- --------------------------------------------------------------------------------
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 March 31, 1999
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
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
BALANCE SHEETS (UNAUDITED)
March 31, December 31,
1999 1998
----------- -----------
ASSETS
Cash and Cash Equivalents $ 7,809,000 $ 7,485,000
Restricted Cash 5,000,000 5,353,000
Accounts Receivable 716,000 672,000
Prepaid Expenses and Other Assets 52,000 126,000
Asset to be Disposed of 8,185,000 8,185,000
Deferred Franchise Fees 24,000 24,000
=========== ===========
TOTAL ASSETS $21,786,000 $21,845,000
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts Payable $ 773,000 $ 655,000
Accrued Property Taxes 32,000 114,000
Accrued Interest 216,000 333,000
Other Liabilities 694,000 751,000
Note Payable 8,224,000 8,292,000
----------- -----------
TOTAL LIABILITIES 9,939,000 10,145,000
----------- -----------
PARTNERS' EQUITY
General Partners -- --
Limited Partners (59,932 Units Outstanding) 11,847,000 11,700,000
----------- -----------
TOTAL PARTNERS' EQUITY 11,847,000 11,700,000
=========== ===========
TOTAL LIABILITIES AND PARTNERS' EQUITY $21,786,000 $21,845,000
=========== ===========
See notes to financial statements (unaudited).
Page 2
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended
March 31,
--------------------------
1999 1998
------------ ------------
REVENUES:
Hotel Operations $ 998,000 $ 1,008,000
Interest and Other 145,000 202,000
----------- -----------
Total Revenues 1,143,000 1,210,000
----------- -----------
EXPENSES:
Hotel Operations
Rooms 213,000 205,000
Administrative 116,000 128,000
Marketing 101,000 110,000
Energy 64,000 58,000
Repair and Maintenance 54,000 43,000
Management Fees 30,000 33,000
Property Taxes 37,000 27,000
Other 57,000 70,000
----------- -----------
Total Hotel Operations 672,000 674,000
Depreciation and Other Amortization -- 131,000
Interest 210,000 219,000
General and Administrative 114,000 320,000
----------- -----------
Total Expenses 996,000 1,344,000
----------- -----------
NET INCOME (LOSS) $ 147,000 $ (134,000)
=========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE
UNIT $ 2 $ (2)
=========== ===========
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE
UNIT $ -- $ 285
=========== ===========
See notes to financial statements (unaudited).
Page 3
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF PARTNERS' EQUITY (UNAUDITED)
For the Three Months Ended March 31, 1999 and 1998
General Limited
Partners Partners Total
------------- ------------ ------------
Balance, January 1, 1999 $ -- $ 11,700,000 $ 11,700,000
Net Income (Loss) -- 147,000 147,000
============= ============ ============
Balance, March 31, 1999 $ -- $ 11,847,000 $ 11,847,000
============= ============ ============
Balance, January 1, 1998 $ 348,000 $ 29,115,000 $ 29,463,000
Net Income -- (134,000) (134,000)
Cash Distributions (348,000) (17,081,000) (17,429,000)
============= ============ ============
Balance, March 31, 1998 $ -- $ 11,900,000 $ 11,900,000
============= ============ ============
See notes to financial statements (unaudited).
Page 4
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended
March 31,
----------------------------
1999 1998
------------ -------------
OPERATING ACTIVITIES
Net Income (Loss) $ 147,000 $ (134,000)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Depreciation and Amortization -- 131,000
Changes in Operating Assets and Liabilities:
Accounts Receivable (44,000) 233,000
Prepaid Expenses and Other Assets 74,000 92,000
Accounts Payable, Accrued Expenses, and
Other Liabilities (138,000) (869,000)
------------ ------------
Net Cash Provided (Used) by Operating Activities 39,000 (547,000)
------------ ------------
INVESTING ACTIVITIES
Cash in Escrow -- 19,214,000
Proceeds from Sale of Cash Investment -- 3,888,000
Capital Improvements -- (101,000)
Restricted Cash - Increase 353,000 (4,000)
------------ ------------
Net Cash Provided by Investing Activities 353,000 22,997,000
------------ ------------
FINANCING ACTIVITIES
Notes Payable Principal Payments (68,000) (18,504,000)
Cash Distribution to Partners -- (17,429,000)
Prepayment Penalties Paid -- (438,000)
------------ ------------
Cash Used by Financing Activities (68,000) (36,371,000)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 324,000 (13,921,000)
Cash and Cash Equivalents at Beginning of Period 7,485,000 27,051,000
============ ============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,809,000 $ 13,130,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid in Cash During the Period $ 327,000 $ 365,000
============ ============
See notes to financial statements (unaudited).
