<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------
Commission file number 33-11096
-----------------
CRI HOTEL INCOME PARTNERS, L.P.
- -----------------------------------------------------------------------
(Name of small business issuer in its charter)
District of Columbia 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)
Issuer's telephone number (301) 468-9200
-----------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE N/A
- ----------------------------------------- ----------------------
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignee Certificates
- ------------------------------------------------------------------------
(Title of class)
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 (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]
State issuer's revenues for its most recent fiscal year. $10,111,153
The partnership interests of the Registrant are not traded in any market.
Therefore, the partnership interests had neither a market selling price nor an
average bid or asked price within the 60 days prior to the date of this filing.
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
1998 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
Page
----
PART I
------
Item 1. Business . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . I-2
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . I-2
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-2
PART II
-------
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . II-1
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . II-2
Item 7. Financial Statements . . . . . . . . . . . . . . II-9
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . II-9
PART III
--------
Item 9. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . III-1
Item 10. Executive Compensation . . . . . . . . . . . . . III-2
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . III-2
Item 12. Certain Relationships and Related Transactions . III-3
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . III-4
Signatures . . . . . . . . . . . . . . . . . . . . . . . . III-6
Financial Statements . . . . . . . . . . . . . . . . . . . III-8
<PAGE>
PART I
------
ITEM 1. BUSINESS
--------
Development and Description of Business
- ---------------------------------------
CRI Hotel Income Partners, L.P. (the Partnership) is a limited partnership
which was formed under the Delaware Revised Uniform Limited Partnership Act as
of September 23, 1986 and will continue until December 31, 2016, unless
dissolved earlier in accordance with the Partnership Agreement. The Partnership
was formed for the purpose of investing in hotels that were acquired from Days
Inns of America, Inc. (Days Inns). The Partnership's primary objective
continues to be cash flow growth and capital appreciation. However, the
attainment of this objective is principally dependent on the hotels' operations.
The hotels are operated by Bryanston Group d/b/a Buckhead Hotel Management
Company, Inc. (Buckhead), formerly known as Days Inns Management Company, Inc.,
under the nationally recognized franchise name of Days Inns.
The General Partner of the Partnership is CRICO Hotel Associates I, L.P.
(CRICO Associates), a Delaware limited partnership, the general partner of which
is C.R.I., Inc. (CRI), a Delaware corporation. The General Partner has
authority in the overall management and control of the Partnership. The
Assignor Limited Partner of the Partnership is CRICO Hotel Fund, Inc. (CRICO
Hotel Fund).
The Registration Statement of the Partnership was declared effective by the
Securities and Exchange Commission (SEC) on April 17, 1987, and a Prospectus of
the same date was printed. The Partnership registered a total of 6,000,000
Beneficial Assignee Certificates (BACs), at $25 per BAC, with the SEC. BACs
represent beneficial assignments of limited partner interests which are held by
CRICO Hotel Fund. BACs were to be offered in series, with Series A having a
minimum of 196,000 BACs, or $4,900,000, and a maximum of 2,344,000 BACs, or
$58,600,000. The Partnership terminated the Series A offering on March 31, 1988
with 868,662 BACs, or gross proceeds of $21,716,550, and does not intend to
offer another series.
The number of BACs sold, along with debt instruments issued by the
Partnership, as discussed below, generated sufficient proceeds to purchase five
hotels and one leasehold interest, discussed below.
In addition to the capital provided by the sale of BACs, the Partnership
issued Zero Coupon Notes (the Notes) to finance its acquisition of the hotels.
The Partnership's original prospectus indicated that the hotels would need to be
sold or the debt would need to be refinanced at the time the Notes mature. The
prospectus also indicated that the Partnership intended to sell the hotels
(after a period of time not likely to be longer than twelve years after the date
of acquisition) if financial conditions in the future make such sales desirable.
