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, 1998
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 the 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
--- ---
- --------------------------------------------------------------------------------
Page 1 of 19
<PAGE>
PART 1
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,
1998 1997
--------------- --------------
ASSETS
Cash and Cash Equivalents $ 12,859,000 $ 27,051,000
Cash in Escrow -- 19,214,000
Cash Investments -- 3,888,000
Restricted Cash 344,000 335,000
Accounts Receivable 1,173,000 1,295,000
Prepaid Expenses and Other Assets 109,000 178,000
Properties and Improvements 13,949,000 13,909,000
Accumulated Depreciation (5,523,000) (5,263,000)
--------------- --------------
Net Properties and Improvements 8,426,000 8,646,000
Deferred Franchise Fees 26,000 29,000
--------------- ---------------
TOTAL ASSETS $ 22,937,000 $ 60,636,000
=============== ===============
LIABILITIES AND PARTNERS' EQUITY
Accounts Payable $ 907,000 $ 1,542,000
Accrued Property Taxes 53,000 116,000
Accrued Interest 174,000 307,000
Accrued Prepayment Penalties -- 438,000
Other Liabilities 1,297,000 1,487,000
Deferred Gain on Sale of Property 300,000 300,000
Notes Payable 8,443,000 26,983,000
--------------- ---------------
TOTAL LIABILITIES
11,174,000 31,173,000
--------------- ---------------
PARTNERS' EQUITY
General Partners -- 348,000
Limited Partners(59,932 Units Outstanding) 11,763,000 29,115,000
-------------- ---------------
TOTAL PARTNERS' EQUITY 11,763,000 29,463,000
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 22,937,000 $ 60,636,000
=============== ===============
See notes to financial statements (unaudited).
Page 2 of 19
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended
June 30,
------------------------------------
1998 1997
---------------- ----------------
REVENUES:
Hotel Operations $ 2,202,000 $ 12,254,000
Interest and Other 370,000 179,000
---------------- ----------------
Total Revenues 2,572,000 12,433,000
---------------- ----------------
EXPENSES:
Hotel Operations
Rooms 443,000 2,426,000
Administrative 289,000 1,430,000
Marketing 233,000 1,288,000
Energy 103,000 603,000
Repair and Maintenance 110,000 677,000
Management Fees 80,000 484,000
Property Taxes 50,000 353,000
Other 131,000 464,000
---------------- ----------------
Total Hotel Operations 1,439,000 7,725,000
Depreciation and Other Amortization 263,000 1,491,000
Interest 434,000 2,166,000
General and Administrative 496,000 408,000
---------------- ----------------
Total Expenses 2,632,000 11,790,000
---------------- ----------------
NET INCOME (LOSS) $ (60,000) $ 643,000
================ ================
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $ (1) $ 10
================ ================
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $ 288 $ 20
================ ================
See notes to financial statements (unaudited).
Page 3 of 19
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended
June 30,
------------------------------------
1998 1997
---------------- ----------------
REVENUES:
Hotel Operations $ 1,194,000 $ 6,542,000
Interest and Other 168,000 77,000
---------------- ----------------
Total Revenues 1,362,000 6,619,000
---------------- ----------------
EXPENSES:
Hotel Operations
Rooms 238,000 1,264,000
Administrative 161,000 745,000
Marketing 123,000 652,000
Energy 45,000 267,000
Repair and Maintenance 67,000 364,000
Management Fees 47,000 264,000
Property Taxes 23,000 199,000
Other 61,000 241,000
---------------- ----------------
Total Hotel Operations 765,000 3,996,000
Depreciation and Other Amortization 132,000 739,000
Interest 215,000 1,083,000
General and Administrative 176,000 236,000
---------------- ----------------
Total Expenses 1,288,000 6,054,000
---------------- ----------------
NET INCOME $ 74,000 $ 565,000
================ ================
NET INCOME PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $ 1 $ 9
================ ================
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $ 3 $ 10
================ ================
See notes to financial statements (unaudited).
