<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 June 30, 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 June 30, 1998)
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1998
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - June 30, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . 1
Statements of Income - for the three and six months
ended June 30, 1998 and 1997 . . . . . . . . . . . . 2
Statement of Changes in Partners' Capital (Deficit)
- for the six months ended June 30, 1998 . . . . . . 3
Statements of Cash Flows - for the six months
ended June 30, 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 . . . . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CRI HOTEL INCOME PARTNERS, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 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 5,750,665 5,665,358
Leasehold improvements 1,382,000 1,382,000
------------ ------------
21,820,123 21,734,816
Less: accumulated depreciation and amortization (9,927,062) (9,453,974)
------------ ------------
11,893,061 12,280,842
Cash and cash equivalents 271,990 380,294
Working capital reserve 1,113,716 925,000
Receivables, reserve for replacements and other assets 1,141,670 1,139,454
Acquisition fees, principally paid to related parties,
net of accumulated amortization of $354,934 and $337,933,
respectively 665,169 682,171
Property purchase costs, net of accumulated amortization
of $63,068 and $60,031, respectively 119,198 122,236
------------ ------------
Total assets $ 15,204,804 $ 15,529,997
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Distributions payable $ 274,781 $ 195,006
Accounts payable and accrued expenses 608,268 616,989
Hotel trade payables 133,025 454,945
Short-term portion of notes payable 126,533 121,757
------------ ------------
Total current liabilities 1,142,607 1,388,697
------------ ------------
Long term debt:
Notes payable 8,713,759 8,778,243
------------ ------------
Total liabilities 9,856,366 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 AND PARTNERS' CAPITAL (DEFICIT) - Continued
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Commitments and contingencies
Partners' capital (deficit):
General Partner (281,813) (281,520)
Beneficial Assignee Certificates (Beneficial Assignee
Certificate (BACs)) Series A; 868,662 BACs
issued and outstanding 5,630,251 5,644,577
------------ ------------
Total partners' capital 5,348,438 5,363,057
------------ ------------
Total liabilities and partners' capital $ 15,204,804 $ 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 For the six months ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $ 2,370,330 $ 2,307,550 $ 5,037,508 $ 4,883,045
Telephone 74,729 73,771 156,635 148,754
Rental and other 91,724 106,898 175,864 204,074
Food and beverage 31,022 31,737 45,935 56,840
------------ ------------ ------------ ------------
2,567,805 2,519,956 5,415,942 5,292,713
------------ ------------ ------------ ------------
Departmental expenses:
Rooms (706,467) (687,569) (1,355,580) (1,342,703)
Telephone (25,160) (27,944) (60,030) (52,457)
Rental and other (40,581) (35,353) (78,664) (78,880)
Food and beverage (22,855) (23,425) (36,567) (43,855)
------------ ------------ ------------ ------------
(795,063) (774,291) (1,530,841) (1,517,895)
------------ ------------ ------------ ------------
Gross operating income 1,772,742 1,745,665 3,885,101 3,774,818
------------ ------------ ------------ ------------
Unallocated operating income (expenses):
Interest and other income 25,719 19,718 54,976 37,168
General and administrative (258,259) (267,843) (589,545) (580,631)
Building lease expense (153,470) (161,182) (423,248) (437,652)
Marketing (229,254) (226,872) (452,757) (447,406)
Depreciation and amortization (251,169) (242,310) (501,272) (478,268)
Energy (109,145) (124,689) (235,202) (264,225)
Property taxes (184,429) (136,091) (325,180) (272,308)
Property operations and maintenance (140,038) (141,450) (276,313) (281,115)
Management fees (89,820) (89,169) (189,475) (186,178)
Base asset management fee, paid to related parties (23,438) (23,437) (46,875) (46,875)
Professional fees (10,146) (3,454) (22,680) (25,987)
------------ ------------ ------------ ------------
(1,423,449) (1,396,779) (3,007,571) (2,983,477)
------------ ------------ ------------ ------------
Operating income 349,293 348,886 877,530 791,341
Other expenses:
Interest expense (171,006) (167,488) (342,587) (331,263)
------------ ------------ ------------ ------------
Net income $ 178,287 $ 181,398 $ 534,943 $ 460,078
============ ============ ============ ============
</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 For the six months ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income allocated to General Partner (2%) $ 3,566 $ 3,628 $ 10,699 $ 9,202
============ ============ ============ ============
Net income allocated to BAC Holders (98%) $ 174,721 $ 177,770 $ 524,244 $ 450,876
============ ============ ============ ============
Net income per BAC based on 868,662 BACs outstanding $ 0.20 $ 0.21 $ 0.60 $ 0.52
============ ============ ============ ============
</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 paid or accrued of $0.62 per BAC
(none of which is a return of capital) (10,992) (538,570) (549,562)
Net income 10,699 524,244 534,943
--------- ------------ ------------
Balance, June 30, 1998 $(281,813) $ 5,630,251 $ 5,348,438
========= ============ ============
</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 six months ended
June 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 534,943 $ 460,078
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 501,272 478,268
Accrued interest on notes payable -- 331,263
