<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
---------------------
Commission file number 33-11096
---------------------
CRI HOTEL INCOME PARTNERS, L.P.
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1500621
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- -----------------------------
(Address of principal executive officers) (Zip Code)
(Registrant's telephone number, including area code) (301) 468-9200
------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- --------------------------------- -----------------------------
N/A N/A
Securities registered pursuant to Section 12(g) of the Act.
Beneficial Assignee Certificates
- --------------------------------------------------------------------------
(Title of class)
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 twelve 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)
The partnership interests of the Registrant are not traded in any market.
Therefore, the partnership interests had neither a market selling price nor an
average bid or asked price within the 60 days prior to the date of this filing.
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
------
Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . I-1
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . I-2
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . I-2
PART II
-------
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . . . II-1
Item 6. Selected Financial Data . . . . . . . . . . . . . . II-1
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . II-3
Item 8. Financial Statements and Supplementary Data . . . . II-12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures . . . . . II-12
PART III
--------
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . . III-1
Item 11. Executive Compensation . . . . . . . . . . . . . . III-2
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . III-2
Item 13. Certain Relationships and Related Transactions . . III-3
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . IV-1
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . IV-4
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . IV-24
<PAGE>
PART I
------
ITEM 1. BUSINESS
--------
Development and Description of Business
- ---------------------------------------
The information required by Part I, Item 1 is contained in (1) Part II,
Item 6, Selected Financial Data; (2) Part II, Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations and (3) Part IV,
Item 14 in Notes 1, 2, 3 and 4 of the notes to financial statements, which are
incorporated herein by reference.
Employees
- ---------
The Company has no employees. Services are performed by C.R.I., Inc., the
general partner of the General Partner, and agents retained by it.
ITEM 2. PROPERTIES
----------
The following is a description of the hotels and the leasehold interests
owned by the Partnership as of December 31, 1996:
I-1
<PAGE>
PART I
------
<TABLE>
<CAPTION>
NAME AND LOCATION NO OF ROOMS FINANCED BY DATE ACQUIRED
- ------------------------ ----------- --------------------------- -------------
<S> <C> <C> <C>
Minneapolis Days Inn 130 Proceeds of public offering 11/01/87
Minneapolis, Minnesota and Zero Coupon Purchase
Money Note
Plymouth Days Inn 115 Proceeds of public offering 12/30/87
Plymouth, Minnesota and Zero Coupon Purchase
Money Note
Roseville Days Inn 114 Proceeds of public offering 03/01/88
Roseville, Minnesota and Zero Coupon Purchase
Money Note
Clearwater Days Inn 120 Proceeds of public offering 04/01/88
Clearwater, Florida and Zero Coupon Purchase
Money Note
Scottsdale Days Inn 165 Proceeds of public offering 07/01/88
Scottsdale, Arizona
(leasehold interest)
</TABLE>
On July 19, 1995, the Partnership sold the Days Inn Kankakee to American
Indus Hotels, Inc., an unaffiliated entity. See Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
notes to the financial statements for additional information pertaining to the
sale.
As indicated above, the Partnership financed the acquisition of the hotels
it owns by proceeds of a public offering and the issuance of Zero Coupon
Purchase Money Notes (the Notes). The General Partner is currently reviewing
several options available to the Partnership to address the upcoming maturity of
the Notes and the capital improvement needs of the
I-2
<PAGE>
PART I
------
ITEM 2. PROPERTIES - Continued
----------
properties. One option may be to sell the hotels outright (or in the case of
Scottsdale, sell the leasehold interest), either as individual assets or in a
sale pool together. Another option may be to refinance the Notes. As of
February 28, 1997, the Partnership has not committed to a plan to sell the
hotels, or to refinance the Notes, nor is there any assurance that a sale will
take place or that refinancing will be obtained. See Part II, Item 7,
Management's Discussion and Analysis or Financial Condition and Results of
Operations and the notes to the financial statements for additional information
pertaining to the potential sale of the properties or refinancing of the Notes.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material pending legal proceedings to which the Partnership is
a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
I-3
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------
(a), (b) and (c)
The information required in these sections is part of the Selected
Financial Data included in Part II, Item 6, which is incorporated herein by
reference.
II-1
<PAGE>
PART II
-------
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue (1) $ 10,087,730 $ 10,218,916 $ 10,359,778 $ 9,342,154 $ 8,903,295
Departmental expenses (1) (3,060,227) (3,108,035) (3,187,327) (3,018,138) (2,865,788)
------------ ------------ ------------ ------------ ------------
Gross operating income 7,027,503 7,110,881 7,172,451 6,324,016 6,037,507
Unallocated operating income
(expenses) (1) (5,630,877) (5,739,206) (6,442,494) (6,317,951) (5,832,070)
------------ ------------ ------------ ------------ ------------
Operating income 1,396,626 1,371,675 729,957 6,065 205,437
Other income (expenses) (619,593) (609,095) (583,740) (1,137,497) (135,892)
------------ ------------ ------------ ------------ ------------
Net income (loss) 777,033 762,580 146,217 (1,131,432) 69,545
============ ============ ============ ============ ============
Net income (loss) allocated to
BAC Holders $ 761,492 $ 747,328 $ 143,293 $ (1,108,803) $ 68,154
============ ============ ============ ============ ============
Net income (loss) per weighted
average BAC outstanding $ 0.88 $ 0.86 $ 0.16 $ (1.28) $ 0.08
============ ============ ============ ============ ============
Cash distribution per
weighted average BAC
outstanding $ 2.05 $ 2.34 $ 1.95 $ 1.14 $ 1.58
============ ============ ============ ============ ============
Weighted average BACs
outstanding 868,662 868,662 868,662 868,662 868,662
============ ============ ============ ============ ============
Total assets $ 14,702,754 $ 15,358,173 $ 16,847,185 $ 17,805,910 $ 19,125,596
============ ============ ============ ============ ============
Total long-term debt $ 3,381,018 $ 6,604,974 $ 6,865,486 $ 6,276,689 $ 5,738,389
============ ============ ============ ============ ============
</TABLE>
(1) Certain amounts in the 1995, 1994, 1993 and 1992 selected financial data
have been reclassified to conform to the 1996 presentation.
Market Data
- -----------
The Partnership's Beneficial Assignee Certificates (BACs) of limited
partnership interests were sold through a public offering managed by CRICO
Securities Corporation and certain participating broker-dealers. As of February
28, 1997, there were approximately 1,600 registered holders of BACs in the
Partnership. The Partnership BACs are not publicly traded on any registered
stock exchange but can be traded on an informal secondary market. On February
16, 1996, Equity Resource Fund XVIII (Fund XVIII), a Massachusetts Limited
Partnership and BAC Holder in the Partnership, and affiliates of Fund XVIII
initiated a tender offer to purchase 30,000 additional BACs in the Partnership
at a price of $8 per BAC. Fund XVIII, which is unaffiliated with C.R.I., Inc.,
stated that it made the offer for the express purpose of holding the BACs for
investment purposes and not with a view to resale. The purchase offer was
determined solely at the discretion of Fund XVIII and does not necessarily
represent the fair market value of each BAC. The Fund XVIII and affiliates'
offer expired on March 16, 1996, and as of February 28, 1997, Fund XVIII and
II-2
<PAGE>
PART II
-------
ITEM 6. SELECTED FINANCIAL DATA - Continued
-----------------------
affiliates held approximately 4.2% of the BACs of the Partnership. It is not
anticipated that there will be any other active market for resale of BACs. As a
result, an investor may be unable to sell or otherwise dispose of his or her
interest in the Partnership.
Cash available for distribution, as defined in the Partnership Agreement,
is intended to be distributed on a quarterly basis within sixty days after the
end of each calendar quarter. The Partnership paid or accrued distributions of
$1,780,755 and $2,033,028 to BAC Holders during 1996 and 1995, respectively. See
Part II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, for additional information regarding the distributions
during the years ended December 31, 1996 and 1995 and for a discussion of
factors which may affect future distribution levels.
II-3
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
General
-------
CRI Hotel Income Partners, L.P. (the Partnership) is a limited partnership
which was formed under the Delaware Revised Uniform Limited Partnership Act as
of September 23, 1986 and will continue until December 31, 2016, unless
dissolved earlier in accordance with the Partnership Agreement. The Partnership
was formed for the purpose of investing in hotels that were acquired from Days
Inns of America, Inc. (Days Inns). The Partnership's primary objective continues
to be cash flow growth and capital appreciation. However, the attainment of this
objective is principally dependent on the hotels' operations. The hotels are
operated by Buckhead Hotel Management Company, Inc. (Buckhead), formerly known
as Days Inns Management Company, Inc., under the nationally recognized franchise
name of Days Inns.