Page 4 of 19
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF PARTNERS' EQUITY (UNAUDITED)
For the Six Months Ended June 30, 1998 and 1997
General Limited
Partner Partners Total
------------- ------------- ------------
Balance, January 1, 1998 $ 348,000 $ 29,115,000 $ 29,463,000
Net Income (Loss) 5,000 (65,000) (60,000)
Cash Distributions (353,000) (17,287,000) 17,640,000)
------------ ------------ ------------
Balance, June 30, 1998 $ -- $ 11,763,000 $ 11,763,000
============ ============ ============
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
============ ============ ============
See notes to financial statements (unaudited).
Page 5 of 19
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended
June 30,
-----------------------------
1998 1997
------------- ------------
OPERATING ACTIVITIES
Net Income (Loss) $ (60,000) $ 643,000
Adjustments to Reconcile Net Income
(Loss)to Net Cash Provided (Used)
by Operating Activities:
Depreciation and Amortization 263,000 1,589,000
Changes in Operating Assets and
Liabilities:
Accounts Receivable 122,000 (697,000)
Prepaid Expenses and Other Assets 69,000 80,000
Accounts Payable, Accrued Expenses,
and Other Liabilities (1,459,000) 367,000
------------ ------------
Net Cash Provided (Used) by Operating
Activities (1,065,000) 1,982,000
------------ ------------
INVESTING ACTIVITIES
Cash in Escrow 19,214,000 --
Proceeds from Sale of Cash Investments 3,888,000 3,893,000
Capital Improvements (40,000) (799,000)
Restricted Cash - Increase (9,000) (15,000)
------------ ------------
Net Cash Provided by Investing Activities 23,053,000 3,079,000
------------ ------------
FINANCING ACTIVITIES
Notes Payable Principal Payments (18,540,000) (182,000)
Cash Distribution to Partners (17,640,000) (1,223,000)
------------ ------------
Cash Used by Financing Activities (36,180,000) (1,405,000)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (14,192,000) 3,656,000
Cash and Cash Equivalents at Beginning
of Period 27,051,000 3,436,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,859,000 $ 7,092,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid in Cash During the Period $ 567,000 $ 2,047,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued Capital Improvements Paid $ 88,000 $ --
============ ============
See notes to financial statements (unaudited).
Page 6 of 19
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Reference to the 1997 Audited Financial Statements
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the 1997 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,
------------------------------
1998 1997
----------- -----------
Partnership management fees $ 72,000 $106,000
Reimbursement of administrative expense 105,000 150,000
----------- -----------
Total $177,000 $256,000
=========== ===========
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 investment 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, 1998.
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, and
a plaintiff and defendant in legal proceedings related to the Residence Inn
- Nashville; see Part II, Item 1, Legal Proceedings, for a detailed
description of these matters.
6. Note Payable
The balloon mortgage payment for the Residence Inn - Nashville, totaling
approximately $8.5 million, became due on April 1, 1998 and the Partnership
is currently in default. The Partnership has made the regular monthly debt
service payments through August 1, 1998, as attempts were being made to
negotiate a sales contract for the hotel with an unaffiliated third party
buyer. During protracted negotiations the prospective buyer requested terms
unacceptable to the Partnership and the letter of intent was withdrawn. The
Partnership is again attempting to negotiate an extension of the existing
loan, but is also considering other options. If the Partnership were to pay
the loan in full, it would have to seek permission from the Court to use a
portion of the $5 million that the Court restricted (see part II, Item I).
While the Partnership has continued to undertake efforts to preserve its
equity in the hotel, it may no longer be economically feasible to continue
to hold the asset.
Page 7 of 19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Item should be read in conjunction with Financial Statements and other
Items contained elsewhere in this Report.
