<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 September 30, 1999
------------------
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 September 30, 1999)
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1999
and December 31, 1998 . . . . . . . . . . . . . . . . 1
Statements of Income - for the three and nine months
ended September 30, 1999 and 1998 . . . . . . . . . . 2
Statement of Changes in Partners' Capital (Deficit)
- for the nine months ended September 30, 1999 . . . 3
Statements of Cash Flows - for the nine months
ended September 30, 1999 and 1998 . . . . . . . . . . 4
Notes to Financial Statements - September 30, 1999
and 1998 . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 10
PART II. Other Information
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 16
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CRI HOTEL INCOME PARTNERS, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Property and equipment - at cost:
Land $ 1,574,490 $ 1,574,490
Buildings and site improvements 13,984,912 13,899,723
Furniture, fixtures and equipment 2,021,856 1,722,517
Leasehold improvements 1,738,913 1,734,899
------------ ------------
19,320,171 18,931,629
Less: accumulated depreciation and amortization (7,159,215) (6,469,906)
------------ ------------
12,160,956 12,461,723
Cash and cash equivalents 248,357 230,935
Working capital reserve 146,375 122,541
Receivables, capital improvements reserves and other assets 1,418,434 997,354
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $397,439 and $371,936, respectively 622,665 648,168
Property purchase costs, net of accumulated amortization
of $70,664 and $66,106, respectively 111,603 116,161
------------ ------------
Total assets $ 14,708,390 $ 14,576,882
============ ============
(Continued)
</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 - Continued
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Distributions payable $ 257,053 $ 186,142
Accounts payable and accrued expenses 1,059,510 531,423
Hotel trade payables 203,594 176,953
Short-term portion of mortgage payable 126,499 131,497
------------ ------------
Total current liabilities 1,646,656 1,026,015
------------ ------------
Long term debt:
Mortgage payable 8,570,040 8,646,746
------------ ------------
Total liabilities 10,216,696 9,672,761
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
General Partner (298,948) (290,700)
Beneficial Assignee Certificates (BACs) Series A;
868,662 BACs issued and outstanding 4,790,642 5,194,821
------------ ------------
Total partners' capital 4,491,694 4,904,121
------------ ------------
Total liabilities and partners' capital $ 14,708,390 $ 14,576,882
============ ============
</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 nine months ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $ 2,268,158 $ 2,288,928 $ 6,985,599 $ 7,326,436
Telephone 55,381 78,259 188,147 234,894
Rental and other 95,003 96,806 268,914 272,670
Food and beverage 15,688 31,037 58,910 76,972
------------ ------------ ------------ ------------
2,434,230 2,495,030 7,501,570 7,910,972
------------ ------------ ------------ ------------
Departmental expenses:
Rooms (703,345) (695,877) (2,004,617) (2,051,457)
Telephone (33,022) (39,401) (93,825) (99,431)
Rental and other (38,169) (42,932) (110,830) (121,596)
Food and beverage (12,055) (25,867) (44,525) (62,434)
------------ ------------ ------------ ------------
(786,591) (804,077) (2,253,797) (2,334,918)
------------ ------------ ------------ ------------
Gross operating income 1,647,639 1,690,953 5,247,773 5,576,054
------------ ------------ ------------ ------------
Unallocated operating income (expenses):
Interest and other income 16,921 24,036 60,026 79,012
General and administrative (272,141) (258,169) (870,243) (847,714)
Building lease (97,765) (124,454) (481,090) (547,702)
Marketing (217,527) (214,182) (671,039) (666,939)
Depreciation and amortization (247,269) (259,569) (731,586) (760,841)
Energy (140,220) (142,627) (378,072) (377,829)
Property taxes (152,556) (145,053) (457,578) (470,233)
Property operations and maintenance (151,726) (146,850) (470,525) (423,163)
Management fees (85,193) (87,308) (262,487) (276,783)
Base asset management fee, paid to related parties (23,438) (23,437) (70,313) (70,312)
Professional fees (11,309) (12,224) (34,396) (34,904)
------------ ------------ ------------ ------------
(1,382,223) (1,389,837) (4,367,303) (4,397,408)
------------ ------------ ------------ ------------
Operating income 265,416 301,116 880,470 1,178,646
Other expense:
Interest expense (171,972) (170,421) (521,738) (513,008)
------------ ------------ ------------ ------------
Net income $ 93,444 $ 130,695 $ 358,732 $ 665,638
============ ============ ============ ============
</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 nine months ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income allocated to General Partner (2%) $ 1,869 $ 2,614 $ 7,175 $ 13,313
============ ============ ============ ============
Net income allocated to BAC Holders (98%) $ 91,575 $ 128,081 $ 351,557 $ 652,325
============ ============ ============ ============
Net income per BAC, based on 868,662 BACs outstanding $ 0.11 $ 0.15 $ 0.40 $ 0.75
============ ============ ============ ============
</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, January 1, 1999 $(290,700) $ 5,194,821 $ 4,904,121
Distributions paid or accrued of $0.87 per BAC
