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 March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
Commission File 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 16
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
INDEX
Page
Number
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations - Three
Months Ended March 31, 1998 and 1997 5
Consolidated Statement of Partners' Deficit -
Three Months Ended March 31, 1998 6
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
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 15
PRIME MOTOR INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
ASSETS (Unaudited) 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,628 $ 989
Accounts receivable, net 891 823
Prepaid expenses 542 719
Other current assets 332 295
Total current assets 3,393 2,826
Property and equipment,
net of accumulated depreciation
and amortization 44,757 45,563
Cash and cash equivalents
restricted for:
Acquisition of property
and equipment 2,441 2,165
Interest and taxes 578 728
Total restricted cash
and cash equivalents 3,019 2,893
Other assets, net 799 425
$ 51,968 $ 51,707
</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>
March 31,
1998 December 31,
Liabilities and Partners' Deficit (Unaudited) 1997
<S> <C> <C>
Current liabilities:
Revolving credit facility $ 1,800 $ -
Trade accounts payable 303 481
Accrued payroll 535 614
Accrued payroll taxes 383 149
Accrued vacation 455 453
Accrued utilities 255 287
Sales tax payable 455 265
Other current liabilities 995 486
Total current liabilities 5,181 2,735
Long-term debt 63,557 63,544
Deferred interest 1,757 1,974
Accrued shared appreciation 5,625 4,500
Other liabilities 203 205
Total long-term liabilities 71,142 70,223
Total liabilities 76,323 72,958
Commitments
Partners' deficit:
General partner ( 815) ( 784)
Limited partners (23,540) (20,467)
Total partners' deficit (24,355) (21,251)
$ 51,968 $ 51,707
</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
March 31,
1998 1997
<S> <C> <C>
Revenues:
Direct operating revenues:
Lodging $ 8,089 $ 7,586
Food & beverage 2,132 2,118
Other income (principally interest) 109 99
Total revenues 10,330 9,803
Expenses:
Direct operating expenses:
Lodging 2,061 2,005
Food and beverage 1,803 1,802
Marketing 808 813
Utilities 710 841
Repairs and maintenance 769 812
Rent 337 32
Insurance 221 239
Property taxes 333 367
Other 2,009 1,923
Other general and administrative 826 235
Depreciation and amortization 998 939
Interest expense 1,434 1,510
Shared appreciation expense 1,125 -
Total expenses 13,434 11,815
Net loss ( 3,104 ) ( 2,012)
Net loss allocable to
general partner ( 31) ( 20)
Net loss allocable to
limited partners $( 3,073) $( 1,992)
Number of limited partner
units outstanding 4,000 4,000
Net loss allocable to limited
partners per unit $( .77) $( .50)
</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>
Three Months Ended March 31, 1998
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at December 31, 1997 $( 784) $(20,467) $(21,251)
Net loss for the three months
ended March 31, 1998 ( 31) ( 3,073) ( 3,104)
Balance at March 31, 1998 $( 815) $(23,540) $(24,355)
</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>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $( 3,104) $( 2,012)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of property
and equipment 855 883
Amortization of other assets 143 56
Amortization of debt discount 13 12
Increase (decrease) from changes in:
Accounts receivable ( 68) 39
Prepaid expenses 177 314
Other current assets ( 37) 1
Other assets ( 517) -
Trade accounts payable ( 178) ( 109)
Accrued payroll and payroll taxes 155 ( 1)
Accrued vacation 2 3
Accrued utilities ( 32) ( 14)
Sales tax payable 190 133
Other current liabilities 509 ( 9)
Deferred interest ( 217) ( 199)
Accrued shared appreciation 1,125 -
Other liabilities ( 2) ( 3)
Net cash used by operating activities ( 986) ( 906)
Cash flows from investing activities:
Additions to property and equipment ( 49) ( 488)
Increase in restricted cash ( 126) ( 9)
Net cash used in investing activities ( 175) ( 497)
Cash flows from financing activities:
Borrowings under revolving credit facility 1,800 1,600
Net cash provided by financing activities 1,800 1,600
Net increase in cash and cash equivalents 639 197
Cash and cash equivalents, beginning of period 989 834
Cash and cash equivalents, end of period $ 1,628 $ 1,031
Supplementary cash flow data:
Interest paid $ 1,638 $ 1,697
</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. ("AMI"), 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 March 31, 1998, their results of operations
for the three months ended March 31, 1998 and 1997, and their cash flows for the
the three months ended March 31, 1998 and 1997.