Properties
A description of the properties in which the Partnership has or had an ownership
interest, along with the occupancy and room rate data follows:
<TABLE>
<CAPTION>
OCCUPANCY AND ROOM RATE SUMMARY
Average Occupancy Rate (%) Average Daily Room Rate ($)
------------------------------- --------------------------------
Six Months Three Months Six Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
Date of --------------- --------------- ---------------- ---------------
Name and Location Rooms Purchase 1998 1997 1998 1997 1998 1997 1998 1997
- -------------------------------- -------- ---------- ------- ------- ------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residence Inn - Ontario (1) 200 04/88 N/A 75 N/A 74 N/A 78.65 N/A 78.21
Ontario, California
Residence Inn - Ft. Wayne (1) 80 06/88 N/A 80 N/A 87 N/A 65.41 N/A 64.38
Fort Wayne, Indiana
Residence Inn - Columbus (East)(1) 80 06/88 N/A 87 N/A 88 N/A 72.51 N/A 75.21
Columbus, Ohio
Residence Inn - Indianapolis (North)(1) 88 06/88 N/A 80 N/A 87 N/A 77.19 N/A 80.64
Indianapolis, Indiana
Residence Inn - Lexington (1) 80 06/88 N/A 92 N/A 96 N/A 76.62 N/A 82.55
Lexington, Kentucky
Residence Inn - Louisville (1) 96 06/88 N/A 87 N/A 87 N/A 91.35 N/A 96.15
Louisville, Kentucky
Residence Inn - Winston-Salem (1) 88 06/88 N/A 81 N/A 85 N/A 80.44 N/A 81.63
Winston-Salem, North Carolina
Residence Inn - Nashville(Airport) 168 05/89 84 78 87 88 82.42 86.08 85.09 89.12
Nashville, Tennessee
Residence Inn - Altamonte Springs (1) 128 03/90 N/A 90 N/A 87 N/A 92.78 N/A 91.64
Altamonte Springs, Florida
<FN>
1) Sold in December 1997.
</FN>
</TABLE>
Page 8 of 19
<PAGE>
Results of Operations
During the six and three months ended June 30, 1998, the Partnership had a net
loss of $60,000 and net income of $74,000, respectively, compared to net income
of $643,000 and $565,000 for the same periods in 1997, respectively. The changes
are primarily due to the sale of eight hotels on December 30, 1997. Operations
for the remaining hotel decreased for the quarter ended June 30, 1998 compared
to 1997, but still reflect a substantial increase on a year-to-date basis
compared to last year. In addition, the net operations from the Partnership's
interest income less its administrative expenses improved for both the six and
three months ended June 30, 1998 compared to 1997.
Revenues and expenses from hotel operations decreased substantially in the first
six and three months ended June 30, 1998 when compared to 1997 due to the sale
of the eight hotels in late 1997. Revenues from the Partnership's remaining
hotel, the Residence Inn - Nashville, decreased for the second quarter as both
occupancy and rates were below those experienced in 1997. However, on a
year-to-date basis the revenues reflect an increase of 3% in 1998 compared to
1997 as a result of a six percent increase in occupancy, which was only
partially offset by a decrease in room rates. The operating expenses at the
Residence Inn - Nashville remained nearly constant for the two years as an
increase in administrative costs was offset by other cost decreases,
particularly in repair and maintenance and property tax costs.
Depreciation and interest expense decreased in the first six and three months
ended June 30, 1998 compared to 1997 also as a result of the previously
mentioned sale. Interest income increased due to higher cash balances resulting
from sales proceeds. The Partnership's general and administrative expenses
increased in the first half of 1998 compared to 1997 primarily due to an
increase in legal costs which was only partially offset by decreases in
Partnership management fees and administrative costs. The second quarter general
and administrative expenses decreased in 1998 compared to 1997 primarily due to
decreases in Partnership management fees and administrative costs.
