(LOSS) 165 169 0 369 (395) 1,798
Plus non-cash items - net 145 384 0 303 0 1,772
Less notes payable
principal payments 18 98 0 74 0 277
------------ ----------- ----------- ----------- ----------- -------------
Project operations 292 455 0 598 (395) 3,293
Capital Improvements 72 426 0 68 0 1,083
------------ ----------- ----------- ----------- ----------- -------------
Project operations after
capital improvements $220 $29 $0 $530 ($395) $2,210
============ =========== =========== =========== =========== =============
Occupancy 84% 82% 85% 83%
ADR $79.74 $87.50 $92.73 $82.22
Page 14 of 21
</TABLE>
<PAGE>
<TABLE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Nine Months Ended September 30, 1996
(000's)
<CAPTION>
Columbus Fort
Ontario (East) Wayne Indianapolis Lexington Louisville
------- ------ ----- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $2,831 $1,320 $1,229 $1,410 $1,323 $1,850
Telephone and other 183 59 73 64 100 113
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 3,014 1,379 1,302 1,474 1,423 1,963
Interest and other 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 3,014 1,379 1,302 1,474 1,423 1,963
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Hotel operations:
Rooms 506 298 250 329 239 337
Administrative 340 179 159 191 212 185
Marketing 334 131 142 174 167 214
Energy 168 76 68 75 67 70
Repair and maintenance 155 78 67 86 95 87
Management fees 90 52 51 44 43 81
Property taxes 69 45 8 56 36 58
Other 119 47 39 30 52 58
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 1,781 906 784 985 911 1,090
Depreciation and other
amortization 378 163 163 196 194 224
Interest 641 208 218 253 246 284
General and administrative 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 2,800 1,277 1,165 1,434 1,351 1,598
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME(LOSS) 214 102 137 40 72 365
Plus non-cash items - net 378 166 167 200 198 228
Less notes payable
principal payments 3 14 14 16 16 18
----------- ----------- ----------- ----------- ----------- -----------
Project operations 589 254 290 224 254 575
Capital Improvements 51 55 249 289 196 186
----------- ----------- ----------- ----------- ----------- -----------
Project operations after
capital improvements $538 $199 $41 ($65) $58 $389
=========== =========== =========== =========== =========== ===========
Occupancy 75% 87% 91% 81% 93% 88%
ADR $68.78 $74.97 $66.87 $78.76 $70.19 $87.13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winston Altamonte
Salem Nashville Atlanta Springs Partnership Total
----- --------- ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $1,419 $2,839 $0 $2,552 $0 $16,773
Telephone and other 83 105 0 86 0 866
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 1,502 2,944 0 2,638 0 17,639
Interest and other 0 0 0 0 331 331
------------ ----------- ----------- ----------- ----------- -------------
Total revenues 1,502 2,944 0 2,638 331 17,970
------------ ----------- ----------- ----------- ----------- -------------
EXPENSES:
Hotel operations:
Rooms 310 688 0 523 0 3,480
Administrative 190 526 (8) 290 0 2,264
Marketing 168 342 0 276 0 1,948
Energy 79 175 0 129 0 907
Repair and maintenance 100 251 0 121 0 1,040
Management fees 61 88 0 122 0 632
Property taxes 44 85 18 132 0 551
Other 43 202 0 63 0 653
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 995 2,357 10 1,656 0 11,475
Depreciation and other
amortization 192 373 0 313 0 2,196
Interest 250 655 0 508 0 3,263
General and administrative 0 0 0 0 972 972
------------ ----------- ----------- ----------- ----------- -------------
Total expenses 1,437 3,385 10 2,477 972 17,906
------------ ----------- ----------- ----------- ----------- -------------
NET INCOME(LOSS) 65 (441) (10) 161 (641) 64
Plus non-cash items - net 196 373 0 433 0 2,339
Less notes payable
principal payments 16 99 0 77 0 273
------------ ----------- ----------- ----------- ----------- -------------
Project operations 245 (167) (10) 517 (641) 2,130
Capital Improvements 329 345 0 83 0 1,783
------------ ----------- ----------- ----------- ----------- -------------
Project operations after
capital improvements ($84) ($512) ($10) $434 ($641) $347
============ =========== =========== =========== =========== =============
Occupancy 85% 77% 86% 83%
ADR $75.48 $78.58 $84.77 $76.16
Page 15 of 21
</TABLE>
<PAGE>
<TABLE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Three Months Ended September 30, 1997
(000's)
<CAPTION>
Columbus Fort
Ontario (East) Wayne Indianapolis Lexington Louisville
------- ------ ----- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $991 $501 $432 $488 $494 $703
Telephone and other 55 13 22 16 35 37
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 1,046 514 454 504 529 740
Interest and other 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 1,046 514 454 504 529 740
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Hotel operations:
Rooms 212 100 77 123 74 109
Administrative 152 76 48 62 80 71
