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, 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)
September 30, December 31,
1998 1997
------------- -------------
ASSETS
Cash and Cash Equivalents $ 7,755,000 $ 27,051,000
Cash in Escrow -- 19,214,000
Cash Investments -- 3,888,000
Restricted Cash 5,348,000 335,000
Accounts Receivable 1,190,000 1,295,000
Prepaid Expenses and Other Assets 147,000 178,000
Properties and Improvements 13,986,000 13,909,000
Accumulated Depreciation (5,657,000) (5,263,000)
------------ ------------
Net Properties and Improvements 8,329,000 8,646,000
Deferred Franchise Fees 25,000 29,000
------------ ------------
TOTAL ASSETS $ 22,794,000 $ 60,636,000
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts Payable $ 863,000 $ 1,542,000
Accrued Property Taxes 79,000 116,000
Accrued Interest 188,000 307,000
Accrued Prepayment Penalties -- 438,000
Other Liabilities 1,312,000 1,487,000
Deferred Gain on Sale of Property 300,000 300,000
Notes Payable 8,305,000 26,983,000
------------ ------------
TOTAL LIABILITIES 11,047,000 31,173,000
------------ ------------
PARTNERS' EQUITY
General Partners -- 348,000
Limited Partners (59,932 Units Outstanding) 11,747,000 29,115,000
------------ ------------
TOTAL PARTNERS' EQUITY 11,747,000 29,463,000
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 22,794,000 $ 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 Nine Months Ended
September 30,
---------------------------
1998 1997
----------- -----------
REVENUES:
Hotel Operations $ 3,335,000 $18,748,000
Interest and Other 553,000 261,000
----------- -----------
Total Revenues 3,888,000 19,009,000
----------- -----------
EXPENSES:
Hotel Operations
Rooms 689,000 3,674,000
Administrative 448,000 2,140,000
Marketing 349,000 1,939,000
Energy 170,000 887,000
Repair and Maintenance 169,000 1,014,000
Management Fees 119,000 747,000
Property Taxes 79,000 568,000
Other 194,000 717,000
----------- -----------
Total Hotel Operations 2,217,000 11,686,000
Depreciation and Other Amortization 398,000 1,621,000
Interest 646,000 3,248,000
General and Administrative 703,000 656,000
----------- -----------
Total Expenses 3,964,000 17,211,000
----------- -----------
NET INCOME (LOSS) $ (76,000) $ 1,798,000
=========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $ (1) $ 29
=========== ===========
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $ 288 $ 30
=========== ===========
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
September 30,
---------------------------
1998 1997
------------ -----------
REVENUES:
Hotel Operations $ 1,133,000 $ 6,494,000
Interest and Other 183,000 82,000
----------- -----------
Total Revenues 1,316,000 6,576,000
----------- -----------
EXPENSES:
Hotel Operations
Rooms 246,000 1,248,000
Administrative 159,000 710,000
Marketing 116,000 651,000
Energy 67,000 284,000
Repair and Maintenance 59,000 337,000
Management Fees 39,000 263,000
Property Taxes 29,000 215,000
Other 63,000 253,000
----------- -----------
Total Hotel Operations 778,000 3,961,000
Depreciation and Other Amortization 135,000 130,000
Interest 212,000 1,082,000
General and Administrative 207,000 248,000
----------- -----------
Total Expenses 1,332,000 5,421,000
----------- -----------
NET INCOME (LOSS) $ (16,000) $ 1,155,000
=========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $ -- $ 19
=========== ===========
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP
ASSIGNEE UNIT $ -- $ 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 Nine Months Ended September 30, 1998 and 1997
General Limited
Partners Partners Total
------------ ------------ ------------
Balance, January 1, 1998 $ 348,000 $ 29,115,000 $ 29,463,000
Net Income (Loss) 5,000 (81,000) (76,000)
Cash Distributions (353,000) (17,287,000) (17,640,000)
------------ ------------ ------------
Balance, September 30, 1998 $ -- $ 11,747,000 $ 11,747,000
============ ============ ============
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
============ ============ ============
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 Nine Months Ended
September 30,
----------------------------
1998 1997
------------ ------------
OPERATING ACTIVITIES
Net Income (Loss) $ (76,000) $ 1,798,000
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 398,000 1,772,000
Changes in Operating Assets and Liabilities:
Accounts Receivable 105,000 (831,000)
Prepaid Expenses and Other Assets 31,000 2,000
Accounts Payable, Accrued Expenses, and
Other Liabilities (922,000) 875,000
------------ ------------
