UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ................ to ...............
Commission File No. 1-9311
PRIME MOTOR INNS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 22-2754689
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
C/O WHI, 4243 Hunt Road
Cincinnati, Ohio 45242
(Registrant's Mailing Address)
Registrant's telephone number, including area code: (513) 891-2920
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on which registered
Units of Limited Partnership Interest New York Stock Exchange
Evidenced by Depository Receipts
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)
On March 12, 1996 there were 4,000,000 of registrant's units of limited
partnership interest outstanding. The aggregate market value of such units held
by non-affiliates on that date based on the reported closing price on The New
York Stock Exchange, Inc. on that date, was approximately $ 2,250,000. The
Exhibit Index is located on page 19.
PART I
Item 1. Business
Prime Motor Inns Limited Partnership (the "Partnership") and its 99% owned
subsidiary, AMI Operating Partners, L.P. ("Operating Partners"), were formed
in October 1986 under the Delaware Revised Uniform Limited Partnership Act.
The Partnership and Operating Partners are referred to collectively as the
"Partnerships". Prime-American Realty Corp. (the "General Partner"),
a subsidiary of Prime Hospitality Corporation ("Prime"), formerly Prime Motor
Inns, Inc., is the general partner of and holds as its principal asset a 1%
partnership interest in each of the Partnerships. The business of the
Partnerships is to operate and maintain 16 full-service hotels (the "Inns"),
which are presently franchised as part of the "Holiday Inn" system.
The Inns were purchased from subsidiaries of Prime in December, 1986, with the
proceeds of the public offering of 4,000,000 units of limited partnership
interest (the "Units") in the Partnership and of the issuance and sale of
$61,470,000 of mortgage notes (the "Mortgage Notes") of Operating Partners.
Until November 30, 1990, the Inns were leased to AMI Management Corp. ("AMI
Management"), a subsidiary of Prime, pursuant to a net lease between AMI
Management and Operating Partners (the "Lease"). On September 18, 1990, Prime
and certain of its subsidiaries, including AMI Management, had filed for
reorganization (the "Prime Bankruptcy") under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of Florida (the "Florida Bankruptcy Court") and, effective November 30, 1991,
AMI Management rejected the Lease. At that time, Operating Partners, through
Winegardner & Hammons, Inc. ("W&H"), a prominent hotel management company with
operational experience with "Holiday Inn" franchises, took control of the Inns
and commenced operation of the Inns for the account of the Partnerships.
In the opinion of the Board of the General Partner, occupancies and cash flows
at the Inns during 1991 and 1990 were adversely affected by, among other things,
international tensions in the Middle East and the economic recession that began
in 1990, and the resulting slowdown in travel, and AMI Management's operation of
the Inns, primarily in the period immediately prior to and during its
bankruptcy.
To conserve cash to provide funds to maintain and improve the Inns and pay
suppliers, Operating Partners suspended the monthly payments of the principal
and interest on the Mortgage Notes beginning with the payments due on February
28, 1991, which constituted an event of default under, and resulted in
acceleration and demand for payment of the entire outstanding balance of the
Mortgage Notes. After detailed and extended negotiations among Operating
Partners and its advisors and representatives of the holders of the Mortgage
Notes (the "Mortgage Lenders") and their advisors, the parties agreed upon the
terms of a priming loan and the restructuring of the Mortgage Notes. Three of
the Mortgage Lenders (the "Priming Lenders") agreed to provide post-petition
financing (the "Priming Loan") of up to an aggregate of $14 million to finance
the refurbishment and upgrading of the Inns and to fund operating deficiencies,
and the Mortgage Lenders agreed to restructure the Mortgage Notes, as part of
a "prepackaged" reorganization of Operating Partners.
On February 28, 1992, Operating Partners filed with the United States Bankruptcy
Court for the Southern District of New York (the "New York Bankruptcy Court") a
Voluntary Petition for Relief under Chapter 11 of the United States Bankruptcy
Code, and sought confirmation by the New York Bankruptcy Court of the
prepackaged plan of reorganization consented to by the Mortgage Lenders (the
"Plan"). From February 28, 1992 through May 28, 1992, Operating Partners
managed its properties and its operations as a Chapter 11 debtor-in-possession
pursuant to the Bankruptcy Code.
To continue to operate the Inns as part of the "Holiday Inn" system, beginning
in July, 1991, Operating partners paid fees to acquire franchise agreements to
replace those that had been held by AMI Management. Holiday Inns, Inc. and its
affiliates engaged in administering the "Holiday Inn" system (collectively,
"HII") issued a new ten-year franchise agreement for Baltimore Inner Harbor
Inn to 2005, and extended to June 30, 1997 the term of the franchise agreements
that previously expired prior to June 30, 1997. Continuation of the franchise
agreements requires continued compliance with Holiday Inn quality standards.
Operating Partners and W&H entered into a replacement management agreement
(the "W&H Management Agreement") pursuant to which W&H manages the Inns from
January 4, 1992 through 1996, renewable for two two-year renewal terms. Under
the W&H Management Agreement, W&H is paid an annual base management fee of
2.25% of the gross revenues of the Inns, an incentive management fee based on
defined income in excess of defined amounts, and is reimbursed for miscellaneous
out-of-pocket expenses allocated to the Inns, including salaries, accounting,
legal, computer services, royalties, marketing, advertising, public relations,
and reservation services, subject to certain limitations.
The Plan provided for the Priming Loan of $14,000,000 to Operating Partners,
due December 31, 1999, bearing interest at the rate of 11% per annum, and
secured by a security interest, lien and mortgage senior to all other liens
on the property of Operating Partners. A portion of the Priming Loan (the
"Tranche A Loan") was to be used to fund a capital improvement program, could
cover the entire $14,000,000 of the Priming Loan, and is subject to a
prepayment penalty of 2%. The balance of the Priming Loan (the "Tranche B
Loan") was a revolving credit facility to be used to fund operating cash
requirements, and was limited to the lesser of $2,500,000 and the amount
of the Priming Loan that was not drawn as part of the Tranche A Loan.
Although there were borrowings under the Tranche B Loan during 1993, 1994 and
1995, there were no outstanding borrowings under the Tranche B Loan at December
31, 1993, 1994 and 1995. At December 31, 1995, the outstanding balance of the
Tranche A Loan was $11,500,000 and the maximum availability under the Tranche B
Loan was $2,500,000. Operating Partners must apply all revenues in excess of
operating and administrative expenses, debt service, a reserve for capital
replacements (the "FF&E Reserve", which amounted to 1 1/2% of gross revenues
in 1993 and 4% of gross revenues in 1994 and 5% of gross revenues in
1995 and thereafter), income taxes (if the Partnerships are taxable as
corporations) and amounts necessary to enable Operating Partners to maintain
a working capital reserve of $2 million, to the repayment of the Tranche B
Loan, then deposited into an escrow account held on behalf of the Lenders for
payment of taxes and insurance, and then to pay the Tranche A Loan.
In the event of a default under the Priming Loan,
the agent for the Priming Lenders may, in addition to any other remedies; cure
any defaults of Operating Partners; and/or declare the entire outstanding
balance of the Priming Loan to be due and payable. Default provisions under
the Priming Loan include, among others, (a) default for five days in the payment
of principal or interest, (b) default for five days after notice of any other
amounts due under the Priming Loan documents, and (c) acquisition by any
person, without the the consent of 75% in interest of the Priming Lenders,
of the Partnership's interest in Operating Partners or of 50% or more of the
stock of the General Partner.
The Plan also provided for the restatement of the loan agreement for the
Mortgage Notes (the "Restated Loan Agreement"), under which $3,467,000 of
accrued and unpaid interest at December 31, 1991 (the "Deferred Amount") was
added to the principal amount of the Mortgage Notes, but bore interest only
from and after January 1, 1995; the Mortgage Notes (not including the Deferred
Amount) bore interest at the rate of 7% per annum in 1992 and 1993 and 8% in
1994; the principal amount of the Mortgage Notes (including the Deferred Amount)
bore interest at a rate of 10% per annum after 1994; and the maturity of the
Mortgage Notes (including the Deferred Amount) was extended to, December 31,
1999. In addition, the Restated Loan Agreement includes a shared appreciation
feature, upon which any sale of any of the Inns and/or upon the maturity (by
acceleration, at the stated maturity date or otherwise), a portion of any
appreciation in the Inns held by the Partnerships is payable as additional
interest on the restructured Mortgage Notes. During the term of the
restructured Mortgage Notes, operating revenues in excess of the $2 million
of working capital that Operating Partners is permitted to retain and
the required payments (as described in the Priming Loan) must be applied to
repayment of the Mortgage Notes after the Priming Loan has been paid. The
Mortgage Notes can be repaid at any time without penalty.
In addition, in consideration of the agreement of the Mortgage Lenders to the
restructuring of the Mortgage Notes, Operating Partners and the Partnership
deposited the deeds to the Inns and assignments of other assets of Operating
Partners in escrow. Under the terms of the escrow agreement those deeds and
assignments will be released from escrow to a designee of the Mortgage Lenders
if certain defaults occur and continue not to be cured for 90 days. Such
defaults would include, among others, (a) non-payment when due, of any
principal, interest or other charges under the Priming Loan or the Mortgage
Notes, (b) failure to pay rent on any ground leases, (c) failure to pay real
and personal property taxes on the Inns, (d) failure to pay or provide for
premiums for insurance required under the Priming Loan or the Mortgage Notes
or the mortgages securing them, and (e) failure to pay operating expenses for
the Inns (subject to certain rights to contest amounts claimed to be due).
In the escrow agreement, Operating Partners has agreed not to interpose any
defense or objection to, or bring any lawsuit opposing, the Mortgage Lenders'
exercise of their rights under the escrow agreement, or, if Operating Partners
files another bankruptcy case, contest the lifting of any stay to permit the
Mortgage Lenders to exercise such rights.