The following discussion provides information concerning the operations of the
Partnership's single remaining hotel:
Residence Inn - Nashville: Operating results were positive for the first six
months of 1998 and improved over the same period of last year. While the average
daily room rate declined by $3.66 to $82.42 for the first half of 1998, average
occupancy increased by 6% to 84%.
The Nashville Airport hotel market continued to weaken during the quarter,
primarily resulting from the closure of Opryland theme park, which is undergoing
a major renovation. The park, which had been a steady source of patronage for
the Partnership's hotel, closed in January 1998. The first of five incremental
re-openings is scheduled for the spring of 2000, for what will ultimately be a
1.1 million square foot complex combining numerous theme restaurants, more than
200 retail shops, and an entertainment corridor. Additionally, patronage was
down significantly at the Opryland Convention Center, which has traditionally
provided overflow traffic to the Partnership's hotel. The Partnership's hotel
continues to work with the other hotels of the Nashville Airport Hospitality
Association and with the other Nashville area Marriott products to attract new
business. In an effort to maintain market share, the hotel is attempting to
recapture the weekend leisure traffic through new special rates. Competition
will also become stronger in the near future, as one nearby hotel is currently
under renovation, and another new hotel, with 120 rooms, is expected to open in
the fall. Capital expenditures during the quarter included repaving the parking
lot, construction of a new drainage system, and landscaping upgrades, as well as
structural upgrades to two of the buildings.
Partnership Liquidity and Capital Resources
Second Quarter of 1998
As presented in the Statement of Cash Flows, cash was used by operating
activities. Cash was provided by investing activities from sales proceeds
previously held in escrow and 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 quarter
ended June 30, 1998 and 1997 (as shown in the tables on pages 12 and 13) 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. Project operations before capital improvements is an indication
Page 9 of 19
<PAGE>
of the operational performance of the property. During the first six months of
1998, the Partnership's remaining hotel 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 first half of 1998. 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 six months of 1998, the Partnership spent $40,000 on capital
improvements at the Residence Inn - Nashville. Assuming the Partnership
maintains ownership of the hotel (see below) during the remainder of 1998, it is
anticipated that approximately $235,000 will be spent on capital improvements,
which are necessary to keep the property competitive in its market and are
required under the agreement 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 ongoing capital improvements as well as room
or other major renovation programs. The capital replacement funds are held in a
separate interest-bearing account with additions made monthly based on revenues
and expenditures which are based on the capital expenditure budget, as approved
by the Partnership. To the extent not available from the property's capital
replacement fund, a capital improvement or renovation may be funded from the
Partnership's working capital reserve.
In January 1998, the Partnership made two distributions to its general and
limited partners, one totaling $16,818,000, representing a portion of the net
sales proceeds, and another one totaling $612,000 representing a distribution
from 1997 operations. Additionally, in April 1998 the Partnership made a
distribution totaling $211,000 in order to comply with certain states' tax
withholding requirements. With respect to the use of cash, the Partnership is
under certain obligations and/or restrictions. In addition to the $5 million
restriction imposed by the Court (as discussed in Part II, Item 1), the
Partnership was required by the purchaser of the eight hotels sold on December
30, 1997, under the terms of the sales contract, not to distribute $7.5 million
of the sales proceeds for a period of one year, which amount represents the
maximum possible liability of the Partnership for any breach of the sales
agreement. The $7.5 million is not restricted from any other potential use by
the Partnership, including the payment of the outstanding balance due on the
Residence Inn - Nashville loan (see below).
The balloon mortgage payment for the Residence Inn - Nashville, totaling
approximately $8.5 million, became due on April 1, 1998 and the Partnership is
currently in default. The Partnership has made the regular monthly debt service
payments through August 1, 1998, as attempts were being made to negotiate a
sales contract for the hotel with an unaffiliated third party buyer. During
protracted negotiations the prospective buyer requested terms unacceptable to
the Partnership and the letter of intent was withdrawn. The Partnership is again
attempting to negotiate an extension of the existing loan, but is also
considering other options. If the Partnership were to pay the loan in full, it
would have to seek permission from the Court to use a portion of the $5 million
that the Court restricted (see part II, Item I). While the Partnership has
continued to undertake efforts to preserve its equity in the hotel, it may no
longer be economically feasible to continue to hold the asset.