During 1997, the General Partner solicited and reviewed offers for both sale and
refinancing opportunities for the hotels. The solicitation, however, did not
result in a purchase offer which would provide an adequate return to the BAC
holders. As a result, the General Partner chose to refinance the loans on the
four hotels. Proceeds of the refinancing were adequate to pay the maturing
Notes and to set aside reserves for capital improvements, which may enhance the
potential for a higher sale price in the future. The General Partner is not
currently soliciting sale offers. See Part II, Item 6, Management's Discussion
and Analysis of Financial Condition and Results of Operations, and the notes to
the financial statements for additional information pertaining to the
refinancing.
I-1
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
Employees
- ---------
The Partnership has no employees. Services are performed by C.R.I., Inc.,
the general partner of the General Partner, and agents retained by it.
I-2
<PAGE>
PART I
------
ITEM 2. PROPERTIES
----------
A description of the hotels and the leasehold interest owned by the
Partnership as of December 31, 1998, follows.
<TABLE>
<CAPTION>
ORIGINALLY AMOUNT OF
NAME AND LOCATION NO. OF ROOMS DATE ACQUIRED FINANCED BY PURCHASE
- ------------------------ ------------ ------------- --------------------------- ---------------
<S> <C> <C> <C> <C>
Minneapolis Days Inn 130 11/01/87 Proceeds of public offering $4,800,000
Minneapolis, Minnesota and Zero Coupon Purchase
Money Note
Plymouth Days Inn 115 12/30/87 Proceeds of public offering $4,000,000
Plymouth, Minnesota and Zero Coupon Purchase
Money Note
Roseville Days Inn 114 03/01/88 Proceeds of public offering $4,200,000
Roseville, Minnesota and Zero Coupon Purchase
Money Note
Clearwater Days Inn 120 04/01/88 Proceeds of public offering $3,750,000
Clearwater, Florida and Zero Coupon Purchase
Money Note
Scottsdale Days Inn 165 07/01/88 Proceeds of public offering $2,000,000
Scottsdale, Arizona
(leasehold interest)
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material pending legal proceedings to which the Partnership is
a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
I-3
<PAGE>
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------
(a) The Partnership's BACs are not publicly traded on any registered stock
exchange but can be traded on an informal secondary market. During 1997
and 1998, a number of investors sold their Beneficial Assignee Certificates
(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 exceed 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 the outstanding BACs were
sold. To remain within the 5% safe harbor, effective February 22, 1999,
the General Partner has again halted recognition of any transfers that
exceed the safe harbor limit through December 31, 1999. As a result,
current BAC holders may not sell their interests in the Partnership until
after December 31, 1999.
(b) As of March 25, 1999, there were approximately 1,460 registered holders of
BACs in the Partnership.
(c) Cash available for distribution, as defined in the Partnership Agreement,
is intended to be distributed on a quarterly basis within sixty days after
the end of each calendar quarter. The Partnership paid or accrued
distributions of $990,274 and $1,337,739 to BAC Holders during 1998 and
1997, respectively. See Part II, Item 6, Management's Discussion and
Analysis of Financial Condition and Results of Operations, for additional
information regarding the distributions during the years ended December 31,
1998 and 1997 and for a discussion of factors which will affect future
distribution levels.
II-1
<PAGE>
PART II
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
CRI Hotel Income Partners, L.P. (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 reserve, the General Partner has determined
that significant capital improvements are needed to enhance the marketability of
the hotels. During 1998 and 1997, the Partnership funded $832,403 and $361,584,
respectively, from the working capital reserve to the hotels to address such
capital improvements. Of these amounts, $252,942 and $0 as of December 31, 1998
and 1997, respectively, were reimbursable to the Partnership from the capital
improvement reserves held by the lender. As of March 25, 1999, the Partnership
has been reimbursed $298,583 from the capital improvement reserves held by the
lender. Additionally, the General Partner intends to fund additional monies to
the hotels for further needed capital improvements during 1999. 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 1998 and 1997, along
with existing cash resources, was adequate to support operating, investing and
financing requirements, and to declare distributions to BAC Holders and the
General Partner. Cash and cash equivalents decreased in 1998 principally due to
the debt service payments made in connection with the terms of the Partnership's
new financing, as discussed below. Cash and cash equivalents decreased in 1997
principally due to deposits to the Partnership's working capital reserve. The
Partnership anticipates 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 fund the
working capital and capital improvement reserves. Current liabilities as of
December 31, 1998 totalled $1,026,015, which amount represents a $362,682
decrease from the 1997 balance. This decrease resulted primarily from a
decrease in hotel trade payables at all five hotels and a decrease in accounts
payable and accrued expenses at four of the hotels.