Marketing 112 51 43 53 48 65
Energy 57 24 14 22 20 18
Repair and maintenance 51 26 21 26 27 29
Management fees 24 16 27 16 29 47
Property taxes 26 31 12 16 12 19
Other 54 13 13 10 15 18
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 688 337 255 328 305 376
Depreciation and other
amortization 0 0 0 0 0 0
Interest 213 69 72 83 81 94
General and administrative 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 901 406 327 411 386 470
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME(LOSS) 145 108 127 93 143 270
Plus non-cash items - net 0 1 1 1 1 2
Less notes payable
principal payments 0 5 6 6 6 7
----------- ----------- ----------- ----------- ----------- -----------
Project operations 145 104 122 88 138 265
Capital Improvements 11 47 (1) 53 21 20
----------- ----------- ----------- ----------- ----------- -----------
Project operations after
capital improvements $134 $57 $123 $35 $117 $245
=========== =========== =========== =========== =========== ===========
Occupancy 68% 94% 91% 78% 91% 95%
ADR $86.91 $78.98 $70.17 $85.04 $80.80 $91.64
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winston Altamonte
Salem Nashville Atlanta Springs Partnership Total
----- --------- ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $527 $1,249 $0 $815 $0 $6,200
Telephone and other 32 53 0 31 0 294
------------ ----------- ----------- -------------- ----------- -------------
Hotel operations 559 1,302 0 846 0 6,494
Interest and other 0 0 0 0 82 82
------------ ----------- ----------- -------------- ----------- -------------
Total revenues 559 1,302 0 846 82 6,576
------------ ----------- ----------- -------------- ----------- -------------
EXPENSES:
Hotel operations:
Rooms 109 270 0 174 0 1,248
Administrative 54 73 0 94 0 710
Marketing 61 126 0 92 0 651
Energy 28 68 0 33 0 284
Repair and maintenance 26 80 0 51 0 337
Management fees 33 39 0 32 0 263
Property taxes 16 40 0 43 0 215
Other 19 82 0 29 0 253
------------ ----------- ----------- -------------- ----------- -------------
Hotel operations 346 778 0 548 0 3,961
Depreciation and other
amortization 0 130 0 0 0 130
Interest 83 215 0 172 0 1,082
General and administrative 0 0 0 0 248 248
------------ ----------- ----------- -------------- ----------- -------------
Total expenses 429 1,123 0 720 248 5,421
------------ ----------- ----------- -------------- ----------- -------------
NET INCOME(LOSS) 130 179 0 126 (166) 1,155
Plus non-cash items - net 2 131 0 44 0 183
Less notes payable
principal payments 6 33 0 26 0 95
------------ ----------- ----------- -------------- ----------- -------------
Project operations 126 277 0 144 (166) 1,243
Capital Improvements 15 77 0 41 0 284
------------ ----------- ----------- -------------- ----------- -------------
Project operations after
capital improvements $111 $200 $0 $103 ($166) $959
============ =========== =========== ============== =========== =============
Occupancy 91% 90% 76% 84%
ADR $78.50 $98.83 $100.01 $87.42
Page 16 of 21
</TABLE>
<PAGE>
<TABLE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Three Months Ended September 30, 1996
(000's)
<CAPTION>
Columbus Fort
Ontario (East) Wayne Indianapolis Lexington Louisville
------- ------ ----- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $913 $469 $432 $512 $470 $696
Telephone and other 58 17 25 24 32 32
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 971 486 457 536 502 728
Interest and other 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 971 486 457 536 502 728
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Hotel operations:
Rooms 177 106 86 117 86 126
Administrative 107 52 69 65 49 68
Marketing 118 44 47 61 54 79
Energy 52 26 16 18 18 24
Repair and maintenance 59 27 28 21 30 28
Management fees 29 25 25 16 15 38
Property taxes 14 13 (61) 19 12 19
Other 39 12 11 8 16 16
----------- ----------- ----------- ----------- ----------- -----------
Hotel operations 595 305 221 325 280 398
Depreciation and other
amortization 127 54 56 68 65 76
Interest 213 69 72 84 82 94
General and administrative 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 935 428 349 477 427 568
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME(LOSS) 36 58 108 59 75 160
Plus non-cash items - net 127 54 58 69 66 77
Less notes payable
principal payments 0 5 5 5 5 6
----------- ----------- ----------- ----------- ----------- -----------
Project operations 163 107 161 123 136 231
Capital Improvements 23 6 222 198 40 38
----------- ----------- ----------- ----------- ----------- -----------
Project operations after
capital improvements $140 $101 ($61) ($75) $96 $193
=========== =========== =========== =========== =========== ===========
Occupancy 72% 90% 90% 86% 95% 93%
ADR $75.41 $77.91 $71.01 $80.57 $73.51 $92.57
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Winston Altamonte
Salem Nashville Atlanta Springs Partnership Total
----- --------- ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hotel operations:
Rooms $462 $1,114 $0 $803 $0 $5,871
Telephone and other 27 40 0 30 0 285
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 489 1,154 0 833 0 6,156
Interest and other 0 0 0 0 107 107
------------ ----------- ----------- ----------- ----------- -------------
Total revenues 489 1,154 0 833 107 6,263
------------ ----------- ----------- ----------- ----------- -------------
EXPENSES:
Hotel operations:
Rooms 104 229 0 176 0 1,207
Administrative 56 166 0 111 0 743
Marketing 54 129 0 89 0 675
Energy 21 63 0 36 0 274
Repair and maintenance 35 69 0 39 0 336
Management fees 20 34 0 32 0 234
Property taxes 15 28 18 44 0 121
Other 13 63 0 20 0 198
------------ ----------- ----------- ----------- ----------- -------------
Hotel operations 318 781 18 547 0 3,788
Depreciation and other
amortization 66 117 0 89 0 718
Interest 83 216 0 171 0 1,084
General and administrative 0 0 0 0 435 435
------------ ----------- ----------- ----------- ----------- -------------
Total expenses 467 1,114 18 807 435 6,025
------------ ----------- ----------- ----------- ----------- -------------
NET INCOME(LOSS) 22 40 (18) 26 (328) 238
Plus non-cash items - net 68 117 0 131 (74) 693
Less notes payable
principal payments 5 30 0 26 0 87
------------ ----------- ----------- ----------- ----------- -------------
Project operations 85 127 (18) 131 (402) 844
Capital Improvements 272 114 0 29 0 942
------------ ----------- ----------- ----------- ----------- -------------
Project operations after
capital improvements ($187) $13 ($18) $102 ($402) ($98)
============ =========== =========== =========== =========== =============
Occupancy 85% 85% 85% 85%
ADR $73.39 $92.46 $87.56 $81.55
Page 17 of 21
</TABLE>
<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 at a
discount 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 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.
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
has asked the Chancery Court to return ownership of the Land to it, which would
result in it again becoming the landlord under the Lease. The Court heard
argument regarding NLC's request on September 11, 1997, but has not yet ruled on
this request.
Page 18 of 21
<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.
In late October 1997, 2300 and NLC filed a motion for an injunction to prohibit
GSI from distributing proceeds from the sale of the Residence Inns owned by GSI,
pending a final judgement in this case. A hearing on this motion has been set
for December 17, 1997.
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 have
appealed 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").
Page 19 of 21
<PAGE>
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").
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 in either action. However, as to the
Declaratory Relief Action, the defendants filed motions to quash service of
process, to stay the case and to transfer it to Tennessee, which motions were
denied by the Court on September 15, 1997. The defendants subsequently filed a
demurrer, claiming in essence that the plaintiffs' claims cannot be asserted in
a declaratory relief action. A hearing on this demurrer is scheduled for
November 13, 1997.
As to the Inducement Action, the Inducement Action Defendants removed the
lawsuit from the Chancery Court to the U.S. District Court for Tennessee on July
25, 1997. On August 11, 1997, Nelson asked the Court to remand this action to
the Chancery Court, but no decision has yet been rendered on Nelson's request.
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 court has not yet taken action on these matters, but has set
a trial date of May 28, 1998.
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 was scheduled for the fourth quarter of 1997. In September 1997, GSI
proposed to settle this potential liability by paying approximately $122,000 and
agreeing to pay sales tax on complimentary items going forward, which proposal
was accepted by the State in late October 1997. GSI paid the agreed amount on
November 3, 1997, which completed the settlement of this proceeding.
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 20 of 21
<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: November 13, 1997
---------------------------------
Page 21 of 21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,731,000
<SECURITIES> 0
<RECEIVABLES> 1,546,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,484,000
<PP&E> 91,540,000
<DEPRECIATION> 33,425,000
<TOTAL-ASSETS> 68,107,000
<CURRENT-LIABILITIES> 3,903,000
<BONDS> 42,351,000
0
0
<COMMON> 0
<OTHER-SE> 21,553,000
<TOTAL-LIABILITY-AND-EQUITY> 68,107,000
<SALES> 0
<TOTAL-REVENUES> 18,748,000
<CGS> 0
<TOTAL-COSTS> 11,686,000
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 3,248,000
<INCOME-PRETAX> 1,798,000
<INCOME-TAX> 0
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<EPS-DILUTED> 29
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