Over the past several years a number of unsolicited offers to purchase Units
were made to the investors in the Partnership, of which the Partnership was
aware. As required by applicable securities laws, the Partnership notified its
investors of its views regarding these offers. The Partnership took no position
with respect to the offers but rather advised the holders of assignee limited
partnership Units to consult their personal financial advisors as the
desirability of any particular offer to any Unit holder could differ greatly
depending upon such Unit holder's financial, tax, and other individual status.
Unit holders were also advised that the Partnership and its Transfer Agent would
take such action as the Partnership deemed appropriate to ensure that resale
transactions did not result in termination of the Partnership for tax purposes,
cause the Partnership to be classified as a publicly traded partnership or cause
the Partnership to be taxed as a corporation. Unit holders were reminded that,
in order to protect its status as partnership for federal income tax purposes,
secondary market activity in its Units would be limited to less than 5% of the
outstanding Units per calendar year, and that, for any of these reasons the
Partnership may refuse to recognize a resale transaction.
Trading reached 4.9 percent (near the 5% maximum percentage) on April 9, 1996
and was suspended as of that date. This action was taken by the General Partners
in accordance with its fiduciary responsibility and with the advice of Counsel
to protect the Partnership's tax status as a limited partnership. Unit holders
were advised of the suspension, in accordance with Section 12.1 of the
Partnership Agreement, via a special communication. At the beginning of 1997 the
Page 10 of 19
<PAGE>
suspension of resale transactions was removed; however, on February 26, 1997,
the Partnership's Transfer Agent informed the Managing General Partner that
trading had again reached 4.9%, at which time the General Partner again
suspended the processing of resale transactions. Unit holders were advised of
that suspension, via a special communication dated February 27, 1997. All
paperwork submitted from the time of the suspension through the remainder of the
calendar year was returned to the originator.
At the beginning of 1998, the suspension of resale transactions was removed. On
June 24, 1998 the Partnership's Transfer Agent notified the General Partner that
trading for 1998 had reached 4.9% at which time the Managing General Partner
again suspended the processing of resale transactions. Unit holders were advised
of the suspension, via a special communication dated June 24, 1998. All
paperwork submitted from that date through the remainder of the calendar year
will be returned to the originator. The Partnership's Transfer Agent will again
begin to accept resale transactions on January 4, 1999.
Conclusion
The Partnership established an estimated value for the assignee Units in the
Partnership as of December 31, 1997. An appraisal of the remaining hotel was
commissioned and undertaken by a firm which is a recognized appraiser and
consultant to the hotel industry. The primary methodology employed in the
appraisal 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 appraisal, 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 hotel's management contract. The
Partnership believes that the assumptions utilized in the process are not
unreasonable. The value of the property as determined by the appraisal process,
in combination with the book value of other Partnership assets and liabilities
as of December 31, 1997, and after deducting the distributions made on January
13, and 29, 1998 resulted in an estimated net asset value of each assignee Unit
of $239. (The estimated net asset value does not take into account any
distributions that the General Partners may be obligated to return to the
Partnership prior to liquidation of the Partnership. See Note 2 to the 1997
audited financial statements.) As of December 31, 1996, 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. The change in value from $503 as of December 31,
1996 to $239 was primarily due to the distribution of a portion of the proceeds
from the sale of the eight Residence Inns in the amount of $275 per assignee
Unit. 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.