II-2
<PAGE>
PART II
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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
amounts due on the former Notes as of December 19, 1997, follow.
<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 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.
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. Subject to such prepayment terms, the refinancing of the Former
Notes does not preclude the future sale of the hotels, either individually or as
a portfolio.
During 1998, the Partnership made installments of principal and interest
aggregating $804,589. The Partnership's balance on this loan was $8,778,243 and
$8,900,000 as of December 31, 1998 and 1997, respectively.
II-3
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Real Estate Tax 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 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 totaling $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 December 31, 1998 and 1997, Citicorp held $53,486 and $75,522,
respectively, for real estate taxes and $373,151 and $286,725, respectively, for
capital improvement reserves. These amounts are included in receivables,
capital improvements reserve and other assets in the accompanying financial
statements.
Working Capital Reserve
- -----------------------
The working capital reserve of $122,541 and $925,000 as of December 31,
1998 and 1997, 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. During 1998 and 1997, the Partnership funded $832,403 and
$361,584, respectively, from the working capital reserve for capital
improvements at the hotels. Of these amounts, $252,942 and $0 as of December
31, 1998 and 1997, respectively, were reimbursable to the Partnership from the
capital improvement reserves held by the lender. As of March 25, 1999, the
Partnership has been reimbursed $298,583 from the capital improvement reserves
held by the lender.
Distributions
- -------------
Distributions paid or accrued to BAC Holders of record during 1998 and 1997
follow.
II-4
<PAGE>
PART II
-------
ITEM 6. 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
------------------------ ------------------------
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
September 30 269,285 0.31 382,211 0.44
December 31 182,419 0.21 191,106 0.22
----------- ------- ----------- -------
Total $ 990,274 $ 1.14 $ 1,337,739 $ 1.54
=========== ======= =========== =======
</TABLE>
As a result of debt service payments made in connection with terms of the
new financing and the increased funding of working capital reserves during 1998,
as discussed above, the distribution levels for 1998 decreased from 1997.
Furthermore, the General Partner anticipates a further decrease in the 1999
distribution levels. Distributions are also dependent on the net cash flow
produced from hotel operations, net of Partnership expenses. The cash flow from
certain hotels may be materially affected by changing market conditions and by
seasonality.
Partnership's Results of Operations
-----------------------------------
1998 versus 1997
- ----------------
The Partnership's net income, which consists principally of revenues from
hotel operations, increased approximately $30,000 in 1998 from 1997, primarily
due to a decrease in depreciation and amortization expense due to a large
portion of fixed assets which were fully depreciated during 1997. Contributing
to the increase in the Partnership's net income were a decrease in rooms expense
at the University of Minnesota hotel (Minneapolis hotel) due to a short-term
student housing contract which required less labor expenses than 1-2 night stay
customers, and at the Roseville hotel due to a decline in the trucking business
which resulted in decreased occupancy at the hotel. Also contributing to the
increase in the Partnership's net income were a decrease in energy expense due
to a milder winter and lower occupancy at the hotels, a decrease in building
lease expense due to decreased revenues at the Scottsdale hotel (the building
lease expense is based on a percentage of rental revenues), an increase in
interest and other income due to higher working capital balances during most of
1998 and decreased management fees due to decreased incentive management fees
for the Scottsdale hotel (these fees are earned and paid based on the hotel's
net income). Partially offsetting the increase in the Partnership's net income
were a loss on disposal of assets resulting from the replacement of assets which
were not fully depreciated with new 1998 capital improvements, and a decrease in
rooms revenue primarily due to decreased occupancy at the Clearwater hotel due
II-5
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
to renovation work performed at the hotel and decreased occupancy at the
Roseville hotel due to a decline in the trucking business, as discussed below.