As discussed below, the General Partner is currently reviewing several
options available to the Partnership to address the upcoming maturity of the
Zero Coupon Purchase Money Notes (the Notes), including the potential sale of
the hotels or refinancing of the Notes. The Partnership's original prospectus
indicated that the hotels will need to be sold or refinanced at the time the
mortgage loans mature. The prospectus also indicated that the Partnership
intended to sell the hotels (after a period of time not likely to be longer than
twelve years after the date of acquisition) if financial conditions in the
future make such sales desirable. In the event that the Partnership is able to
obtain satisfactory terms for the sale of all the hotels as a portfolio, which
would result in the dissolution of the Partnership, the Partnership will solicit
BAC Holders for majority approval of the sale offer, in accordance with the
Partnership Agreement.
The Registration Statement of the Partnership was declared effective by the
Securities and Exchange Commission (SEC) on April 17, 1987, and subsequently, a
Prospectus of the same date was printed. The Partnership registered a total of
6,000,000 Beneficial Assignee Certificates (BACs), at $25 per BAC, with the SEC.
BACs represent beneficial assignments of limited partnership interests which are
held by CRICO Hotel Fund, Inc. (CRICO Hotel Fund). BACs were to be offered in
series, with Series A having a minimum of 196,000 BACs, or $4,900,000, and a
maximum amount of 2,344,000 BACs, or $58,600,000. The Partnership terminated
the Series A offering on March 31, 1988 with 868,662 BACs, or gross proceeds of
$21,716,550, and does not intend to offer another series.
The General Partner of the Partnership is CRICO Hotel Associates I, L.P.
(CRICO Associates), a Delaware limited partnership, the general partner of which
is C.R.I., Inc. (CRI), a Delaware corporation. The General Partner has
authority in the overall management and control of the Partnership. The Assignor
Limited Partner of the Partnership is CRICO Hotel Fund.
The number of BACs sold generated sufficient proceeds to purchase the
following hotels and leasehold interest:
II-4
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Hotels Date of Purchase Amount of Purchase
- -------------------- ---------------- ------------------
Clearwater Days Inn 4/01/88 $3,750,000
Days Inn Kankakee (A) 11/01/87 $2,250,000
Minneapolis Days Inn 11/01/87 $4,800,000
Plymouth Days Inn 12/30/87 $4,000,000
Roseville Days Inn 3/01/88 $4,200,000
Leasehold interest Date of Purchase Amount of Purchase
- -------------------- ---------------- ------------------
Scottsdale Days Inn (B) 7/01/88 $2,000,000
(A) The Kankakee hotel was sold on July 19, 1995, as discussed below.
(B) Included in the purchase of the Scottsdale leasehold interest was $618,000
allocated to furniture, fixtures and equipment.
Financial Condition/Liquidity
-----------------------------
The Partnership expects that the hotels in the aggregate will generate
sufficient cash flow to achieve a positive cash flow after operating expenses.
During 1996, certain hotels retained aggregate additional replacement reserves
of $188,700 for the purpose of funding the purchase of electronic door locks.
The installation of these electronic door locks is a franchise requirement
imposed by Days Inn. For the year ending December 31, 1996, $178,795 had been
paid relating to the lock replacements. In addition to the purchase of
electronic door locks and the periodic replacement of fixed assets, which are
also funded from the replacement reserves, the Partnership has determined that
significant capital improvements are needed to enhance the marketability of the
hotels in connection with a potential sale of the properties, or a refinancing
of the Notes issued in connection with the Partnership's acquisition of the
hotels, as discussed below. The General Partner has approved a $577,000
increase in the working capital reserves during 1997, as discussed below, to
address the capital improvement needs of the hotels. As of February 28, 1997,
the Partnership had incurred $77,000 of capital improvements, as discussed
below, which were funded from the existing working capital reserves of $225,000
as of December 31, 1996.
The Partnership's liquidity and future results of operations are primarily
dependent upon the performance of the underlying hotels. Hotel operations may be
materially affected by changing market conditions and by seasonality caused by
variables such as vacations, holidays and climate. The Partnership closely
monitors its cash flow position in an effort to ensure that sufficient cash is
available for operating requirements and distributions to BAC Holders. The
Partnership's net cash provided by operating activities for 1996 and 1995, along
with existing cash resources, was adequate to support operating, investing and
financing requirements and declared distributions to BAC Holders and the General
Partner. Cash and cash equivalents decreased in 1996 principally due to the
timing of distributions made to BAC Holders and the General Partner. Cash and
cash equivalents decreased in 1994 principally due to deposits to the
Partnership's working capital reserves. With the exception of the maturing
Notes, which are discussed further below, the Partnership estimates that
existing cash and cash equivalents along with future cash flows from the hotels'
II-5
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
operations, in the aggregate, will be sufficient to pay operating expenses and
short term commitments, fund working capital and replacement reserves, and make
distributions to BAC Holders and the General Partner. Short-term liabilities as
of December 31, 1996 total $5,114,845 which represents a $3,608,600 increase
over the 1995 balance. This resulted primarily from a portion of the Notes
which will mature in 1997. This increase was partially offset by a decrease in
distributions payable, and a decrease in hotel trade payables at four hotels.
On October 20, 1994, a contract for the sale of the Kankakee hotel was
signed. The sale was completed on July 19, 1995. The sale price of the
property of $1.2 million generated sufficient proceeds to the Partnership to
retire the purchase money note obligation of the Partnership with respect to
such property. The sale resulted in a net financial statement loss and a net
tax loss in 1995 of approximately $7,000, and $607,000, respectively. Reserves
for loss on the sale of the Kankakee hotel of $400,000 and $200,000 were
recognized for financial statement purposes in 1994 and 1993, respectively. The
sale of the Kankakee hotel did not have a negative effect on net income or cash
flow of the Partnership during 1996, nor is it expected to have a negative
effect on the future net income or cash flow of the Partnership.
On February 21, 1995 and May 10, 1995, the Partnership advanced $35,000 and
$42,000, respectively, from the working capital reserves to the Kankakee hotel
to fund the hotel's short-term working capital needs. These advances were
repaid and the working capital reserves were replenished on July 19, 1995 from
sale proceeds of the Kankakee hotel, as discussed above. Additionally, 1994
advances of $62,055 were repaid from sale proceeds and were included in cash
distributions from operating activities in the third quarter of 1995.
Working Capital Reserve
- -----------------------
The working capital reserve of $225,000 as of both December 31, 1996 and
1995 represents funds held in reserve, initially established in an amount of not
less than 1% of Series A gross offering proceeds, which are maintained as
working capital for the Partnership. The working capital reserve may be
increased or reduced by the General Partner as it deems appropriate. The
General Partner has approved an increase of the working capital reserve by
$577,000 during 1997, in order to address capital improvements needed to
increase the marketability of the hotels in connection with a potential sale of
the properties, or a refinancing of the Notes, as discussed below. On January
17, 1997, the Partnership incurred $60,000 and $17,000 for capital improvements
at the Roseville and Scottsdale hotels, respectively, which were funded from the
existing working capital reserve of $225,000 as of December 31, 1996. The
Partnership has determined that the carrying amount of its working capital
reserves approximate fair value.
Purchase Money Notes
- --------------------
In addition to the capital provided by the sale of BACs, the Partnership
received financing from Days Inns for the acquisition of the hotels. The Notes
are nonrecourse notes collateralized by the various properties. Each Note
provides for a ten year maturity from the date of acquisition with an accrual of
interest at 9% per annum, compounded on a monthly basis. Principal and accrued
II-6
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
interest, which will equal 47.4% of the original purchase price of the hotel, is
due to BancBoston Mortgage Corporation (BancBoston) upon maturity of each Note.
The Notes may be prepaid at the initial note balance plus accrued interest at
any time without premium or penalty. The Kankakee note payable of $434,925 plus
accrued interest of $440,746 was retired on July 19, 1995 in connection with the
sale of the hotel, as discussed above.
The balances of the Notes, including accrued interest, due upon maturity
are as follows:
<TABLE>
<CAPTION>
Maturity
Date Balance
-------- -----------
<S> <C> <C>
Minneapolis Days Inn 10/31/97 $ 2,274,467
Plymouth Days Inn 12/29/97 1,867,275
Roseville Days Inn 2/28/98 1,990,159
Clearwater Days Inn 3/31/98 1,776,927
Scottsdale Days Inn (A) (A)
-----------
$ 7,908,828
===========
</TABLE>
(A) The Scottsdale Days Inn is held as a leasehold interest. The maturity of
the lease was originally set for January 31, 1994. This lease term was
initially extended an additional five years, thereby expiring on January
31, 1999. During 1996, this lease was extended for an additional five
years, thereby expiring January 31, 2004.