Net Cash Provided (Used) by Operating Activities (464,000) 3,616,000
------------ ------------
INVESTING ACTIVITIES
Cash in Escrow 19,214,000 --
Proceeds from Sale of Cash Investment 3,888,000 3,893,000
Purchase of Cash Investment -- (3,888,000)
Capital Improvements (165,000) (1,083,000)
Restricted Cash - Increase (5,013,000) (19,000)
------------ ------------
Net Cash Provided (Used) by Investing Activities 17,924,000 (1,097,000)
------------ ------------
FINANCING ACTIVITIES
Notes Payable Principal Payments (18,678,000) (277,000)
Cash Distribution to Partners (17,640,000) (1,835,000)
Prepayment Penalties Paid (438,000) --
------------ ------------
Cash Used by Financing Activities (36,756,000) (2,112,000)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,296,000) 407,000
Cash and Cash Equivalents at Beginning of Period 27,051,000 3,436,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,755,000 $ 3,843,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid in Cash During the Period $ 765,000 $ 3,098,000
============ ============
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 Nine Months Ended
September 30,
-------------------------
1998 1997
-------- --------
Partnership management fees $ 72,000 $160,000
Reimbursement of administrative expense 158,000 225,000
-------- --------
Total $230,000 $385,000
======== ========
As discussed in Note 2 to the 1997 audited financial statements, pursuant
to the Partnership Agreement, immediately prior to liquidation and if
certain distribution levels to the limited partners are not met, the
general partners may be obligated to return all or a portion of the
cumulative amounts received in distributions. At September 30, 1998 such
amount is approximately $810,000 and the Partnership believes circumstances
will be such that the general partners will be required to re-contribute
this amount.
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. Restricted Cash
The restricted cash at September 30, 1998 represents $5,000,000, which (as
discussed in Part II, Item 1) the Court enjoined the Partnership from
conveying, transferring, or otherwise disposing of. The balance consists of
amounts related to the sale of the Residence Inn - Atlanta (Perimeter West)
which were deposited in an escrow account (see Note 6 to the 1997 audited
financial statements).
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
As reported previously, the Partnership had been in negotiations with an
unaffiliated prospective buyer for the Residence Inn - Nashville, but late
in the second quarter negotiations were terminated when the prospective
buyer requested terms unacceptable to GSI. Negotiations resumed in the
third quarter; however, the title company was unable to issue acceptable
title insurance to the buyer with respect to the land on which the hotel is
built and the offer was withdrawn in October 1998. As reported earlier, the
Partnership's loan on the property became due and payable on April 1, 1998
and the Partnership has since been in default. The lender entered into a
Page 7 of 19
<PAGE>
six-month forbearance agreement with GSI while the Partnership was in
negotiations for a potential sale in exchange for a principal reduction
payment of $100,000 and reimbursement of $20,000 to the lender for certain
costs. In addition, the Partnership made the regular monthly debt service
payments through November 1, 1998. However, as the forbearance agreement
has expired and as a sale is no longer feasible, it is likely that the
property will be foreclosed by the lender within the next several months.
Foreclosure would not, however, eliminate the legal proceedings relating to
the Residence Inn - Nashville to which the Partnership is a party.
Additionally, subsequent to foreclosure, the Partnership could be liable to
Marriott for contract termination fees and other costs, and would remain
liable for ground lease rentals due before the foreclosure.
Due to the deterioration of the Nashville market, the hotel's current value
is estimated not to exceed the loan balance. Furthermore, substantial
capital expenditures would be required over the next several years, which
are required under the Marriott contract and would be necessary for the
hotel to remain competitive. For these reasons, the Partnership has
concluded that permitting the lender to foreclose is in the best interest
of investors.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Item should be read in conjunction with Financial Statements and other
Items contained elsewhere in this Report.