Also partially offsetting the increase in the Partnership's net income were an
increase in property taxes due to recent capital improvements and a decrease in
rental and other income due to the temporary loss of tenants for leased space at
the Roseville and Clearwater hotels.
Hotels' Results of Operations
-----------------------------
Operating statistics
- --------------------
The hotels' results of operations are affected by changing market
conditions and by seasonality caused by variables such as vacations, holidays
and climate. Based on the hotels' operating budgets, the following months should
provide the highest gross operating income and net cash flow.
Hotel Location Peak Months
------------------ ---------------------
Clearwater, FL October through April
Minneapolis, MN May through October
Plymouth, MN June through October
Roseville, MN May through October
Scottsdale, AZ January through May
The Partnership's Statements of Operations include operating results for
each of the hotels as outlined below. Gross Operating Income represents total
revenue from rooms, telephone, food and beverage and rental and other, less the
related departmental expenses. Operating Income (Loss) represents Gross
Operating Income less unallocated operating income (expenses). The operating
results and average occupancy for the hotels for the years ended December 31,
1998 and 1997 follow.
<TABLE>
<CAPTION>
Gross Operating Income
------------------------------------
Hotel Location 1998 1997
-------------- ------------ ------------
<S> <C> <C>
Clearwater, FL $ 985,726 $ 1,171,200
Minneapolis, MN 1,627,243 1,473,267
Plymouth, MN 810,457 774,275
Roseville, MN 965,288 987,912
Scottsdale, AZ 2,619,781 2,638,550
------------ ------------
Total $ 7,008,495 $ 7,045,204
============ ============
</TABLE>
II-6
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Operating Income (Loss)
------------------------------------
Hotel Location 1998 1997
-------------- ------------ ------------
<S> <C> <C>
Clearwater, FL $ 349,612 $ 484,617
Minneapolis, MN 797,303 678,589
Plymouth, MN 236,265 180,627
Roseville, MN 347,414 332,571
Scottsdale, AZ 664,876 670,835
Depreciation and net Partnership
operating expenses (1,039,089) (1,151,418)
------------ ------------
Total $ 1,356,381 $ 1,195,821
============ ============
</TABLE>
<TABLE>
<CAPTION>
Average Occupancy
------------------------------------
Hotel Location 1998 1997
-------------- ------------ ------------
<S> <C> <C>
Clearwater, FL 60% 70%
Minneapolis, MN 84% 81%
Plymouth, MN 67% 69%
Roseville, MN 85% 92%
Scottsdale, AZ 87% 91%
------------ ------------
Total (1) 77% 81%
============ ============
</TABLE>
(1) The totals for average occupancy are based on a weighted average taking
into consideration the number of rooms at each location.
1998 versus 1997
- ----------------
Gross operating income and operating income for the Clearwater hotel
decreased in 1998 from 1997 primarily due to increased competition from new
hotels in the market which affected corporate and hotel direct room nights.
Additionally, two major clients relocated to a new city and another major client
ceased business with the hotel to opt for other corporate housing alternatives
due to internal corporate changes. Gross operating income and operating income
for the Minneapolis hotel increased in 1998 from 1997 primarily due to higher
room rates and increased occupancy, which were primarily the result of new
business with the University of Minnesota to provide housing for students due to
temporary overcrowding in the dormitories. Gross operating income and operating
income for the Plymouth hotel increased in 1998 from 1997, despite decreased
II-7
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
occupancy, primarily due to the positive effect of rooms renovation in 1997,
which attracted higher-rate business in 1998. Gross operating income for the
Roseville hotel decreased slightly in 1998 from 1997, primarily due to a decline
in the trucking business in that area which resulted in decreased occupancy.
Operating income for the Roseville hotel increased in 1998 from 1997 primarily
due to lower maintenance costs resulting from renovation at the hotel and lower
energy costs resulting from a milder winter. Gross operating income and
operating income for the Scottsdale hotel decreased slightly in 1998 from 1997
primarily due to decreased occupancy resulting from increased competition in the
market and loss of business from a major client.
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 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 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 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
June 1999. Additionally, the General Partner is currently working with third
party vendors, service providers and Buckhead to verify their Y2K compliance.