During 1992 and 1993, Operating Partners violated certain covenants in the
Priming Loan and Restated Loan Agreements. The Mortgage Lenders and Priming
Lenders (collectively, the "Lenders") consented to amendments to the Priming
Loan and Restated Loan Agreements, providing for, among other things, (1)
revised capital, operating and administrative expense budgets, (2) elimination
of operating cash flow requirements and (3) revision of the capital improvement
program for the Inns (the "Revised Capital Improvement Program").
The capital improvement program originally provided for in the Priming Loan,
encompassed improvements and refurbishments with an aggregate cost of
approximately $16,000,000, which were expected to be completed by December 31,
1993. The Revised Capital Improvement Program, provided for capital improvements
and refurbishments totaling $13,000,872, all of which was completed by July 1,
1994. The Revised Capital Improvement Program was funded by $11,500,000 of the
Tranche A Loan and $1,500,872 from the FF&E Reserve.
During the first quarter of 1995, the Lenders agreed to the 1995 operating,
capital and administrative expense budgets for the Partnership, confirmed
satisfactory and timely completion of the Revised Capital Improvement Program
and acknowledged that the requirements of the Priming Loan with respect to the
capital improvement program had been completed.
Operating Partners are currently in compliance with all covenants and
requirements of the Priming Loan and Amended and Restated Loan Agreements.
The Partnerships' investment in the Inns continues to be subject to the risks
generally incident to the ownership of real estate, including those relating
to the uncertainty of cash flow to meet fixed obligations, adverse changes in
national economic conditions, adverse changes in local market conditions,
construction of new hotels and/or the franchising by Holiday Inn of competitor
hotels, changes in interest rates, the availability of financing for operating
or capital needs, changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, acts of God (which
may result in uninsured losses), condemnation and other factors that are beyond
the control of the General Partner, the Partnership, Operating Partners or W&H.
The "Holiday Inns" franchise of ten of the Inns will expire on June 30, 1997
and the franchises of two additional Inns will expire on December 31, 1997.
Before the expiration of the franchise for any "Holiday Inn" property, the
property is inspected by HII and that inspection forms the basis for a
Property Improvement Plan ("PIP"), the completion of which is a condition to
the renewal of the franchise for the property. HII has inspected and prepared
PIP's for ten of the Inns, the franchises of which expire in 1997.
HII has indicated that they may not renew the franchises of two of the Inns
and accordingly has not prepared a PIP for them. Based on those PIP's,
Operating Partners' current estimate of the cost of the capital expenditures
could be in the range of $13,000,000, although Operating Partners believes
that the scope of work and related costs are subject to negotiation.
Accordingly, Operating Partners has begun the process of evaluating, for each
Inn, the relative benefits and costs of renewing the "Holiday Inn" franchise
for the Inn, Operating the Inn under other franchises that may be available,
and operating the Inn without a franchise affiliation. In addition, Operating
Partners will evaluate improvements and expenditures included in each PIP in
order to identify those items that Operating Partners believes will enhance
the Inn's ability to compete in its market and will add value to the Inn, and
those improvements or expenditures that Operating Partners believes to be less
necessary or to add little value. Operating Partners will then negotiate
with HII the scope of work included in each PIP and the length of time
that will be required to complete such improvements. Generally, in connection
with the renewal of the franchise for an Inn, Operating Partners will have one
year, which may be negotiable, from the franchise expiration date to complete
the capital improvements included in the PIP. It is anticipated that those
capital improvements will be financed partially from the FF&E Reserve and from
additional financing, if available. However, under the Priming Loan and
Restated Loand Agreements, approval by the Lenders will be required for
any franchise changes, capital expenditures or additional financing.
The Partnerships believe that their ability to pay operating expenses, debt
service (both the Mortgage Loan and Priming Loan), and to create required
reserves depends on the ability of the Partnerships to increase future cash
flows from operations. The Partnership has not declared nor paid any
distributions to Unitholders of the Partnership since the third quarter of
1990 and no distributions are expected to be declared until cash flows are
sufficient to pay operating and capital requirements, including debt service.
In addition, the Partnership cannot make any distributions to the Unitholders
until the Priming Loan is repaid, Mortgage Note payments are maintained and
proper reserves are funded as required.
The Transfer Agent for the Partnership is First Chicago Trust Company of New
York. Their address is P.O. Box 2500, Jersey City, New Jersey 07303-2500.
Certain administrative functions are performed for the Partnership by W&H.
Therefore, the mailing address of the Partnership is c/o WHI, 4243 Hunt Road,
Cincinnati, Ohio 45242 (Telephone: (513) 891-2920). The operation of the
Inns is supervised from W&H's regional office at 301 West Lombard Street,
Baltimore, MD 21201.
Competition
The hotel industry is highly competitive and each of the Inns experiences
significant competition from other hotels, some of which are affiliated with
national or regional chains (including the "Holiday Inn" system). The number
of available hotel rooms in certain markets of the Inns has increased in recent
years, and in many areas has reached levels in excess of peak demand. The Inns'
success is in large part dependent upon their ability to compete on the basis of
factors such as physical condition of the Inns, access, location, service,
employees, marketing quality, reservation services, the quality and scope of
food and beverage facilities, and other amenities.
The demand for lodging accommodations varies seasonally and from one part of
the week to another, and is dependent upon general and local economic
conditions. In addition, the demand for accommodations at a particular Inn
may be adversely affected by government cutbacks, changes in travel patterns
caused by the relocation of highways or airports, the construction of additional
highways, strikes, weather conditions, and the availability and price of
gasoline and energy or other factors.
Employees
There are approximately 890 persons employed in the operation of the Inns (not
including W&H employees engaged in management and supervision). Operating
Partners believes its relationships with its employees are satisfactory, and
that the Inns have a number of core employees and key supervisory personnel
who provide experienced labor and management to the operations of the Inns.
ITEM 2. PROPERTIES
The Inns, each of which is franchised as a "Holiday Inn", are located
in Maryland, Pennsylvania and Connecticut. The franchises with HII expire on
various dates as summarized in the following table.
Each of the Inns is located near an interstate highway or major traffic artery,
or in a city's business district, providing both visibility and accessibility to
travelers. All of the Inns contain meeting rooms with sound equipment and
banquet facilities. Each of the Inns has on-site parking and a swimming pool.
Also, each of the Inns contains a full service restaurant and lounge which
offer food and beverages throughout the day.
<TABLE>
The following table presents certain information concerning the Inns:
<CAPTION>
Franchise Status of Ownership
Location Year Number Expiration Ownership by
Opened of Rooms Date Operating Partners
<S> <C> <C> <C> <C>
Maryland
Baltimore Inner Harbor 1964 375 Dec. 31, 2005 Land and building
lease
Baltimore Washington
International Airport 1973(1) 259 June 30, 1997 Land and building
lease
Frederick 1963(2) 157 June 30, 1997 Fee
Baltimore-Cromwell Bridge 1972 139 Dec. 31, 1997 Fee
Baltimore-Moravia Road 1974 139 Dec. 31, 1997 Fee
Baltimore-Belmont Blvd. 1973 135 Dec. 31, 2001 Fee
Baltimore-Glen Burnie No. 1973 128 Dec. 31, 1999 Land Lease
Baltimore-Pikesville 1963 108 June 30, 1997 Fee
Baltimore-Glen Burnie So. 1965 100 June 30, 1997 Fee
Pennsylvania
Lancaster-Route 30 1971 189 June 30, 1997 Land Lease
Lancaster-Route 501 1964 160 June 30, 1997 Land Lease
York-Market Street 1964 120 June 30, 1997 Land Lease
York-Arsenal Road 1970 100 Dec. 31, 1998 Fee
Hazleton 1969 107 June 30, 1997 Fee
Connecticut
New Haven 1965 160 June 30, 1997 Fee
East Hartford 1974 130 June 30, 1997 Land and building
lease
Total 2,506
</TABLE>
(1) 96 room addition completed in 1985
(2) 63 room addition completed in 1985
The terms of the leases (including options exercised) expire at various dates
ranging from 2000 through 2024. Some of the leases contain purchase options
to acquire title, with options to extend the leases for terms varying from
ten to forty years. Five of the leases are subject to rental adjustments
based upon inflationary indexes. The leases generally require Operating
Partners to pay the cost of repairs, insurance, and real estate taxes.
Each of the properties is subject to mortgage liens securing the Priming Loan
and the Mortgage Notes. Each Mortgage Note is cross-collateralized and secured
by all of the Inns. In addition, the land and building under lease in the
Baltimore Washington International Airport Inn is subject to an additional
mortgage held by the Ground Lessor.
The Priming Loan funded the needed capital improvements and capital expenditures
in order to render the condition of the Inns suitable and adequate for Operating
Partners' business, correct deficiencies at the Inns, satisfy HII quality
standards, perform required maintenance and repairs, restore and retain the
competitive position of the Inns and substantially upgrade the Baltimore Inner
Harbor Inn, which was primarily funded from the Tranche A portion of the
Priming Loan. Under the Revised Capital Improvement Program, improvements
and refurbishments totaling $13,000,872 were completed in 1994, $11,500,000
of which was funded by the Tranche A Loan and $1,500,872 of which was funded
by the FF&E Reserve.
In addition to the completion of the Revised Capital Improvement Program,
the Inns made other capital improvements during 1994 of approximately
$2,773,000; and capital expenditures of approximately $2,423,000 in 1995,
which were funded from the FF&E Reserve.
