<PAGE>
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
Commission file number 33-11096
--------------
CRI HOTEL INCOME PARTNERS, L.P.
- -------------------------------------------------------------------------
(Exact name of small business issuer 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 offices) (Zip Code)
(301) 468-9200
- -------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Not applicable Not applicable
- -------------------------- ---------------------------------------
(Class) (Outstanding at March 31, 1998)
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1998
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - March 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . 1
Statements of Income - for the three months
ended March 31, 1998 and 1997 . . . . . . . . . . . . 2
Statement of Changes in Partners' Capital (Deficit)
- for the three months ended March 31, 1998 . . . . . 3
Statements of Cash Flows - for the three months
ended March 31, 1998 and 1997 . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 14
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CRI HOTEL INCOME PARTNERS, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<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 5,709,516 5,665,358
Leasehold improvements 1,382,000 1,382,000
------------ ------------
21,778,974 21,734,816
Less: accumulated depreciation and amortization (9,689,985) (9,453,974)
------------ ------------
12,088,989 12,280,842
Cash and cash equivalents 213,230 380,294
Working capital reserve 1,028,232 925,000
Receivables, reserve for replacements and other assets 1,304,894 1,139,454
Acquisition fees, principally paid to related parties, net of accumulated
amortization of $346,434 and $337,933, respectively 673,670 682,171
Property purchase costs, net of accumulated amortization of
$61,550 and $60,031, respectively 120,717 122,236
------------ ------------
Total assets $ 15,429,732 $ 15,529,997
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Distributions payable $ 274,781 195,006
Accounts payable and accrued expenses 636,962 $ 616,989
Hotel trade payables 202,624 454,945
Short-term portion of notes payable 124,122 121,757
------------ ------------
Total current liabilities 1,238,489 1,388,697
------------ ------------
Long term debt
Notes payable 8,746,311 8,778,243
------------ ------------
Total liabilities 9,984,800 10,166,940
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CRI HOTEL INCOME PARTNERS, L.P.
BALANCE SHEETS
LIABILITIES - Continued
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Commitments and contingencies
Partners' capital (deficit):
General Partner (279,883) (281,520)
Beneficial Assignee Certificates (BACs) Series A;
868,662 BACs issued and outstanding 5,724,815 5,644,577
------------ ------------
Total partners' capital 5,444,932 5,363,057
------------ ------------
Total liabilities and partners' capital $ 15,429,732 $ 15,529,997
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Rooms $ 2,667,178 $ 2,575,495
Telephone 81,906 74,983
Rental and other 84,140 97,176
Food and beverage 14,913 25,103
------------ ------------
2,848,137 2,772,757
------------ ------------
Departmental expenses:
Rooms (649,113) (655,134)
Telephone (34,870) (24,513)
Rental and other (38,083) (43,527)
Food and beverage (13,712) (20,430)
------------ ------------
(735,778) (743,604)
------------ ------------
Gross operating income 2,112,359 2,029,153
------------ ------------
Unallocated operating income (expenses):
Interest and other income 29,258 17,450
General and administrative (331,286) (312,788)
Building lease expense (269,778) (276,470)
Marketing (223,503) (220,534)
Depreciation and amortization (250,103) (235,958)
Energy (126,057) (139,536)
Property taxes (140,751) (136,217)
Property operations and maintenance (136,275) (139,665)
Management fees (99,655) (97,009)
Base asset management fee, paid to related parties (23,438) (23,438)
Professional fees (12,534) (22,533)
------------ ------------
(1,584,122) (1,586,698)
------------ ------------
Operating income 528,237 442,455
Other expenses:
Interest expense (171,581) (163,775)
------------ ------------
Net income $ 356,656 $ 278,680
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-3-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF INCOME - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net income allocated to General Partner (2%) $ 7,133 $ 5,574
============ ============
Net income allocated to BAC Holders (98%) $ 349,523 $ 273,106
============ ============
Net income per BAC based on 868,662 BACs outstanding $ 0.40 $ 0.31