This valuation is an estimate of the assignee Unit value only which has been
made as of December 31, 1997 based on the methodology described herein and does
not represent a market value. There can be no assurance that the sales of the
remaining assets in the current market or at any time in the future would yield
net proceed which on a per assignee Unit basis would be equal to or greater than
the estimated value. Further, there can be no assurance that sale 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. The Partnership has no knowledge
concerning how a particular price may be determined. A total of 259 resale
transactions were recorded on the books of the Transfer Agent between January 1,
1998 and June 24, 1998 (at which time the Partnership suspended trading -- see
above), reflecting prices ranging from $112 to $417 per Unit, with a simple
average price (not weighted) of $323. The Partnership's knowledge of these
transactions is based solely on the books and records of its Transfer Agent.
Cash distributions from Partnership operations to investors throughout 1997 were
made at an annualized rate of 4%, including the distribution made on January 29,
1998 from fourth quarter 1997 operations. On January 13, 1998 the Partnership
distributed $275 per Unit from the proceeds of the sale of eight hotels in
December 1997. On April 9, 1998 the Partnership made a distribution of $3.45 per
Unit in order to satisfy nonresident state withholding requirements for the
states of California, North Carolina, and Indiana. Future distributions will be
dependent on the operations of the Partnership's remaining hotel, the Residence
Inn - Nashville, general and administrative expenses and interest income, as
well as the outcome of legal proceedings relating to this hotel. As discussed in
Part II, Item 1, there is substantial doubt regarding the Partnership's ability
to continue as a going concern.
Page 11 of 19
<PAGE> METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Six Months Ended June 30, 1998
(000's)
Sold
Partnership Nashville Hotels Total
----------- --------- ------- -------
REVENUES:
Hotel operations:
Rooms $ 0 $ 2,098 $ 0 $ 2,098
Telephone and other 0 104 0 104
------- ------- ------- -------
Hotel operations 0 2,202 0 2,202
Interest and other 370 0 0 370
------- ------- ------- -------
Total revenues 370 2,202 0 2,572
------- ------- ------- -------
EXPENSES:
Hotel operations:
Rooms 0 443 0 443
Administrative 0 306 (17) 289
Marketing 0 233 0 233
Energy 0 103 0 103
Repair and maintenance 0 110 0 110
Management fees 0 77 3 80
Property taxes 0 55 (5) 50
Other 0 131 0 131
------- ------- ------- -------
Hotel operations 0 1,458 (19) 1,439
Depreciation and other
amortization 0 263 0 263
Interest 0 428 6 434
General and administrative 496 0 0 496
------- ------- ------- -------
Total expenses 496 2,149 (13) 2,632
------- ------- ------- -------
NET INCOME(LOSS) (126) 53 13 (60)
Plus non-cash items - net 0 263 0 263
Less notes payable
principal payments 0 71 0 71
------- ------- ------- -------
Project operations (126) 245 13 132
Capital Improvements 0 40 0 40
------- ------- ------- -------
Project operations after
capital improvements ($ 126) $ 205 $ 13 $ 92
======= ======= ======= =======
Occupancy N/A 84% N/A 84%
ADR N/A $ 82.42 N/A $ 82.42
Page 12 of 19
<PAGE>
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)
Sold
Partnership Nashville Hotels Total
----------- --------- ------ -----
REVENUES:
Hotel operations:
Rooms $ 0 $ 2,027 $ 9,649 $11,676
Telephone and other 0 114 464 578
------- ------- ------- -------
Hotel operations 0 2,141 10,113 12,254
Interest and other 179 0 0 179
------- ------- ------- -------
Total revenues 179 2,141 10,113 12,433
------- ------- ------- -------
EXPENSES:
Hotel operations:
Rooms 0 457 1,969 2,426
Administrative 0 229 1,201 1,430
Marketing 0 241 1,047 1,288
Energy 0 103 500 603