Properties
A description of the properties in which the Partnership has or had an ownership
interest, along with the occupancy and room rate data follows:
OCCUPANCY AND ROOM RATE SUMMARY
<TABLE>
<CAPTION>
Average Occupancy Rate (%) Average Daily Room Rate ($)
------------------------------- --------------------------------
Nine Months Three Months Nine Months Three Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 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 73 N/A 68 N/A 79.06 N/A 86.91
Ontario, California
Residence Inn - Ft. Wayne (1) 80 06/88 N/A 84 N/A 91 N/A 67.15 N/A 70.17
Fort Wayne, Indiana
Residence Inn - Columbus (East) (1) 80 06/88 N/A 90 N/A 94 N/A 74.78 N/A 78.98
Columbus, Ohio
Residence Inn - Indianapolis (North) (1) 88 06/88 N/A 79 N/A 78 N/A 79.75 N/A 85.04
Indianapolis, Indiana
Residence Inn - Lexington (1) 80 06/88 N/A 92 N/A 91 N/A 78.01 N/A 80.80
Lexington, Kentucky
Residence Inn - Louisville (1) 96 06/88 N/A 90 N/A 95 N/A 91.45 N/A 91.64
Louisville, Kentucky
Residence Inn - Winston-Salem (1) 88 06/88 N/A 84 N/A 91 N/A 79.74 N/A 78.50
Winston-Salem, North Carolina
Residence Inn - Nashville (Airport) 168 05/89 85 82 86 90 82.74 87.50 83.36 98.83
Nashville, Tennessee
Residence Inn - Altamonte Springs (1) 128 03/90 N/A 85 N/A 76 N/A 92.73 N/A 100.01
Altamonte Springs, Florida
<FN>
1) Sold in December 1997.
</FN>
</TABLE>
Page 8 of 19
<PAGE>
Results of Operations
During the nine and three months ended September 30, 1998, the Partnership had a
net loss of $76,000 and $16,000, respectively, compared to net income of
$1,798,000 and $1,155,000 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 nine and three months ended
September 30, 1998 compared to 1997. The net operations, however, from the
Partnership's interest income less its administrative expenses improved for both
the nine and three months ended September 30, 1998 compared to 1997.
Revenues and expenses from hotel operations decreased substantially in the first
nine and three months ended September 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, also decreased when compared to 1997 as
room rates were substantially below those experienced in 1997 for both the nine
and three month periods. Occupancy decreased in the three months ended September
30, 1998 compared to the same period in 1997 but still showed an increase of 3%
on a year-to-date basis. The operating expenses at the Residence Inn - Nashville
decreased for the nine and three months ended September 30, 1998 compared to
1997 as lower room, marketing, repair and maintenance, property tax costs and
ground lease expense more than compensated for an increase in administrative
costs. The administrative costs in 1997 were unusually low due to the
recognition of a $95,000 credit in the third quarter related to the settlement
of disputed sales and use taxes which had been assessed by the State of
Tennessee.
Interest expense decreased in the first nine months and three months ended
September 30, 1998 compared to 1997 also as a result of the previously mentioned
sale. Depreciation and other amortization decreased for the first nine months of
1998 compared to 1997 as a result of the sale of eight hotels. However,
depreciation and other amortization only reflected a slight change for the
quarter when compared to the prior year because at June 30, 1997 all but the
Residence Inn - Nashville were classified as real estate held for sale and no
depreciation or amortization of deferred franchise fees were recorded after that
date. Interest income increased due to higher cash balances resulting from sales
proceeds. The Partnership's general and administrative expenses increased in the
first nine months 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 third quarter general and administrative
expenses decreased in 1998 compared to 1997 primarily due to decreases in
Partnership management fees and administrative costs which more than offset the
increase in legal 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 nine
months of 1998 but declined when compared to the same period in 1997. While the
average daily room rate declined by $4.76 to $82.74 for the first nine months of
1998, average occupancy increased by 3% to 85%.
The Nashville Airport hotel market continued to deteriorate during the third
quarter, resulting in large part from the closure of Opryland theme park, which
is undergoing a major two-year renovation. Additionally, patronage continues to
be down significantly at the Opryland Convention Center, which has traditionally
provided overflow traffic to the Partnership's hotel. Contributing to the
particularly weak market is the significant quantity of new supply. It is
anticipated that by year-end 1998, 3,000 new hotel rooms will have come on line
in Nashville, with more to be added in 1999. Capital expenditures during the
quarter included repairs to the foundations of two of the buildings which were
experiencing subsidence.
Partnership Liquidity and Capital Resources
First Three Quarters 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 primarily for capital improvements. Cash was used by financing activities
for distributions to partners, payment of prepayment penalties and principal
payments on notes payable.