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-4-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Beneficial
Assignee
General Certificate
Partner Holders Total
--------- ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1997 $(281,520) $ 5,644,577 $ 5,363,057
Distributions accrued of $0.31 per BAC (5,496) (269,285) (274,781)
(none of which is a return of capital)
Net income 7,133 349,523 356,656
--------- ------------ ------------
Balance, March 31, 1998 $(279,883) $ 5,724,815 $ 5,444,932
========= ============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-5-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 356,656 $ 278,680
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 250,103 235,958
Accrued interest on notes payable -- 163,775
Changes in assets and liabilities:
Increase in receivables and other assets, net (138,054) (160,142)
Increase in accounts payable and accrued expenses 19,973 83,827
(Decrease) increase in hotel trade payables (252,321) 78,612
------------ ------------
Net cash provided by operating activities 236,357 680,710
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (44,158) (233,970)
Net deposits to reserve for replacements (31,458) (55,815)
Net (deposits to) withdrawals from working capital reserves (103,232) 6,880
------------ ------------
Net cash used in investing activities (178,848) (282,905)
------------ ------------
Cash flows from financing activities:
Distributions paid to BAC Holders and General Partner (195,006) (398,875)
Payment of principal on note payable (29,567) --
------------ ------------
Net cash used in financing activities (224,573) (398,875)
------------ ------------
Net decrease in cash and cash equivalents (167,064) (1,070)
Cash and cash equivalents, beginning of period 380,294 504,423
------------ ------------
Cash and cash equivalents, end of period $ 213,230 $ 503,353
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 171,581 $ --
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-6-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of CRICO Hotel Associates I, L.P. (the General Partner), the
accompanying unaudited financial statements of CRI Hotel Income Partners, L. P.
(the Partnership) reflect all adjustments of a normal recurring nature necessary
to present fairly the Partnership's financial position as of March 31, 1998, and
the results of its operations and its cash flows for the three months ended
March 31, 1998 and 1997. The results of operations for the interim period ended
March 31, 1998, are not necessarily indicative of the results to be expected for
the full year.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and with the
instructions to Form 10-QSB. Certain information and accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the instructions. These financial statements should be read
in conjunction with the financial statements and the notes included in the
Partnership's Annual Report filed on Form 10-K at December 31, 1997.
2. NOTES PAYABLE
On December 19, 1997, the Partnership refinanced with Citicorp Real Estate,
Inc. ("Citicorp") the Zero Coupon Notes ("the former Notes") which were
originally issued in connection with the Partnership's acquisition of the
hotels. The amounts due on the former Notes as of December 19, 1997, were as
follows:
<TABLE>
<CAPTION>
Balance Due
at
12/19/97
-----------
<S> <C>
Minneapolis Days Inn $ 2,296,070
Plymouth Days Inn 1,890,216
Roseville Days Inn 1,955,287
Clearwater Days Inn 1,732,796
-----------
$ 7,874,369
===========
</TABLE>
The new loan proceeds of $8.9 million were in excess of the amount needed
to pay the former Notes of $7,874,369 due as of December 19, 1997. Such excess
was used to pay the costs of refinancing and to fund needed capital improvements
at the hotels. The new loan bears interest at the rate of 7.72% per annum and
matures January 1, 2008. On that date, a balloon payment in the amount of
$7,136,233 will be due. In connection with the terms of the new loan, the
Partnership began paying monthly installments of principal and interest in the
amount of $67,049 to Citicorp on the first day of each month beginning February
1998. If any such monthly installment is not paid when due, the entire
principal amount outstanding and accrued interest thereon shall at once become
due and payable, at the option of Citicorp. Subject to prepayment terms, as
-7-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. NOTES PAYABLE - Continued
discussed below, the refinancing of the former Notes does not preclude the
future sale of the hotels, either individually or as a portfolio.