The results of operations for the three months ended March 31, 1998, 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, "Proposed sale of AMI and
the General Partner".
Information included in the consolidated balance sheet as of December 31, 1997
has been derived from the audited balance sheet in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1997 filed with the
Securities and Exchange Commission (the "1997 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 1997
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.
The following is a summary of certain significant accounting policies used in
the preparation of the consolidated financial statements.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Partnership and AMI. AMI operates under a 52/53 week fiscal
year (1998 and 1997 are fifty two week years). 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.
Inventories: Inventories are stated at the lower of cost or market, with cost
determined on the first-in, first-out method. Inventories consisted of:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Food $ 121,000 $ 130,000
Beverage 63,000 64,000
Linen 11,000 11,000
$195,000 $ 205,000
</TABLE>
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, ranging from 15 to 40 years for buildings and leasehold improvements
and 3 to 10 years for furniture and equipment, and the terms of the related
leases. For federal income tax purposes, accelerated methods are used in
calculating depreciation.
Impairment of Long Lived Assets: The Partnerships review for impairment and
recoverability of 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 to fair market value would be required.
Properties held for sale are stated at the lower of cost or fair value less
cost to sell. No write-downs have been recorded by the Partnerships
under the provisions of SFAS 121, "Accounting for the Impairment of Long-Lived
Assets".
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 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.
Fair Value of Financial Instruments: It is not practicable to estimate the
fair value of borrowings under the Partnerships' long term debt due to the
lack of quoted market prices for similar debt issues and the lack of current
rates which would be offered to the Partnerships for debt with similar terms.
3. OPERATIONS OF THE INNS:
Winegardner & Hammons, Inc. ("W&H") manages the operations of the fifteen
full-service motor hotels currently owned by AMI (the "Inns") pursuant to a
management agreement with AMI. At March 31, 1998 and December 31, 1997, the
Partnerships had approximately $70,000 and $57,000, respectively, in
receivables from an entity controlled by W&H which manages certain of the
Inns' lounges.
On May 1, 1998, the Partnerships sold an Inn located in Pikesville, Maryland
for $2,400,000 in cash, which resulted in a gain of approximately $805,000.
The proceeds from this sale and related reduction in the Priming Loan will
be reflected in the second quarter financial statements of the Partnerships.
Direct revenues of approximately $347,000, and direct operating expenses of
$327,000 for the three months ended March 31, 1998, relating to the operations
of this Inn were included in the Consolidated Statements of Operations for the
three months ended March 31, 1998.
4. OTHER ASSETS:
The components of other assets are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Deferred lease costs $ 21,000 $ 21,000
Debt acquisition costs 2,839,000 2,839,000
Franchise fees 517,000 945,000
Other 4,000 4,000
3,381,000 3,809,000
Less accumulated
amortization 2,582,000 3,384,000
$ 799,000 $ 425,000
</TABLE>
Amortization of debt acquisition costs charged to expense was $40,000 in the
three months ended March 31, 1998 and 1997. Amortization of franchise
acquisition costs charged to expense was $103,000 and $16,000 in the three
months ended March 31, 1998 and 1997. In March, 1998 $517,000 was paid to
Holiday Hospitality Corp. ("HHC") to extend for 60 days the franchises for
all eleven Inns whose franchises originally expired in 1997, which have been
further extended through June 10, 1998.
5. DEBT:
During the first quarter of 1998, AMI borrowed $1,800,000 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.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Mortgage Notes, net of
unamortized discount $ 54,253,000 $ 54,240,000
Priming Loan 11,104,000 9,304,000
65,357,000 63,544,000
Less revolving credit portion of the
Priming Loan, due currently 1,800,000 -
$ 63,557,000 $ 63,544,000
</TABLE>
Unamortized discount on the Mortgage Notes was $96,000 and $109,000 at
March 31, 1998 and December 31, 1997, respectively.
6. PROPOSED SALE OF AMI AND THE GENERAL PARTNER:
The Partnerships entered into a definitive agreement dated as of November 7,
1997, as amended as of March 12, 1998, pursuant to which the 99% limited
partnership interest in AMI will be sold for $12,000,000 in cash to Servico
Acquisition Corp., a wholly owned subsidiary of Servico, Inc. ("Servico").