(including return of capital of $0.47 per BAC) (15,423) (755,736) (771,159)
Net income 7,175 351,557 358,732
--------- ----------- -----------
Balance, September 30, 1999 $(298,948) $ 4,790,642 $ 4,491,694
========= =========== ===========
</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 nine months ended
September 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 358,732 $ 665,638
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 731,586 760,841
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets, net (672,297) 89,210
Increase (decrease) in accounts payable and accrued expenses 528,087 (41,338)
Increase (decrease) in hotel trade payables 26,641 (208,095)
------------ ------------
Net cash provided by operating activities 972,749 1,266,256
------------ ------------
Cash flows from investing activities:
Net additions to property and equipment (388,542) (716,125)
Net (deposits to) withdrawals from working capital reserve (23,834) 164,850
Net withdrawals from (deposits to) capital improvements reserves 239,001 (159,282)
------------ ------------
Net cash used in investing activities (173,375) (710,557)
------------ ------------
Cash flows from financing activities:
Distributions paid to BAC Holders and General Partner (700,248) (744,568)
Payment of principal on mortgage payable (81,704) (90,434)
------------ ------------
Net cash used in financing activities (781,952) (835,002)
------------ ------------
Net increase (decrease) in cash and cash equivalents 17,422 (279,303)
Cash and cash equivalents, beginning of period 230,935 380,294
------------ ------------
Cash and cash equivalents, end of period $ 248,357 $ 100,991
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 521,738 $ 513,008
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-6-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 AND 1998
(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, consisting of normal recurring
accruals, necessary for a fair presentation of the Partnership's financial
position as of September 30, 1999, and the results of its operations for the
three and nine months ended September 30, 1999 and 1998, and its cash flows for
the nine months ended September 30, 1999 and 1998. The results of operations
for the interim period ended September 30, 1999, 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 such instructions. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-KSB at December 31, 1998.
2. NOTES PAYABLE
On December 19, 1997, the Partnership refinanced with Citicorp Real Estate,
Inc. (Citicorp) the Zero Coupon Notes (Former Notes) which were originally
issued in connection with the Partnership's acquisition of the hotels. 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 $7,273,441
will be due. In accordance 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. The new loan has been
securitized 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. Additionally, see Note 7 for further information pertaining to the
acquisition and servicing of this loan.
-7-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 AND 1998
(Unaudited)
2. NOTES PAYABLE - Continued
The Partnership made installments of principal and interest aggregating
$603,442 during the nine months ended both September 30, 1999 and 1998. The
Partnership's balance on this loan was $8,696,539 and $8,778,243 as of September
30, 1999 and December 31, 1998, respectively.
3. REAL ESTATE TAX AND CAPITAL IMPROVEMENTS RESERVES 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 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 $40,745 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 September 30, 1999 and December 31, 1998, the servicer held $414,002
and $53,486, respectively, for real estate taxes and $128,290 and $373,151,
respectively, for capital improvements reserves. These amounts are included in
receivables, capital improvements reserves and other assets in the accompanying
financial statements.
4. WORKING CAPITAL RESERVE
The working capital reserve of $146,375 and $122,541 as of September 30,
1999 and December 31, 1998, respectively, 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.
-8-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 AND 1998
(Unaudited)
5. DISTRIBUTIONS TO BAC HOLDERS
The following distributions were paid or accrued to BAC holders of
record during the first three quarters of 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
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 $ 251,912 $ 0.29 $ 269,285 $ 0.31
June 30 251,912 0.29 269,285 0.31
September 30 251,912 0.29 269,285 0.31
---------- ------- ---------- -------
$ 755,736 $ 0.87 $ 807,855 $ 0.93
========== ======= ========== =======
</TABLE>
6. COMMITMENTS
a. Hotel operations management agreements
--------------------------------------
The Partnership entered into management agreements with Bryanston
Group d/b/a Buckhead Hotel Management Company, Inc. (Buckhead) in
connection with operation of the hotels. The management agreements expire
between November 2002 and July 2003, and provide for a base asset
management fee of 3.5% of gross revenues from operations. The management
agreements also call for a marketing fee of 1.5% of net room revenues, a
reservation fee of 2.3% of gross revenues from rental of hotel guest rooms,
and an incentive management fee 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. No incentive management fees were earned for the first
three quarters of 1999 or 1998.