Under the terms of the new loan, commencing January 1, 2002, such loan may
be prepaid, subject to terms and prepayment penalties as set forth in the loan
agreement. Citicorp has notified the General Partner that it intends to
securitize the new loan in a "no lock" program, which would permit the
prepayment of the new loan with a 3% penalty during the first three years, a 2%
penalty during the next three years, a 1% penalty during the next three years,
and no penalty during the final year. The General Partner is working with
Citicorp to modify the loan documents accordingly.
The Partnership made installments of principal and interest aggregating
$201,148 during the three months ended March 31, 1998. The Partnership's
balance on this loan was $8,870,433 and $8,900,000 as of March 31, 1998 and
December 31, 1997, respectively.
3. REAL ESTATE AND CAPITAL IMPROVEMENTS RESERVE ESCROWS
In addition to the monthly loan installments payable to Citicorp, as
discussed above, the Partnership must also make monthly payments to Citicorp to
be escrowed for estimated annual real estate taxes and capital improvements and
furniture, fixtures and equipment reserves (CIR). The monthly real estate tax
payments should equal one-twelfth of the estimated yearly taxes and assessments
to be levied on the hotels, currently estimated as $37,761 per month. Citicorp
will pay such taxes and assessments when due from these escrows. The monthly
CIR payment totalling $19,365 shall be held in escrow by Citicorp and may be
drawn on by the Partnership for deferred maintenance and/or ongoing capital
improvement expenditures and for the replacement of furniture, fixtures and
equipment at the hotels. Both the real estate tax and CIR payments are due to
Citicorp on the same day as the monthly principal and interest installments,
commencing February 1, 1998 until the new loan is paid in full.
As of March 31, 1998 and December 31, 1997, Citicorp held $143,856 and
$75,522, respectively, for real estate taxes and $344,819 and $286,725,
respectively, for capital improvement reserves. These amounts are included in
Receivables, reserve for replacements and other assets in the accompanying
financial statements.
4. WORKING CAPITAL RESERVES
The working capital reserve of $1,028,232 and $925,000 as of March 31, 1998
and December 31, 1997, respectively, consists of $800,000 set aside for Phase II
of renovations to be performed at the hotels during 1998, and $228,232 and
$125,000 as of March 31, 1998 and December 31, 1997, respectively, set aside for
contingencies. The working capital reserve may be increased or reduced by the
General Partner as deemed appropriate.
5. DISTRIBUTIONS TO BAC HOLDERS
The following distributions were paid or accrued to BAC Holders of record
during the first quarters of 1998 and 1997:
-8-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO BAC HOLDERS - Continued
<TABLE>
<CAPTION>
1998 1997
Distributions to Distributions to
BAC Holders BAC Holders
---------------------- ----------------------
Quarter Ended Total Per BAC Total Per BAC
------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
March 31 $ 269,285 $ 0.31 $ 382,211 $ 0.44
========== ======= ========== =======
</TABLE>
6. COMMITMENTS
a. Hotel operations management agreements
--------------------------------------
The Partnership entered into management agreements with Buckhead Hotel
Management Company, Inc. (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. As amended, the management agreements expire between
November 2002 and July 2003. The amendments for the Clearwater Days Inn
and the Scottsdale Days Inn included modifications to the method of
calculating the incentive management fee. No incentive management fees
were earned for the first quarters of 1998 or 1997.
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. The lease
has been extended to expire on 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.
For the three months ended March 31, 1998 and 1997, lease payments were
$269,778, and $276,470, respectively.
-9-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. COMMITMENTS - Continued
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 income, was $13,518 and
$13,061 for the three months ended March 31, 1998 and 1997, respectively.