The closing is conditioned on, among other things, approval of the limited
partners. Upon closing of the aforementioned transaction, the Partnership's
only asset will be the cash received from Servico. It is anticipated that the
Partnership will dissolve and wind up its affairs and distribute the net
proceeds from the sale to the limited partners in accordance with a Plan of
Liquidation.
The General Partner and its parent have entered into an agreement with
Servico pursuant to which Servico will acquire the General Partner's 1%
general partnership interest in AMI in exchange for a five year warrant
to acquire 100,000 shares of Servico Common Stock at a price of $18 per
share.
7. SHARED APPRECIATION:
The Restated Loan Agreement and the W&H Management Agreement provide for a
shared appreciation feature that calls for AMI to pay additional interest and
an additional incentive management fee to the Lenders and W&H, respectively,
based on (i) in the case of any Inn sold prior to the maturity date of the
Mortgage Notes, the amount (if any) by which the net sale price of the Inn
exceeds the amount of the Mortgage Notes allocated to it, and (ii) in the
case of the Inns still owned by AMI at the maturity date of the Mortgage
Notes (December 31, 1999 or upon acceleration), the amount (if any) by which
the sale price or appraised value of such Inns exceeds the then outstanding
principal amount of the Mortgage Notes, with such computation also being net
of any obligations under the Priming Loan, However, no amount is payable as
additional interest or incentive management fees until all obligations under
the Priming Loan have been paid. The Partnerships periodically estimate the
fair value of the Inns to determine if an accrual is needed for future
payments to the Lenders and W&H under the shared appreciation feature. The
Partnerships recorded as additional interest and incentive management fees
under the Restated Loan Agreement and the W&H Management Agreement $4,500,000
in 1997 and an additional $1,125,000 in the first quarter of 1998. The
additional interest and incentive management fees are based on estimates
of fair value of ten of the Inns at December 31, 1999 and the estimated sales
proceeds for the five Inns held for sale. However, such amounts (if any) as
the Partnerships will ultimately realize upon the sale of any of the Inns and
the appraised values of the Inns owned by AMI at the maturity of the Mortgage
Notes, could differ materially from the estimated fair values used in the
determination of the additional interest and incentive management fee.
In addition, any amount of shared appreciation that may be paid is subject to
interpretation or negotiation by the Partnerships, the Lenders and W&H.
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 March 31, 1998 and the results of
their operations for the three 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 AMI. Under the
agreement, as amended on March 12, 1998, Servico will pay $12 million in cash
to the Partnership and will take the Partnership's interest in AMI subject to
the outstanding indebtedness and other obligations of AMI. 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
developement. In addition, the Partnership understands that Servico has also
agreed to acquire the General Partner's 1% general partnership interest in
AMI. 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 AMI.
Financial Condition
Until the end of September, 1997, it had been the intention of AMI to continue
to operate the Inns as going concerns. In late September, the General Partner
entered into negotiations with Servico for the Sale of the Interest and, on
November 7, 1997, entered into an acquisition agreement amended as of March
12, 1998, for such Sale. If the Sale is consented to by a majority of the
Unitholders, the Partnership's interest in the Inns will terminate at the
Closing and the Partnership will be dissolved and liquidated.
AMI sold the Glen Burnie South Inn in July, 1997, and the Baltimore Pikesville
Inn on May 1, 1998. In addition, AMI has listed for sale the Baltimore-Moravia
Road, Lancaster-Rt. 501, York-Market Street and Hazleton Inns, and had intended
to sell (but, at the request of Servico, has taken off the market) the
Baltimore-Belmont and Frederick Inns. These Inns held for sale are "highway
oriented" properties that, having exterior corridors and being older properties,
have a dated appearance and 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 PIPs and the franchise fees for renewal of their "Holiday Inn"
franchises. As with the sale of the Glen Burnie South Inn, the net sale
proceeds of the Baltimore Pikesville Inn, and the other Inns held for sale
will be applied to reduce the outstanding principal balance of the Priming
Loan and Mortgage Notes, as required by the Priming Loan and Mortgage Note
Agreements.
So long as the Partnership owns the Interest, the Partnership's 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 HHC of competitor hotels, changes in interest
rates, the availability of financing for operating or capital needs (including
to finance 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, AMI or W&H.
Results of Operations
The Partnership derives its income from its 99% interest in AMI, whose income
is derived from the operations of the Inns. Operations of the Inns in the
first quarter of 1998 resulted in a net loss of $3,104,000, as compared to a
net loss of $2,012,000 in the first quarter of 1997. The increase in net
loss is due to the additional accrual of shared appreciation expense in the
first quarter of 1998. Net loss from operations before the accrual for shared
appreciation declined to $1,979,000 in the first quarter of 1998 from
$2,012,000 in the first quarter of 1997.