Page 5
<PAGE>
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P.,
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Reference to the 1998 Audited Financial Statements
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the 1998 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 Three Months
Ended March 31,
--------------------------
1999 1998
-------- --------
Partnership management fees $ -- $ 53,000
Reimbursement of administrative expense 33,000 53,000
======== ========
Total $ 33,000 $106,000
======== ========
As discussed in Note 2 to the 1998 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 March 31, 1999 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 $5,000,000 restricted cash at March 31, 1999 represents the amount,
which (as discussed in Part II, Item 1) the Court enjoined the Partnership
from conveying, transferring, or otherwise disposing of. At December 31,
1998, the balance, in addition to the $5,000,000, consists of amounts
related to the sale of the Residence Inn - Atlanta (Perimeter West) which
were deposited in an escrow account. (See Note 7 to the 1998 audited
financial statements). In March 1999, the escrow account was closed and the
total amount in the account was transferred to the Partnership.
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 other legal proceedings; see Part II, Item 1,
Legal Proceedings, for a detailed description of these matters.
6. Asset to be Disposed Of
At December 31, 1998, the Partnership's remaining property, the Residence
Inn - Nashville, was classified as asset to be disposed of and an
impairment provision, in the amount of $195,000, was recorded in 1998 to
reduce the carrying value to the estimated fair value less costs to dispose
of. The estimated fair value for this property is equivalent to the
principal balance on the mortgage note payable (see Note 7. below) less
Page 6
<PAGE>
costs to dispose of the property. The estimated fair value of the property
does not necessarily represent the amount at which the property will
ultimately be disposed of.
7. Note Payable
On April 1, 1998, the balloon mortgage payment for the Residence Inn -
Nashville, totaling $8,491,000, became due and payable. The Partnership did
not make the payment and has since been in default. The Partnership was
unable to negotiate an extension with the lender and was unable to sell the
property (see Note 5 to the 1998 audited financial statements).
The Partnership discontinued the monthly debt service payments effective
with the payment due December 1, 1998. In January 1999, the lender
contacted the Partnership and it was agreed that the Partnership would make
the monthly debt service payments to cover the payments due December 1,
1998 through April 1, 1999, in exchange for the lender agreeing to work
towards taking title to the property via a deed in lieu of foreclosure and
assuming the management contract with Marriott (with Marriott's consent),
thereby relieving the Partnership of a potential obligation to pay
approximately $1,400,000 in termination fees plus other costs, and relief
from the ground lease. Consequently, on February 5, 1999, the Partnership
paid $265,000 to cover the monthly payments (including impound) due through
February 1, 1999. The Partnership also paid the debt service installments
due March 1 and April 1, 1999.
The lender has decided to foreclosure on the property and it is anticipated
that the Partnership will make no further debt service payments. The
Partnership will work, in the foreclosure process, towards facilitating an
assignment of the Marriott contract to a new owner. There can, however, be
no assurance that such assignment can be consummated, and the Partnership
could be liable to pay the termination fee of approximately $1,400,000 plus
other costs. The foreclosure sale is expected to occur in June 1999.
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.
Year 2000 Readiness Disclosure
With the change to the year 2000, computer programs or hardware utilizing two
digits rather than four to define the applicable year may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to conduct normal business activities.
In anticipation of the year 2000, in late 1996 the Managing General Partner
conducted a thorough inventory of all software programs it had in use and
identified programs that would require modification to correct date handling
methodology. Furthermore, the Managing General Partner initiated a policy
requiring that all future software purchases be year-2000 compliant. With the
exception of the Managing General Partner's financial accounting system, the
majority of the hardware and software in use was determined to be year-2000
compliant or it was determined that compliance could be achieved with minor
modifications. These modifications were 100% completed by year-end 1998. With
respect to the financial accounting system, the Managing General Partner is in
the process of implementing a Year 2000-compliant software product to replace
its existing system, and anticipates the new system to be fully operational and
tested by July 31, 1999. All necessary changes have been and will continue to be
undertaken at no cost to the Partnership.