The results of project operations before capital improvements for the three and
nine months ended September 30, 1998 and 1997 (as shown in the tables on pages
12 through 15) are determined by net income or loss, adjusted for non-cash items
such as depreciation and amortization, and reduced by principal payments made on
the notes payable. Project operations before capital improvements is an
indication of the operational performance of the property. During the first nine
Page 9 of 19
<PAGE>
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 nine months 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 nine months of 1998, the Partnership incurred costs totaling
$77,000 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 $200,000 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.
As reported previously, the Partnership had been in negotiations with an
unaffiliated prospective buyer for the Residence Inn - Nashville, but late in
the second quarter negotiations were terminated when the prospective buyer
requested terms unacceptable to GSI. Negotiations resumed in the third quarter;
however, the title company was unable to issue acceptable title insurance to the
buyer with respect to the land on which the hotel is built and the offer was
withdrawn in October 1998. As reported earlier, the Partnership's loan on the
property became due and payable on April 1, 1998 and the Partnership has since
been in default. The lender entered into a six-month forbearance agreement with
GSI while the Partnership was in negotiations for a potential sale in exchange
for a principal reduction payment of $100,000 and reimbursement of $20,000 to
the lender for certain costs. In addition, the Partnership made the regular
monthly debt service payments through November 1, 1998. However, as the
forbearance agreement has expired and as a sale is no longer feasible, it is
likely that the property will be foreclosed by the lender within the next
several months. Foreclosure would not, however, eliminate the legal proceedings
relating to the Residence Inn - Nashville to which the Partnership is a party.
Additionally, subsequent to foreclosure, the Partnership could be liable to
Marriott for contract termination fees and other costs, and would remain liable
for ground lease rentals due before the foreclosure.
Due to the deterioration of the Nashville market, the hotel's current value is
estimated not to exceed the loan balance. Furthermore, substantial capital
expenditures would be required over the next several years, which are required
under the Marriott contract and would be necessary for the hotel to remain
competitive. For these reasons, the Partnership has concluded that permitting
the lender to foreclose is in the best interest of investors.
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,
Page 10 of 19
<PAGE>
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.
On February 26, 1997, the Partnership's Transfer Agent informed the Managing
General Partner that trading had reached 4.9% (near the 5% maximum percentage),
at which time the General Partner, in accordance with its fiduciary
responsibility and with the advice of Counsel, suspended the processing of
resale transactions in order 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 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 Managing 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
Since 1994 the Partnership has provided investors an estimated net asset value
per Unit based upon year-end appraisals of the Partnership's real property in
combination with all other Partnership assets and liabilities as of year-end. In
consideration of the likely foreclosure of the Residence Inn - Nashville and the
impact of this event on the valuation of the Partnership' assets, a new
estimated net asset value per Unit has been prepared. The new estimated net
asset value per Unit, ranging from $179 to $184, represents Partnership assets
and liabilities as of September 30, 1998, reflects the value of the Residence
Inn - Nashville equal to the loan balance, includes an estimated range for
Marriott contract termination fees and costs the Partnership may be liable for
upon foreclosure, and assumes payment of deferred payments on the ground lease
through the date of foreclosure. Additionally, the estimated net asset value per
Unit includes distributions the General Partners will be obligated to return to
the Partnership prior to liquidation of the Partnership (see Note 2 to the 1997
audited financial statements). The estimated net asset value per Unit does not
take into account any damages that could be awarded in connection with the legal
actions relating to the Residence Inn - Nashville.