Item 3. Legal Proceedings
The Partnership and Operating Partners asserted claims against Prime and AMI
Management in the Prime Bankruptcy with respect to defaults under the Lease
and Prime's guaranty (the "Guaranty") of certain obligations under the Lease,
the operation and maintenance of the Inns prior to and following the
commencement of the Prime Bankruptcy, and the rejection of the Lease and the
Guaranty. Operating Partners entered into an agreement (the "Omnibus
Agreement") under which, among other things, Operating Partners assigned to
the holders of the Mortgage Notes its claims (including claims in connection
with such disputes) against Prime and AMI Management and agreed that amounts
recovered on such claims would be allocated among financial claims (the proceeds
of which would be applied to the repayment of the Mortgage Notes) and operating
claims (the proceeds of which would be available to finance capital
improvements to the Inns). In July, 1992 the Florida Bankruptcy Court approved
the Prime Settlement, under which various claims of the holders of the
Mortgage Notes against Prime and AMI Management were allowed; Operating
Partners did not make any payments to or for the benefit of any other party;
and Prime, AMI Management and Operating Partners exchanged mutual releases.
Since 1992, Operating Partners and the Mortgage Lenders received total proceeds
as a result of the Prime settlement of approximately $8,874,000, of which
$8,827,000 was utilized to reduce the principal amount of the Mortgage Notes
and $47,000 was used to fund capital improvements. No further recovery from
the Prime Settlement is expected by the Mortgage Lenders or the Partnerships.
Should any further recovery be received by the Mortgage Lenders, the proceeds
would be utilized to reduce the principal balance of the Mortgage Notes, upon
evaluation in accordance with the Omnibus Agreement. At the time the principal
reduction of the Mortgage Notes occur, the Partnerships will recognize lease
settlement proceeds.
In the ordinary course of business, the Partnership and Operating Partners are
named as defendants in lawsuits relating to the operation of the Inns,
principally involving claims for injury alleged to have been sustained in or
near the Inns or for damages alleged to have been incurred in business dealings
with Operating Partners or others in connection with the Inns. Such claims are
generally covered by insurance. Claims not covered by insurance have not,
individually or in the aggregate been material.
Item 4. Submission of Matters to a Vote of Unitholders
No matter was submitted during 1995 to a vote of the Unitholders of the
Partnership.
PART II
Item 5. Market for Registrant's Units and Related Unitholder Matters
(a) The Units have been traded on the New York Stock Exchange since December
17, 1986. The following table sets forth the high and low sale price for the
Partnership's Units for the calendar quarters indicated, as reported by the
New York Stock Exchange:
<TABLE>
<CAPTION>
Year Fiscal Period High Low
<S> <S> <C> <C>
1995 First Quarter 3/4 1/2
Second Quarter 3/4 1/2
Third Quarter 5/8 3/8
Fourth Quarter 1/2 1/4
1994 First Quarter 1 3/4 1/2
Second Quarter 1 1/2 5/8
Third Quarter 1 3/8 3/4
Fourth Quarter 3/4 3/8
1993 First Quarter 5/8 1/4
Second Quarter 1 -- 5/8
Third Quarter 5/8 3/4
Fourth Quarter 5/8 3/8
</TABLE>
(b) On February 29, 1996, there were 643 holders of record of the Partnership's
Units.
(c) No dividends have been declared or distributed since 1990. The
Partnership's cash flow, which is dependent on revenues from operations of
the Inns, has been insufficient to maintain quarterly distributions. In
addition the Partnership cannot make any distributions to Unitholders until
the Priming Loan is repaid, Mortgage Note payments are maintained and proper
reserves are funded as required.
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
1995 (a) 1994 (a) 1993 (a) 1992 (a) 1991 (a)
(in thousands, except per Unit amounts)
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenues (b) $ 46,720 $ 43,471 $ 45,590 $ 43,422 $ 41,417
Net loss (2,280) (4,673) (1,215) (2,911) (61,806)(c)
Net loss allocable
to limited partners (2,257) (4,626) (1,203) (2,882) (61,188)(c)
Per Unit loss allocable
to limited partners $ (0.56) $ (1.16) $ (0.30) $ (0.72) $ (15.30)
Balance Sheet Data:
Total assets $ 57,001 $ 60,673 $ 64,009 $ 66,645 $ 61,723
Long-term debt, net
of current maturities 65,645 66,627 65,912 67,108 59,354(d)
Partners' deficit $(15,733) $(13,453) $ (8,780) $ (7,565) $ (4,654)
</TABLE>
(a) As a result of the fact that W&H's system of accounting for all properties
under its management, operates on the basis of a calendar year deemed closed by
bookkeeping purposes on that Friday which is most proximate to December 31 of
any given year, the financial year of Operating Partners for 1995 ended December
29, 1995; for 1994, December 30, 1994; for 1993, December 31, 1993; for 1992,
January 1, 1993; and for 1991 January 3, 1992.
(b) Includes $374,000, $341,000, $304,000, $360,000 and $300,000 for the years
ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively, of other
income (principally interest income). In addition, it includes $1,025,000,
$4,389,000 and $3,375,000 for the years ended December 31, 1995, 1993 and
1992, respectively, of non-recurring revenue from the Prime Settlement.
(c) The carrying value of the Inns and related intangible assets were written
down through a charge to expense in 1991 in the amount of $51,292,000.
(d) As a result of the payment default on the Mortgage Notes, the outstanding
indebtedness of Operating Partners thereunder, $59,354,000 at December 31,
1991, was classified as a current liability.
<TABLE>
The Inns' room statistics are as follows:
<CAPTION>
1995 1994 1993
Average Average Average
Daily Room Occupancy Daily Room Occupancy Daily Room Occupancy
Rate Percentage Rate Percentage Rate Percentage
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $59.84 47.8% $56.33 48.0% $51.77 50.5%
2nd Quarter $64.74 69.4% $61.79 69.4% $57.69 66.3%
3rd Quarter $67.06 72.2% $61.10 72.7% $59.93 71.7%
4th Quarter $62.51 56.8% $58.72 57.5% $56.76 55.6%
Full Year $63.95 61.6% $59.82 61.9% $56.91 61.0%
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Partnership's actual results and could cause the Partnership's actual results
in future years to differ materially from those expressed in any
forward-looking statements made by, or on behalf of the Partnership.
Financial Condition
The Partnership derives its income from its 99% interest in Operating Partners,
whose income is generated from the operations of the Inns. Operating Partners
receives all lodging and other revenues derived from, and is responsible for the
payment of all expenses directly attributable to, the operation of the Inns.
Set forth below is information as to lodging and food and beverage revenues and
expenses generated from the operations of the Inns (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Operating revenues:
Lodging $ 37,083 $ 34,866 $ 32,563
Food & beverage 8,238 8,264 8,334
Totals 45,321 43,130 40,897
Direct operating expenses:
Lodging 8,249 7,972 7,294
Food & beverage 7,809 7,509 7,514
Marketing 3,334 3,244 3,228
Utilities 2,956 2,875 2,978
Repairs & maintenance 3,490 3,379 3,016
Rent 1,317 1,301 1,315
Insurance 630 670 595
Property taxes 1,380 1,300 1,385
Other 7,718 7,593 7,013
Totals 36,883 35,843 34,338
Operating revenues in
excess of direct
operating expenses $ 8,438 $ 7,287 $ 6,559
</TABLE>
In 1992, as part of its Plan, Operating Partners restructured its Mortgage
Notes under the Restated Loan Agreement and arranged a Priming Loan to fund
necessary capital improvements and finance operating deficiencies. The
improved condition of the Inns coupled with proper management and assisted
by the stable economy, have enabled the Partnerships to significantly increase
average daily room rates (ADR). Operating revenues have, therefore, increased
to improve the cash flows to cover operating expenses, pay debt service
(includingthe Tranche A Loan), make necessary and required repairs and
maintenance and repay the Tranche B Loan. The ability of the Partnerships
to pay operating expenses, service debt and create required reserves depends
upon the ability of the Partnerships to increase future cash flows from
operations. Unless cash flows from operations are sufficient, the Partnerships
may not be able to continue as going concerns, although it is the intention of
the Partnerships to continue to operate as going concerns.
It is, however, the present intention of Operating Partners to sell the Moravia
Inn. Operating Partners believe that the Moravia Inn will not contribute to the
long term cash flow requirements of the Partnerships, and therefore the sale
proceeds can better be utilized to reduce the Priming Loan debt. Operating
Partners have no present intention to list any of the other Inns for sale.
As required under the Priming Loan and Restated Loan Agreement, approval by
the Lenders will be required for the sale of the Moravia Inn.
The Partnerships' investment in the Inns continues to be subject to the risks
generally incident to the ownership of real estate, including those relating
to the uncertainty of cash flow to meet fixed obligations, adverse changes in
national economic conditions, adverse changes in local market conditions,
changes in interest rates, the availability of financing for operating or
capital needs, changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, acts of God (which
may result in uninsured losses), condemnation and other factors that are
beyond the control of the General Partner, the Partnership, Operating Partners
or W&H.
Results of Operations
Total revenues (excluding non-recurring income from the Prime Settlement)
increased to $45,695,000 in 1995 from $43,471,000 in 1994 and $41,201,000
in 1993. Total non-recurring income from the Prime Settlement was $1,025,000
in 1995 and $4,389,000 in 1993. The Partnerships' net loss was $2,280,000 for
the year ended December 31, 1995 as compared to a loss of $4,673,000 in 1994,
and a loss of $1,215,000 in 1993, including the Prime Settlement proceeds.
Excluding the Prime Settlement proceeds received in 1995 and 1993, the loss
in 1995 of $3,305,000 decreased from the loss in 1994 of $4,673,000 and
$5,604,000 in 1993. The following table compares the room revenues,
occupancy percentage levels and ADR for the years indicated:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Lodging revenues (in thousands) $ 37,083 $ 34,866 $ 32,563
Occupancy percentage 61.6% 61.9% 61.0%
ADR $ 63.95 $ 59.82 $ 56.91
</TABLE>
The Inns have been able to increase their respective ADR's by changing the mix
of market segments (hotel guests categorized as individual business, leisure
and government guests, etc. and groups such as corporate, association, tours,
crews, etc.), from lower ADR to higher ADR segments. Attracting and
maintaining the higher ADR segments has been accomplished by increased
marketing and sales promotions and the attractiveness of the Inns as a result
of the capital improvement program completed in 1994 and the continuation
of capital improvements through 1995. In addition, the Inns have been able
to capture new accounts from businesses that have moved into the market.