Repair and maintenance 0 134 543 677
Management fees 0 64 420 484
Property taxes 0 87 266 353
Other 0 152 312 464
------- ------- ------- -------
Hotel operations 0 1,467 6,258 7,725
Depreciation and other
amortization 0 253 1,238 1,491
Interest 0 431 1,735 2,166
General and administrative 408 0 0 408
------- ------- ------- -------
Total expenses 408 2,151 9,231 11,790
------- ------- ------- -------
NET INCOME(LOSS) (229) (10) 882 643
Plus non-cash items - net 0 253 1,336 1,589
Less notes payable
principal payments 0 65 117 182
------- ------- ------- -------
Project operations (229) 178 2,101 2,050
Capital Improvements 0 349 450 799
------- ------- ------- -------
Project operations after
capital improvements ($ 229) ($ 171) $ 1,651 $ 1,251
======= ======= ======= =======
Occupancy N/A 78% 83% 82%
ADR N/A $ 86.08 $ 80.49 $ 81.37
Page 13 of 19
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Three Months Ended June 30, 1998
(000's)
Sold
Partnership Nashville Hotel Total
----------- --------- ----- -----
REVENUES:
Hotel operations:
Rooms $ 0 $1,138 $ 0 $1,138
Telephone and other 0 56 0 56
------ ------ ------ ------
Hotel operations 0 1,194 0 1,194
Interest and other 168 0 0 168
------ ------ ------ ------
Total revenues 168 1,194 0 1,362
------ ------ ------ ------
EXPENSES:
Hotel operations:
Rooms 0 238 0 238
Administrative 0 159 2 161
Marketing 0 123 0 123
Energy 0 45 0 45
Repair and maintenance 0 67 0 67
Management fees 0 47 0 47
Property taxes 0 28 (5) 23
Other 0 61 0 61
------ ------ ------ ------
Hotel operations 0 768 (3) 765
Depreciation and other
amortization 0 132 0 132
Interest 0 215 0 215
General and administrative 176 0 0 176
------ ------ ------ ------
Total expenses 176 1,115 (3) 1,288
------ ------ ------ ------
NET INCOME(LOSS) (8) 79 3 74
Plus non-cash items - net 0 132 0 132
Less notes payable
principal payments 0 36 0 36
------ ------ ------ ------
Project operations (8) 175 3 170
Capital Improvements 0 27 0 27
------ ------ ------ ------
Project operations after
capital improvements ($ 8) $ 148 $ 3 $ 143
====== ====== ====== ======
Occupancy N/A 87% N/A 87%
ADR N/A $85.09 N/A $85.09
Page 14 of 19
<PAGE>
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)
Sold
Partnership Nashville Hotels Total
----------- --------- ------ -----
REVENUES:
Hotel operations:
Rooms $ 0 $1,211 $5,044 $6,255
Telephone and other 0 63 224 287
------ ------ ------ ------
Hotel operations 0 1,274 5,268 6,542
Interest and other 77 0 0 77
------ ------ ------ ------
Total revenues 77 1,274 5,268 6,619
------ ------ ------ ------
EXPENSES:
Hotel operations:
Rooms 0 256 1,008 1,264
Administrative 0 120 625 745
Marketing 0 128 524 652
Energy 0 36 231 267
Repair and maintenance 0 74 290 364
Management fees 0 38 226 264
Property taxes 0 47 152 199
Other 0 77 164 241
------ ------ ------ ------
Hotel operations 0 776 3,220 3,996
Depreciation and other
amortization 0 127 612 739
Interest 0 216 867 1,083
General and administrative 236 0 0 236
------ ------ ------ ------
Total expenses 236 1,119 4,699 6,054
------ ------ ------ ------
NET INCOME(LOSS) (159) 155 569 565
Plus non-cash items - net 0 127 661 788
Less notes payable
principal payments 0 33 59 92
------ ------ ------ ------
Project operations (159) 249 1,171 1,261
Capital Improvements 0 220 289 509
------ ------ ------ ------
Project operations after
capital improvements ($ 159) $ 29 $ 882 $ 752
====== ====== ====== ======
Occupancy N/A 88% 85% 85%
ADR N/A $89.12 $81.86 $83.11
Page 15 of 19
<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). [The lawsuits described below are related. 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") then 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 1996 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 judgment underlying the judicial sale; however, the Court has ruled
against NLC on its motion that the Land be reinstated to NLC.
