UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to __________
Commission File 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
incorporation or organization) Identification No.)
c/o WHI
4243 Hunt Road
Cincinnati, Ohio 45242
(Address of principal offices, including zip code)
(513) 891-2920
(Registrant's telephone number, including area code)
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 ___
Page 1 of 18
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
INDEX
Page
Number
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations - Three
and Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statement of Partners' Deficit -
Nine Months Ended September 30, 1997 6
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION AND SIGNATURES:
Item 6. Exhibits and Reports on Form 8-K 17
PRIME MOTOR INNS LIMITED PARTNERSHIPAND
SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30,
1997 December 31,
ASSETS (Unaudited) 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,130 $ 834
Accounts receivable, net 1,132 774
Prepaid expenses 829 952
Other current assets 363 328
Total current assets 4,454 2,888
Property and equipment
net of accumulated depreciation
and amortization 46,012 48,825
Cash and cash equivalents restricted for:
Acquisition of property
and equipment 1,865 1,195
Interest and taxes 803 522
Expenses associated with the sale
of an Inn 25 -
Total restricted cash and
cash equivalents 2,693 1,717
Other assets, net 489 542
$ 53,648 $ 53,972
</TABLE>
Continued
The accompanying notes are an integral part
of the consolidated financial statements
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30,
1997 December 31,
Liabilities and Partners' Deficit (Unaudited) 1996
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 395 $ 484
Accrued payroll 769 660
Accrued payroll taxes 317 165
Accrued vacation 423 437
Accrued utilities 277 322
Sales tax payable 524 274
Other current liabilities 1,067 772
Total current liabilities 3,772 3,114
Long-term debt 63,556 65,691
Deferred interest 2,217 2,872
Other liabilities 208 216
Total long-term liabilities 65,981 68,779
Total liabilities 69,753 71,893
Commitments
Partners' deficit:
General partner ( 733) ( 751)
Limited partners (15,372) (17,170)
Total partners' deficit (16,105) (17,921)
$ 53,648 $ 53,972
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, except per Unit amounts)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Direct operating revenues:
Lodging $ 12,281 $ 11,999 $ 31,864 $ 29,828
Food and beverage 2,294 2,444 6,928 6,997
Other Income 125 91 307 281
Total revenues 14,700 14,534 39,099 37,106
Expenses:
Direct operating expenses:
Lodging 2,725 2,617 7,353 6,992
Food and beverage 2,021 2,083 5,971 5,893
Marketing 930 952 2,728 2,608
Utilities 760 780 2,221 2,293
Repairs and maintenance 950 887 2,783 2,664
Rent 322 329 981 987
Insurance 233 183 611 549
Property taxes 362 369 1,096 1,107
Other 2,419 2,303 6,624 6,082
Other general and administrative 219 202 591 505
Depreciation and amortization 971 1,355 2,863 4,059
Interest expense 1,443 1,494 4,472 4,537
Total expenses 13,355 13,554 38,294 38,276
Income (loss) before gain on sale
of an Inn 1,345 980 805 (1,170)
Gain on sale of an Inn 1,011 - 1,011 -
Net income (loss) 2,356 980 1,816 (1,170)
Net income (loss) allocable to
general partner 24 10 18 (11)
Net income (loss) allocable to
limited partners $ 2,332 $ 970 $ 1,798 $ (1,159)
Number of limited partner
units outstanding 4,000 4,000 4,000 4,000
Net income (loss) allocable to
limited partners per unit $ 0.58 $ 0.24 $ 0.45 $ (0.29)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at January 1, 1997 $ ( 751) $ (17,170) $ (17,921)
Net income for the nine months
ended September 30, 1997 18 1,798 1,816
Balance at September 30, 1997 $ ( 733) $ (15,372) $ (16,105)
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 1,816 $ (1,170)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization of property
and equipment 2,685 3,892
Amortization of other assets 178 167
Amortization of debt discount 36 34
Gain on sale of an Inn (1,011) -
Increase (decrease) from changes in:
Accounts receivable ( 358) ( 351)
Prepaid expenses 123 77
Other current assets ( 35) 6
Other Assets ( 125) -
Trade accounts payable ( 89) ( 33)
Accrued payroll and payroll taxes 261 ( 212)
Accrued vacation ( 14) 5
Accrued utilities ( 45) ( 49)
Sales tax payable 250 262
Other current liabilities 295 362
Deferred interest ( 655) ( 68)
Other liabilities ( 8) -
Net cash provided by operating activities 3,304 2,922
Cash flows from investing activities:
Proceeds from the sale of an Inn 2,400 -
Payments of expenses associated with the sale
of an Inn ( 161) -
Additions to property and equipment (1,057) (1,081)