In attracting the market segments with higher ADR, the Inns have had to
remove most of their lower ADR market segments (such as airline crews and
tour groups). This repositioning of market segment business contributed to
the decline in occupancies in 1995. Due to the intense competition, including
recent conversions of competitor hotels to HII franchises, and saturation of
available rooms where the Inns are located, the Partnerships and W&H believe
it will continue to be difficult to substantially increase the respective
occupancy levels at the Inns. Another contributing factor to the projected
stagnant occupancy is that approximately one-third of the Inns are "highway
oriented" location properties, which in general have lagged behind in demand,
as compared to midscale and urban, suburban and airport location properties.
Also, these "highway oriented" Inns have an external dated appearance due to
their age, which contributes to their median occupancies. It is anticipated
that the Inns can continue to improve their mix of market segments and
thereby increase their ADR's and improve profit margins. This is expected
to be accomplished by seeking the higher rated segments through continued
participation in HII national advertising and marketing, Priority Club
promotions and W&H Marketing and Sales. Also, the Inns plan to attract and
target segments of business previously unattainable due to the conditions of
the Inns prior to the capital improvements. The Inns have been removing the
lower rated market segments, in order to have the capacity to accept more
higher rated segments that may have been previously denied a guest room.
Food and beverage revenues for 1995 declined slightly to $8,238,000 from
$8,264,000 in 1994 and $8,334,000 in 1993. The decline is attributed to the
change in mix of market segments, since some of the market segments that pay
a lower ADR and were displaced, used the restaurant and banquet facilities at
the Inns more than some of the higher ADR segments. Also, the food and beverage
revenues have historically fluctuated with occupancies at the Inns.
Direct operating expenses in 1995 were $36,883,000, as compared to $35,843,000
in 1994 and $34,338,000 in 1993. The increase in lodging expenses is reflective
of inflationary increases in labor costs, and increases in expenses that are
incurred in servicing the higher rated market segments, such as room amenities,
travel agent commissions, and guest supplies. Increases in food and beverage
expenses are attributable to the inflationary increases in labor costs and food
costs. Repair and maintenance costs have increased in 1995 over 1994, which is
reflective of the age of the Inns. In an effort to attract the higher rated
market segments, the Inns have increased spending in marketing, such as
advertising costs and hotel promotions. The Inns' utility cost increases
are attributable to the less than favorable weather conditions in 1995 as
compared to 1994, and some utility rate increases incurred at a few of the Inns.
The increase in property taxes is associated with increases in real estate and
personal property tax rates at certain of the Inns, as assessment values have
stayed relatively stable in 1995 to that of 1994. The increases in other
expenses, included in direct operating expenses, reflect higher administrative
and general expenses directly incurred in the operations of the Inns and in
costs that vary with revenues, such as franchise fees paid to HII, management
fees paid to W&H, and credit card commissions.
Depreciation and amortization expense decreased in 1995, due to the original
debt acquisition costs having been fully amortized in the first quarter of
1995. The reduction in interest expense is the result of the reduction in
the outstanding principal balance of the Mortgage Notes from the $1,025,000
of Prime Settlement proceeds received in 1995.
Liquidity and Capital Resources
<TABLE>
The changes in cash and cash equivalents are summarized as follows:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net cash provided by operating activities $ 2,092 $ 1,451 $ 578
Net cash used by investing activities (2,668) (2,482) (2,843)
Net cash provided by financing activities - 675 2,331
Net increase (decrease) in cash and
cash equivalents $ (576) $ (356) $ 66
</TABLE>
In 1993, cash provided by operating revenues exceeded cash used for operating
expenses of the Inns and of the Partnerships, resulting in net cash being
provided by operating activities.
Cash used by investment activities equaled $2,843,000 in 1993, of which
$2,685,000 was utilized for capital improvements and refurbishments.
In addition, there was a net increase in the restricted cash and cash
equivalents of $158,000 in 1993, including the funding to the FF&E Reserve of
1-1/2% of gross revenues, which totaled $385,000, offset by the reduction
of $52,000 in the funds required to be maintained in the property tax escrow
account and the application of $175,000 that remained unexpended in 1992 from
the mandatory advance balance under the Priming Loan to fund the capital
improvements and refurbishments.
In 1993, borrowings from the Priming Loan provided cash for financing
activities. The Partnerships borrowed $3,157,000 under the Tranche A Loan and
an additional $815,000 under the Tranche B Loan. The entire balance of the
Tranche B Loan was repaid from excess working capital in 1993, in the amount
of $1,641,000. In addition the remaining balance of the mandatory advance
was drawn down for the capital improvements.
Non cash activities in 1993 included the reduction of long term debt by
$4,389,000 from the proceeds from the Prime Settlement.
In 1994, cash flows from operating activities increased, as compared to 1993,
as a result of increased revenues from operations and control of operating
expenses. This resulted in net cash being provided by operating activities.
In 1994, net cash used by investing activities was $2,482,000, and included
additions to property and equipment of $2,773,000, partially offset by a
$291,000 decrease in the restricted cash accounts. The restricted cash
accounts included the net reduction in the FF&E Reserve of $305,000 (the
capital expenditures of $2,056,000 which were funded from the FF&E Reserve
exceeded the $1,751,000 funded to the FF&E Reserve at 4% of revenues, plus
interest earned on the account) net of an increase of $14,000, in the interest
reserve and tax escrow accounts.
In 1994, borrowings from the Priming Loan provided cash for financing
activities. The Partnerships borrowed the remaining $675,000 under the
Tranche A Loan and $1,763,000 under the Tranche B Loan. The entire Tranche
B Loan borrowed to supplement cash flow deficiencies in the first quarter of
1994 was repaid from excess working capital in the second quarter of 1994.
In 1995, cash provided by operating revenues exceeded cash used for operating
expenses of the Inns and of the Partnerships, resulting in net cash being
provided by operating activities.
Cash used in investing activities equaled $2,668,000 in 1995, of which
$2,423,000 was utilized for capital improvements and refurbishments and
$245,000 of increases in restricted cash. The restricted cash accounts
included the net increase in the FF&E Reserve of $221,000 (funding plus
interest earned of $2,337,000 less capital expenditures of $2,117,000) and
increases of $24,000 in the interest reserve and tax escrow accounts.
The Partnerships borrowed $1,200,000 from the Tranche B Loan to supplement
operating cash flow deficiencies during the first quarter of 1995. The entire
Tranche B Loan was repaid from excess working capital during the second quarter
of 1995.
Until the Priming Loan is paid in full, no principal is required to be paid
on the Mortgage Notes from operating cash. In 1992 and 1993, interest on the
Mortgage Notes was payable at 7% per annum and at 8% per annum in 1994, with
the interest rate increasing to 10% per annum after 1994 (including on the
Deferred Amount). The outstanding principal amount of the Mortgage Notes has
been reduced by $8,827,000 from the proceeds of the Prime Settlement
($3,419,000 during 1992, $4,383,000 during 1993, and $1,025,000 during 1995).
The Partnerships' ongoing cash requirements are for working capital, debt
service and the funding of required reserves. The Partnerships' source of
liquidity is the operations of the Inns, which during the winter months have
been insufficient to fund working capital, debt service and required reserves.
The Partnerships may however, borrow up to $2,500,000 of the Tranche B portion
of the Priming Loan for operating cash deficiencies, but must repay any amount
borrowed, if for any month cash on hand exceeds working capital requirements,
as defined in the Priming Loan. There were no Tranche B borrowings
outstanding as of December 31, 1995. Approximately $792,000 of working
capital cash was on hand as of December 31, 1995.
Presently the Partnerships have a capital replacement reserve of approximately
$831,000, which is available only for capital improvements and refurbishments.
Beginning in 1993, the FF&E Reserve was required under the Priming Loan, to be
funded on a monthly basis at 1.5% of revenues. The required funding of the
FF&E Reserve increased to 4% of revenues in 1994, and 5% thereafter. The
interest reserve account contains approximately $443,000. The interest
reserve account was established through the initial Priming Loan, and, at the
option of the Lenders, may be used to cure any default under the Priming Loan.
No additional funding to the interest reserve is required under the Priming
Loan.
No distributions will be made to Unitholders until the Priming Loan is paid
in full, proper required reserves are maintained, and proper payments are made
on the Mortgage Notes which would include principal reduction. There is no
guarantee that there will ever be excess cash for such distributions to
Unitholders.
The Partnerships anticipate moderate growth in the economy, in the travel and
hospitality industries, in the real estate market and in the comparative
attractiveness of the Inns resulting from the capital improvements (although
neither the Partnership nor any of its advisors can give any assurances as to
the strength or duration of any such economic growth). The Partnerships
anticipate that such economic growth coupled with the improvements constantly
being made to the physical condition of the Inns, continued professional
management and marketing of the Inns, will result in the improvement of
occupancies, room rates and related revenues, and thus create better profit
margins. The Partnerships anticipate that their future earnings, together
with the advances under the Priming Loan, will enable the Partnerships to pay
all operating expenses, pay debt service and satisfy the current requirements
under the HII franchise agreements. However, while the Partnerships' budgets
and capital plans reflect their present best estimates of future events, those
events are beyond the control of the Partnerships, the General Partner and W&H
and no assurances can be given that the Partnerships will have the liquidity
to meet future operating and capital commitments. Further, the "Holiday Inns"
franchise of ten of the Inns will expire on June 30, 1997 and the franchises
of two additional Inns will expire on December 31, 1997. Before the
expiration of the franchise for any "Holiday Inn" property, the property is
inspected by HII and that inspection forms the basis for a Property
Improvement Plan ("PIP"), the completion of which is a condition to the
renewal of the franchise for the property. HII has inspected and prepared
PIP's for ten of the Inns, the franchises of which expire in 1997.