7. RELATED-PARTY TRANSACTIONS
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 connection with managing the Partnership. The Partnership paid or
accrued $11,903 and $12,080 for the three months ended March 31, 1998 and 1997,
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 amount of the base asset management fee earned by the General Partner
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. The Partnership paid or accrued a base asset management fee of
$23,437 during each of the three months ended March 31, 1998 and 1997.
-10-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
CRI Hotel Income Partners, L.P.'s (the Partnership) Management's Discussion
and Analysis of Financial Condition and Results of Operations contains
information that may be considered forward looking, including statements
regarding the effect of governmental regulations. Actual results may differ
materially from those described in the forward looking statements and will be
affected by a variety of factors including seasonality with respect to the hotel
industry, national and local economic conditions, the general level of interest
rates, terms of governmental regulations that affect the Partnership and
interpretations of those regulations, the competitive environment in which the
Partnership operates, and the availability of working capital.
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.
In addition to periodic replacement of fixed assets, which are funded from the
replacement reserves, the Partnership has determined that significant capital
improvements are needed to enhance the marketability of the hotels. During
1997, the Partnership funded $361,584 from the working capital reserve to the
hotels to address such capital improvements. The General Partner intends to
fund additional monies to the hotels for further needed capital improvements.
See further discussion in the working capital reserve section below.
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 the three months
ended March 31, 1998 and 1997, along with existing cash resources, was adequate
to support operating, investing and financing requirements and declared
distributions to BAC Holders and the General Partner. The Partnership estimates
that existing cash and cash equivalents along with future cash flows from the
hotels' operations, in the aggregate, will be sufficient to pay operating
expenses and short term commitments, and to fund working capital and replacement
reserves. Current liabilities as of March 31, 1998 totalled $1,238,489, which
represents a $150,208 decrease from the balance as of December 31, 1997. This
decrease primarily resulted from a decrease in trade payables at all of the
hotels, offset by increases in distributions payable and in accounts payable and
accrued expenses.
Citicorp Financing
- ------------------
On December 19, 1997, the Partnership refinanced with Citicorp Real Estate,
Inc. ("Citicorp") the Zero Coupon Notes ("the former Notes") which were
originally issued in connection with the Partnership's acquisition of the
hotels. The amounts due on the former Notes as of December 19, 1997, were as
follows:
-11-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Balance Due
at
12/19/97
-----------
<S> <C>
Minneapolis Days Inn $ 2,296,070
Plymouth Days Inn 1,890,216
Roseville Days Inn 1,955,287
Clearwater Days Inn 1,732,796
-----------
$ 7,874,369
===========
</TABLE>
The new loan proceeds of $8.9 million were in excess of the amount needed
to pay the former Notes of $7,874,369 due as of December 19, 1997. Such excess
was used to pay the costs of refinancing and to fund needed capital improvements
at the hotels. The new loan bears interest at the rate of 7.72% per annum and
matures January 1, 2008. On that date, a balloon payment in the amount of
$7,136,233 will be due. In connection with the terms of the new loan, the
Partnership began paying monthly installments of principal and interest in the
amount of $67,049 to Citicorp on the first day of each month beginning February
1998. If any such monthly installment is not paid when due, the entire
principal amount outstanding and accrued interest thereon shall at once become
due and payable, at the option of Citicorp. Subject to prepayment terms, as
discussed below, the refinancing of the former Notes does not preclude the
future sale of the hotels, either individually or as a portfolio.
Under the terms of the new loan, commencing January 1, 2002, such loan may
be prepaid, subject to terms and prepayment penalties as set forth in the loan
agreement. Citicorp has notified the General Partner that it intends to
securitize the new loan in a "no lock" program, which would permit the
prepayment of the new loan with a 3% penalty during the first three years, a 2%
penalty during the next three years, a 1% penalty during the next three years,
and no penalty during the final year. The General Partner is working with
Citicorp to modify the loan documents accordingly.
The Partnership made installments of principal and interest aggregating
$201,148 during the three months ended March 31, 1998. The Partnership's
balance of this loan was $8,870,433 and $8,900,000 as of March 31, 1998 and
December 31, 1997, respectively.