Increase in restricted cash for acquisition of
property and equipment and for interest and taxes ( 951) ( 174)
Cash restricted for the payment of additional
expenses associated with the sale of an Inn ( 25) -
Net cash provided by (used in) investing activities 206 (1,255)
</TABLE>
Continued
The accompanying notes are an integral part
of the consolidated financial statements
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from financing activities:
Payment of Tranche A portion of the Priming Loan
from the proceeds of the sale of an Inn $(2,171) $ -
Payment of Tranche A portion of the Priming Loan
for prepayment penalty ( 43) -
Borrowings under revolving credit facility 1,600 1,600
Repayments of revolving credit facility (1,600) (1,600)
Net cash used in financing activities (2,214) -
Net increase in cash and cash equivalents 1,296 1,677
Cash and cash equivalents, beginning of period 834 792
Cash and cash equivalents, end of period $ 2,130 $ 2,459
Supplementary cash flow data:
Interest paid $ 5,091 $ 4,571
</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
1. BASIS OF PRESENTATION:
In the opinion of the General Partner, the accompanying interim unaudited
financial statements of Prime Motor Inns Limited Partnership (the
"Partnership") and its 99% owned subsidiary, AMI Operating Partners, L.P.
("Operating Partners"), referred to collectively as the "Partnerships",
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Partnerships as of
September 30, 1997 and 1996, and their cash flows for the nine months ended
September 30, 1997 and 1996.
The results of operations for the nine months ended September 30, 1997, are
not necessarily indicative of the results to be expected for the full year.
Unless cash flows from operations are sufficient to pay operating expenses
and debt service, and create required reserves, the Partnerships may not be
able to continue as going concerns. See note 6, "Recent Development".
Information included in the consolidated balance sheet as of December 31,
1996 has been derived from the audited balance sheet in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1996 filed with
the Securities and Exchange Commission (the "1996 Form 10-K"). These interim
unaudited financial statements should be read in conjunction with the audited
consolidated financial statements and other information included in the 1996
Form 10-K.
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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Partnership
and Operating Partners. Operating Partners operates under a 52/53 week
fiscal year (1996 was a fifty-three week year and 1997 is a fifty-two week
year). Operating costs of the Partnership are reflected in the consolidated
statements of operations as other general and administrative expenses. All
material intercompany accounts and transactions have been eliminated.
Cash Equivalents
Cash equivalents are highly liquid investments with a maturity of three
months or less when acquired.
Property and Equipment
Property and equipment are stated at the lower of cost or fair market value.
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.
Impairment of Long Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long Lived
Assets", 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.
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.
Net Income/Loss Per Unit
Net income/loss per Unit is calculated based on net income/loss allocable to
limited partners divided by the 4,000,000 Units outstanding.
3. OPERATIONS OF THE INNS:
Winegardner & Hammons, Inc. ("W&H") manages the operations of the Inns (the
"Inns") pursuant to a management agreement with Operating Partners. At
September 30, 1997 and December 31, 1996, the Partnerships had approximately
$78,000 and $61,000, respectively, in receivables from an entity controlled
by W&H which manages certain of the Inns' lounges.
4. OTHER ASSETS:
The components of other assets are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Deferred lease costs $ 21 $ 21
Debt acquisition costs 2,839 2,839
Franchise fees 945 820
Other 4 4
3,809 3,684
Less accumulated
amortization 3,320 3,142
$ 489 $ 542
</TABLE>
In June, 1997, $125,000 was paid to Holiday Inns, Inc. ("HII") to extend the
Holiday Inn franchises to July 31, 1997 (which was subsequently extended by
HII to August 29, 1997, September 19, September 30, October 15, and, most
recently, November 14, 1997), for the ten Inns whose franchises were to
expire on June 30, 1997. Operating Partners and Servico, Inc., have
requested an additional extension of the franchises, and HII has verbally
granted an additional six week extension. If the franchise agreements with
HII are renewed the amount paid will be applied against the franchise renewal
costs.