The General Partner is currently reviewing several options available to the
Partnership to address the upcoming maturity of the Notes and the capital
improvement needs of the properties. One option may be to sell the hotels
outright (or in the case of Scottsdale, sell the leasehold interest), either as
individual assets or in a sale pool together. Another option may be to
refinance the Notes. As of February 28, 1997, the Partnership has neither
committed to a plan to sell the hotels or to refinance the Notes, nor is there
any assurance that a sale will take place or that refinancing will be obtained.
In the event that the Partnership is able to obtain satisfactory terms for the
sale of all the hotels as a portfolio, which would result in the dissolution of
the Partnership, the Partnership will solicit BAC Holders for majority approval
of the sale offer, in accordance with the Partnership Agreement.
The Partnership has determined that it is not practicable to estimate the
fair value of the Notes due to the lack of an active market for this type of
financial instrument, as well as the excessive costs associated with an
independent appraisal of the Notes. As the Partnership reviews its options with
respect to the potential sale of the hotels or refinancing of the maturing
notes, the Partnership may have a better indication of the fair value of the
Notes.
II-7
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Distributions
- -------------
The following distributions were paid or accrued to BAC Holders of
record during 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
Distributions to Distributions to Distributions to
BAC Holders BAC Holders BAC Holders
------------------------ ------------------------ ------------------------
Quarter Ended Total Per BAC Total Per BAC Total Per BAC
- ---------------------- ----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
March 31 $ 486,450 $ 0.56 $ 443,018 $ 0.51 $ 349,550 $ 0.41
June 30 486,450 0.56 469,077 0.54 443,968 0.51
September 30 416,957 0.48 582,362* 0.67* 454,379 0.52
December 31 390,898 0.45 538,571 0.62 443,018 0.51
----------- ------- ----------- ------- ----------- -------
Total $ 1,780,755 $ 2.05 $ 2,033,028 $ 2.34 $ 1,690,915 $ 1.95
=========== ======= =========== ======= =========== =======
</TABLE>
* Includes the distribution of net cash proceeds from the sale of the
Kankakee hotel of $52,478 (approximately $0.06 per BAC), which is net
of payment of outstanding Kankakee real estate taxes, retirement of
the related note payable and repayment of Partnership advances.
As a result of the increase in working capital reserves of $577,000 during
1997, as discussed above, the General Partner anticipates a decrease in the 1997
distribution levels. The General Partner expects the distribution for the
quarter ended March 31, 1997 to range from approximately $0.40 to $0.48 per BAC.
The General Partner expects the distribution for the year ending December 31,
1997 to range from approximately $1.65 to $1.85 per BAC. In the event that the
Partnership seeks to refinance the Notes, distributions may be reduced for the
long term, and possibly terminated for the short term. Distributions are
dependent on the net cash flow produced from hotel operations, net of
Partnership expenses. The cash flow from certain hotels may be materially
affected by changing market conditions and by seasonality.
Results of Operations
---------------------
1996 versus 1995
- ----------------
The Partnership's net income, which consists principally of revenues from
hotel operations, increased $14,453 in 1996 from 1995 primarily due to a
$156,137 decrease in unallocated operating expenses and departmental expenses.
These expenses decreased $364,749 due to the sale of the Kankakee hotel in July
1995, partially offset by a $208,612 increase in these expenses at the remaining
hotels primarily due to an increase in room expense due to higher than usual
II-8
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
employee turnover in 1996, an increase in energy expense due to extreme weather
conditions in 1996 compared to a relatively mild winter during 1995, and an
increase in depreciation expense resulting from increased furniture, fixture and
equipment expenditures during 1996 primarily due to the purchase of door locks
at all hotels, as discussed above. Partially offsetting the increase in net
income was a $137,151 decrease in room revenue. Room revenue decreased $219,209
due to the sale of the Kankakee hotel and $145,727 due to decreased occupancy at
the Plymouth and Minneapolis hotels, partially offset by a $227,785 increase in
room revenue at the remaining hotels resulting from an increase in room rates.
1995 versus 1994
- ----------------
The Partnership's net income, which consists principally of revenues from
hotel operations, increased $616,363 in 1995 from 1994 primarily due to a
$703,288 decrease in unallocated operating expenses for 1995 as compared to
1994. These expenses decreased $400,000 as a result of the reserve for loss on
sale of the Kankakee hotel recognized in 1994, and decreased another $445,167 as
a result of decreased operations and the eventual sale of the Kankakee hotel in
1995. Unallocated operating expenses of the remaining hotels did not change
significantly in 1995 from 1994. Partially offsetting the increase in net
income was a $67,052 decrease in room revenue. Room revenue decreased $432,964
as a result of the sale of the Kankakee hotel in the third quarter of 1995, as
discussed above. This decrease in room revenue was partially offset by a
$365,912 increase in room revenue from the remaining hotels, primarily due to an
increase in average room rates at all hotels.
Hotels' Results of Operations
-----------------------------
The hotels' results of operations are affected by changing market
conditions and by seasonality caused by variables such as vacations, holidays
and climate. Based on the hotels' operating budgets, the following months should
provide the highest gross operating income and net cash flow:
Hotel Location Peak Months
------------------ ---------------------
Clearwater, FL October through April
Minneapolis, MN May through October
Plymouth, MN June through October
Roseville, MN May through October
Scottsdale, AZ January through May
The Partnership's Statements of Operations include operating results for
each of the hotels as outlined below. Gross Operating Income represents total
revenue from rooms, telephone, food and beverage and rental and other, less the
related departmental expenses. Operating Income (Loss) represents Gross
Operating Income less unallocated operating income (expenses). The operating
results and average occupancy for the hotels for the years ended December 31,
1996, 1995 and 1994 are as follows:
II-9
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Gross Operating Income
-----------------------------------------------------------------
Hotel Location 1996 1995 1994
- -------------- ------------ ------------ ------------
<S> <C> <C> <C>
Clearwater, FL $ 1,100,850 $ 1,076,290 $ 1,023,121
Minneapolis, MN 1,514,431 1,601,091 1,457,937
Plymouth, MN 793,716 856,083 789,847
Roseville, MN 957,451 920,388 887,543
Scottsdale, AZ 2,661,055 2,531,176 2,535,522
------------ ------------ ------------
Total from continuing operations 7,027,503 6,985,028 6,693,970
Kankakee, IL (1) -- 125,853 478,481
------------ ------------ ------------
Total $ 7,027,503 $ 7,110,881 $ 7,172,451
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Operating Income (Loss)
-----------------------------------------------------------------
Hotel Location 1996 1995 1994
- -------------- ------------ ------------ ------------
<S> <C> <C> <C>
Clearwater, FL $ 450,501 $ 462,751 $ 408,849
Minneapolis, MN 685,570 779,991 639,339
Plymouth, MN 226,430 278,097 265,122
Roseville, MN 347,898 326,079 257,059
Scottsdale, AZ 740,016 665,605 626,728
Depreciation and net Partnership
operating expenses (1,053,789) (1,027,909) (1,500,352)
------------ ------------ ------------
Total from continuing operations 1,396,626 1,484,614 696,745
Kankakee, IL (1) -- (112,939) 33,212
------------ ------------ ------------
Total $ 1,396,626 $ 1,371,675 $ 729,957
============ ============ ============
</TABLE>
II-10
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Average Occupancy
-----------------------------------------------------------------
Hotel Location 1996 1995 1994
- -------------- ------------ ------------ ------------
<S> <C> <C> <C>
Clearwater, FL 71% 74% 75%
Minneapolis, MN 84% 88% 89%
Plymouth, MN 77% 79% 80%
Roseville, MN 90% 90% 89%
Scottsdale, AZ 94% 93% 95%
------------ ------------ ------------
Total from continuing operations (2) 84% 85% 86%
Kankakee, IL (1) -- 30% 50%
------------ ------------ ------------
Total (2) 84% 81% 82%
============ ============ ============
</TABLE>
(1) The 1995 operating results presented for the Kankakee hotel are through
July 19, 1995, the date of sale.
(2) The sub-totals and totals for average occupancy are based on a weighted
average taking into consideration the number of rooms at each location.
On January 1, 1993, the management agreements between the Partnership and
Buckhead pertaining to Buckhead's management of each of the hotels were amended
to extend the existing term of each agreement for an additional two to five
years and increase the base management fee from 2.5% to 3.5% of gross revenue.
The amendments for the Clearwater Days Inn and the Scottsdale Days Inn included
a modification to the method of calculating the incentive management fee.
Incentive management fees of $95,959, $78,408 and $64,328 were earned or paid in
1996, 1995 and 1994, respectively. These agreements were amended as part of the
bankruptcy process. The Partnership accepted these modifications to the
management agreements in lieu of having the agreements terminated by Buckhead in
its Chapter 11 Bankruptcy case (filed in 1991). Had the Partnership contracted
another management agent, costs (which would have included franchise fees
currently not payable because of Buckhead's management of the hotels) were
expected to exceed the increase in management fees.