Real Estate And Capital Improvements Reserve Escrows
- ----------------------------------------------------
In addition to the monthly loan installments payable to Citicorp, as
discussed above, the Partnership must also make monthly payments to Citicorp to
be escrowed for estimated annual real estate taxes and capital improvements and
furniture, fixtures and equipment reserves (CIR). The monthly real estate tax
payments should equal one-twelfth of the estimated yearly taxes and assessments
to be levied on the hotels, currently estimated as $37,761 per month. Citicorp
will pay such taxes and assessments when due from these escrows. The monthly
CIR payment totalling $19,365 shall be held in escrow by Citicorp and may be
-12-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
drawn on by the Partnership for deferred maintenance and/or ongoing capital
improvement expenditures and for the replacement of furniture, fixtures and
equipment at the hotels. Both the real estate tax and CIR payments are due to
Citicorp on the same day as the monthly principal and interest installments,
commencing February 1, 1998 until the new loan is paid in full.
As of March 31, 1998 and December 31, 1997, Citicorp held $143,856 and
$75,522, respectively, for real estate taxes and $344,819 and $286,725,
respectively, for capital improvement reserves. These amounts are included in
Receivables, reserve for replacements and other assets in the accompanying
financial statements.
Working Capital Reserve
- -----------------------
The working capital reserve of $1,028,232 and $925,000 as of March 31, 1998
and December 31, 1997, respectively, consists of $800,000 set aside for Phase II
of renovations to be performed at the hotels during 1998, and $228,232 and
$125,000 as of March 31, 1998 and December 31, 1997, respectively, set aside for
contingencies. The working capital reserve may be increased or reduced by the
General Partner as deemed appropriate.
Distributions to BAC Holders
- ----------------------------
The following distributions were paid or accrued to BAC Holders of record
during the first quarters of 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
Distributions to Distributions to
BAC Holders BAC Holders
------------------------ ------------------------
Quarter Ended Total Per BAC Total Per BAC
------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
March 31 $ 269,285 $ 0.31 $ 382,211 $ 0.44
========== ======= ========== =======
</TABLE>
Results of Operations -- Partnership
------------------------------------
The Partnership's net income, which consists principally of revenues from
hotel operations, increased approximately $78,000 during the three months ended
March 31, 1998 from the comparable period in 1997 primarily due to an increase
in room revenue resulting from increases in room rates at all of the hotels, a
decrease in energy costs due to a mild winter during 1998 and decreased
occupancy at four of the hotels, and an increase in interest income due to
higher working capital balances. Partially offsetting the increase in the
Partnership's net income was an increase in general and administrative costs
primarily due to increased payroll costs at the Roseville hotel, and a decrease
in rental and other income due to the closing of the Happy Chef restaurant at
the Roseville hotel. This restaurant will be replaced with a new tenant which
will begin operations by the end of May 1998.
-13-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Results of Operations -- Hotels
-------------------------------
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:
<TABLE>
<CAPTION>
Hotel Location Peak Months
-------------- ---------------------
<C> <C>
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
</TABLE>
The Partnership's Statements of Income 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 three months ended March
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Gross Operating Income
For the three months ended
March 31,
----------------------------
Hotel Location 1998 1997
-------------- ------------ ------------
<S> <C> <C>
Clearwater, FL $ 424,709 $ 431,696
Minneapolis, MN 318,993 303,231
Plymouth, MN 132,939 136,927
Roseville, MN 215,509 177,881
Scottsdale, AZ 1,020,209 979,418
------------ ------------
Total $ 2,112,359 $ 2,029,153
============ ============
</TABLE>
-14-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Operating Income (Loss)
For the three months ended
March 31,
----------------------------
Hotel Location 1998 1997
-------------- ------------ ------------
<S> <C> <C>
Clearwater, FL $ 246,698 $ 241,508
Minneapolis, MN 116,181 94,578
Plymouth, MN (12,677) (20,981)
Roseville, MN 46,452 18,854
Scottsdale, AZ 423,879 402,290
Depreciation and Partnership
operating expenses (292,296) (293,794)
------------ ------------
Total $ 528,237 $ 442,455
============ ============
</TABLE>
<TABLE>
<CAPTION>
Average Occupancy
For the three months ended
March 31,
----------------------------
Hotel Location 1998 1997
-------------- ------------ ------------
<S> <C> <C>
Clearwater, FL 78% 86%
Minneapolis, MN 73% 76%
Plymouth, MN 52% 61%
Roseville, MN 88% 80%
Scottsdale, AZ 94% 95%
------ ------
Total (1) 78% 81%
====== ======
</TABLE>
(1) The totals for average occupancy are based on a weighted average taking
into consideration the number of rooms at each location.