Amortization of debt acquisition costs charged to expense was $121,000 in the
nine months ended September 30, 1997 and 1996, respectively. Amortization of
franchise acquisition costs charged to expense was $57,000 and $46,000 in the
nine months ended September 30, 1997 and 1996, respectively.
5. DEBT:
During the first quarter of 1997, Operating Partners borrowed $1,600,000 from
the revolving credit portion of the Priming Loan, defined as the Tranche B
Loan. This borrowing funded operating expenses that could not be paid from
operating revenues during the first quarter. Operating Partners repaid the
entire $1,600,000 of the Tranche B Loan from excess working capital in the
second quarter of 1997, as required under the Priming Loan. In July, 1997,
the Glen Burnie South Inn was sold resulting in net proceeds of $2,214,000,
of which $2,171,000 was utilized to pay down the Tranche A portion of the
Priming Loan and $43,000 was utilized to pay the related prepayment penalty,
as required by the Priming Loan Agreements.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
<S> <C> <C>
Mortgage Notes, net of
unamortized discount $ 54,227,000 $ 54,191,000
Priming Loan 9,329,000 11,500,000
$ 63,556,000 $ 65,691,000
</TABLE>
Unamortized discount on the Mortgage Notes was $122,000 and $158,000 at
September 30, 1997 and December 31, 1996, respectively.
6. RECENT DEVELOPMENT:
On November 7, 1997 the Partnership signed a definitive agreement with Servico,
Inc. ("Servico") to sell to Servico the Partnership's 99% limited partnership
interest in Operating Partners. Under the agreement, Servico will pay $8
million in cash to the Partnership and will take the Partnership's interest
in Operating Partners subject to the outstanding indebtedness and other
obligations of Operating Partners.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis set forth below is based on the
financial condition of the Partnerships at September 30, 1997 and the results
of their operations for the nine months then ended. On November 7, 1997,
following efforts to arrange financing for Product Improvement Plans (PIPs)
for the Inns or to otherwise protect the interests of the Unitholders, the
Partnership signed a definitive agreement with Servico to sell to Servico
the Partnership's 99% limited partnership interest in Operating Partners.
Under the agreement, Servico will pay $8 million in cash to the Partnership
and will take the Partnership's interest in Operating Partners subject to the
outstanding indebtedness and other obligations of Operating Partners.
The transaction is subject to the approval of the Unitholders of the
Partnership and a special meeting of Unitholders will be scheduled for such
vote. The Management's Discussion and Analysis set forth below should be read
in light of that development. In addition, the Partnership understands that
Servico has also agreed to acquire the General Partner's 1% general
partnership interest in Operating Partners. The Partnership understands
that, under that agreement, the General Partner and its parent, Prime
Hospitality, Inc., will waive all rights that they may have to receive any
distributions by the Partnership of the proceeds of the sale of the
Partnership's limited partnership interest in Operating Partners.
Financial Condition
As part of its 1992 plan of reorganization, Operating Partners restructured
its Mortgage Notes under the Restated Loan Agreement and arranged a Priming
Loan to fund necessary capital improvements and to finance operating
deficiencies. The ability of the Partnership to pay operating expenses and
debt service, and to create required reserves, depends upon the ability of
Operating Partners 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. It is the intention of the Partnerships
to continue to operate the Inns as going concerns. However, Operating
Partners sold the Glen Burnie South Inn in July, 1997, has entered into a
purchase contract for the Baltimore Pikesville Inn, and has planned to sell
the Baltimore Moravia Road, Baltimore Belmont, Frederick MD, Lancaster Rt.
501, York Market Street and the Hazleton Inns, which are "highway oriented"
properties which, having exterior corridors and being older properties
(generally over 20 years old), have a dated appearance. These Inns are either
losing money or, in the opinion of the General Partner, will not produce
a sufficient return to justify the costs to complete the HII PIPs and the
franchise fees for renewal of their franchises. Like with the sale of the
Glen Burnie South Inn, the net sale proceeds of these Inns will be applied
to reduce the outstanding principal balance of the Priming Loan, as required
by the Priming Loan Agreement. Operating Partners has received some
unsolicited proposals to purchase the Partnerships' assets or to purchase
certain of the Inns. Operating Partners carefully evaluates any of these
types of proposals.