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
judgment 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
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, and later ruled against
NLC. Thus, Orlando continues to be the owner of the Land and the Partnership's
landlord under the Lease. NLC may appeal this ruling for Orlando; however,
Orlando has asserted that the period during which this ruling may be appealed
has expired.
Page 16 of 19
<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 demanded
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 judgment, ruling that the Partnership had breached the SF Settlement.
The action will continue to determine damages and other issues. Trial had been
set for February 9, 1998, but was continued to December 7, 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 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 judgment in this case. A hearing on this motion was held in
February 1998 and the Court enjoined the Partnership from conveying,
transferring, distributing or otherwise disposing of its cash to any extent
which would leave less than $5 million available for payment of any judgment
obtained by 2300 and NLC.
2300 and NLC filed an amended complaint against the Partnership in April 1998,
asserting, among other things, a bad faith breach of contract by the
Partnership. In May 1998, the Court granted a motion by the Partnership to
dismiss these bad faith allegations and to dismiss certain claims for specific
damages made by 2300 and NLC, including attorneys' fees and the value of
Nelson's time relating to efforts to enforce the SF Settlement.
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 a 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 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
Page 17 of 19
<PAGE>
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. Oral
arguments regarding this appeal were held in July 1998, but no decision has yet
been rendered.
Kenneth E. Nelson and Nashville Lodging Co. vs. Metric Realty et al., Chancery
Court for Davidson County in Nashville, Tennessee, Case No. 97-2189-III (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 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.
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 and on
January 28, 1998, the Court remanded this action back to the Chancery Court. In
the Inducement Action, Defendants have 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. The Chancery Court has not yet taken action on this motion.
The legal and other expenses of the Inducement Action Defendants in 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.
Potential Impact of Litigation
The Partnership is currently reviewing its alternatives with regard to the
Partnership's remaining Hotel including potentially satisfying all or a portion
of the loan or sale of the asset. These circumstances, as well as (i) the
substantial legal fees and costs that have been and are expected to be incurred
by the Partnership in connection with the existing lawsuits, (ii) the usual
uncertainty of litigation, and (iii) the effect of these lawsuits on the
Partnership's present ability to refinance or sell the Hotel, create substantial
doubt about the Partnership's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result from these uncertainties.
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 other than the Report filed on June 25, 1998
amending the Report filed on January 14, 1998 reporting the sale of
eight of the Partnership's hotel properties, and the Report filed on
June 25, 1998 including the letter from the Registrant to investors
dated June 24, 1998.
Page 18 of 19
<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/ Ronald E.Zuzack
------------------------------
Ronald E. Zuzack
Managing Director,
Multi-Housing Division
of SSR Realty Advisors, Inc.
Date: August 5, 1998
------------------------------
Page 19 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000800730
<NAME> METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,859,000
<SECURITIES> 0
<RECEIVABLES> 1,173,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,141,000
<PP&E> 13,949,000
<DEPRECIATION> 5,523,000
<TOTAL-ASSETS> 22,937,000
<CURRENT-LIABILITIES> 2,431,000
<BONDS> 8,443,000
0
0
<COMMON> 0
<OTHER-SE> 11,763,000
<TOTAL-LIABILITY-AND-EQUITY> 22,937,000
<SALES> 0
<TOTAL-REVENUES> 2,202,000
<CGS> 0
<TOTAL-COSTS> 1,439,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 434,000
<INCOME-PRETAX> (60,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (60,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60,000)
<EPS-PRIMARY> (1)
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</TABLE>