In connection with the potential sales of the properties owned by the
Partnership, as discussed above, the Partnership could incur termination fees of
approximately $1.6 million with respect to the management agreements with
Buckhead, in the event that the hotels are sold and the purchaser of the hotels
does not elect to maintain Buckhead as the management company. As the potential
sales of the properties, and the terms thereof, are uncertain as of February 28,
1997, these costs have not been reflected in the accompanying financial
statements.
II-11
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
1996 versus 1995
- ----------------
Gross operating income for the Clearwater hotel increased in 1996 from 1995
primarily due to increased room rates partially offset by the lost room nights
previously generated by a major client that was lost during the fourth quarter
of 1995. Operating income for the Clearwater hotel decreased in 1996 from 1995
primarily due to increased marketing and advertising expenses incurred as a
result of increased sales efforts to compensate for the major client lost during
1995. Gross operating income and operating income for the Minneapolis hotel
decreased in 1996 from 1995 primarily due to unusually harsh weather conditions
and a temporary quarantine of Shriner's Hospital, which indirectly provides a
significant amount of business to the hotel. Gross operating income and
operating income for the Plymouth hotel decreased in 1996 from 1995 primarily
due to unusually harsh weather conditions and increased competition for local
advertising space. Gross operating income and operating income for the
Roseville hotel increased in 1996 from 1995 primarily due to increased
interstate trucking business and expanded trucking contract rooms during 1996.
Gross operating income and operating income for the Scottsdale hotel increased
in 1996 from 1995 primarily due to increased room demand in the area as a result
of Super Bowl XXX being hosted by the City of Phoenix, an increase in room rates
and unexpected increases in the tour and travel segment of the market. The
Kankakee hotel was sold on July 19, 1995, as previously discussed.
1995 versus 1994
- ----------------
Gross operating income and operating income for the Clearwater hotel
increased in 1995 from 1994 primarily due to an increase in average room rates,
as well as management's implementation of cost-control strategies. The hotel
lost a major client in the fourth quarter of 1995 when the client relocated its
training facilities out of the Clearwater area. This client accounted for
approximately 11% of total room revenue for the Clearwater hotel in 1995. Gross
operating income and operating income for the Minneapolis hotel increased in
1995 from 1994 primarily due to an increase in room rates resulting from
management's marketing programs. Gross operating income and operating income
for the Plymouth hotel increased in 1995 from 1994 primarily due to an increase
in room rates resulting from increased group volume. Gross operating income and
operating income for the Roseville hotel increased in 1995 from 1994 primarily
due to an increase in occupancy and average room rates resulting from increased
room demand in the Roseville area. Gross operating income for the Scottsdale
hotel did not change significantly in 1995 from 1994 as a decrease in occupancy
was offset by an increase in average room rates. Operating income for the
Scottsdale hotel increased in 1995 from 1994 as a result of increased cost
control efforts in 1995. The Kankakee hotel was sold on July 19, 1995, as
previously discussed. From January 1, 1995 to the date of sale, gross operating
income and operating income for the Kankakee hotel decreased from the same
period in 1994 primarily due to the re-opening of a nearby competitor, as well
as the opening of a new competitor in 1994.
II-12
<PAGE>
PART II
-------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item is contained in Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURES
------------------------------------
None.
II-13
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a), (b) and
(c) The Partnership has no directors, executive officers or
significant employees of its own.
(a), (b), (c)
and (e) The names, ages and business experience of the directors and
executive officers of C.R.I., Inc. (CRI), the Managing General
Partner of the Partnership, are as follows:
William B. Dockser, 60, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment complexes. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board of CRIIMI MAE Inc., CRIIMI, Inc. and CRI Liquidating REIT, Inc.
H. William Willoughby, 50, President, Secretary and a Director of CRI since
January 1990 and Senior Executive Vice President, Secretary and a Director of
CRI from 1974 to 1989. He is principally responsible for the financial
management of CRI and its associated partnerships. Prior to joining CRI in
1974, he was Vice President of Shelter Corporation of America and a number of
its subsidiaries dealing principally with real estate development and equity
financing. Before joining Shelter Corporation, he was a senior tax accountant
with Arthur Andersen & Company. He holds a Juris Doctorate degree, a Master of
Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc., CRIIMI, Inc. and CRI Liquidating REIT,
Inc.
Ronald W. Thompson, 50, Group Executive Vice President-Hotel Asset Management.
Prior to joining CRI in 1985, he was employed at the Hyatt Organization where he
most recently served as the General Manager of the Hyatt Regency in Flint,
Michigan. During his nine year tenure with Hyatt, Mr. Thompson held senior
management positions with the Hyatt Regency in Dearborn, Michigan, the Hyatt in
Richmond, Virginia, the Hyatt in Winston-Salem, North Carolina and the Hyatt
Regency in Atlanta, Georgia. Before joining Hyatt, Mr. Thompson worked in
London, England for the English Tourist Board as well as holding management
positions in Europe, Australia, and New Zealand in the hotel industry. Mr.
Thompson received his education in England where he received a business degree
in Hotel Administration from Winston College.
III-1
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
Susan R. Campbell, 38, Senior Vice President-CRI Realty Services. Prior to
joining CRI in March 1985, she was employed by the B. F. Saul Advisory Company.
She holds a Bachelor of Science degree in business from the University of
Maryland.
Melissa Cecil Lackey, 41, Senior Vice President and General Counsel. Prior to
joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctorate from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by Item 11 is incorporated herein by
reference to Note 6 of the notes to the financial statements contained in
Part IV, Item 14.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
(a) Security ownership of certain beneficial owners.
No person or "group", as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, is known by the Partnership to be the
beneficial owner of more than 5% of the issued and outstanding BACs at
February 28, 1997.
(b) Security ownership of management.
The following table sets forth certain information concerning all BACs
beneficially owned, as of February 28, 1997, by each director and by all
directors and officers as a group of the managing general partner of the
Partnership's General Partner. The voting and investment powers for the
BACs listed are held solely by the named beneficial owner.
III-2
<PAGE>
PART III
--------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
----------
<TABLE>
<CAPTION>
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
- ---------------- ----------------------- ------------
<S> <C> <C>
William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (5 persons) None 0%
</TABLE>
(c) Changes in control.
There exists no arrangement known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership. There is a provision in the Limited Partnership Agreement
which allows, under certain circumstances, the ability to change control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with management and others.
The Partnership has no directors or officers. In addition, the
Partnership has had no transactions with individual officers or directors
of the managing general partner of the General Partner of the Partnership
other than any indirect interest such officers and directors may have in
the amounts paid to the General Partner or its affiliates by virtue of
either their interest in the General Partner or their stock ownership in
CRI, respectively. Item 11 of this report, which contains a discussion of
the fees and other compensation paid or accrued by the Partnership to the
General Partner or its affiliates, is incorporated herein by reference.
(b) Certain business relationships.
The Partnership's response to Item 13(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship with
entities of which the managing general partner of the General Partner of
the Partnership is an officer, director or equity owner other than as set
forth in the Partnership's response to Item 13(a).
III-3
<PAGE>
PART III
--------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
----------------------------------------------
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
III-4
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
-------------------------------------------------------
FORM 8-K
--------
(a) 1. Financial Statements Page
-------------------- ----
Report of Independent Certified Public
Accountants IV-5
Balance Sheets as of December 31, 1996 and
1995 IV-6
Statements of Income for the years
ended December 31, 1996, 1995 and 1994 IV-7
Statements of Changes in Partners' Capital
(Deficit) for the years ended December 31,
1996, 1995 and 1994 IV-8
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 IV-9
Notes to Financial Statements IV-10
(a) 2. Financial Statement Schedules
-----------------------------
Report of Independent Certified Public Accountants
on Financial Statement Schedules IV-21
Schedule III - Real Estate and Accumulated
Depreciation IV-22
The remaining schedules are omitted because the required
information is included in the financial statements and notes
thereto or they are not applicable or not required.
(a) 3. Exhibits (listed according to the number assigned in the table in
Item 601 of Regulation S-K)
Exhibit 1 - Underwriting Agreement
a. Forms of Sales Agency Agreement, incorporated by reference to the
Registration Statement on Form S-1 filed on December 24, 1986.
b. Forms of Selected Dealer Agreements, incorporated by reference to
the Registration Statement on Form S-1 filed on December 24,
1986.
IV-1
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
-------------------------------------------------------
FORM 8-K - Continued
--------
Exhibit 3 - Articles of Incorporation and Bylaws
a. Certificate of Limited Partnership dated as of September 23, 1986
of CRI Hotel Income Partners, L.P. (formerly named CRI Hotel
Income Fund, L.P.), incorporated by reference to the Registration
Statement on Form S-1 filed on December 24, 1986.