Changes in assets and liabilities:
Decrease (increase) in receivables and other assets, net 107,630 (113,862)
Decrease in accounts payable and accrued expenses (8,721) (30,238)
(Decrease) increase in hotel trade payables (321,920) 143,545
------------ ------------
Net cash provided by operating activities 813,204 1,269,054
------------ ------------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (85,307) (508,059)
Net (deposits to) withdrawals from working capital reserve (188,716) 62,980
Net deposits to reserve for replacements (117,990) (12,251)
------------ ------------
Net cash used in investing activities (392,013) (457,330)
------------ ------------
Cash flows from financing activities:
Distributions paid to BAC Holders and General Partner (469,787) (788,887)
Payment of principal on note payable (59,708) --
------------ ------------
Net cash used in financing activities (529,495) (788,887)
------------ ------------
Net (decrease) increase in cash and cash equivalents (108,304) 22,837
Cash and cash equivalents, beginning of period 380,294 504,423
------------ ------------
Cash and cash equivalents, end of period $ 271,990 $ 527,260
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 342,587 $ --
============ ============
</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 June 30, 1998, and
the results of its operations for the three and six months ended June 30, 1998
and 1997 and its cash flows for the six months ended June 30, 1998 and 1997.
The results of operations for the interim period ended June 30, 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 notes thereto 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 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,
-7-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. NOTES PAYABLE - Continued
at the option of the holder. 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, such loan may be prepaid, subject to terms
and prepayment penalties as set forth in the note. Citicorp has notified the
General Partner that it has securitized the new loan in a "no lock" program,
which permits the prepayment of the new loan with a 3% premium during the first
three years, a 2% premium during the next three years, a 1% premium during the
next three years, and no penalty during the final year. The new loan documents
have been modified accordingly. Additionally, see Note 7 for further
information pertaining to the acquisition and servicing of the Citicorp note.
The Partnership made installments of principal and interest aggregating
$402,294 during the six months ended June 30, 1998. The Partnership's balance
on this loan was $8,840,292 and $8,900,000 as of June 30, 1998 and December 31,
1997, respectively.
3. REAL ESTATE AND CAPITAL IMPROVEMENTS RESERVE ESCROWS
In addition to the monthly loan installments, as discussed above, the
Partnership also makes monthly payments which are escrowed for estimated annual
real estate taxes and capital improvements and furniture, fixtures and equipment
reserves (CIR). The monthly real estate tax payments equal one-twelfth of the
estimated yearly taxes and assessments to be levied on the hotels, currently
estimated as $37,761 per month. The servicer of the loan pays such taxes and
assessments when due from these escrows. The monthly CIR payment totalling
$19,365 is held in escrow 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 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 June 30, 1998 and December 31, 1997, Citicorp held $75,818 and
$75,522, respectively, for real estate taxes and $402,912 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 RESERVE
The working capital reserve of $1,113,716 and $925,000 as of June 30, 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 $188,716 and
$125,000 as of June 30, 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.
-8-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO BAC HOLDERS
The following distributions were paid or accrued to BAC Holders of record
during the first two quarters of 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
Distributions to Distributions to
BAC Holders BAC Holders
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Quarter Ended Total Per BAC Total Per BAC
------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
March 31 $ 269,285 $ 0.31 $ 382,211 $ 0.44
June 30 269,285 0.31 382,211 0.44
---------- ------- ---------- -------
$ 538,570 $ 0.62 $ 764,422 $ 0.88
========== ======= ========== =======
</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 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 revenues. 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 two 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
-9-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. COMMITMENTS - Continued
at the option of the lessee for an additional five 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 and six months ended June 30, 1998, lease payments were
$153,470, and $423,248, respectively, and $161,182 and $437,652 for the
three and six months ended June 30, 1997, 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 income, was $13,518 and
$27,036 for the three and six months ended June 30, 1998, respectively. and
$13,061 and $26,122 for the three and six months ended June 30, 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 $18,710 and $30,613 for the three and six months ended June 30, 1998,
respectively, and $17,680 and $29,760 for the three and six months ended June
30, 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 and $46,875 for the three and six months ended June 30, 1998,
respectively, and like amounts for the three and six months ended June 30, 1997,
respectively.