The estimated net asset value per Unit is an estimate only, based on the
methodology described herein and does not represent a market value. There can be
no assurance that, upon liquidation, net proceeds on a per-Unit basis would be
equal to or greater than the estimated net asset value per Unit provided by the
Partnership. Further, there can be no assurance that sales of Units now or in
the future would yield net proceeds equal to or greater than this value. The
Units are illiquid and there is no formal market where they are traded. However,
the Partnership is aware that some resales of Units have taken place in the
informal secondary market. In this informal market, transactions may or may not
take place in any given time period and occur at a price negotiated between the
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 Partnership's Transfer Agent between January 1, 1998 and June 24,
1998 (at which time the Partnership suspended trading- see below), reflecting
prices ranging from $112 to $417 per Unit, with a simple average price 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 general and administrative expenses and interest income, fees and
expenses the Partnership may be liable for upon foreclosure, as well as the
outcome of legal proceedings relating to the Residence Inn - Nashville. 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 Three Months Ended September 30, 1998
(000's)
Sold
Partnership Nashville Hotels Total
----------- --------- ------ -----
REVENUES:
Hotel operations:
Rooms $ 0 $ 1,085 $ 0 $ 1,085
Telephone and other 0 48 0 48
------- ------- ------- -------
Hotel operations 0 1,133 0 1,133
Interest and other 183 0 0 183
------- ------- ------- -------
Total revenues 183 1,133 0 1,316
------- ------- ------- -------
EXPENSES:
Hotel operations:
Rooms 0 246 0 246
Administrative 0 139 20 159
Marketing 0 116 0 116
Energy 0 67 0 67
Repair and maintenance 0 59 0 59
Management fees 0 42 (3) 39
Property taxes 0 29 0 29
Other 0 63 0 63
------- ------- ------- -------
Hotel operations 0 761 17 778
Depreciation and other
amortization 0 135 0 135
Interest 0 213 (1) 212
General and administrative 207 0 0 207
------- ------- ------- -------
Total expenses 207 1,109 16 1,332
------- ------- ------- -------
NET INCOME(LOSS) (24) 24 (16) (16)
Plus non-cash items - net 0 135 0 135
Less notes payable
principal payments 0 38 0 38
------- ------- ------- -------
Project operations (24) 121 (16) 81
Capital Improvements 0 37 0 37
------- ------- ------- -------
Project operations after
capital improvements ($ 24) $ 84 ($ 16) $ 44
======= ======= ======= =======
Occupancy N/A 86% N/A 86%
ADR N/A $ 83.36 N/A $ 83.36
Page 12 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 September 30, 1997
(000's)
Sold
Partnership Nashville Hotels Total
----------- --------- ------ -----
REVENUES:
Hotel operations:
Rooms $ 0 $1,249 $4,951 $6,200
Telephone and other 0 53 241 294
------ ------ ------ ------
Hotel operations 0 1,302 5,192 6,494
Interest and other 82 0 0 82
------ ------ ------ ------
Total revenues 82 1,302 5,192 6,576
------ ------ ------ ------
EXPENSES:
Hotel operations:
Rooms 0 270 978 1,248
Administrative 0 73 637 710
Marketing 0 126 525 651
Energy 0 68 216 284
Repair and maintenance 0 80 257 337
Management fees 0 39 224 263
Property taxes 0 40 175 215
Other 0 82 171 253
------ ------ ------ ------
Hotel operations 0 778 3,183 3,961
Depreciation and other
amortization 0 130 0 130
Interest 0 215 867 1,082
General and administrative 248 0 0 248
------ ------ ------ ------
Total expenses 248 1,123 4,050 5,421
------ ------ ------ ------
NET INCOME(LOSS) (166) 179 1,142 1,155
Plus non-cash items - net 0 131 52 183
Less notes payable
principal payments 0 33 62 95
------ ------ ------ ------
Project operations (166) 277 1,132 1,243
Capital Improvements 0 77 207 284
------ ------ ------ ------
Project operations after
capital improvements ($ 166) $ 200 $ 925 $ 959
====== ====== ====== ======
Occupancy N/A 90% 83% 84%
ADR N/A $98.83 $82.55 $87.42
Page 13 of 19
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
a California Limited Partnership
Project Operations of the Residence Inns for
the Nine Months Ended September 30, 1998
(000's)
Sold
Partnership Nashville Hotels Total
----------- --------- ------ -----
REVENUES:
Hotel operations:
Rooms $ 0 $ 3,183 $ 0 $ 3,183
Telephone and other 0 152 0 152
------- ------- ------- -------
Hotel operations 0 3,335 0 3,335
Interest and other 553 0 0 553
------- ------- ------- -------
Total revenues 553 3,335 0 3,888
------- ------- ------- -------
EXPENSES:
Hotel operations:
Rooms 0 689 0 689