1. Amendment dated as of March 12, 1987.
2. Amendment dated as of April 17, 1987.
Exhibit 10 - Material Contracts
a. Sale/Purchase Agreement, dated as of October 9, 1986, by and
between Days Inns of America, Inc. (DIA), Days Inns Corp. (DIC),
Days Inns Management Company, Inc. (DIMC), and CRI Hotel Income
Fund, L.P., and six modifications thereof, incorporated by
reference to the Registration Statement on Form S-1 filed on
December 24, 1986.
b. Form of Management Agreement by and between DIMC and CRI Hotel
Income Fund, L.P., incorporated by reference to the Registration
Statement on Form S-1 filed on December 24, 1986.
c. Forms of Cash Flow Guarantee Agreement (Interim and Permanent) by
and between DIC, DIA, DIMC and CRI Hotel Income Fund, L.P.,
incorporated by reference to the Registration Statement on Form
S-1 filed on December 24, 1986.
d. Form of Bond Escrow Agreement by and between DIA, CRI Hotel
Income Fund, L.P. and Escrow Agent, incorporated by reference to
the Registration Statement on Form S-1 filed on December 24,
1986.
e. Form of Escrow Agreement between Registrant and Escrow Agent,
incorporated by reference to the Registration Statement on Form
S-1 filed on December 24, 1986.
f. Form of Beneficial Assignee Certificate, incorporated by
reference to the Registration Statement on Form S-1 filed on
December 24, 1986.
g. Forms of Amendment to Hotel Management Agreement by and between
CRI Hotel Income Partners, L.P. and Buckhead Hotel Management
Company, Inc. incorporated by reference to the 1994 Annual Report
of Form 10-K filed on March 15, 1995.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended December
31, 1996.
IV-2
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
-------------------------------------------------------
FORM 8-K - Continued
--------
(c) Exhibits
--------
This list of Exhibits required by Item 601 of Regulation S-K is
included in Item (a)(3) above.
(d) Financial Statement Schedules
-----------------------------
See Item a (2), above.
IV-3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CRI Hotel Income Partners, L.P.
By: CRICO Hotel Associates I, L.P.,
General Partner
By: C.R.I., Inc., General Partner
March 5, 1997 /s/ William B. Dockser
- -------------- ------------------------------------
DATE William B. Dockser, Director
Chairman of the Board,
Treasurer and Principal
Executive Officer
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:
March 5, 1997 /s/ H. William Willoughby
- -------------- ------------------------------------
DATE H. William Willoughby
Director, President and Secretary
March 5, 1997 /s/ Deborah K. Browning
- -------------- ------------------------------------
DATE Deborah K. Browning
Vice President
Chief Accounting Officer, Principal
Financial and Principal Accounting
Officer
IV-4
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Partners
CRI Hotel Income Partners, L.P.
We have audited the accompanying balance sheets of CRI Hotel Income
Partners, L.P. as of December 31, 1996 and 1995, and the related statements of
income, changes in partners' capital (deficit), and cash flows for the years
ended December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Partnership's 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 financial position of CRI Hotel Income Partners,
L.P. as of December 31, 1996 and 1995 and the results of its operations, changes
in partners' capital (deficit) and cash flows for the years ended December 31,
1996, 1995 and 1994, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Vienna, VA
February 28, 1997
IV-5
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1996 1995
------------ ------------
<S> <C> <C>
Property and equipment - at cost
Land $ 1,574,490 $ 1,574,490
Buildings and site improvements 13,112,968 13,112,968
Furniture, fixtures and equipment 5,009,400 4,501,971
Leasehold improvements 1,382,000 1,382,000
------------ ------------
21,078,858 20,571,429
Less accumulated depreciation and amortization (8,546,840) (7,700,997)
------------ ------------
12,532,018 12,870,432
Cash and cash equivalents 504,423 677,454
Working capital reserve 225,000 225,000
Receivables, reserve for replacements and other assets 596,828 700,722
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $303,930 and $269,926,
respectively 716,174 750,178
Property purchase costs, net of accumulated amortization of
$53,956 and $47,880, respectively 128,311 134,387
------------ ------------
Total assets $ 14,702,754 $ 15,358,173
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Distributions payable $ 398,875 $ 549,562
Accounts payable and accrued expenses 548,820 543,406
Hotel trade payables 254,723 305,473
Accrued management fees 68,878 107,804
Short term portion of notes payable 3,843,549 --
------------ ------------
Total current liabilities 5,114,845 1,506,245
------------ ------------
Long term debt:
Notes payable 3,381,018 6,604,974
------------ ------------
Total liabilities 8,495,863 8,111,219
------------ ------------
Commitments and contingencies
Partners' capital (deficit)
General Partner (264,641) (243,841)
Beneficial Assignee Certificates (BACs) Series A; 868,662 BACs
issued and outstanding 6,471,532 7,490,795
------------ ------------
Total partners' capital 6,206,891 7,246,954
------------ ------------
Total liabilities and partners' capital $ 14,702,754 $ 15,358,173
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
IV-6
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rooms $ 9,291,783 $ 9,428,934 $ 9,495,986
Telephone 346,075 384,162 434,841
Rental and other 369,170 347,191 360,534
Food and beverage 80,702 58,629 68,417
------------ ------------ ------------
10,087,730 10,218,916 10,359,778
------------ ------------ ------------
Departmental expenses:
Rooms (2,766,924) (2,772,864) (2,714,167)
Telephone (112,568) (150,539) (200,643)
Rental and other (111,965) (120,610) (207,320)
Food and beverage (68,770) (64,022) (65,197)
------------ ------------ ------------
(3,060,227) (3,108,035) (3,187,327)
------------ ------------ ------------
Gross operating income 7,027,503 7,110,881 7,172,451
------------ ------------ ------------
Unallocated operating income (expenses):
Interest and other income 79,190 80,978 106,253
General and administrative (967,293) (1,032,033) (1,181,105)
Building lease expense (693,110) (661,179) (669,267)
Marketing (920,747) (930,861) (1,017,959)
Depreciation and amortization (901,740) (865,363) (980,876)
Energy (527,093) (514,904) (537,790)
Property taxes (511,447) (569,016) (497,207)
Property operations and maintenance (546,957) (618,159) (618,789)
Management fees (448,664) (436,241) (448,321)
Base asset management fee, paid to related parties (93,750) (99,956) (105,000)
Professional fees (99,266) (92,472) (92,433)
Reserve for loss on sale of hotel -- -- (400,000)
------------ ------------ ------------
(5,630,877) (5,739,206) (6,442,494)
------------ ------------ ------------
Operating income 1,396,626 1,371,675 729,957
------------ ------------ ------------
Other income (expenses):
Cash flow guarantees -- 13,369 5,057
Interest expense (619,593) (615,159) (588,797)
Loss of disposition of hotel -- (7,305) --
------------ ------------ ------------
(619,593) (609,095) (583,740)
------------ ------------ ------------
Net income $ 777,033 $ 762,580 $ 146,217
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
IV-7
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF INCOME - Continued
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income allocated to General Partner (2%) $ 15,541 $ 15,252 $ 2,924
============ ============ ============
Net income allocated to BAC Holders (98%) $ 761,492 $ 747,328 $ 143,293
============ ============ ============
Net income per BAC based on 868,662 BACs outstanding $ 0.88 $ 0.86 $ 0.16
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
IV-8
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Beneficial
Assignee
Certificate General
Holders Partner Total
------------ ---------- ------------
<S> <C> <C> <C>
Partners' capital (deficit),
January 1, 1994 $ 10,324,117 $ (187,089) $ 10,137,028
Distributions of $1.95 per BAC (including
return of capital of $1.78 per BAC) (1,690,915) (34,509) (1,725,424)
Net income 143,293 2,924 146,217
------------ ---------- ------------
Partners' capital (deficit),
December 31, 1994 8,776,495 (218,674) 8,557,821
Distributions of $2.34 per BAC (including
return of capital of $1.48 per BAC) (2,033,028) (40,419) (2,073,447)
Net income 747,328 15,252 762,580
------------ ---------- ------------
Partners' capital (deficit),
December 31, 1995 7,490,795 (243,841) 7,246,954
Distributions of $2.05 per BAC (including
return of capital of $1.17 per BAC) (1,780,755) (36,341) (1,817,096)
Net income 761,492 15,541 777,033
------------ ---------- ------------
Partners' capital (deficit),
December 31, 1996 $ 6,471,532 $ (264,641) $ 6,206,891
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
IV-9
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 777,033 $ 762,580 $ 146,217
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 901,740 865,363 980,876
Accrued interest on notes payable 619,593 615,159 588,797
Loss on disposition of hotel -- 7,305 --
Reserve for loss on sale of hotel -- -- 400,000
Changes in assets and liabilities:
Decrease (increase) in receivables and other
assets, net 22,889 29,818 (79,043)
Increase (decrease) in accounts payable and
accrued expenses 5,414 57,925 (387,013)
(Decrease) increase in hotel trade payables (50,750) (85,068) 117,416
(Decrease) increase in accrued management fees (38,926) 12,007 89,439
------------ ------------ ------------
Net cash provided by operating activities 2,236,993 2,265,089 1,856,689
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (507,429) (307,745) (351,116)
Net deposits to working capital reserves -- (75,000) (100,000)
Net withdrawals from (deposits to) reserve
for replacements 65,188 (18,878) 42,613
Net proceeds from disposition of hotel -- 1,128,251 --
------------ ------------ ------------
Net cash (used in) provided by investing activities (442,241) 726,628 (408,503)
------------ ------------ ------------
Cash flows from financing activities:
Distributions paid to BAC Holders and General Partner (1,967,783) (1,975,944) (1,513,581)
Retirement of note payable -- (875,671) --
------------ ------------ ------------
Net cash used in financing activities (1,967,783) (2,851,615) (1,513,581)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (173,031) 140,102 (65,395)
Cash and cash equivalents, beginning of year 677,454 537,352 602,747
------------ ------------ ------------
Cash and cash equivalents, end of year $ 504,423 $ 677,454 $ 537,352
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
IV-10
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization and offering
-------------------------
CRI Hotel Income Partners, L.P. (the Partnership) is a limited
partnership which was formed under the Delaware Revised Uniform Limited
Partnership Act as of September 23, 1986 and will continue until December
31, 2016, unless dissolved earlier in accordance with the Partnership
Agreement. The Partnership was formed for the purpose of investing in
hotels that were acquired from Days Inns of America, Inc. (Days Inns). The
Partnership's primary objective continues to be cash flow growth and
capital appreciation. However, the attainment of this objective is
principally dependent on the hotels' operations. The hotels are operated by
Buckhead Hotel Management Company, Inc. (Buckhead), formerly known as Days
Inns Management Company, Inc., under the nationally recognized franchise
name of Days Inns.