HII has indicated that they may not renew the franchises of two of the Inns
and accordingly has not prepared a PIP for them. Based on those PIP's,
Operating Partners' current estimate of the cost of the capital expenditures
could be in the range of $13,000,000, although Operating Partners believes
that the scope of work and related costs are subject to negotiation.
Accordingly, Operating Partners has begun the process of evaluating, for each
Inn, the relative benefits and costs of renewing the "Holiday Inn" franchise
for the Inn, operating the Inn under other franchises that may be available,
and operating the Inn without a franchise affiliation. In addition,
Operating Partners will evaluate improvements and expenditures included in
each PIP in order to identify those items that Operating Partners believes
will enhance the Inn's ability to compete in its market and will add value
to the Inn, and those improvements or expenditures that Operating Partners
believes to be less necessary or to add little value. Operating Partners
will then negotiate with HII the scope of work included in each PIP and the
length of time that will be required to complete such improvements. Generally,
in connection with the renewal of the franchise for an Inn, Operating Partners
will have one year, which may be negotiable, from the franchise expiration date
to complete the capital improvements included in the PIP. It is anticipated
that those capital improvements will be financed partially from the FF&E
Reserve and from additional financing, if available. However, under the
Priming Loan and Restated Loan Agreements, approval by the Lenders will be
required for any franchise changes, capital expenditures or additional
financing.
Operating Partners' operating expenses have been and are expected to be subject
to inflationary pressures. Depending on levels of economic activity and
competitive pressures, the room rates and food and beverage charges at the
Inns may also increase with inflation, but not necessarily in proportion to
the pressures affecting expenses.
Under the Internal Revenue Code, a publicly traded partnership, such as the
Partnership, is taxable as a corporation unless it satisfies certain conditions.
However, subject to various limitations, publicly traded partnerships in
existence on December 17, 1987 are generally exempt from taxation as a
corporation until after 1997. If the Partnerships' operations continue
as described herein, the Partnership should not be taxed as a corporation
until after 1997. However, a publicly traded partnership which adds a
substantial new line of business is not eligible for such exemption and it is
possible that the Internal Revenue Service could contend that the Partnership
should be taxed as a corporation after November 29, 1990, the date of the
termination of the Lease. If the Partnership were taxable as a corporation,
its operating losses should eliminate any tax liability for some time.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Schedules included in
Item 14(a).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain information is set forth below concerning the directors and officers
of the General Partner, each of whom has been elected or appointed to serve
until his successor is duly elected and qualified. The Unitholders of the
Partnership do not have voting rights with respect to the election of
directors of the General Partner.
Present Position with the General Partner
Name Age and Business Experience for Past Five Years
S. Leonard Okin 62 Vice President and Director of the General
Partner since inception; Managing
Director of the General Partner since
January 1, 1994; Vice President and
Director of First American Realty Associates,
Inc., (mortgage brokers) from prior to 1989
to December 31, 1993 (1).
Robert A. Familant 44 Director of the General Partner
since August 19, 1994; Treasurer/CEO
of Progressive Credit Union (credit
union) since prior to 1989 (2).
Seymour G. Siegel 53 Director of the General Partner since
November 21, 1994; President of Siegel
Rich Resources, Inc. (consulting firm)
since January 1, 1994; Senior Partner of
M.R. Weiser & Co. (accounting firm) from
prior to 1989 (3).
(1) In 1994, with the approval of the Lenders, Mr. Okin entered into a
Consulting Services Agreement (the "Consulting Services Agreement") with the
Partnerships and the General Partner, giving him authority to make day to day
operating decisions for the Inns, and for the purposes hereof will be referred
to as Managing Director of the corporate General Partner. First American
Realty Associates, Inc. had performed mortgage brokerage services for Prime
Hospitality Corp., formerly Prime Motor Inns, Inc.
(2) Mr. Familant was elected and approved as an outside Director of the
General Partner effective August 19, 1994.
(3) Mr. Siegel was elected and approved as an outside Director of the
General Partner effective November 21, 1994.
Under the Consulting Services Agreement, Mr. Okin, as an independent contractor,
performs on behalf of the Partnership, Operating Partners and the General
Partner, the services normally performed by and exercises the authority
normally assumed or undertaken by, the chief executive officer of a
corporation. The Consulting Services Agreement was effective December 1,
1994 through December 31, 1995, and has been extended to December 31, 1996.
Unless the parties or the Lenders exercise their rights to terminate the
Consulting Services Agreement, it will be extended automatically for
successive twelve-month periods. The Consulting Services Agreement is
terminable, among other things, by 30 days prior written notice from the
Partnership, Operating Partners, or the General Partner to Mr. Okin of their
election not to renew the agreement at the expiration of the initial or any
renewal term; for cause; by 60 days prior written notice from Mr. Okin to
the General Partner of Mr. Okin's election at any time to terminate the
agreement; at any time by Mr. Okin if the Partnership, Operating Partners and
the General Partner for any reason are not able to maintain in place
specified liability insurance coverage for Mr. Okin; and upon foreclosure
by the Lenders on substantially all of the assets of the Partnerships, by
notice from the Lenders to Mr. Okin given within ten days of such foreclosure.
Item 11. Executive Compensation
As the only person performing services to the Partnerships comparable to the
services of an officer, Mr. Okin is required to devote substantial time and
effort to manage the Partnerships. The following table sets forth the Mr.
Okin's compensation paid in respect of the fiscal year ended December 31,
1995 and 1994.
<TABLE>
Summary Compensation Table:
<CAPTION>
Name and Other Annual Long Term All Other
Principle Position Year Salary ($) Bonus ($) Compensation Compensation Compensation
<S> <C> <C> <C> <C> <C> <C>
S. Leonard Okin(1) 1995 $ 120,000 $ - $ - $ - $ -
1994 $ 120,000 $ - $ - $ - $ -
</TABLE>
(1) Mr. Okin receives compensation as Managing Director of the corporate
General Partner. In addition, Mr. Okin received reimbursement for
out-of-pocket expenses in 1995 and 1994 totaling approximately $27,500 and
$27,400, respectively (for office rent, secretarial services,
utilities, airfare, postage, office supplies, etc.) and $6,250 and
$3,250, respectively, for attendance at board meetings. Mr. Okin did not
receive compensation in excess of $100,000 in 1993.
Directors are currently paid a fee of $1,000 for each Board meeting attended
in New York and $1,500 for each meeting out of town, plus out of pocket
expenses incurred for attending meetings.
Item 12. Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31, 1995, the number of Units
owned by the officers and directors of the General Partner and by all persons
owning of record or, to the knowledge of the Partnership, beneficially more
than 5% of the outstanding Units. The General Partner does not own any Units.
<TABLE>
<CAPTION>
Ownership of Units
Number Total No. Percentage
of Units of Units of Units
Name & Address of Owner Held Held Outstanding
<S> <C> <C> <C>
S. Leonard Okin
c/o Prime American Realty Corp.
P.O. Box 230
Hawthorne, NJ 07507-0230 1,000 1,000 0.025%
Jerome & Marcella Yunger
5039 Mesa View Drive
Las Vegas, NV 89120 174,800
Roxanne Rose Yunger
5039 Mesa View Drive
Las Vegas, NV 89120 129,400 304,200(1) 7.605%(1)
</TABLE>
(1) Includes 174,800 Units held of record by Mr. & Mrs. Yunger as Trustees
of the Jerome J. and Marcella M. Yunger Family Trust and 129,400 Units held of
record by Roxanne Rose Yunger. The Partnership has no knowledge as to the
beneficial ownership of such Units.
Item 13. Certain Relationships and Related Transactions
During 1995 and 1994, Mr. Okin as Managing Director and Officer of the
General Partner, received $153,750 and $150,650 as cash compensation for his
services and reimbursement of expenses. See Item 10 and 11 above.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1.Financial Statements
2. Financial Statement Schedules
The Financial Statements and Schedules listed in the accompanying
index on page 24 to financial statements are filed as part of this
Form 10-K.
3. Exhibits
(2) (a) Joint motion and stipulation before the Florida Bankruptcy
Court for order authorizing Prime and AMI Management to enter
into an agreement with Operating Partners and the Partnership
and approving the terms thereof included as Exhibit (2) (a) to
the Partnership's 1990 Annual Report on Form 10-K is
incorporated herein by reference.
(2) (b) Agreed order of the Florida Bankruptcy Court approving
rejection of the Lease, the Guarantee and a related agreement
included as Exhibit (2) (b) to the Partnership's 1990 Annual
Report on Form 10-K is incorporated herein by reference.
(3) (a) Amended and Restated Agreement of Limited Partnership of the
Partnership included as Exhibit 3.1 to the Partnership's
Registration Statement on Form S-1 (No. 33-9595) (The
"Registration Statement") is incorporated herein by reference.
(3) (b) Certificate of Limited Partnership of the Partnership
included as Exhibit 3.2 to the Registration Statement is
incorporated herein by reference.
(3) (c) Amended and Restated Agreement of Limited Partnership of
Operating Partners, included as Exhibit 3.3 to the Registration
Statement is incorporated herein by reference.
(3) (d) Certificate of Limited Partnership of Operating Partners
included as Exhibit 3.6 to the Registration Statement is
incorporated herein by reference.
(4) (a) Form of Deposit Agreement included as Exhibit 10.8 to the
Registration Statement is incorporated herein by reference.
(10) (a) Form of Lease included as Exhibit 10.1 to the Registration
Statement is incorporated herein by reference.
(10) (b) Form of Management Agreement included as Exhibit 10.2 to the
Registration Statement is incorporated herein by reference.
(10) (c) Form of Purchase and Sale Agreement included as Exhibit 10.3
to the Registration Statement is incorporated herein by
reference.