Final completion of this phase is expected by June 1999. The Testing Phase,
which will include testing of internal applications as well as third party
systems, began during January 1999 and will continue throughout 1999.
Contingency planning commenced during the fourth quarter of 1998 and will be
completed by year-end 1999. The General Partner does not expect the expense
associated with the Y2K Project to be material.
II-8
<PAGE>
PART II
-------
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item is contained in Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURES
------------------------------------
None.
II-9
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a), (b) and (c)
The Partnership has no directors, executive officers or significant
employees of its own.
(a), (b), (c) and (e)
The names, ages and business experience of the directors and executive
officers of C.R.I., Inc. (CRI), the General Partner of the
Partnership, are as follows:
William B. Dockser, 62, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment properties. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.
H. William Willoughby, 52, has been President, Secretary and a Director of CRI
since January 1990 and was Senior Executive Vice President, Secretary and a
Director of CRI from 1974 to 1989. He is principally responsible for the
financial management of CRI and its associated partnerships. Prior to joining
CRI in 1974, he was Vice President of Shelter Corporation of America and a
number of its subsidiaries dealing principally with real estate development and
equity financing. Before joining Shelter Corporation, he was a senior tax
accountant with Arthur Andersen & Co. He holds a Juris Doctor degree, a Master
of Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc. and CRIIMI, Inc.
Ronald W. Thompson, 52, is Group Executive Vice President-Hotel Asset
Management. Prior to joining CRI in 1985, he was employed at the Hyatt
Organization where he most recently served as the General Manager of the Hyatt
Regency in Flint, Michigan. During his nine year tenure with Hyatt, he held
senior management positions with the Hyatt Regency in Dearborn, Michigan, the
Hyatt in Richmond, Virginia, the Hyatt in Winston-Salem, North Carolina and the
Hyatt Regency in Atlanta, Georgia. Before joining Hyatt, Mr. Thompson worked
in London, England for the English Tourist Board as well as holding management
positions in Europe, Australia, and New Zealand in the hotel industry. Mr.
Thompson received his education in England where he received a business degree
in Hotel Administration from Winston College.
Susan R. Campbell, 40, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985, she was a budget analyst for the B. F. Saul
Advisory Company. She holds a Bachelor of Science degree in General Business
from the University of Maryland.
III-1
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
Melissa Cecil Lackey, 43, is Senior Vice President and General Counsel. Prior
to joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctor degree from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The information required by Item 10 is incorporated herein by reference to
Note 8 of the notes to the financial statements contained in Part III, Item 13.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
(a) Security ownership of certain beneficial owners.
No person or "group," as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, is known by the Partnership to be the
beneficial owner of more than 5% of the issued and outstanding BACs at
March 25, 1999.
(b) Security ownership of management.
The following table sets forth certain information concerning all BACs
beneficially owned, as of March 25, 1999, by each director and by all
directors and officers as a group of the managing general partner of
the Partnership's General Partner.
III-2
<PAGE>
PART III
--------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
----------
<TABLE>
<CAPTION>
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership BACs issued
- ---------------- ----------------------- ------------
<S> <C> <C>
William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (5 persons) None 0%
</TABLE>
(c) Changes in control.
There exists no arrangement known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership. There is a provision in the Limited Partnership Agreement
which allows, under certain circumstances, the ability to change
control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with management and others.
The Partnership has no directors or officers. In addition, the
Partnership has had no transactions with individual officers or
directors of the managing general partner of the General Partner of
the Partnership other than any indirect interest such officers and
directors may have in the amounts paid to the General Partner or its
affiliates by virtue of either their interest in the General Partner
or their stock ownership in CRI. Item 11 of this report, which
contains a discussion of the fees and other compensation paid or
accrued by the Partnership to the General Partner or its affiliates,
is incorporated herein by reference. Note 8 of the notes to the
financial statements, which contains disclosure of related party
transactions, is also incorporated herein by reference.
(b) Certain business relationships.
The Partnership's response to Item 12(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship
with entities of which the managing general partner of the General
Partner of the Partnership is an officer, director or equity owner
other than as set forth in the Partnership's response to Item 12(a).