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 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 nine months ended September 30, 1999, lease
-9-
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 AND 1998
(Unaudited)
6. COMMITMENTS - Continued
payments were $97,765 and $481,090, respectively, and $124,454 and $547,702
for the three and nine months ended September 30, 1998, 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 in the accompanying statements of income, was $13,991 and
$41,973 for the three and nine months ended September 30, 1999,
respectively and $13,518 and $40,554 for the three and nine months ended
September 30, 1998, 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 $7,104 and $31,355 for the three and nine months ended September 30,
1999, respectively, and $18,710 and $42,118 for the three and nine months ended
September 30, 1998, 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 in the
accompanying statements of income.
The 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. The Partnership paid or accrued a base asset management fee of
$23,438 and $70,313 during the three and nine months ended September 30, 1999,
respectively, and $23,437 and $70,312 during the three and nine months ended
September 30, 1998, 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 it 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>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 AND 1998
(Unaudited)
7. RELATED-PARTY TRANSACTIONS - Continued
On August 27, 1999, C.R.I., Inc., the general partner of the General
Partner, advanced $28,000 to the Partnership in the form of a non-interest
bearing loan. On September 9, 1999, this loan was repaid in full by the
Partnership.
On September 30, 1999, the Partnership advanced $150,000 to the Scottsdale
hotel in the form of a non-interest bearing loan. The Scottsdale hotel has
agreed to repay $100,000 to the Partnership no later than November 20, 1999,
with the remaining balance of $50,000 to be repaid to the Partnership no later
than December 20, 1999.
-11-
<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 section 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 the periodic replacement of fixed assets, which are primarily
funded from the capital improvements reserves, the General Partner has
determined that certain capital improvements may be needed to enhance the
marketability of the hotels. During 1998 and 1997, the Partnership funded a
total of approximately $1.2 million from the working capital reserve to the
hotels for such capital improvements, and additional working capital reserves
may be applied during 1999 for further needed capital improvements.
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 and liquidity 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
nine months ended September 30, 1999 and 1998, along with existing cash
resources, were adequate to support operating, investing and financing
requirements, and to declare distributions to BAC holders and the General
Partner. Cash and cash equivalents increased slightly during the nine months
ended September 30, 1999, as the cash provided by operating activities was
approximately offset by cash used in investing activities, and by cash used in
financing activities, primarily for distributions to BAC holders. The General
Partner 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 the working capital
and capital improvements reserves. Current liabilities as of September 30, 1999
totalled $1,646,656, which represents a $620,641 increase from the balance as of
December 31, 1998. This increase primarily resulted from an increase in accrued
expenses at all five of the hotels, an increase in distributions payable, and an
increase in trade payables at three of the hotels.
Financing
- ---------
On December 19, 1997, the Partnership refinanced with Citicorp Real Estate,
Inc. (Citicorp) the Zero Coupon Notes (Former Notes) which were originally
issued in connection with the Partnership's acquisition of the hotels. 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
-12-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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 $7,273,441
will be due. In accordance 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. The new loan has been
securitized 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 Partnership made installments of principal and interest aggregating
$603,442 during the nine months ended both September 30, 1999 and 1998. The
Partnership's balance on this loan was $8,696,539 and $8,778,243 as of September
30, 1999 and December 31, 1998, respectively.
Real Estate Tax And Capital Improvements Reserves 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 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 $40,745 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 September 30, 1999 and December 31, 1998, the servicer held $414,002
and $53,486, respectively, for real estate taxes and $128,290 and $373,151,
respectively, for capital improvements reserves. These amounts are included in
receivables, capital improvements reserves and other assets in the accompanying
financial statements.
Working Capital Reserve
- -----------------------
The working capital reserve of $146,375 and $122,541 as of September 30,
1999 and December 31, 1998, respectively, 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.