In addition to internal systems, the Managing General Partner surveyed third
parties that provide essential business services to determine their state of
year-2000 readiness. The Partnership's Servicing and Transfer Agent, Gemisys,
utilizes a platform programmed to correctly interpret the change to the new
century. The state of year-2000 readiness of Marriott, the manager of the
remaining hotel, is not considered to be of significance, as the hotel will
likely be foreclosed in June 1999.
The Managing General Partner anticipates there to be no material exposure to
year-2000 issues. However, should the Managing General Partner's new financial
accounting system not be fully operational by December 31, 1999, the Managing
General Partner's contingency plan would be to process necessary transactions
utilizing non-date sensitive software.
Page 7
<PAGE>
Properties
A description of the remaining property in which the Partnership has 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 ($)
------------------------------- --------------------------------
Three Months Ended Three Months Ended
March 31, March 31,
Date of ------------------------------- --------------------------------
Name and Location Rooms Purchase 1999 1998 1999 1998
- -------------------------------- -------- ---------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Residence Inn - Nashville (Airport) 168 05/89 76 82 83.00 79.57
Nashville, Tennessee
</TABLE>
Results of Operations
During the three months ended March 31, 1999, the Partnership had net income of
$147,000 compared to a net loss of $134,000 in 1998. The change is primarily due
to no depreciation being recorded in 1999 and a reduction in general and
administrative expenses.
There was substantially no change in the hotel operating revenues and expenses,
being primarily those of the Residence Inn - Nashville, as the decrease in
occupancy was offset by an increase in room rates. Likewise, interest expense
remained stable for the two years. Depreciation and other amortization decreased
during the first three months of 1999 compared to 1998 as a result of the
Partnership's remaining property being classified as asset to be disposed of at
December 31, 1998 and no depreciation or amortization of deferred franchise fees
were recorded after that date (see Notes 1 and 4 to the 1998 audited financial
statements). Interest income decreased in 1999 compared to 1998 due to lower
cash balances resulting from sales proceeds being distributed in January 1998.
The Partnership's general and administrative expenses decreased in the first
three months of 1999 compared to 1998 primarily due to a decrease in legal
costs, Partnership management fees and administrative costs.
The following discussion provides information concerning the operations of the
Partnership's remaining hotel:
Residence Inn - Nashville: Operating results were positive for the first three
months of 1999 and were virtually unchanged as compared to the same period in
1998. While the average daily room rate increased by $3.43, to $83.00, for the
period, average occupancy decreased by 6%, to 76%, as compared to the first
three months of 1998.
The Nashville Airport hotel market continues to struggle with the effect of the
closure of Opryland theme park, which is undergoing a major two-year renovation.
Additionally, patronage continues to decline at the Opryland Convention Center,
which has traditionally provided overflow traffic to the Partnership's hotel.
Contributing to the weak market is the high level of new supply, with
approximately 3,000 new rooms coming on line during 1998. The 1999 capital plan,
as proposed by Marriott, calls for spending approximately $1,921,000; however,
the Partnership has not approved the 1999 capital plan and has put most capital
expenditures on hold pending the disposal of the hotel.
Partnership Liquidity and Capital Resources
First Quarter of 1999
As presented in the Statement of Cash Flows, cash was provided by operating
activities. Cash was provided by investing activities from receipt by the
Partnership of the balance of an escrow account (the "Shortfall Guaranty
Account") that had been established at the time of sale of the Residence Inn -
Atlanta in October 1995. The conditions for payment from the Shortfall Guaranty
Account to the buyer of the hotel were not met and, pursuant to the escrow
agreement, the full amount, including any interest earned, was returned to the
Partnership on March 31, 1999. Cash was used by financing activities for
principal payments on notes payable.