(10) (d) Form of Note Purchase and Loan Agreement included as Exhibit
10.4 to the Registration Statement is incorporated herein by
reference.
(10) (e) Form of Service Contract included as Exhibit 10.5 to the
Registration Statement is incorporated herein by reference.
(10) (f) Form of Undertaking included as Exhibit 10.6 to the
Registration Statement is incorporated herein by reference.
(10) (g) Form of Guaranty included as Exhibit 10.7 to the Registration
Statement is incorporated herein by reference.
(10) (h) Management Agreement among AMI Operating Partners, L.P.
("Operating Partners"), Sixteen Hotels, Inc. ("Sixteen Hotels"),
and Winegardner & Hammons, Inc. ("W&H"), as Manager, dated
January 4, 1992.
(10) (i) Loan Agreement among Massachusetts Mutual Life Insurance
Company, Century Life of America and Jackson National Life
Insurance Company (collectively, the "Priming Lenders"), as
lenders, Operating Partners, as borrower and Norwest Bank
Minnesota, N.A., Agent (the "Agent") dated as of February 28,
1992 included as Exhibit (10) (i) to the Partnership's 1992
Annual Report on Form 10-K is incorporated herein by reference.
(10) (j) Amended and Restated Loan Agreement among Massachusetts
Mutual Life Insurance Company, Century Life of America and
Jackson National Life Insurance Company, (collectively, the
"Priming Lenders"), as lenders, AMI Operating Partners, as
borrower and Norwest Bank Minnesota, N.A., Agent (the
"Agent"), dated as of June 12, 1992, as amended by letters
of consent agreements dated February 1993, and March 17,
1993, included as Exhibit (10) (j) to the Partnership's 1992
Annual Report on Form 10-K (are incorporated herein by
reference), and January 31, 1994, a copy of which is attached
hereto.
(10) (k) Amended and Restated Loan Agreement among Operating
Partners, the Holders named in Exhibit A thereto
(collectively, the "Existing Lenders") and IBJ Schroeder
Bank and Trust Company, Servicer, dated June 12, 1992, as
amended by letters of consent agreements dated February
1993, included as Exhibit (10) (k) to the Partnership's 1992
Annual Report on Form 10-K, and March 17, 1993 (are incorporated
herein by reference) and attached hereto.
(10) (l) Escrow Agreement among Operating Partners, the Existing
Lenders and Chicago Title Insurance Company, as escrow
agent and as title insurer dated June 12, 1992, included as
Exhibit (10) (l) to the Partnership's 1992 Annual Report on
Form 10-K.
(10) (m) Consulting Services Agreement among the Partnerships, the
General Partner and Mr. S. Leonard Okin dated December 1,
1994, included as Exhibit (10) (m) to the Partnership's 1994
Annual Report on Form 10-K.
(10) (n) Fourth Consent Agreement among Operating Partners, the
Priming Loan Lenders named in Exhibit A thereto, and the
Lenders named in Exhibit B thereto, dated March 17, 1995,
included as Exhibit (10) (n) to the Partnership's 1994 Annual
Report on Form 10-K.
(21) Subsidiaries of Prime Motor Inns Limited Partnership are as
follows:
Name Jurisdiction of Incorporation
AMI Operating Partners, L.P. Delaware
(27) Financial Data Schedules
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, there-unto duly authorized.
PRIME MOTOR INNS LIMITED PARTNERSHIP
(Registrant)
By: Prime-American Realty Corp. General Partner
Date: March 22, 1996 By: /s/ S. Leonard Okin
S. Leonard Okin
Vice President & Director
Date: March 22, 1996 By: /s/ Robert A. Familant
Robert A. Familant
Director
Date: March 22, 1996 By: /s/ Seymour G. Siegel
Seymour G. Siegel
Director
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
BOARD OF DIRECTORS OF THE GENERAL PARTNER
Signature Title Date
By: /s/ S. Leonard Okin Director and Vice President March 22, 1996
S. Leonard Okin of the General Partner;
Consultant under the
Consulting Services Agreement
By: /s/ Robert A. Familant Director of the March 22, 1996
Robert A. Familant General Partner
By: /s/ Seymour G. Siegel Director of the March 22, 1996
Seymour General Partner
CONTENTS
Pages
Report of Independent Accountants 25
Financial Statements:
Consolidated Balance Sheets - December 31, 1995 and 1994 26
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 28
Consolidated Statements of Partners' Deficit for the
years ende December 31, 1995, 1994 and 1993 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 30
Notes to Consolidated Financial Statements 31
Report of Independent Accountants
To the Partners of the
Prime Motor Inns Limited Partnership
and AMI Operating Partners, L.P.
We have audited the accompanying consolidated balance
sheets of Prime Motor Inns Limited Partnership and Subsidiary
Limited Partnership as of December 31, 1995 and 1994, and the
related consolidated statements of operations, partners' deficit
and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Prime Motor Inns Limited Partnership and
Subsidiary Limited Partnership as of December 31, 1995 and 1994,
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements
have been prepared assuming that the Partnerships will continue
as a going concern. As discussed in Note 1, the Partnerships
have incurred significant operating losses and have a capital
deficit at December 31, 1995. These matters raise substantial
doubt about the Partnerships' ability to continue as a going
concern. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
February 23, 1996
<TABLE>
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Balance Sheets
December 31, 1995 and 1994 (dollars in thousands)
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 792 $ 1,368
Accounts receivable, net of allowance for doubtful
accounts in 1995 and
1994 of $20 and $19, respectively 661 881
Prepaid expenses 941 986
Other current assets 375 391
Total current assets 2,769 3,626
Property and equipment:
Land 7,653 7,653
Buildings and leasehold improvements 55,389 54,359
Furniture and equipment 38,244 36,851
101,286 98,863
Less allowance for accumulated depreciation and
amortization (49,140) (43,982)
52,146 54,881
Cash and cash equivalents restricted for:
Acquisition of property and equipment 831 610
Interest and taxes 491 467
Other assets, net 764 1,089
Total assets $ 57,001 $ 60,673
</TABLE>
<TABLE>
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Balance Sheets, Continued
December 31, 1995 and 1994 (dollars in thousands)
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT 1995 1994
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 568 $ 402
Accrued payroll 688 714
Accrued payroll taxes 286 258
Accrued vacation 473 436
Accrued utilities 326 249
Sales tax payable 242 221
Other current liabilities 671 643
Total current liabilities 3,254 2,923
Long-term debt 65,645 66,627
Deferred interest 3,685 4,426
Other liabilities 150 150
Total liabilities 72,734 74,126
Commitments
Partners' deficit:
General partner (729) (706)
Limited partners (15,004) (12,747)
Total partners' deficit (15,733) (13,453)
Total liabilities and partners deficit $ 57,001 $ 60,673
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<TABLE>
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Operations
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands, except per unit amounts)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Direct operating revenues:
Lodging $ 37,083 $ 34,866 $ 32,563
Food and beverage 8,238 8,264 8,334
Other income 374 341 304
Lease settlement proceeds 1,025 - 4,389
Total revenues 46,720 43,471 45,590
Expenses:
Direct operating expenses
Lodging 8,249 7,972 7,294
Food and beverage 7,809 7,509 7,514
Marketing 3,334 3,244 3,228
Utilities 2,956 2,875 2,978
Repairs and maintenance 3,490 3,379 3,016
Rent 1,317 1,301 1,315
Insurance 630 670 595
Property taxes 1,380 1,300 1,385
Other 7,718 7,593 7,013
Other general and administrative 587 606 802
Depreciation and amortization 5,473 5,626 5,451
Interest expense 6,057 6,069 6,214
Total expenses 49,000 48,144 46,805
Net loss (2,280) (4,673) (1,215)
Net loss allocable to general partner (23) (47) (12)
Net loss allocable to limited partners $ (2,257) $ (4,626) $ (1,203)
Number of limited partner units outstandi 4,000 4,000 4,000
Net loss allocable to limited partners
per unit $ (.56) $ (1.16) $ (.30)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<TABLE>
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Partners' Deficit
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
<CAPTION>
General Limited
Partners Partner Total
<S> <C> <C> <C>
Balance at December 31, 1992 $ (647) $ (6,918) $ (7,565)
Net loss (12) (1,203) (1,215)
Balance at December 31, 1993 (659) (8,121) (8,780)
Net loss (47) (4,626) (4,673)
Balance at December 31, 1994 (706) (12,747) (13,453)
Net loss (23) (2,257) (2,280)
Balance at December 31, 1995 $ (729) $ (15,004) $ (15,733)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<TABLE>
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,280) $ (4,673) $ (1,215)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization of property 5,158 5,126 4,951
Lease settlement proceeds (1,025) - (4,389)
Amortization of other assets 315 500 500
Amortization of debt discount 43 40 36
Changes in operating assets and liabilities:
Accounts receivable 220 (12) 125
Prepaid expenses 45 (37) (147)
Other current assets 16 (117) 122
Other assets 10 2 (6)
Trade accounts payable 166 (206) (351)
Accrued payroll (26) 124 107
Accrued payroll taxes 28 39 (64)
Accrued vacation 37 59 11
Accrued utilities 77 (65) 6
Sales tax payable 21 9 15
Other current liabilities 28 82 (404)
Deferred interest (741) 580 (1,131)
Other liabilities - - 150
Net cash provided by operating activities 2,092 1,451 578
Cash flows from investing activities:
Additions to property and equipment (2,423) (2,773) (2,685)
Decrease (increase) in restricted cash (245) 291 (158)
Net cash used for investing activities (2,668) (2,482) (2,843)
Cash flows from financing activities:
Long-term borrowings - 675 3,157
Borrowings under revolving credit facility 1,200 1,763 815
Repayment of revolving credit facility (1,200) (1,763) (1,641)
Net cash provided by financing activities - 675 2,331
Net increase (decrease) in cash
and cash equivalents (576) (356) 66
Cash and cash equivalents, beginning of ye 1,368 1,724 1,658
Cash and cash equivalents, end of year $ 792 $ 1,368 $ 1,724
Supplementary cash flow data:
Interest paid $ 6,755 $ 5,449 $ 5,046
Noncash activities:
Lease settlement proceeds received from former
affiliate in the form of stock
used to reduce long-term debt $ 1,025 $ - $ 4,389
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
Prime Motor Inns Limited Partnership
and Subsidiary Limited Partnership
Notes to Consolidated Financial Statements
Organization, Operations and Bankruptcy:
Prime Motor Inns Limited Partnership (the
"Partnership") and its 99%-owned subsidiary, AMI Operating
Partners, L.P. ("Operating Partners"), were formed in October
1986 under the Delaware Revised Uniform Limited Partnership Act.