Total revenues for the three months ended March 31, 1998 increased to
$10,330,000, as compared to $9,803,000 in the first quarter of 1997.
Lodging revenues rose $503,000, to $8,089,000 in the first quarter of 1998,
from $7,586,000 in the first quarter of 1997. The increase in lodging
revenues results from the higher average daily room rates ("ADR") and an
increase in the occupancy at the Inns. The following table compares lodging
revenues, occupancy percentage levels and ADR, for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Lodging Revenues $8,089,000 $7,586,000
Occupancy 51.1% 48.9%
ADR $71.08 $66.94
</TABLE>
The overall ADR increased approximately 6.2%, or $4.14, from $66.94 in the
first quarter of 1997 to $71.08 in the first quarter of 1998, as a result of
continued efforts to attract to the Inns those market segments that are willing
to pay higher room rates. The Inns have been able to attract and retain
higher-rated market segment guests, and charge higher ADRs, due to the
quality of service and product provided by the Inns. These qualities
have enabled the Inns to charge room rates that are competitive with
the Inns' select competitor hotels.
In addition, occupancies for the three months ended March 31, 1998 increased
to 51.1%, from 48.9% in the three months ended March 31, 1997. The occupancy
increase was attributable principally to increased demand in the first quarter
of 1998, particularly in the convention market segment, compared to the first
quarter of 1997, and to increased business and leisure travel, as a result of
the mild winter weather in 1998. The Inns' continued focus on marketing sale
promotions, including AAA Automobile Club, Holiday Inns, Inc. promotions, and
direct sales efforts also contributed to the occupancy increase.
The Inns recognized an increase in food and beverage revenues during the
three months ended March 31, 1998, to $2,132,000 from $2,118,000 in the
three months ended March 31, 1997. The increase in these revenues was
experienced entirely from the rental of the meeting room facilities,
amenities provided to guests utilizing these facilities, and the catering to
the meeting room facilities.
Total direct operating expenses decreased $80,000, to $9,051,000 for the
first quarter of 1998 from $9,131,000 for the first quarter of 1997.
However, lodging expenses increased due to inflationary increases in labor
costs, and increases in expenses, such as room amenities, travel agent
commissions and guest supplies, that are incurred in servicing the higher
rated market segments. Additionally, food and beverage expenses increased,
which is attributable to the inflationary increases in food costs and costs
related to the increases in such revenues. Although food and beverage
costs increased, food and beverage costs as a percentage of food and beverage
revenues decreased from 85.1% for the quarter ended March 31, 1997 to 84.6%
for the first quarter of 1998, as a result of higher prices and effective
cost controls. The utility costs decreased substantially during the first
quarter of 1998 compared to the same quarter of 1997, as a result of the
very mild weather during the first quarter of 1998. Repairs and maintenance
costs declined during the first quarter of 1998 compared to the same quarter
of 1997, reflecting reductions in repair and maintenance labor costs and
project costs. Insurance costs decreased in the first quarter of 1998 from
the same period of 1997, as a result of reduction in the property insurance
premiums and general liability rates. Property taxes decreased during the
first quarter of 1998, compared to the first quarter of 1997, as a result of
reduced assessments and refunds received from successful tax appeals. Other
direct operating costs increased, in part because certain costs, such as
credit card commissions, Inn management fees and franchise fees, are based
upon, and increase with, revenues. In addition, inflationary increases in
administrative labor and expenses, have contributed to the year-over-year
increase in other direct operating costs. Other general and administrative
costs increased due to the additional time and expense incurred in connection
with the Servico agreement and pending proxy solicitation, which include
legal, audit, tax and professional fees. In addition, other general and
administrative costs were incurred in connection with the Pikesville,
Maryland Inn sale. Depreciation and amortization expense increased in
the first quarter of 1998 over the first quarter of 1997, due to the
amortization in 1998 of the franchise renewal costs paid in June, 1997 to
HHC, in order to extend those franchises that had expired in 1997. Interest
expense incurred during the first quarter of 1998 declined from that incurred
during the first quarter of 1997 as a result of the reduction in the Priming
loan from the sale of the Glen Burnie South Inn. Inn addition, $1,125,000
of expense was accrued during the first quarter of 1998 that was not incurred
during the same quarter of 1997 under the shared appreciation feature of the
Restated Loan Agreement and the W&H Management Agreement. The shared
appreciation expense was accrued in order to reflect the amount that might
be realized under the provision.