III-3
<PAGE>
PART III
--------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
----------------------------------------------
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Financial Statements Page
-------------------- ----
Report of Independent Certified Public
Accountants - CRI Hotel Income Partners, L.P. III-7
Balance Sheets as of December 31, 1998 and 1997 III-8
Statements of Income for the years
ended December 31, 1998 and 1997 III-9
Statements of Changes in Partners' Capital
(Deficit) for the years ended December 31,
1998 and 1997 III-10
Statements of Cash Flows for the years ended
December 31, 1998 and 1997 III-11
Notes to Financial Statements III-12
(a) Index of Exhibits (Listed according to the number assigned in
----------------- the table in Item 601 of Regulation S-B.)
Exhibit No. 1 - Underwriting Agreement
a. Forms of Sales Agency Agreement, incorporated by reference
to the Registration Statement on Form S-1 filed on December
24, 1986.
b. Forms of Selected Dealer Agreements, incorporated by
reference to the Registration Statement on Form S-1 filed on
December 24, 1986.
Exhibit No. 3 - Articles of Incorporation and Bylaws
a. Certificate of Limited Partnership dated as of September
23, 1986 of CRI Hotel Income Partners, L.P. (formerly named
CRI Hotel Income Fund, L.P.), incorporated by reference to
the Registration Statement on Form S-1 filed on December
24, 1986.
1. Amendment dated as of March 12, 1987.
2. Amendment dated as of April 17, 1987.
Exhibit No. 10 - Material Contracts
III-4
<PAGE>
PART III
--------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K - Continued
--------------------------------
a. Sale/Purchase Agreement, dated as of October 9, 1986, by
and between Days Inns of America, Inc. (DIA), Days Inns
Corp. (DIC), Days Inns Management Company, Inc. (DIMC), and
CRI Hotel Income Fund, L.P., and six modifications thereto,
incorporated by reference to the Registration Statement on
Form S-1 filed on December 24, 1986.
b. Form of Management Agreement by and between DIMC and CRI
Hotel Income Fund, L.P., incorporated by reference to the
Registration Statement on Form S-1 filed on December 24,
1986.
c. Forms of Cash Flow Guarantee Agreement (Interim and
Permanent) by and between DIC, DIA, DIMC and CRI Hotel
Income Fund, L.P., incorporated by reference to the
Registration Statement on Form S-1 filed on December 24,
1986.
d. Form of Bond Escrow Agreement by and between DIA,
CRI Hotel Income Fund, L.P. and Escrow Agent,
incorporated by reference to the Registration
Statement on Form S-1 filed on December 24, 1986.
e. Form of Escrow Agreement between Registrant and Escrow
Agent, incorporated by reference to the Registration
Statement on Form S-1 filed on December 24, 1986.
f. Form of Beneficial Assignee Certificate, incorporated by
reference to the Registration Statement on Form S-1 filed
on December 24, 1986.
g. Forms of Amendment to Hotel Management Agreement by and
between CRI Hotel Income Partners, L.P. and Buckhead Hotel
Management Company, Inc. incorporated by reference to the
1994 Annual Report of Form 10-K filed on March 15, 1995.
Exhibit No. 27 - Financial Data Schedule
a. Filed herewith electronically.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
III-5
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) 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
March 25, 1999 by: /s/ William B. Dockser
- -------------- -------------------------------
DATE William B. Dockser, Director
Chairman of the Board,
and Treasurer
(Principal Executive Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
March 25, 1999 by: /s/ H. William Willoughby
- -------------- -------------------------------
DATE H. William Willoughby,
Director, President
and Secretary
March 25, 1999 by: /s/ Michael J. Tuszka
- -------------- -------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
III-6
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Partners
CRI Hotel Income Partners, L.P.
We have audited the accompanying balance sheets of CRI Hotel Income
Partners, L.P. (a Delaware limited partnership) as of December 31, 1998 and
1997, and the related statements of income, changes in partners' capital
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CRI Hotel Income Partners,
L.P. as of December 31, 1998 and 1997, and the results of its operations,
changes in partners' capital (deficit), and cash flows for the years then ended,
in conformity with generally accepted accounting principles.