Gross operating income for the Clearwater hotel for the three months ended
March 31, 1998 decreased slightly from the same period in 1997 primarily due to
decreased occupancy, partially offset by higher room rates. Operating income
for the Clearwater hotel for the three months ended March 31, 1998 increased
slightly from the same period in 1997 primarily due to decreased operating
expenses associated with lower occupancy. Gross operating income and operating
income for the Minneapolis hotel for the three months ended March 31, 1998
increased from the same period during 1997 despite decreased occupancy primarily
due to higher room rates, decreased operating expenses associated with lower
-15-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
occupancy and decreased energy costs due to a mild winter. Gross operating
income for the Plymouth hotel for the three months ended March 31, 1998
decreased slightly from the same period in 1997 primarily due to decreased
occupancy, partially offset by higher room rates. Operating loss for the
Plymouth hotel for the three months ended March 31, 1998 decreased slightly from
the same period in 1997 primarily due to higher room rates, decreased operating
expenses associated with lower occupancy and decreased energy costs due to a
mild winter. Gross operating income and operating income for the Roseville
hotel for the three months ended March 31, 1998 increased from the same period
in 1997 primarily due to increased demand in the area which resulted in
increased occupancy and increased room rates coupled with decreased energy costs
due to a mild winter. Gross operating income and operating income for the
Scottsdale hotel for the three months ended March 31, 1998 increased from the
same period in 1997 primarily due to higher room rates which resulted from
reduced contract business.
Year 2000 Computer Issue
------------------------
The Year 2000 ("Y2K") Computer Issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year. The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19." As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002. In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.
The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue. The
Managing General Partner is studying what actions will be necessary to make its
computer systems Year 2000 compliant; certain upgrades are already scheduled.
The expense associated with these actions cannot presently be determined, but
the Managing General Partner does not expect it to be material.
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. None.
b. No reports on Form 8-K were filed with the Commission during the
quarter ended March 31, 1998.
All other items are not applicable.
-16-
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CRI HOTEL INCOME PARTNERS, L.P.
-------------------------------
(Registrant)
by: CRICO Hotel Associates I, L.P.
Its General Partner
by: C.R.I., Inc.
Its General Partner
May 15, 1998 by: /s/ Michael J. Tuszka
- ----------------- ---------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
-17-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FIRST QUARTER 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 213,230
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 21,778,974
<DEPRECIATION> 9,689,985
<TOTAL-ASSETS> 15,429,732
<CURRENT-LIABILITIES> 1,238,489
<BONDS> 8,746,311
0
0
<COMMON> 0
<OTHER-SE> 5,444,932
<TOTAL-LIABILITY-AND-EQUITY> 15,429,732
<SALES> 0
<TOTAL-REVENUES> 2,877,395
<CGS> 0
<TOTAL-COSTS> 2,349,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,581
<INCOME-PRETAX> 356,656
<INCOME-TAX> 0
<INCOME-CONTINUING> 356,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 356,656
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