Liquidity and Capital Resources
The following table represents the changes in cash and cash equivalents for
the three months ended March 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Net cash provided by operating activities $ ( 986,000)
Net cash used in investing activities ( 175,000)
Net cash provided by financing activities 1,800,000
Net increase in cash and cash equivalents $ 639,000
</TABLE>
The Inns have historically experienced negative cash flows during the first
quarter of each year, and for the quarter ended March 31, 1998, operating
expenses exceeded operating revenues of the Inns and the Partnerships.
Net cash used in investing activities totaled $175,000 for the three months
ended March 31, 1998, resulting from cash utilized for capital improvements
and refurbishment's of $49,000, and the net increase in restricted cash of
$126,000. The net increase in restricted cash included a net increase in the
FF&E Reserve of $276,000 (funding to the FF&E Reserve of $409,000 at 5% of
revenues, plus interest earned on the account less capital expenditures
funded from the reserve of $133,000), and a net reduction of $150,000 in
the interest reserve and tax escrow accounts.
Cash provided by financing activities of $1,800,000 was from borrowings under
the Tranche B portion of the Priming Loan for operating cash deficiencies
during the first quarter of 1998.
On February 12, 1998 HHC advised the General Partner that, as a result of
AMI's failure timely to accept the license agreements offered by HHC in July
1997 to renew AMI's "Holiday Inn" franchises that were to expire in 1997, HHC
had withdrawn the offer. On February 23, 1998, HHC advised the General Partner
that it would not extend the "Holiday Inn" franchises when they expired on
March 2, 1998. HHC Subsequently advised the Partnership that it would extend
the "Holiday Inn" franchises for such Inns for 60 days if an application by a
"viable" applicant for franchises for the six Inns HHC was willing to keep in
the "Holiday Inn" system were submitted, and application fees in the amount of
$517,000 were paid, by March 10, 1998. Because of AMI's inability to arrange
financing, HHC does not consider AMI a "viable" applicant. Servico filed an
application, and AMI paid the application fees (with the right to have the
fee transferred to any other viable applicant in the event that a transaction
more favorable to the Unitholders were subsequently proposed), prior to March
10 and the Inns were to remain in the "Holiday Inn" system until May 9, 1998.
The franchises have subsequently been extended through June 10, 1998.
The Partnership has called a Special Meeting of the Partnership to which the
beneficial owners of Units (the "Unitholders") will be asked to consider and
vote upon the proposed sale (the "Sale") of the Partnership's 99% limited
partnership interest in AMI to Servico Acquisition Corp. ("SAC"), a
wholly-owned subsidiary of Servico, Inc., and the dissolution and liquidation
of the Partnership following the Sale (the "Liquidation"). The Sale and the
Liquidation comprise a single integrated proposal (the "Proposal"), which is
subject to, among other things, the consent of the holders of a majority of
the Units. the Meeting will be held on May 28, 1998 and persons who are
Unitholders at the close of business on March 16, 1998, will be entitled to
vote on the matters to be acted on at that Meeting. If the Sale is approved by
the Unitholders and consummated, any Interest of the Unitholders in the Inns
will be entirely extinguished and any future appreciation in the value of hotel
properties in general, will be enjoyed solely by Servico, Inc. and its
affiliates. The Partnership has been advised that Servico, Inc., which
owns and has the right to vote in excess of 2 million Units, intends to vote
its Units to approve the Proposal.
The terms of the sale are embodied in an Acquisition Agreement dated as of
November 7, 1997, and amended as of March 12, 1998 (as amended, the
"Acquisition Agreement"), among Servico, Inc., the Partnership, the General
Partner and SAC, and the Liquidation will be governed by the Partnership
Agreement, the Delaware Revised Uniform Limited Partnership Act and a Plan
of Dissolution and Liquidation (the "Plan").
PART II. OTHER INFORMATION AND SIGNATURES
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
Report dated February 18, 1998 with respect to a communication
received by the Partnership on February 12, 1998 from Holiday
Hospitality Corp.
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: May 7, 1997 By: /s/ S. Leonard Okin
S. Leonard Okin
Vice President
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<PERIOD-END> MAR-31-1998
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