As disclosed in the Partnership's Form 10-K filed for the period ended December
31, 1998, the 1999 capital plan, as proposed by Marriott, calls for spending
approximately $1,921,000, of which $1,260,000 is budgeted for suite renovations
Page 8
<PAGE>
commencing in the second quarter of 1999. These improvements are generally
necessary to enable the property to remain competitive in the market and are
required under the franchise agreement. The Partnership, however, has not
approved the 1999 capital plan and has put all but the most necessary capital
expenditures on hold pending the disposal of the hotel.
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. The Partnership has made no distributions to date in
1999. Future distributions will be dependent primarily upon the level of general
and administrative expenses and interest income as well as the outcome of legal
proceedings related to the Residence Inn - Nashville, as described further in
Part II, Item 1, and the ultimate disposal of the hotel.
On April 1, 1998, the balloon mortgage payment for the Residence Inn -
Nashville, totaling approximately $8.5 million, became due and payable (see Note
7 to the financial statements). In exchange for a six-month forbearance
agreement, during which time the Partnership pursued the potential sale of the
property, the lender accepted a principal reduction payment of $100,000,
reimbursement of $20,000 of its costs, and regular monthly debt service payments
through November 1, 1998. The Partnership subsequently determined that a sale of
the property was not feasible, and the forbearance agreement expired. The
Partnership attempted to negotiate with the lender to accept the deed in lieu of
foreclosure and to assume the Marriott management contract, but was
unsuccessful. A deed in lieu of foreclosure would have relieved the Partnership
of substantial contract termination fees that it may have to pay in the event of
a foreclosure sale. In this regard, the Partnership has made regular monthly
debt service payments for the months of December 1998, January, February, March
and April 1999. It is now likely that the property will be foreclosed in June
1999. While the Partnership believes that the ground lease associated with the
property would be terminated in the event of a foreclosure, the Partnership will
be obligated to pay deferred rent under the lease.
Internal Revenue Service regulations provide that, should 5% or more of the
outstanding assignee limited partnership units of a limited partnership be
traded via non-exempt transactions within a calendar year the limited
partnership could be classified as a publicly-traded partnership for federal tax
purposes, and could therefore be taxed as a corporation. Transfers that are
exempt from the above restrictions include transfers at death; transfers between
siblings, spouses, ancestors, or lineal descendants; and distributions from
qualified retirement plans.
In 1996, 1997, and again in 1998, the Managing General Partner suspended the
processing of most types of resale transactions, as the level of such resale
transactions reached 4.9% of the total number of outstanding Units for each of
those years. This action was taken to ensure that resale transactions did not
result in the termination of the Partnership for tax purposes, cause the
Partnership to be classified as a publicly traded partnership or to be taxed as
a corporation. Through May 10, 1999, the Partnership's Transfer Agent processed
non-exempt resale transactions representing approximately 3.0% of the total
number of outstanding Units. Should non-exempt transactions reach 4.9%, the
Managing General Partner will again suspend processing and will promptly notify
investors.
Conclusion
In view of (i) the sale of all of the Partnership's properties except the
Residence Inn - Nashville; (ii) the anticipated foreclosure of the Residence Inn
- - Nashville; (iii) the Partnership's potential liability of $1,400,000 in
contract termination fees plus other costs upon disposal of the hotel; (iv)
distributions the General Partners will be obligated to return to the
Partnership prior to its liquidation; and (v) uncertainties related to the
litigation relating to that property, the Partnership no longer provides an
estimated net asset value per Unit. However, the Partnership is aware that some
resale transactions 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 112 resale transactions have been recorded on the books
of the Partnership's transfer agent between January 1, 1999 and May 10, 1999,
reflecting prices ranging from $75 to $415 per Unit, with a simple average price
of $104. 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
Page 9
<PAGE>
states of California, North Carolina, and Indiana. Future distributions will be
dependent on general and administrative expenses and interest income and 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.