The $8.9 million loan originated and underwritten by Citicorp (see Note 2)
was acquired by CRIIMI MAE Inc., and was included in a securitization by them in
June 1998. As master and special servicer for the loan pool, CRIIMI MAE
Services Limited Partnership, a CRIIMI MAE affiliate, will retain a portion of
the cash flow, as well as any prepayment penalties. The Chairman and President
of CRIIMI MAE Inc. are the Chairman and President, respectively, of, and holders
of a 100% equity interest in, C.R.I., Inc. which is the general partner of CRICO
Hotel Associates I, L.P., which, in turn, is the General Partner of the
Partnership.
-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.
A number of investors have taken the opportunity to liquidate their
Beneficial Assignee Certificates (BACs) in the Partnership. Through August 12,
1998, approximately 4.9% of all the BACs have been sold. If more that 5% of the
total outstanding BACs in the Partnership are transferred in any one year period
(not counting certain exempt transfers), the Partnership could be taxed as a
"publicly traded partnership", with potentially severe implications for the
Partnership and its investors. Specifically, the Partnership would be taxed as
a corporation and the income and losses from the Partnership would no longer be
considered a passive activity. Accordingly, to remain within the 5% safe
harbor, effective June 1, 1998, the General Partner of the Partnership has
halted recognition of any transfers that exceed the safe harbor limit. The
result is that there is no liquidity available for BAC Holders wishing to
dispose of their interests until after January 1, 1999.
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 Partnership 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 six months ended
June 30, 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 June 30, 1998 totalled $1,142,607, which
represents a $246,090 decrease from the balance as of December 31, 1997. This
decrease primarily resulted from a decrease in trade payables at four of the
hotels, partially offset by an increase in distributions payable.
-11-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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:
<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 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 the holder. 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, such loan may be prepaid, subject to terms
and prepayment penalties as set forth in the note. Citicorp has notified the
General Partner that it has securitized the new loan in a "no lock" program,
which permits the prepayment of the new loan with a 3% premium during the first
three years, a 2% premium during the next three years, a 1% premium during the
next three years, and no penalty during the final year. The new loan documents
have been modified accordingly.
The Partnership made installments of principal and interest aggregating
$402,294 during the six months ended June 30, 1998. The Partnership's balance
on this loan was $8,840,292 and $8,900,000 as of June 30, 1998 and December 31,
1997, respectively.
-12-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Real Estate And Capital Improvements Reserve Escrows
- ----------------------------------------------------
In addition to the monthly loan installments, as discussed above, the
Partnership also makes monthly payments which are escrowed for estimated annual
real estate taxes and capital improvements and furniture, fixtures and equipment
reserves (CIR). The monthly real estate tax payments equal one-twelfth of the
estimated yearly taxes and assessments to be levied on the hotels, currently
estimated as $37,761 per month. The servicer of the loan pays such taxes and
assessments when due from these escrows. The monthly CIR payment totalling
$19,365 is held in escrow 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 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 June 30, 1998 and December 31, 1997, Citicorp held $75,818 and
$75,522, respectively, for real estate taxes and $402,912 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 $1,113,716 and $925,000 as of June 30, 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 $188,716 and
$125,000 as of June 30, 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 two quarters of 1998 and 1997:
-13-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
1998 1997
Distributions to Distributions to
BAC Holders BAC Holders
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Quarter Ended Total Per BAC Total Per BAC
------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
March 31 $ 269,285 $ 0.31 $ 382,211 $ 0.44
June 30 269,285 0.31 382,211 0.44
---------- ------- ---------- -------
$ 538,570 $ 0.62 $ 764,422 $ 0.88
========== ======= ========== =======
</TABLE>
Results of Operations -- Partnership
------------------------------------
The Partnership's net income, which consists principally of revenues from
hotel operations, decreased approximately $3,000 during the three months ended
June 30, 1998 from the comparable period in 1997 primarily due to increased
property tax expense due to timing differences, increased rooms expense due to
increased labor costs and benefits and decreased rental and other income
primarily due to loss rents during the time lag between the closing of the Happy
Chef restaurant at the Roseville hotel, and its replacement by a new tenant.
Partially offsetting the decrease in the Partnership's net income was an
increase in rooms revenue resulting from increases in room rates at all of the
hotels, and a decrease in energy costs primarily due to decreased occupancy at
all of the hotels.
The Partnership's net income increased approximately $75,000 during the six
months ended June 30, 1998 from the comparable period in 1997 primarily due to
an increase in rooms revenue as discussed above, a decrease in energy expense as
discussed above, and an increase in interest and other income due to higher
working capital balances during 1998. Partially offsetting the increase in the
Partnership's net income was an increase in property tax expense as discussed
above, a decrease in rental and other income as discussed above, an increase in
depreciation and amortization expense due to capital improvements made at the
hotels, and an increase in rooms expense as discussed above.