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 HII of competitor
hotels, changes in interest rates, the availability of financing for
operating or capital needs (including to finance any PIPs and the renewal
of the Holiday Inn franchise agreements), 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
Net income before gain on sale of an Inn was $1,345,000 in the third quarter
of 1997, versus $980,000 of net income in the third quarter of 1996. Net
income before gain on sale of an Inn was $804,000 for the nine months ended
September 30, 1997, as compared to a net loss of $1,170,000 in the first nine
months of 1996. Total revenues for the three months ended September 30, 1997
were $14,700,000, as compared to $14,534,000, in the corresponding quarter of
1996. The increase in total revenues is due to the increase in lodging
revenues, resulting from higher average daily room rates (ADR) and increased
occupancies at the Inns.
The following table compares lodging revenues, occupancy percentage levels
and ADR, for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Lodging Revenues $12,281,000 $11,999,000 $31,864,000 $29,828,000
Occupancy 72.8% 72.4% 63.8% 62.1%
ADR $75.01 $71.44 $72.54 $68.86
</TABLE>
The ADR increased 5.0%, or $3.57, in the third quarter of 1997 compared to the
third quarter of 1996. For the nine months ended September 30, 1997, the ADR
increased 5.3%, or $3.68, from $68.86 in the first nine months of 1996 to
$72.54 in the first nine months of 1997. These rates have been achieved
because the Inns have attracted and retained those market segments that
are willing to pay higher room rates, principally as a result of the good
condition and maintenance of the Inns, good customer service levels, and
effective internal marketing and sales promotions. While the Partnerships
anticipate that the Inns can continue to improve their mix of market
segments, and thereby increase ADR and improve profit margins, there can be
no assurance as to whether this will be realized, due to, among other things,
competitive pressures in the marketplace.
Occupancies increased 1.7 percentage points, to 63.8% in the first nine months
of 1997, as compared to 62.1% during the first nine months of 1996. The
increase in occupancy is attributable to increased sales and marketing efforts
and the continued increase in national business and leisure travel. There is
intense competition in the geographic areas where the Inns are located,
including conversions of competitor hotels to Holiday Inn franchises.
Therefore, the Partnerships and W&H believe occupancy levels at the Inns will
not substantially increase over the next year, but is expected to show some
growth. The occupancy growth projected is due to the stable and growing
economic conditions, and the stabilization of supply and demand in the region
where the Inns are located. However, due to the fact 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), slow occupancy growth is expected.
Also, theses "highway oriented" Inns have an external dated appearance due to
their age, which contributes to their median occupancy levels. 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,
franchise affiliation, employees, marketing quality, reservation services,
the quality and scope of food and beverage facilities, and other amenities.
Food and beverage revenues for the three months ended September 30, 1997
declined to $2,294,000 from $2,444,000 in the third quarter of 1996. The
decline during the quarter is associated with the decline in breakfast,
lunch, and banquet revenues. The decline in banquet revenues was partially
offset by increased meeting room rentals (which are included in the food and
beverage revenues), due to efforts to sell the meeting room facilities as
opposed to banquet facilities as the meeting rooms business tends to
generate more lodging business. Food and beverage revenues declined slightly,
to $6,928,000 in the nine months ended September 30, 1997, from $6,997,000 in
the first nine months of 1996. The decrease is due to the decline in the food
and beverage sales for the first nine months of 1997, offset by increased
revenues from rental of the meeting room facilities.
Direct operating expenses increased $219,000 for the quarter ended September
30, 1997, to $10,722,000, from $10,503,000 during the corresponding quarter
of 1996. The increase in lodging expenses is due to inflationary increases
in labor costs, and increases in expenses, such as room amenities and travel
agent commissions. Food and beverage costs decreased, corresponding to the
reduced sales. Other direct operating costs increased, principally because
certain costs, such as credit card commissions, Inn management fees and
franchise fees are based upon and increase with revenues. Depreciation and
amortization decreased due to certain fixed assets becoming fully depreciated
at the end of 1996.
Liquidity and Capital Resources
The following table represents the changes in cash and cash equivalents for
the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Net cash provided by operating activities $ 3,304,000
Net cash provided by investing activities 206,000
Net cash used in financing activities (2,214,000)
Net increase in cash and cash equivalents $ 1,296,000
</TABLE>
Cash flows provided by operating activities of $3,304,000 are a result of the
increased revenues in the quarter and nine months ended September 30, 1997,
compared to the same periods in 1996. Historically, the Inns have experienced
negative cash flows from operations in the first quarter of each year and
increased cash flows from operations during the second and third quarters of
each year.