As discussed below, the General Partner is currently reviewing several
options available to the Partnership to address the upcoming maturity of
the Zero Coupon Purchase Money Notes (the Notes), including the potential
sale of the hotels or refinancing of the Notes. The Partnership's original
prospectus indicated that the hotels will need to be sold or refinanced at
the time the mortgage loans mature. The prospectus also indicated that the
Partnership intended to sell the hotels (after a period of time not likely
to be longer than twelve years after the date of acquisition) if financial
conditions in the future make such sales desirable. In the event that the
Partnership is able to obtain satisfactory terms for the sale of all the
hotels as a portfolio, which would result in the dissolution of the
Partnership, the Partnership will solicit BAC Holders for majority approval
of the sale offer, in accordance with the Partnership Agreement.
The Registration Statement of the Partnership was declared effective
by the Securities and Exchange Commission (SEC) on April 17, 1987, and
subsequently, a Prospectus of the same date was printed. The Partnership
registered a total of 6,000,000 Beneficial Assignee Certificates (BACs), at
$25 per BAC, with the SEC. BACs represent beneficial assignments of limited
partnership interests which are held by CRICO Hotel Fund, Inc. (CRICO Hotel
Fund). BACs were to be offered in series, with Series A having a minimum
of 196,000 BACs, or $4,900,000, and a maximum amount of 2,344,000 BACs, or
$58,600,000. The Partnership terminated the Series A offering on March 31,
1988 with 868,662 BACs, or gross proceeds of $21,716,550, and does not
intend to offer another series.
The General Partner of the Partnership is CRICO Hotel Associates I,
L.P. (CRICO Associates), a Delaware limited partnership, the general
partner of which is C.R.I., Inc. (CRI), a Delaware corporation. The
General Partner has authority in the overall management and control of the
Partnership. The Assignor Limited Partner of the Partnership is CRICO Hotel
Fund.
IV-11
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Cumulative offering costs in the amount of $2,580,132, consisting of
legal and filing fees and certain travel, communication and other expenses,
were recorded as a reduction of partners' capital when incurred and are not
amortized for financial statement or income tax purposes.
b. Method of Accounting
--------------------
The financial statements of the Partnership have been prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
c. Use of estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles, the Partnership is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
d. Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of all time and demand deposits,
repurchase agreements and commercial paper with original maturities of
three months or less. The Partnership has determined that the carrying
amount of its cash and cash equivalents approximate fair value.
e. Working capital reserve
-----------------------
The working capital reserve of $225,000 as of both December 31, 1996
and 1995 represents funds held in reserve, initially established in an
amount of not less than 1% of Series A gross offering proceeds, which are
maintained as working capital for the Partnership. The working capital
reserve may be increased or reduced by the General Partner as it deems
appropriate. The General Partner has approved an increase of the working
capital reserve by $577,000 during 1997, in order to address capital
improvements needed to increase the marketability of the hotels in
connection with a potential sale of the properties, or a refinancing of the
Notes, as discussed below. On January 17, 1997, the Partnership incurred
$60,000 and $17,000 for capital improvements at the Roseville and
Scottsdale hotels, respectively, which were funded from the existing
working capital reserve of $225,000 as of December 31, 1996. The General
Partner increased the working capital reserve by $75,000 and $100,000
during 1995 and 1994, respectively. Advances to the Kankakee hotel from
working capital reserve during 1995 and 1994 were repaid to working capital
reserve in 1996, as discussed below. The Partnership has determined that
the carrying amount of its working capital reserve approximates fair value.
IV-12
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
f. Reserve for replacements
------------------------
Pursuant to the terms of the Management Agreement, the hotels retain
3% of gross hotel revenues for a reserve for replacement of fixed assets.
g. Depreciation and amortization
-----------------------------
Depreciation is based on the estimated useful lives of depreciable
assets using the straight-line method. The estimated lives used in
determining depreciation are as follows:
Type of Asset Estimated Life
--------------------------------- -----------------
Building and site improvements 30 years
Furniture, fixtures and equipment 5-10 years
Leasehold improvements 5 years, 7 months
Amortization of property purchase costs and acquisition fees is
provided for over a 30-year period on a straight-line basis.
h. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
has been made for income taxes in these financial statements.
i. Statements of Cash Flows
------------------------
The statements of cash flows are intended to reflect only cash receipt
and cash disbursement activity; therefore, the statements do not reflect
investing and financing activity affecting recognized assets or liabilities
which was not a result of cash receipts or payments. This non-cash activity
principally consists of distributions payable of $398,875 and $549,562 at
December 31, 1996 and 1995, respectively. Other than the pay-off of the
Kankakee purchase money note principal and accrued interest of $434,925 and
$440,746, respectively, in connection with the sale of the hotel in 1995,
as discussed below, the Partnership did not pay interest on long-term debt
during 1996, 1995 or 1994, pursuant to the terms of the debt agreements.
IV-13
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
j. Fair value of financial investments
-----------------------------------
In accordance with Statement of Financial Accounting Standards No.
107, "Disclosure About Fair Value of Financial Instruments," the
Partnership has disclosed the fair value information about financial
instruments for which it is practicable to estimate that value. Where
applicable, such information has been disclosed elsewhere in the notes to
the financial statements.
k. Implementation of accounting standards
--------------------------------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". This statement addresses how entities should measure impairment on
long-lived assets. This statement is effective for fiscal years beginning
after December 15, 1995 and was implemented by the Partnership in 1996.
The Partnership has determined that factors do not exist to imply
impairment of any of the hotels in which the Partnership has invested.
l. Reclassifications
-----------------
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.
2. HOTELS AND LEASEHOLD INTEREST OWNED BY THE PARTNERSHIP
The number of BACs sold generated sufficient proceeds to purchase the
following hotels and leasehold interest:
Hotels Date of Purchase Amount of Purchase
- -------------------- ---------------- ------------------
Clearwater Days Inn 4/01/88 $3,750,000
Days Inn Kankakee (A) 11/01/87 $2,250,000
Minneapolis Days Inn 11/01/87 $4,800,000
Plymouth Days Inn 12/30/87 $4,000,000
Roseville Days Inn 3/01/88 $4,200,000
Leasehold interest Date of Purchase Amount of Purchase
- -------------------- ---------------- ------------------
Scottsdale Days Inn (B) 7/01/88 $2,000,000
(A) The Kankakee hotel was sold on July 19, 1995, as discussed below.
(B) Included in the purchase of the Scottsdale leasehold interest was $618,000
allocated to furniture, fixtures and equipment.