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
filed a motion with the Chancery Court to set aside the judicial sale and to
return ownership of the Land to it, which would result in it again becoming the
landlord under the lease. NLC also filed a lien lis pendens against the Land,
giving notice of NLC's attempts to set aside the sale. In November, 1997, the
Court denied this motion. On June 8, 1998, the Court granted a motion filed by
Orlando to dissolve the lien lis pendens filed by NLC. Orlando asserted, and the
Court agreed, that the order of November 1997 denying NLC's motion to set aside
the sale of the Land was a final, unappealable order that finally disposed of
NLC's claim to set aside the sale. In July of 1998, NLC appealed the Court's
Page 10
<PAGE>
order of June 8, 1998. This appeal is currently pending. Unless NLC's appeal is
successful, Orlando will continue to be the owner of the Land and the
Partnership's landlord under the lease.
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. 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. In
November 1998, the Court granted a motion filed by the Partnership, dismissing
the claim of NLC and 2300 to recover for the value of Nelson's time and efforts
on behalf of NLC in this and related litigation.
In December 1998, the Court granted a motion for partial summary judgment filed
by the Partnership, dismissing most of the remaining damage claims of 2300 and
NLC, including claims for indemnification for any loss resulting from the claims
of Orlando. After these claims were dismissed, 2300 and NLC amended their damage
claim to seek to recover the alleged differential between the price that the
Partnership agreed to pay for the Land and its alleged fair market value. The
amount of this claim is approximately $1.6 million.
In April 1999, the Partnership filed a motion to strike the new damage claim. At
a hearing held on May 7, 1999, the Court denied the motion.
The trial of the case, which had previously been set for February 9, 1998 and
continued to March 15, 1999, has been further continued to permit limited
discovery related to this new claim. No new trial date has yet been set.
Page 11
<PAGE>
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 on 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
August 1996 the Court granted the Partnership's motion. The defendants appealed
all judgments for the Partnership in this case. The Partnership and the
defendants agreed on an attorneys' fee award to the Partnership of $60,000, but
no payment was 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 was denied in early October 1998. Defendants then filed an
application with the Tennessee Supreme Court for permission to appeal the
appellate court decision. This application was denied by the Tennessee Supreme
Court in early March 1999. Subsequently, Defendants petitioned the Tennessee
Supreme Court to reconsider its denial. This petition was denied by the
Tennessee Supreme Court on May 10, 1999.
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.
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.
A motion for summary judgment to dismiss the action on the basis of the statute
of limitations was filed in January 1999 by the Inducement Action Defendants and
was argued at a hearing held in February 1999. In April 1999, the Court denied
the motion. Discovery is ongoing and the case has not been set for trial.
The legal and other expenses of the Inducement Action Defendants in the
Inducement Action arising as a result of the allegations made by Nelson are
being paid by the Partnership pursuant to the indemnification provisions of the
Partnership's limited partnership agreement and subject to the conditions set
forth in those provisions.
Metric Partners Growth Suite Investors, L.P. vs. James Reuben et al., San
Francisco County Superior Court, Case No. 998214.
On September 30, 1998, the Partnership filed this lawsuit against James Reuben
and several law corporations of which he is or has been a member (the "Reuben
Defendants"), alleging breach of their professional obligations and fiduciary
duty as attorneys for the Partnership to adequately and competently represent
Page 12
<PAGE>
and advise the Partnership in connection with the SF Settlement. The Partnership
seeks unspecified damages from the Reuben Defendants arising from such breach.
The Reuben Defendants answered the complaint in January 1999. Discovery has yet
to commence and no trial date for this action has been set.
Potential Impact of Litigation
The anticipated foreclosure of the Residence Inn - Nashville (see Part I, Item 2
"Partnership Liquidity and Capital Resources"), 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 13
<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: May 11, 1999
---------------------
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,809,000
<SECURITIES> 0
<RECEIVABLES> 716,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,577,000
<PP&E> 14,171,000
<DEPRECIATION> 5,986,000
<TOTAL-ASSETS> 21,786,000
<CURRENT-LIABILITIES> 1,715,000
<BONDS> 8,224,000
0
0
<COMMON> 0
<OTHER-SE> 11,847,000
<TOTAL-LIABILITY-AND-EQUITY> 21,786,000
<SALES> 0
<TOTAL-REVENUES> 998,000
<CGS> 0
<TOTAL-COSTS> 672,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210,000
<INCOME-PRETAX> 147,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,000
<EPS-PRIMARY> 2
<EPS-DILUTED> 0
</TABLE>