-13-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Distributions to BAC Holders
- ----------------------------
The following distributions were paid or accrued to BAC holders of record
during the first three quarters of 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
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 $ 251,912 $ 0.29 $ 269,285 $ 0.31
June 30 251,912 0.29 269,285 0.31
September 30 251,912 0.29 269,285 0.31
---------- ------- ---------- -------
$ 755,736 $ 0.87 $ 807,855 $ 0.93
========== ======= ========== =======
</TABLE>
Results of Operations -- Partnership
------------------------------------
The Partnership's net income, which consists principally of revenues from
hotel operations, decreased approximately $37,000 during the three months ended
September 30, 1999 from the comparable period in 1998 primarily due to a
decrease in telephone revenue due to decreased occupancy at four of the hotels
combined with increased cellular phone and prepaid calling card usage; a
decrease in rooms revenue, which was caused by competition from new hotels in
the Clearwater, Scottsdale and Plymouth markets, resulting in decreased
occupancy at each of these hotels; and a decrease in food and beverage revenue
due to the loss of a major banquet client at the Scottsdale hotel. The decrease
in net income was also due to an increase in general and administrative expenses
primarily due to increased payroll costs and an increase in rooms expense
primarily due to the use of contract labor to compensate for labor shortages in
the Minneapolis market. Partially offsetting the decrease in the Partnership's
net income were a decrease in building lease expense due to decreased revenues
at the Scottsdale hotel (the building lease is based on a percentage of rental
revenues), a decrease in food and beverage expense due to the loss of a major
banquet client at the Scottsdale hotel, and a decrease in depreciation and
amortization expense as some fixed assets became fully depreciated during 1998.
The Partnership's net income decreased approximately $307,000 during the
nine months ended September 30, 1999 from the comparable period in 1998
primarily due to a decrease in rooms revenue, as discussed above, and an
increase in property operations and maintenance expense due to necessary repairs
and updgrades resulting from renovation work performed at the hotels which did
not qualify as capitalizable improvements. Contributing to the decrease in the
Partnership's net income were a decrease in telephone revenue, an increase in
general and administrative expenses, and a decrease in food and beverage
revenue, all as discussed above, and a decrease in interest and other income due
to generally lower cash and cash equivalents balances during 1999. Partially
-14-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
offsetting the decrease in the Partnership's net income were a decrease in
building lease expense, as discussed above, a decrease in rooms expense due to
decreased occupancy at all of the hotels combined with various staffing
shortages, and decreases in depreciation and amortization expense and food and
beverage expense, both 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:
<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 nine months ended
September 30, 1999 and 1998, follow.
-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 nine months ended
September 30, September 30,
---------------------------- ----------------------------
Hotel Location 1999 1998 1999 1998
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Clearwater, FL $ 158,751 $ 189,830 $ 764,768 $ 856,867
Minneapolis, MN 523,708 489,610 1,292,008 1,254,928
Plymouth, MN 278,630 286,263 626,986 643,978
Roseville, MN 335,582 296,327 779,563 775,906
Scottsdale, AZ 350,968 428,923 1,784,448 2,044,375
------------ ------------ ------------ ------------
Total $ 1,647,639 $ 1,690,953 $ 5,247,773 $ 5,576,054
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Operating Income Operating Income
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
Hotel Location 1999 1998 1999 1998
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Clearwater, FL $ 28,586 $ 30,122 $ 248,480 $ 363,089
Minneapolis, MN 293,551 278,514 621,611 628,403
Plymouth, MN 116,378 141,193 166,685 214,900
Roseville, MN 165,014 140,107 273,319 308,221
Scottsdale, AZ (29,247) 8,536 427,305 585,382
Depreciation and Partnership operating expenses (308,866) (297,356) (856,930) (921,349)
------------ ------------ ------------ ------------
Total $ 265,416 $ 301,116 $ 880,470 $ 1,178,646
============ ============ ============ ============
</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 nine months ended
September 30, September 30,
---------------------------- ----------------------------
Hotel Location 1999 1998 1999 1998
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Clearwater, FL 51% 55% 60% 64%
Minneapolis, MN 90% 92% 82% 85%
Plymouth, MN 74% 80% 64% 70%
Roseville, MN 89% 87% 80% 89%
Scottsdale, AZ 76% 84% 81% 89%
------ ------ ------ ------
Total (1) 76% 80% 74% 80%
====== ====== ====== ======
</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 nine months ended September 30, 1999 decreased from the same
periods in 1998 primarily due to the opening of five new hotels in the
Clearwater area. This new competition resulted in decreased occupancy at the
hotel. Gross operating income for the Minneapolis hotel for the three and nine
months ended September 30, 1999, as well as operating income for the Minneapolis
hotel for the three months ended September 30, 1999 increased from the same
periods during 1998 primarily due to a shift in the marketing efforts at the
hotel to attract higher-rated business, while sacrificing small amounts of
occupancy. Operating income for the Minneapolis hotel for the nine months ended
September 30, 1999 decreased from the same period in 1998 primarily due to
increased marketing costs and an increase in real estate taxes at the hotel.