On October 20, 1994, a contract for the sale of the Kankakee hotel was
signed. The sale was completed on July 19, 1995. The sale price of the
property of $1.2 million generated sufficient proceeds to the Partnership to
retire the purchase money note obligation of the Partnership with respect to
such property. The sale resulted in a net financial statement loss and a net
tax loss in 1995 of approximately $7,000, and $607,000, respectively. Reserves
IV-14
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
2. HOTELS AND LEASEHOLD INTEREST OWNED BY THE PARTNERSHIP -
Continued
for loss on the sale of the Kankakee hotel of $400,000 and $200,000 were
recognized for financial statement purposes in 1994 and 1993, respectively. The
sale of the Kankakee hotel did not have a negative effect on net income or cash
flow of the Partnership during 1996, nor is it expected to have a negative
effect on the future net income or cash flow of the Partnership.
On February 21, 1995 and May 10, 1995, the Partnership advanced $35,000 and
$42,000, respectively, from the working capital reserves to the Kankakee hotel
to fund the hotel's short-term working capital needs. These advances were
repaid and the working capital reserves were replenished on July 19, 1995 from
sale proceeds of the Kankakee hotel, as discussed above. Additionally, 1994
advances of $62,055 were repaid from sale proceeds and are included in cash
distributions from operating activities in the third quarter of 1995.
3. NOTES PAYABLE
In addition to the capital provided by the sale of BACs, the Partnership
received financing from Days Inns for the acquisition of the hotels. The Notes
are nonrecourse notes collateralized by the various properties. Each Note
provides for a ten year maturity from the date of acquisition with an accrual of
interest at 9% per annum, compounded on a monthly basis. Principal and accrued
interest, which will equal 47.4% of the original purchase price of the hotel, is
due to BancBoston Mortgage Corporation (BancBoston) upon maturity of each Note.
The Notes may be prepaid at the initial note balance plus accrued interest at
any time without premium or penalty. The Kankakee note payable of $434,925 plus
accrued interest of $440,746 was retired on July 19, 1995 in connection with the
sale of the hotel, as discussed below.
IV-15
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
3. NOTES PAYABLE - Continued
As of December 31, 1996 and 1995, the Notes, including accrued
interest, consist of the following:
<TABLE>
<CAPTION>
December 31,
Note Maturity Date 1996 1995
---------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Minneapolis Days Inn 10/31/97 $ 2,110,713 $ 1,929,694
Plymouth Days Inn 12/29/97 1,732,836 1,584,225
Roseville Days Inn 2/28/98 1,792,492 1,638,764
Clearwater Days Inn 3/31/98 1,588,526 1,452,291
----------- -----------
$ 7,224,567 $ 6,604,974
=========== ===========
</TABLE>
Cumulative accrued interest on the Notes was $3,986,792 and $3,367,199 at
December 31, 1996 and 1995, respectively. Interest expense during 1996, 1995
and 1994 was $619,593, $615,159 and $588,797, respectively.
The balances of the Notes, including accrued interest, due upon maturity
are as follows:
<TABLE>
<CAPTION>
Maturity
Date Balance
-------- -----------
<S> <C> <C>
Minneapolis Days Inn 10/31/97 $ 2,274,467
Plymouth Days Inn 12/29/97 1,867,275
Roseville Days Inn 2/28/98 1,990,159
Clearwater Days Inn 3/31/98 1,776,927
Scottsdale Days Inn (A) (A)
-----------
$ 7,908,828
===========
</TABLE>
(A) The Scottsdale Days Inn is held as a leasehold interest. The maturity of
the lease was originally set for January 31, 1994. This lease term was
initially extended an additional five years, thereby expiring on January
31, 1999. During 1996, this lease was extended for an additional five
years, thereby expiring January 31, 2004.
The General Partner is currently reviewing several options available to the
Partnership to address the upcoming maturity of the Notes and the capital
improvement needs of the properties. One option may be to sell the hotels
outright (or in the case of Scottsdale, sell the leasehold interest), either as
individual assets or in a sale pool together. Another option may be to
refinance the Notes. As of February 28, 1997, the Partnership has neither
committed to a plan to sell the hotels or to refinance the Notes, nor is there
any assurance that a sale will take place or that refinancing will be obtained.
IV-16
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
3. NOTES PAYABLE - Continued
In the event that the Partnership is able to obtain satisfactory terms for the
sale of all the hotels as a portfolio, which would result in the dissolution of
the Partnership, the Partnership will solicit BAC Holders for majority approval
of the sale offer, in accordance with the Partnership Agreement.
The Partnership has determined that it is not practicable to estimate the
fair value of the Notes due to the lack of an active market for this type of
financial instrument, as well as the excessive costs associated with an
independent appraisal of the Notes. As the Partnership reviews its options with
respect to the potential sale of the hotels or refinancing of the maturing
notes, the Partnership may have a better indication of the fair value of the
Notes.
4. COMMITMENTS
a. Hotel operations management agreements
--------------------------------------
The Partnership entered into management agreements with Buckhead in
connection with operations of the hotels. Each agreement was for an initial
term of ten years, with a five-year renewal option. The agreements called
for a base management fee of 2.5% of gross revenue from operations, a
marketing fee of 1.5% of net room revenues, and a reservation fee of 2.3%
of gross revenues from rental of hotel guest rooms. The agreements also
called for incentive management fees generally equal to 25% of net cash
flow available after payment of a preferred cash flow return to the
Partnership equal to 11% of the aggregate purchase price for Series A
hotels owned by the Partnership.
On January 1, 1993, the management agreements between the Partnership
and Buckhead pertaining to Buckhead's management of each of the hotels were
amended to extend the existing term of each agreement for an additional two
to five years and increase the base management fee from 2.5% to 3.5% of
gross revenue. The amendments for the Clearwater Days Inn and the
Scottsdale Days Inn included a modification to the method of calculating
the incentive management fee. Incentive management fees of $95,959,
$78,408 and $64,328 were earned or paid in 1996, 1995 and 1994,
respectively. These agreements were amended as part of the bankruptcy
process. The Partnership accepted these modifications to the management
agreements in lieu of having the agreements terminated by Buckhead in its
Chapter 11 Bankruptcy case (filed in 1991). Had the Partnership contracted
another management agent, costs (which would have included franchise fees
currently not payable because of Buckhead's management of the hotels) were
expected to exceed the increase in management fees.
In connection with the potential sales of the properties owned by the
Partnership, as discussed above, the Partnership could incur termination
fees of approximately $1.6 million with respect to the management
agreements with Buckhead, in the event that the hotels are sold and the
purchaser of the hotels does not elect to maintain Buckhead as the
management company. As the potential sales of the properties, and the
terms thereof, are uncertain as of February 28, 1997, these costs have not
been reflected in the accompanying financial statements.
IV-17
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
4. COMMITMENTS - Continued
b. Operating lease agreements
--------------------------
The Partnership assumed an existing lease agreement from Days Inns in
connection with the acquisition of the leasehold interest in the Scottsdale
Days Inn. The assumption transfers the rights to operate the property on
the lease's existing terms over the remaining life of the lease. Effective
January 1, 1994, the lease was renewed for an additional 5-year period,
thereby expiring on January 31, 1999. During 1996, the lease was extended
for an additional five years, thereby expiring January 31, 2004. The lease
may be renewed at the option of the lessee for an additional 5-year period.
Annual Lease payments are equal to the greater of $140,450 or 22% of total
room revenue and 2.5% of food and beverage revenue. Minimum lease payments
of $11,704 are payable monthly with a quarterly analysis of the actual
amount due.
The Partnership also assumed various leases entered into by Days Inns
of America for equipment used by the operating hotels. These leases expire
through 2000. Minimum lease payments under the leases, including the two
renewal periods for the Scottsdale facility lease, are as follows:
1997 $ 164,515
1998 162,797
1999 152,740
2000 152,740
2001 140,450
Thereafter 292,604
----------
$1,065,846
==========
Total rental expense under the leases was $751,917, $735,084 and
$710,848 for the years ended December 31, 1996, 1995 and 1994,
respectively.
c. Ground lease agreement
----------------------
The Partnership entered into a ground lease with Vicorp Restaurants,
Inc. (Vicorp) effective January 1991, pursuant to which the Partnership is
leasing a portion of the Minneapolis Days Inn property to Vicorp, which is
operating a restaurant (Baker's Square) on the property. Gross rental
income pursuant to the lease agreement, which is included in Interest and
other income on the accompanying statements of operations, was $50,477,
$48,770 and $47,121 during 1996, 1995 and 1994, respectively.