Net cash flows from investing activities totaled $206,000 for the nine months
ended September 30, 1997. This includes cash proceeds of $2,400,000 from the
sale of the Glen Burnie South Inn, less cash utilized for expenses of
$161,000 associated with the sale of this Inn and $25,000 of such proceeds
restricted for the payment of any additional expenses associated with the
sale of the Inn. Any balance of this $25,000 remaining must be utilized for
payment of the Tranche A portion of the Priming Loan, net of applicable
prepayment penalty, as required by the Priming Loan Agreement. Cash was also
utilized for capital improvements and refurbishments of $1,056,000, and the
net increase of $951,000 in restricted cash for acquisition of property and
equipment and for interest and taxes. The net increase in restricted cash
included an increase in the FF&E Reserve of $670,000 (funding plus interest
earned of $1,880,000, less capital expenditures of $1,210,000 which were
funded from the FF&E Reserve) and an increase of $281,000 in the interest
reserve and tax escrow accounts.
Net cash flow used in financing activities reflects a pay down of $2,171,000
to the Tranche A portion of the Priming Loan and the payment of the related
prepayment penalty of $43,000 from the net proceeds of the sale of the Glen
Burnie South Inn. In addition, Operating Partners borrowed $1,600,000 under
the Tranche B portion of the Priming Loan for operating cash deficiencies
during the first quarter of 1997 and repaid the entire $1,600,000 of the
Tranche B Loan from excess working capital during the second quarter of 1997.
The Partnerships anticipate continued 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 and 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 payment requirements
under the current 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.
The "Holiday Inn" franchises of ten of the Inns were to expire on June 30,
1997 and the franchises of two additional Inns will expire on December 31,
1997. Before the renewal of an expiring franchise for any "Holiday Inn"
property, the property is inspected by HII and that inspection forms the
basis for a PIP, the completion of which is a condition to the renewal of
the franchise for the property. Prior to December 31, 1995, HII had inspected
and prepared PIPs for ten of the Inns whose franchises expire in 1997 and the
General Partner had commenced efforts to arrange financing for the PIPs.
During the second quarter of 1996, HII inspected and prepared PIPs for the
remaining two Inns whose franchises expire in 1997 (though HII had previously
indicated that it might not renew those franchises and, accordingly, had not
prepared PIPs for those Inns). Based on those PIPs, and on analyses by W&H,
Operating Partners estimated the cost of the capital expenditures to be in
the range of $13,000,000, although Operating Partners believed that the scope
of work and related costs would be subject to negotiation.
Generally, in connection with the renewal of the franchise for an Inn,
Operating Partners will have one year, which may be negotiable, from the
expiration date of the old franchise to complete the capital improvements
included in the PIP. It is anticipated that the capital improvements for the
PIPs will be financed partially from the FF&E Reserve and from additional
financing, if available. At the present time, the current Lenders have
stated that they are not willing to provide any such financing that will be
required and have not consented to the Partnerships payment of the balance of
the franchise renewal fees, pending review of the Partnerships' business
and financing plans. Operating Partners is and has been actively investigating
financing possibilities. However, there can be no assurance that additional
financing will be available.
If financing is not available and Operating Partners is unable to defer the
timing and costs of the PIPs, the Inns may have to change franchise
affiliations, become independent hotels or certain of the Inns may have to be
sold. Changes in such franchise affiliations could adversely impact the
Partnerships' results of operations. Further, under the Priming Loan and
Restated Loan Agreements, approval by the Lenders will be required for any
franchise changes, capital expenditures or additional financing.
In June, 1997, the Partnership requested that HII extend the franchise
agreements expiring on June 30, 1997 to enable the Partnerships to continue
to seek financing for the PIPs and the franchise renewal fees. In
consideration of a $125,000 prepayment by Operating Partners of franchise
renewal fees, HII agreed to extend the franchise expirations for the ten Inns
to July 31, 1997 (which was subsequently extended to August 29, 1997) and
prepared revised PIPs. In August 1997, HII advised the Partnerships that it
did not desire to renew the franchises of five Inns that expire in 1997 (all
of which were Inns that the General Partner had theretofore determined to
sell). HII also indicated its unwillingness to extend the expiration of the
franchises if the Partnerships could not provide realistic plans for
financing the PIPs and the franchise renewal fees. HII has extended the time
within which the Partnerships must present such plans, first to September 19,
then to September 30, October 15, 1997 and, most recently November 14, 1997.