Gross operating income and operating income for the Plymouth hotel for the three
and nine months ended September 30, 1999 decreased from the same periods in 1998
primarily due to new competition from a recently renovated neighboring hotel
which resulted in decreased occupancy at the Plymouth hotel. Gross operating
income and operating income for the Roseville hotel for the three and nine
months ended September 30, 1999, as well as operating income for the Roseville
hotel for the three months ended September 30, 1999 increased from the same
periods in 1998 primarily due to higher room rates charged by the hotel
resulting from recent renovations at the hotel. Operating income for the
Roseville hotel for the nine months ended September 30, 1999 decreased from the
same period during 1998 primarily due to a decline in the trucking business in
that area which resulted in decreased occupancy at the hotel. Gross operating
income and operating income for the Scottsdale hotel for the three and nine
months ended September 30, 1999 decreased from the same periods in 1998
primarily due to a recent surge in mid-level hotel growth in the Scottsdale
area, resulting in decreased occupancy at the hotel.
-17-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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. To address
the issue, the Managing General Partner has developed and is currently
implementing a plan (the "Y2K Project") designed to ensure that the Y2K date
change will not have an adverse impact on the Partnership's operations. The Y2K
Project is on schedule and the Managing General Partner expects completion by
the end of 1999. The Y2K Project consists of four phases -- Planning,
Assessment, Implementation and Testing. The Planning Phase began early in 1998
and is complete. Under the Planning Phase, the Managing General Partner
conducted an inventory of all internal hardware and software systems, data
interfaces, business operations and non-information technology functions which
may be susceptible to the Y2K issue. This phase was completed at the end of
November 1998. Under the next phase, the Assessment Phase, all applications and
functions identified in the Planning Phase were analyzed to determine Y2K
compliance and the materiality of each identified risk. In the event of
noncompliance for material risks, timetables for corrective action, as well as
estimated costs to achieve compliance, were determined. This phase was
completed during the first quarter of 1999. The Implementation Phase is now
underway. Renovation and replacement of existing internal hardware and software
systems has begun and completion is expected by December 1999. Additionally,
the Managing General Partner is currently working with third party vendors,
service providers, and Buckhead to verify their Y2K compliance, with completion
expected by December 1999. The Testing Phase, which includes testing of
internal applications as well as some third party systems, began during January
1999 and will continue throughout 1999. Contingency planning commenced during
the fourth quarter 1998 and will be completed by year-end 1999. The Managing
General Partner does not expect the expense associated with the Y2K Project to
be material.
-18-
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 5. OTHER INFORMATION
-----------------
The Partnership's Beneficial Assignee Certificates (BACs) are not publicly
traded on any registered stock exchange but can be traded on an informal
secondary market. During 1998 and 1999, a number of investors sold their BACs
in the Partnership to other investors. If more than 5% of the total outstanding
BACs in the Partnership are transferred in any one calendar year (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. From January 1 through May 22, 1998, approximately 4.9% of
outstanding BACs were sold. Accordingly, to remain within the 5% safe harbor,
effective June 1, 1998, the General Partner of the Partnership halted
recognition of any transfers that exceeded the safe harbor limit through
December 31, 1998. This halt was lifted effective January 1, 1999. From
January 1, 1999 through February 15, 1999, approximately 4.9% of outstanding
BACs were sold. Accordingly, to remain within the 5% safe harbor, effective
February 22, 1999, the General Partner again halted recognition of any transfers
that exceed the safe harbor limit through December 31, 1999. As a result,
transfers of BACs due to sales transactions will not be recognized by the
Partnership until after December 31, 1999.
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 September 30, 1999.
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
November 12, 1999 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 THIRD QUARTER 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 248,357
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,320,171
<DEPRECIATION> 7,159,215
<TOTAL-ASSETS> 14,708,390
<CURRENT-LIABILITIES> 1,646,656
<BONDS> 8,570,040
0
0
<COMMON> 0
<OTHER-SE> 4,491,694
<TOTAL-LIABILITY-AND-EQUITY> 14,708,390
<SALES> 0
<TOTAL-REVENUES> 7,561,596
<CGS> 0
<TOTAL-COSTS> 6,681,126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 521,738
<INCOME-PRETAX> 358,732
<INCOME-TAX> 0
<INCOME-CONTINUING> 358,732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 358,732
<EPS-BASIC> 0.40
<EPS-DILUTED> 0.40
</TABLE>