Administrative 0 445 3 448
Marketing 0 349 0 349
Energy 0 170 0 170
Repair and maintenance 0 169 0 169
Management fees 0 119 0 119
Property taxes 0 84 (5) 79
Other 0 194 0 194
------- ------- ------- -------
Hotel operations 0 2,219 (2) 2,217
Depreciation and other
amortization 0 398 0 398
Interest 0 641 5 646
General and administrative 703 0 0 703
------- ------- ------- -------
Total expenses 703 3,258 3 3,964
------- ------- ------- -------
NET INCOME(LOSS) (150) 77 (3) (76)
Plus non-cash items - net 0 398 0 398
Less notes payable
principal payments 0 109 0 109
------- ------- ------- -------
Project operations (150) 366 (3) 213
Capital Improvements 0 77 0 77
------- ------- ------- -------
Project operations after
capital improvements ($ 150) $ 289 ($ 3) $ 136
======= ======= ======= =======
Occupancy N/A 85% N/A 85%
ADR N/A $ 82.74 N/A $ 82.74
Page 14 of 19
<PAGE>
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)
Sold
Partnership Nashville Hotels Total
----------- --------- ------ -----
REVENUES:
Hotel operations:
Rooms $ 0 $ 3,276 $14,600 $17,876
Telephone and other 0 167 705 872
------- ------- ------- -------
Hotel operations 0 3,443 15,305 18,748
Interest and other 261 0 0 261
------- ------- ------- -------
Total revenues 261 3,443 15,305 19,009
------- ------- ------- -------
EXPENSES:
Hotel operations:
Rooms 0 727 2,947 3,674
Administrative 0 302 1,838 2,140
Marketing 0 367 1,572 1,939
Energy 0 171 716 887
Repair and maintenance 0 214 800 1,014
Management fees 0 103 644 747
Property taxes 0 127 441 568
Other 0 234 483 717
------- ------- ------- -------
Hotel operations 0 2,245 9,441 11,686
Depreciation and other
amortization 0 383 1,238 1,621
Interest 0 646 2,602 3,248
General and administrative 656 0 0 656
------- ------- ------- -------
Total expenses 656 3,274 13,281 17,211
------- ------- ------- -------
NET INCOME(LOSS) (395) 169 2,024 1,798
Plus non-cash items - net 0 384 1,388 1,772
Less notes payable
principal payments 0 98 179 277
------- ------- ------- -------
Project operations (395) 455 3,233 3,293
Capital Improvements 0 426 657 1,083
------- ------- ------- -------
Project operations after
capital improvements ($ 395) $ 29 $ 2,576 $ 2,210
======= ======= ======= =======
Occupancy N/A 82% 83% 83%
ADR N/A $ 87.50 $ 81.17 $ 82.22
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.
In late October 1998, 2300 and NLC filed a second amended complaint, asserting
that a certain 1989 three-party agreement among NLC, the Partnership and the
holder of a mortgage on the Hotel and the Land entitles 2300 and NLC to obtain
judgment for, among other things, the cost, including attorney's fees, of this
action and of Nelson's time and efforts on behalf of NLC in this action. The
Partnership has not yet responded to this second amended complaint.
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.
Page 17 of 19
<PAGE>
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. Oral
arguments regarding this appeal were held in July 1998, and in September 1998
the appellate court affirmed the judgments for the Partnership. Defendants moved
for rehearing, which has been denied. Defendants have until December 14, 1998 to
file an application with the Tennessee Supreme Court for permission to appeal
the appellate court decision.
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 in June 1998 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 in September 1998 dismissed the
complaint against all Affiliates but one and denied the remaining requests for
dismissal.
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 anticipated foreclosure of the Residence Inn - Nashville, 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.
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/ William A. Finelli
----------------------
William A. Finelli
Managing Director,
Principal Financial and Accounting Officer
of SSR Realty Advisors, Inc.
Date: November 12, 1998
-----------------
Page 19 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000800730
<NAME> METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,755,000
<SECURITIES> 0
<RECEIVABLES> 1,190,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,440,000
<PP&E> 13,986,000
<DEPRECIATION> (5,657,000)
<TOTAL-ASSETS> 22,794,000
<CURRENT-LIABILITIES> 2,442,000
<BONDS> 8,305,000
0
0
<COMMON> 0
<OTHER-SE> 11,747,000
<TOTAL-LIABILITY-AND-EQUITY> 22,794,000
<SALES> 0
<TOTAL-REVENUES> 3,335,000
<CGS> 0
<TOTAL-COSTS> 2,217,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 646,000
<INCOME-PRETAX> (76,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,000)
<EPS-PRIMARY> (1)
<EPS-DILUTED> 0
</TABLE>