Operating Partners submitted a plan for the completion of the PIPs (including
the improvements to be made and the schedule therefor) and the sale of seven
of the Inns (including five whose Holiday Inn franchises were to expire
on December 31, 1997 and one whose expires on December 31, 2001).
The cost of the PIPs for the remaining five Inns whose franchises expire
in 1997 is approximately $7,500,000. In addition, Operating Partners will
be required to pay franchise renewal fees of approximately $438,500 ($500
per room), for renewal of the Holiday Inn franchises for the five Inns that
are to be retained whose franchises expire in 1997.
Commencing in August, 1997 the General Partner accelerated its efforts to
arrange financing for the PIPs and the franchise renewal fees or to enter
into another transaction (including the sale of Inns) to preserve and protect
the interests of the Unitholders. Among other things, the General Partner
solicited proposals from each party that had approached the General Partner
with proposals to provide financing to, acquire interests in, and/or to
restructure, the Partnerships or to acquire assets or operations of the
Partnerships. On September 26, 1997 Servico made and on September 29, 1997
publicly announced, an offer to acquire the Partnership's limited
partnership interest in Operating Partners. No other complete offers
or proposals were submitted. Operating Partners and Servico, have requested
an additional extension of the franchises, and HII has verbally granted an
additional six week extension.
Effective before the opening of the market on June 20, 1997, the Units were
delisted by the New York Stock Exchange (the "Exchange") because the aggregate
market value of the Units, the three-year average net income of the Partnership
and the net tangible assets of the Partnership available to the Units fell
below the Exchange's continued listing criteria. From June 20, 1997 through
July 8, 1997, the Units were traded by brokers who made a market in the Units,
and since July 9, 1997, the Partnership's Units have been trading on the Over
the Counter Bulletin Board (OTCBB), under the ticker symbol PMPI.
Under the Internal Revenue Code, the Partnership, as a publicly traded
partnership, will be taxable as a corporation after December 31, 1997.
The recently-enacted Taxpayer Relief Act of 1997 exempts from taxation as a
corporation any publicly traded partnership that satisfies certain conditions,
including making payment in the amount of 3.5% of its gross revenues.
The Partnership believes that, as a result of its operating losses, it should
not have any tax liability for a substantial period of time and such 3.5% of
gross revenues payment would be substantially in excess of any corporate
income tax that the Partnership might foreseeable pay. The General Partner
is evaluating the consequences of the transition to corporate form (which
might require transfer of title to the Inns, probably would have some tax
consequences and might affect the franchise agreements and liquor licenses
for the Inns).
The General Partner received a demand from a lawyer representing several
Unitholders that a meeting be held to remove the General Partner and
substitute a new general partner and a meeting was scheduled for November 5,
1997. Subsequently the lawyer requested that the purpose of the meeting be
expanded to include approval of conversion of the Partnerships to corporate
form, as indicated in the second quarter Quarterly Report on Form 10-Q.
Shortly before the meeting was to be held, anticipating that the Partnerships
would enter into a transaction with Servico, the lawyer requested that the
meeting be postponed so that the Unitholders could consider the proposed
transaction with Servico together with the proposed removal of the General
Partner and substitution of a new general partner. That meeting has been
postponed, but may be rescheduled by Unitholders, either in conjunction with
or in advance of the meeting to be called to consider the Servico transaction.
PART II. OTHER INFORMATION AND SIGNATURES
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME MOTOR INNS LIMITED PARTNERSHIP
(REGISTRANT)
By: Prime-American Realty Corp.
General Partner
Date: November 12, 1997 By:/s/ S. Leonard Okin
S. Leonard Okin
Vice President
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 0 2130
<SECURITIES> 0 0
<RECEIVABLES> 0 1132
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 363
<PP&E> 0 46012
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 53648
<CURRENT-LIABILITIES> 0 3772
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 (16105)
<TOTAL-LIABILITY-AND-EQUITY> 0 53648
<SALES> 14575 38792
<TOTAL-REVENUES> 14700 39099
<CGS> 4746 13324
<TOTAL-COSTS> 10722 30368
<OTHER-EXPENSES> 1190 3454
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1443 4472
<INCOME-PRETAX> 1345 805
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 1011 1011
<CHANGES> 0 0
<NET-INCOME> 2356 1816
<EPS-PRIMARY> .58 .45
<EPS-DILUTED> .58 .45
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