The Partnership and Operating Partners are referred to
collectively as the "Partnerships". Prime-American Realty Corp.
(the "General Partner"), a subsidiary of Prime Hospitality
Corporation ("Prime"), formerly Prime Motor Inns, Inc., is the
general partner of and holds as its principal asset a 1%
partnership interest in the Partnership and in Operating
Partners.
In December 1986, the Partnership consummated an
initial public offering (the "Offering") of 4,000,000 units of
limited partnership interest (the "Units") in the Partnership,
and used the funds received to acquire the 99% limited
partnership interest in Operating Partners. Units are evidenced
by depositary receipts which are listed on the New York Stock
Exchange. Operating Partners commenced operations in December
1986 when it used the Offering proceeds and issued mortgage
notes (the "Mortgage Notes") in the principal amount of
$61,470,000 to purchase 16 full service hotels (the "Inns") from
subsidiaries of Prime. The Partnerships operate and maintain 9
Inns in Maryland, 5 in Pennsylvania and 2 in Connecticut, all of
which are presently franchised as part of the "Holiday Inn"
system.
Profits and losses from operations and cash
distributions of the Partnerships combined are generally
allocated 1.99% to the General Partner and 98.01% to the limited
partners. Any profits and losses from operations in excess of
certain specified annual and cumulative returns on investments
in limited partner shares, as defined (generally 12.5%), are
allocated approximately 30% to the General Partner and 70% to
the limited partners.
Until November 30, 1990, the Inns were operated by
AMI Management Corp. ("AMI Management"), another subsidiary of
Prime, under the terms of a lease between AMI Management and
Operating Partners (the "Lease"), guaranteed by Prime (the
"Guaranty"). The Lease was a net lease that granted AMI
Management the right to use the Inns until December 31, 1991.
On September 18, 1990, Prime announced that it and
certain of its subsidiaries, including AMI Management but not
the General Partner, had filed for reorganization under Chapter
11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Florida. AMI
Management defaulted on the payment of base rent due November 1,
1990 under the Lease. On November 7, 1990, the Partnership gave
notice of default to, and demanded payment from AMI Management
and Prime. AMI Management and Prime also filed a motion to
reject the Lease and Guaranty and, by order of the bankruptcy
court dated December 7, 1990, the bankruptcy court approved such
rejection and the Lease and Guaranty were terminated effective
as of November 30, 1990 (see Note 3).
Organization, Operations and Bankruptcy, Continued:
Operating Partners was in default under its mortgage
loan agreement as of and prior to December 31, 1991 as a result
of, among other things, the bankruptcy filing by Prime and AMI
Management. On March 28, 1991, the Partnerships received a
notice of acceleration and demand for payment of the entire
outstanding balance of the Mortgage Notes along with certain
conditions under which the lenders would pursue discussions with
respect to restructuring the Mortgage Notes.
On February 28, 1992, Operating Partners filed with
the United States Bankruptcy Court a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy
Code, seeking confirmation by the bankruptcy court of a
prepackaged plan of reorganization (the "Plan"). The New York
Bankruptcy Court confirmed the Plan, on May 28, 1992, which
became effective as of June 12, 1992 (the "Effective Date").
Upon confirmation of the Plan, the New York Bankruptcy Court
approved the Restated Loan Agreement (the "Restated Loan
Agreement") which, among other things, extended the maturity
date of the Mortgage Notes to December 31, 1999 (refer to Note 5
for a further discussion of this matter).
Although the Plan was approved, the Partnerships may
not be able to continue as going concerns unless cash flow from
operations are sufficient. The Partnerships have incurred
significant operating losses and have a capital deficit at
December 31, 1995. The accompanying consolidated financial
statements do not include any adjustments relating to the
recoverability of recorded asset amounts or the amounts of
liabilities that might be necessary should the Partnerships be
unable to continue as going concerns.
2. Summary of Significant Accounting Policies:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those
estimates.
The following is a summary of certain significant
accounting policies used in the preparation of the consolidated
financial statements.
a. Principles of Consolidation: The consolidated
financial statements include the accounts of the Partnership and
its 99%-owned subsidiary limited partnership, Operating
Partners. Operating partners operates on the basis of a
calendar year ending on the Friday which is most proximate to
December 31 of any given year. All material intercompany
accounts and transactions have been eliminated.
b. Cash Equivalents: Cash equivalents are highly
liquid investments with a maturity of three months or less when
acquired.
c. Property and Equipment: Property and equipment
are stated at the lower of cost or fair market value. The net
carrying value of property and equipment as of December 31, 1991
was reduced to estimated fair market value, through a charge to
expenses in the amount of $46,354,000. Expenditures for
improvements and major renewals are capitalized. Expenditures
for maintenance and repairs, which do not extend the useful life
of the asset, are expensed as incurred. For financial statement
purposes, provision is made for depreciation and amortization
using the straight-line method over the lesser of the estimated
useful lives of the assets or the terms of the related leases.
For federal income tax purposes, accelerated methods are used in
calculating depreciation.
d. Impairment of Long Lived Assets: In March 1995,
the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long Lived Assets" which is
effective for years beginning after December 15, 1995, with
earlier adoption encouraged. The Partnerships elected early
adoption of SFAS No. 121 in 1995. In accordance with this new
pronouncement, the Partnerships review for impairment and
recoverability of, primarily, property and equipment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If an evaluation is
required, the estimated future undiscounted cash flows
associated with the asset would be compared to the assets
carrying amount to determine if a write-down is required.
e. Other Assets: Franchise fees, deferred lease
costs, and deferred debt acquisition costs are amortized on a
straight-line basis over the estimated lives of the assets or
the specific term of the related agreement, lease or mortgage
loan.
f. Net Loss per Unit: Net loss per Unit is
calculated based on net loss allocable to limited partners
divided by the 4,000,000 Units outstanding.
3 Operations of the Inns:
a. Lease and Guaranty: Prior to the rejection and
termination of the Lease and Guaranty effective as of November
30, 1990, the Lease granted AMI Management the right to use the
Inns for the operation of hotels and related purposes.
AMI Management defaulted on the payment of
$1,311,000 of base rent due on November 1, 1990. Pursuant to
the joint motion approved by order of the bankruptcy court on
January 8, 1991, the Partnerships, AMI Management and Prime
entered into an agreement providing for the assumption by
Operating Partners of the operations of the Inns (the
"Agreement"). The Partnerships also effectively assumed control
over certain accounts receivable, supplies, equipment and other
assets and responsibility for certain accounts payable and other
liabilities arising from the operations of the Inns by AMI
Management during the term of the lease. Disputes between the
parties existed at December 31, 1991 as to, among other things,
the value of certain assets and liabilities under the Agreement.
Operating Partners entered into an agreement in 1993 (the
"Omnibus Agreement") under which, among other things, Operating
Partners assigned to the holders of the Mortgage Notes its
claims against Prime and AMI Management and agreed that amounts
recovered on such claims would be allocated among financial
claims (the proceeds of which would be applied to the repayment
of the Mortgage Notes) and operating claims (the proceeds of
which would be available to finance capital improvements to the
Inns).
In July, 1992 the servicing agent for the holders
of the Mortgage Notes, Prime and AMI Management reached a
settlement (the "Settlement") of claims which was approved by
the Florida Bankruptcy Court. Under the Settlement, various
claims of the holders of the Mortgage Notes against Prime and
AMI Management were allowed; Operating Partners will not make
any payments to or for the benefit of any other party; and
Prime, AMI Management and Operating Partners have exchanged
mutual releases.
In February 1995, the Partnership received proceeds
totaling approximately $1,025,000 from the sale of 127,924
shares of Prime common stock received in the Settlement. The
proceeds were used to reduce the principal balance on the
Mortgage Notes in 1995. During 1993, the Partnership received
proceeds totaling $4,389,000 primarily from the sale of 841,130
shares of common stock in Prime and the sale of junior and
senior notes, which were received in the Settlement. The
proceeds were used primarily to reduce the principal balance of
the Mortgage Notes. Total settlement proceeds received in 1995
and 1993 of $1,025,000 and $4,389,000, respectively, have been
recognized as lease settlement proceeds in the consolidated
statements of operations. There were no proceeds received from
the Settlement in 1994.
b. Franchise Agreements: Holiday Inns, Inc. and its
affiliates engaged in administering the "Holiday Inn" system
(collectively, "HII") extended the franchise agreement for
Baltimore Inner Harbor Inn to 2005. The franchise agreements
for twelve of the remaining Inns expire in 1997, one each in
1998 and 1999, and another in 2001.