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:
-14-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<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 summarized 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 and six months ended
June 30, 1998 and 1997 were as follows:
-15-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Gross Operating Income Gross Operating Income
For the three months ended For the six months ended
June 30, June 30,
---------------------------- ----------------------------
Hotel Location 1998 1997 1998 1997
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Clearwater, FL $ 242,328 $ 269,847 $ 667,037 $ 701,543
Minneapolis, MN 446,325 411,187 765,318 714,418
Plymouth, MN 224,776 203,439 357,715 340,366
Roseville, MN 264,070 274,948 479,579 452,829
Scottsdale, AZ 595,243 586,244 1,615,452 1,565,662
------------ ------------ ------------ ------------
Total $ 1,772,742 $ 1,745,665 $ 3,885,101 $ 3,774,818
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Operating Income Operating Income
For the three months ended For the six months ended
June 30, June 30,
---------------------------- ----------------------------
Hotel Location 1998 1997 1998 1997
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Clearwater, FL $ 86,272 $ 105,747 $ 332,967 $ 347,255
Minneapolis, MN 233,708 218,955 349,889 313,533
Plymouth, MN 86,389 60,170 73,707 39,189
Roseville, MN 121,656 118,226 168,114 137,080
Scottsdale, AZ 152,969 130,620 576,846 532,910
Depreciation and Partnership operating expenses (331,701) (284,832) (623,993) (578,626)
------------ ------------ ------------ ------------
Total $ 349,293 $ 348,886 $ 877,530 $ 791,341
============ ============ ============ ============
</TABLE>
-16-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Weighted Weighted
Average Occupancy Average Occupancy
For the three months ended For the six months ended
June 30, June 30,
---------------------------- ----------------------------
Hotel Location 1998 1997 1998 1997
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Clearwater, FL 61% 65% 69% 76%
Minneapolis, MN 89% 90% 81% 83%
Plymouth, MN 76% 77% 64% 69%
Roseville, MN 92% 98% 90% 89%
Scottsdale, AZ 90% 91% 92% 95%
------ ------ ------ ------
Total (2) 82% 85% 80% 83%
====== ====== ====== ======
</TABLE>
(1) Weighted average occupancy is computed by taking into consideration the
number of rooms at each location.
Gross operating income and operating income for the Clearwater hotel for
the three and six months ended June 30, 1998 decreased from the same periods in
1997 primarily due to increased competition from new hotels in the market.
Gross operating income and operating income for the Minneapolis hotel for the
three and six months ended June 30, 1998 increased from the same periods during
1997 despite decreased occupancy primarily due to higher room rates and
decreased operating expenses associated with lower occupancy. Gross operating
income and operating income for the Plymouth hotel for the three and six months
ended June 30, 1998 increased from the same periods in 1997 primarily due to the
positive effects rooms renovation in 1997 which attracted higher-rate business.
Gross operating income for the Roseville hotel for the three months ended June
30, 1998 decreased from the same period in 1997 primarily due to declines in
rental revenue and in guaranteed no-show income. Operating income for the
Roseville hotel for the three months ended June 30, 1998 increased from the same
period in 1997 primarily due to changing vendors, employee incentives and strong
cost controls. Gross operating income and operating income for the Roseville
hotel for the six months ended June 30, 1998 increased from the same period
during 1997 due to increased rental rates. Gross operating income and operating
income for the Scottsdale hotel for the three and six months ended June 30, 1998
increased from the same periods in 1997 primarily due to tighter operational
controls and expense reductions.
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
-17-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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.
-18-
<PAGE>
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 June 30, 1998.
All other items are not applicable.
-19-
<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.
-------------------------------------------
General Partner
by: C.R.I., Inc.
---------------------------------------
its General Partner
August 12, 1998 by: /s/ Michael J. Tuszka
- --------------- -----------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
-20-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE SECOND QUARTER 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 271,990
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 21,820,123
<DEPRECIATION> 9,927,062
<TOTAL-ASSETS> 15,204,804
<CURRENT-LIABILITIES> 1,142,607
<BONDS> 8,713,759
0
0
<COMMON> 0
<OTHER-SE> 5,348,438
<TOTAL-LIABILITY-AND-EQUITY> 15,204,804
<SALES> 0
<TOTAL-REVENUES> 5,470,918
<CGS> 0
<TOTAL-COSTS> 4,593,388
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 342,587
<INCOME-PRETAX> 534,943
<INCOME-TAX> 0
<INCOME-CONTINUING> 534,943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534,943
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