5. PARTNERS' CAPITAL
The Partnership's Series A profits and losses and distributions are
allocated 98% to the BAC Holders and 2% to the General Partner. Upon reaching a
non-cumulative, annual preferred cash flow return of 12%, the Partnership's
Series A profits and losses and distributions will be allocated 85% to the BAC
Holders and 15% to the General Partner. To date, the annual preferred cash flow
return has not been achieved. Cash available for distribution, as defined in the
Partnership Agreement, is intended to be distributed on a quarterly basis within
sixty days after the end of each calendar quarter.
IV-18
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
5. PARTNERS' CAPITAL - Continued
The following distributions were paid or accrued to BAC Holders of
record during 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
Distributions to Distributions to Distributions to
BAC Holders BAC Holders BAC Holders
------------------------ ------------------------ ------------------------
Quarter Ended Total Per BAC Total Per BAC Total Per BAC
- ---------------------- ----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
March 31 $ 486,450 $ 0.56 $ 443,018 $ 0.51 $ 349,550 $ 0.41
June 30 486,450 0.56 469,077 0.54 443,968 0.51
September 30 416,957 0.48 582,362* 0.67* 454,379 0.52
December 31 390,898 0.45 538,571 0.62 443,018 0.51
----------- ------- ----------- ------- ----------- -------
Total $ 1,780,755 $ 2.05 $ 2,033,028 $ 2.34 $ 1,690,915 $ 1.95
=========== ======= =========== ======= =========== =======
</TABLE>
* Includes the distribution of net cash proceeds from the sale of the
Kankakee hotel of $52,478 (approximately $0.06 per BAC), which is net
of payment of outstanding Kankakee real estate taxes, retirement of
the related note payable and repayment of Partnership advances.
As a result of the increase in working capital reserves of $577,000 during
1997, as discussed above, the General Partner anticipates a decrease in the 1997
distribution levels. The General Partner expects the distribution for the
quarter ended March 31, 1997 to range from approximately $0.40 to $0.48 per BAC.
The General Partner expects the distribution for the year ending December 31,
1997 to range from approximately $1.65 to $1.85 per BAC. In the event that the
Partnership seeks to refinance the Notes, distributions may be reduced for the
long term, and possibly terminated for the short term. Distributions are
dependent on the net cash flow produced from hotel operations, net of
Partnership expenses. The cash flow from certain hotels may be materially
affected by changing market conditions and by seasonality.
6. RELATED-PARTY TRANSACTIONS
In accordance with the Partnership Agreement, the Partnership paid the
General Partner a fee for services in connection with the review, selection,
evaluation, negotiation and acquisition of the hotels. The fee amounted to
$1,142,516, which was equal to 4.5% of Total Capitalization (Gross Offering
Proceeds plus all receipts of the Partnership arising from mortgage loans). The
acquisition fees were capitalized and are being amortized over a thirty-year
period using the straight-line method. Acquisition fees and accumulated
amortization of acquisition fees of $122,412 and $29,460, respectively, relating
to the Kankakee hotel were written off in connection with the sale of the hotel
in 1995, as discussed above.
The Partnership reimbursed the General Partner or its affiliates for costs
incurred on behalf of the Partnership for real estate appraisals and market
studies, engineering studies, legal consultation and accounting fees, as well as
travel and communication expenses related to the acquisition of the hotels.
IV-19
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
6. RELATED-PARTY TRANSACTIONS - Continued
These costs, amounting to $233,474, have been capitalized as property purchase
costs and are being amortized over a thirty-year period using the straight-line
method. Property purchase costs and accumulated amortization of property
purchase costs of $51,207 and $12,160, respectively, relating to the Kankakee
hotel were written off in connection with the sale of the hotel in 1995, as
discussed above.
The Partnership, in accordance with the terms of the Partnership Agreement,
is obligated to reimburse the General Partner or its affiliates for their direct
expenses in managing the Partnership. The Partnership paid or accrued $47,463,
$52,226 and $62,973, for the years ended December 31, 1996, 1995 and 1994,
respectively, to the General Partner or its affiliates as direct reimbursement
of expenses incurred on behalf of the Partnership. Such reimbursements are
included in general and administrative expense on the statements of income.
The annual amount of the base asset management fee earned by the General
Partner and/or its affiliates is equal to 0.50% of the weighted average balance
of the adjusted partnership investment during the period, as defined in the
Partnership Agreement. During 1995, the adjusted partnership investment
decreased from $21,000,000 to $18,750,000 as a result of the sale of the
Kankakee hotel on July 19, 1995, as discussed above. During the years ended
December 31, 1996, 1995 and 1994, the Partnership paid or accrued a base asset
management fee of $93,750, $99,956 and $105,000, respectively.
7. RECONCILIATION OF NET INCOME PER FINANCIAL STATEMENTS TO NET INCOME
PER TAX RETURN
The following is a reconciliation of net income per the financial
statements to net income per the tax return for the years ended December 31,
1996, 1995 and 1994:
IV-20
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
7. RECONCILIATION OF NET INCOME PER FINANCIAL STATEMENTS TO NET INCOME
PER TAX RETURN - Continued
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income per the financial statements $ 777,033 $ 762,580 $ 146,217
Adjustments for tax purposes:
Book/tax difference on sale of property-amounts
reserved on books in prior years -- (600,000) --
Provision for decline on asset market value
not allowed for tax purposes -- -- 400,000
Book/tax difference on sale of property- real
estate taxes expensed in prior years -- (33,860) --
Book/tax difference on sale of property-accumulated
depreciation and amortization -- 48,089 --
Depreciation of buildings and site improvements
computed on 40 years for tax purposes as compared
to 30 years for financial statement purposes 75,400 10,548 (22,633)
Book/tax difference on timing of deductions -- -- (259,164)
------------ ------------ ------------
Net income per the tax return $ 852,433 $ 187,357 $ 264,420
============ ============ ============
</TABLE>
IV-21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
ON FINANCIAL STATEMENT SCHEDULES
--------------------------------
To the Partners
CRI Hotel Income Partners, L.P.
We have also audited Schedule III of CRI Hotel Income Partners, L.P. as of
December 31, 1996. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.
Grant Thornton, LLP
Vienna, VA
February 28, 1997
IV-22
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
- -------------------- ------- ------------------------------- -------------------------------
Costs capitalized
subsequent
Initial Cost to acquisition
------------------------------- -------------------------------
Building
Description Encum- and Carrying
of Hotels brances Land improvements Improvements cost
- -------------------- ------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Clearwater Days Inn (A) $ 382,500 $ 2,981,250 $ -- $ --
Minneapolis Days Inn (A) 444,480 3,731,520 -- --
Plymouth Days Inn (A) 272,727 3,204,546 -- --
Roseville Days Inn (A) 474,783 3,195,652 -- --
----------- ------------ ---- ----
Subtotal 1,574,490 13,112,968 -- --
Leasehold improvements
- ----------------------
Scottsdale Days Inn -- 1,382,000 -- --
----------- ------------ ---- ----
Total $ 1,574,490 $ 14,494,968 $ -- $ --
=========== ============ ==== ====
</TABLE>
IV-23
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - Continued
DECEMBER 31, 1996
<TABLE>
<CAPTION>
COL. A COL. E COL. F COL. G COL. H COL. I
- -------------------- ------------------------------------------- ------------ ------- ------- ----------------
Gross amount at which
carried at close of period Life upon
------------------------------------------- Accumulated Date which
Building depreciation of depreciation/
Description and and Const- Date amortization
Hotels Land improvements Total (C) amortization ruction acquired is computed
- -------------------- ----------- ------------ ------------- ------------ ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Clearwater Days Inn $ 382,500 $ 2,981,250 $ 3,363,750 $ 869,531 1987 4/88 30 years
Minneapolis Days Inn 444,480 3,731,520 4,176,000 1,140,243 1983 11/87 30 years
Plymouth Days Inn 272,727 3,204,546 3,477,273 961,656 (B) 12/87 30 years
Roseville Days Inn 474,783 3,195,652 3,670,435 940,942 1973 3/88 30 years
----------- ----------- ------------ ------------
Subtotal 1,574,490 13,112,968 14,687,458 3,912,372
Leasehold improvements
- ----------------------
5 years
Scottsdale Days Inn -- 1,382,000 1,382,000 1,382,000 1969 7/88 7 months
----------- ----------- ------------ ------------
Total $ 1,574,490 $14,494,968 $ 16,069,458 $ 5,294,372
=========== =========== ============ ============
</TABLE>
(A) Secured by Zero Coupon Purchase Money Notes.
(B) Originally constructed in 1970, closed for full renovation in 1986, and
reopened in 1987.
(C) The aggregate cost of land for federal income tax purposes is $1,574,490
and the aggregate cost of buildings and site improvements for federal
income tax purposes is $14,494,968. The total of the above mentioned items
is $16,069,458.
IV-24
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
IV-25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 504,423
<SECURITIES> 0
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0
0
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</TABLE>