HII has notified the Partnerships that certain
capital expenditure projects at the Inns will be required to
maintain the Inns' franchise status. For ten of the Inns whose
franchises expire in 1997, the capital expenditures
have been estimated by Operating Partners to approximate
$13,000,000, however, such capital expenditures are subject to
negotiation with HII. Operating Partners will have one year, which
may be negotiable, from the franchise expiration date to
complete the capital improvements. The loss of the Holiday Inn
franchise status of any of the Inns may have a near term adverse
impact in the Partnerships' results of operations.
c. W&H Management Agreement: Winegardner & Hammons,
Inc. ("W&H") continues to manage the operations of the Inns
pursuant to its management agreement with Operating Partners
which provides for an annual management fee of 2.25% of the
gross revenues of the Inns and certain incentive management
fees. The management agreement, entered into in 1993, extends
through 1996, renewable for two two-year terms. W&H is also
reimbursed for miscellaneous out-of-pocket expenses allocated to
the Inns, including expenses incurred in providing certain
administrative services for the Partnerships, royalties and
marketing, advertising, public relations, and reservation
services, subject to certain limitations. At December 31, 1995
and 1994, the Partnerships had approximately $61,000 and
$97,000, respectively, in receivables from an entity controlled
by W&H which manages certain of the Inns' lounges.
4. Other Assets:
<TABLE>
The components of other assets are as follows (in thousands):
<CAPTION>
1995 1994
<S> <C> <C>
Deferred lease costs $ 21 $ 21
Debt acquisition costs 2,839 2,839
Franchise fees 820 820
Other 4 14
3,684 3,694
Less accumulated amortization 2,920 2,605
$ 764 $1,089
</TABLE>
Amortization of debt acquisition costs charged to
expense was $174,000, $359,000 and $359,000 in 1995, 1994 and
1993 respectively. Amortization of franchise fees charged to
expense was $141,000 in 1995, 1994, and 1993.
5. Debt:
<TABLE>
<CAPTION>
Long-term debt consists of:
1995 1994
<S> <C> <C>
Mortgage notes, net of unamortized discount of
$204,000 in 1995 and $247,000 in 1994 $ 54,145,000 $ 55,127,000
Priming loan, interest at 11% 11,500,000 11,500,000
$ 65,645,000 $ 66,627,000
</TABLE>
In confirming the bankruptcy Plan of Reorganization
on May 28, 1992, the New York Bankruptcy Court approved the
Restated Loan Agreement which called for the following
provisions: $3,467,127 of accrued and unpaid interest at
December 31, 1991 (the "Deferred Amount") to be added to the
principal amount of the Mortgage Notes, but to bear interest
only from and after January 1, 1995; the Mortgage Notes (not
including the Deferred Amount) to bear interest payable at a
rate of 8% per annum in 1994; the principal amount of the
Mortgage Notes (including the Deferred Amount) to bear interest
at the rate of 10% per annum from January 1, 1995 until
maturity; and maturity of the Mortgage Notes (including the
Deferred Amount) to be extended to December 31, 1999. In
addition, the Restated Loan Agreement provides for the deeds to
the Inns and assignments of other assets of Operating Partners
to be held in escrow until maturity of the Mortgage Notes.
Under the terms of the Restated Loan Agreement, the Mortgage
Notes are repayable at any time without penalty.
The Restated Loan Agreement also provides for a
shared appreciation feature that calls for Operating Partners to
pay additional interest to the mortgage lenders, based on sale
or appraisal values of the Inns compared to the principal amount
of the Mortgage Notes, upon payment, prepayment, maturity or
acceleration of the Mortgage Notes, or upon sale of one or more
of the Inns. The Partnerships periodically estimate the fair
value of the Inns to determine if a reserve is needed for future
payments to lenders under the shared appreciation feature. While
the estimates of fair value are based on an analysis of the
facilities and determined under industry standards, the amounts
the Partnerships will ultimately realize upon the sale of the
properties or appraised values could differ materially in the
near term from the estimated fair values used in the calculation
of the reserve. There was no additional interest accrued or
paid to the lenders under this feature in 1995, 1994 or 1993.
The Restated Loan Agreement was accounted for as a
modification of terms in accordance with Statement of Financial
Accounting Standards No. 15 "Accounting by Debtors and Creditors
for Troubled Debt Restructurings". Accordingly, the carrying
value of the Mortgage Notes and Deferred Amount was not adjusted
to reflect the terms of the Restated Loan Agreement. The effect
of the changes in the terms of the Mortgage Notes will be
recognized prospectively over the life of the Mortgage Notes,
through an adjustment of the effective interest rate on the
Mortgage Notes and Deferred Amount to approximately 8.5% per
annum (the "Effective Rate"). The amount by which interest
payable at the Effective Rate exceeded the amount of interest
paid at the stated rate, has been accrued and is included in
deferred interest payable at December 31, 1995 and 1994. The
amount by which interest paid at the stated rate exceeds the
amount of interest payable at the Effective Rate will reduce the
deferred interest balance in future periods.
As part of the Plan, certain members of the lending
group also agreed to provide Operating Partners post-petition
financing (the "Priming Loan") which holds a security interest,
lien and mortgage senior to all outstanding liens. Borrowings
under the Priming Loan, may be used to finance capital
improvements or to fund operating cash requirements. The
portion used for capital improvements (defined as the Tranche A
Loan), which may be up to the full amount of the $14,000,000
available, is due on December 31, 1999 and provides for a
prepayment premium of 2%. The portion used for operating cash
requirements (defined as the Tranche B Loan), which cannot
exceed $2,500,000, is also limited to the amount remaining after
borrowings for capital improvements. Borrowings under the
Tranche B loan are pursuant to a revolving facility, such that
amounts repaid can be reborrowed up to the limits of
availability. These revolving credit borrowings are subject to
the mandatory repayment provisions described below. There were
no outstanding borrowings under the revolving facility at
December 31, 1995 or December 31, 1994.
As of December 31, 1995 and 1994, the outstanding
balance under the Priming loan was $11,500,000. The entire
amount in 1995 and 1994 represents borrowings under the Tranche
A loan. The outstanding Tranche A Loan balance includes
$385,000 representing funds borrowed in 1993 to fund an interest
reserve required by the Priming Loan. The balance in the
interest reserve, which represents the original funds borrowed
and interest earned thereon, is $442,000 and $419,000 at
December 31, 1995 and 1994, respectively. These amounts are
included in cash restricted for interest and taxes on the
consolidated balance sheets.
The Priming Loan agreement places certain
restrictions on the use of Operating Partners' cash flow and
sales proceeds. Operating cash flow can be used only in
accordance with the Priming Loan agreement, which calls for,
among other things, monthly deposits beginning in 1994 into an
escrow account held by or on behalf of the lenders for the
payment of a furniture, fixtures and equipment reserve of 4% of
gross revenues during 1994 and 5% of gross revenues thereafter.
The cash on hand from the operation of the Inns less the current
month projected cash deficiency, if any, less a working capital
reserve not to exceed $2,000,000, shall be utilized to first
repay any outstanding borrowings under the Tranche B Loan and
then paid into an escrow account held on behalf of the lenders
for the payment of taxes and insurance.
6. Commitments:
a. Operating Leases: Four of the Inns are held
pursuant to land leases and three of the Inns are held pursuant
to land and building leases, which are accounted for as
operating leases. The leases have terms expiring at various
dates from 2000 through 2024 and options to renew the leases for
terms varying from ten to forty years. Five of the leases are
subject to an escalating rent provision based upon inflationary
indexes, which adjusts the lease payment every five to ten years
depending on the respective lease. One of the leases is a land
lease with a subsidiary of Prime that expires in 2000 (with an
option to extend 40 years) and requires annual rentals of
$24,000. Future minimum lease payments will be as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1996 1,254,000
1997 1,254,000
1998 1,348,000
1999 1,372,000
2000 1,381,000
2001 and thereafter 22,209,000
</TABLE>
Rent expense under these leases totaled $1,260,000,
$1,253,000 and $1,251,000 in 1995, 1994, and 1993, respectively.
7. Income Taxes:
No federal or state income taxes are reflected in the
accompanying financial statements of the Partnerships. Based
upon an opinion of counsel of the Partnership obtained in 1986,
which is not binding upon the Internal Revenue Service, the
Partnerships were not taxable entities at their inception. The
partners must report their allocable shares of the profits and
losses of the Partnerships in their respective income tax
returns.
The Revenue Act of 1987 (the "1987 Act") added
several provisions to the Internal Revenue Code which affect
publicly traded partnerships such as the Partnership. Under
these new rules, a publicly traded partnership is taxed as a
corporation unless 90% or more of its income constitutes
"qualifying income" such as real property rents, dividends and
interest. The 1987 Act also provided certain transitional
rules, however, which generally exempt publicly traded
partnerships in existence on December 17, 1987 from application
of the new rules until after 1997, subject to various
limitations.
If the Partnership's operations continue as described
herein, the Partnership should not be taxed as a corporation
until after 1997. However, publicly traded partnerships which
add a substantial new line of business are not eligible for
relief under these transitional rules and it is possible that
the Internal Revenue Service could contend that the Partnership
should be taxed as a corporation after November 30, 1990, the
date of termination of the Lease. Also, it should be noted that
with respect to the partners, the 1987 Act also contained rules
under which the income of the Partnership will be treated,
effectively, as "portfolio income" for tax purposes and will not
be eligible to offset losses from other passive activities.
Similarly, any losses of the Partnership will not be eligible to
offset any income from other sources.
The Partnerships have determined that they do not
have to provide for deferred tax liabilities based on temporary
differences between financial and tax reporting purposes. The
tax basis of the net assets of the Partnerships exceeded the
financial reporting basis at December 31, 1995 and is expected
to do so at December 31, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1000
<CASH> 792
<SECURITIES> 0
<RECEIVABLES> 681
<ALLOWANCES> (20)
<INVENTORY> 0
<CURRENT-ASSETS> 1316
<PP&E> 101286
<DEPRECIATION> (49140)
<TOTAL-ASSETS> 57001
<CURRENT-LIABILITIES> 3254
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 57001
<SALES> 45321
<TOTAL-REVENUES> 46720
<CGS> 16058
<TOTAL-COSTS> 49000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6057
<INCOME-PRETAX> (2280)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2280)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
</TABLE>