Grant Thornton LLP
Vienna, VA
March 5, 1999
III-7
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Property and equipment - at cost:
Land $ 1,574,490 $ 1,574,490
Buildings and site improvements 13,899,723 13,532,807
Furniture, fixtures and equipment 1,722,517 1,650,378
Leasehold improvements 1,734,899 1,732,266
------------ ------------
18,931,629 18,489,941
Less accumulated depreciation and amortization (6,469,906) (6,209,099)
------------ ------------
12,461,723 12,280,842
Cash and cash equivalents 230,935 380,294
Working capital reserve 122,541 925,000
Receivables, capital improvements reserve and other assets 997,354 1,139,454
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $371,936 and $337,933, respectively 648,168 682,171
Property purchase costs, net of accumulated amortization of
$66,106 and $60,031, respectively 116,161 122,236
------------ ------------
Total assets $ 14,576,882 $ 15,529,997
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Distributions payable $ 186,142 $ 195,006
Accounts payable and accrued expenses 531,423 616,989
Hotel trade payables 176,953 454,945
Short term portion of mortgage payable 131,497 121,757
------------ ------------
Total current liabilities 1,026,015 1,388,697
------------ ------------
Long term debt:
Mortgage payable 8,646,746 8,778,243
------------ ------------
Total liabilities 9,672,761 10,166,940
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
General Partner (290,700) (281,520)
Beneficial Assignee Certificates (BACs) Series A;
868,662 BACs issued and outstanding 5,194,821 5,644,577
------------ ------------
Total partners' capital 4,904,121 5,363,057
------------ ------------
Total liabilities and partners' capital $ 14,576,882 $ 15,529,997
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
III-8
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the year ended
December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Rooms $ 9,275,373 $ 9,338,524
Telephone 289,969 295,327
Rental and other 348,238 386,017
Food and beverage 99,612 102,761
------------ ------------
10,013,192 10,122,629
------------ ------------
Departmental expenses:
Rooms (2,659,915) (2,727,553)
Telephone (111,638) (103,851)
Rental and other (153,479) (163,924)
Food and beverage (79,665) (82,097)
------------ ------------
(3,004,697) (3,077,425)
------------ ------------
Gross operating income 7,008,495 7,045,204
------------ ------------
Unallocated operating income (expenses):
Interest and other income 97,961 70,310
General and administrative (1,024,280) (1,025,911)
Building lease expense (702,788) (734,214)
Marketing (889,922) (899,317)
Depreciation and amortization (870,218) (963,724)
Energy (489,859) (530,876)
Property taxes (623,095) (568,092)
Property operations and maintenance (570,194) (564,503)
Management fees (411,428) (432,462)
Base asset management fee, paid to related parties (93,750) (93,750)
Professional fees (99,541) (106,844)
Loss on disposal of assets (97,000) --
------------ ------------
(5,774,114) (5,849,383)
------------ ------------
Operating income 1,234,381 1,195,821
------------ ------------
Other expense:
Interest expense (682,832) (674,613)
------------ ------------
Net income $ 551,549 $ 521,208
============ ============
Net income allocated to General Partner (2%) $ 11,031 $ 10,424
============ ============
Net income allocated to BAC Holders (98%) $ 540,518 $ 510,784
============ ============
Net income per BAC, based on 868,662 BACs outstanding $ 0.62 $ 0.59
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
III-9
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Beneficial
Assignee
Certificate General
Holders Partner Total
------------ ---------- ------------
<S> <C> <C> <C>
Partners' capital (deficit),
January 1, 1997 $ 6,471,532 $ (264,641) $ 6,206,891
Distributions of $1.54 per BAC (including
return of capital of $0.95 per BAC) (1,337,739) (27,303) (1,365,042)
Net income 510,784 10,424 521,208
------------ ---------- ------------
Partners' capital (deficit),
December 31, 1997 5,644,577 (281,520) 5,363,057
Distributions of $1.14 per BAC (including
return of capital of $0.52 per BAC) (990,274) (20,211) (1,010,485)
Net income 540,518 11,031 551,549
------------ ---------- ------------
Partners' capital (deficit),
December 31, 1998 $ 5,194,821 $ (290,700) $ 4,904,121
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
III-10
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended
December 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 551,549 $ 521,208
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 870,218 963,724
Loss on disposal of assets 97,000 --
Accrued interest on notes payable -- 649,802
Changes in assets and liabilities:
Decrease (increase) in receivables and other
assets, net 217,109 (547,399)
Decrease in accounts payable and accrued expenses (85,566) (709)
(Decrease) increase in hotel trade payables (277,992) 200,222
------------ ------------
Net cash provided by operating activities 1,372,318 1,786,848
------------ ------------
Cash flows from investing activities:
Net additions to property and equipment (1,091,730) (655,958)
Net withdrawals from (deposits to) working capital reserve 802,459 (700,000)
Net deposits to capital improvements reserve (91,300) (11,739)
------------ ------------
Net cash used in investing activities (380,571) (1,367,697)
------------ ------------
Cash flows from financing activities:
Distributions paid to BAC Holders and General Partner (1,019,349) (1,568,911)
Retirement of notes payable -- (7,874,369)
Gross proceeds from refinancing -- 8,900,000
Payment of principal on mortgage payable (121,757) --
------------ ------------
Net cash used in financing activities (1,141,106) (543,280)
------------ ------------
Net decrease in cash and cash equivalents (149,359) (124,129)
Cash and cash equivalents, beginning of year 380,294 504,423
------------ ------------
Cash and cash equivalents, end of year $ 230,935 $ 380,294
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 682,832 $ 24,811
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
III-11
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization and offering
-------------------------
CRI Hotel Income Partners, L.P. (the Partnership) is a limited
partnership which was formed under the Delaware Revised Uniform Limited
Partnership Act as of September 23, 1986 and will continue until December
31, 2016, unless dissolved earlier in accordance with the Partnership
Agreement. The Partnership was formed for the purpose of investing in
hotels that were acquired from Days Inns of America, Inc. (Days Inns). The
Partnership's primary objective continues to be cash flow growth and
capital appreciation. However, the attainment of this objective is
principally dependent on the hotels' operations. The hotels are operated
by Bryanston Group d/b/a Buckhead Hotel Management Company, Inc.
(Buckhead), formerly known as Days Inns Management Company, Inc., under the
nationally recognized franchise name of Days Inns.
The General Partner of the Partnership is CRICO Hotel Associates I,
L.P. (CRICO Associates), a Delaware limited partnership, the general
partner of which is C.R.I., Inc. (CRI), a Delaware corporation. The
General Partner has authority in the overall management and control of the
Partnership. The Assignor Limited Partner of the Partnership is CRICO
Hotel Fund, Inc. (CRICO Hotel Fund).
Cumulative offering costs in the amount of $2,580,132, consisting of
legal and filing fees and certain travel, communication and other expenses,
were recorded as a reduction of partners' capital when incurred and are not
amortized for financial statement or income tax purposes.
The Registration Statement of the Partnership was declared effective
by the Securities and Exchange Commission (SEC) on April 17, 1987, and a
Prospectus of the same date was printed. The Partnership registered a
total of 6,000,000 Beneficial Assignee Certificates (BACs), at $25 per BAC,
with the SEC. BACs represent beneficial assignments of limited partner
interests which are held by CRICO Hotel Fund. BACs were to be offered in
series, with Series A having a minimum of 196,000 BACs, or $4,900,000, and
a maximum of 2,344,000 BACs, or $58,600,000. The Partnership terminated
the Series A offering on March 31, 1988 with 868,662 BACs, or gross
proceeds of $21,716,550, and does not intend to offer another series.
In addition to the capital provided by the sale of BACs, the
Partnership issued Zero Coupon Notes (the Notes) to finance its acquisition
of the hotels. The Partnership's original prospectus indicated that the
hotels would need to be sold or the debt would need to be refinanced at the
time the Notes mature. The prospectus also indicated that the Partnership
intended to sell the hotels (after a period of time not likely to be longer
than twelve years after the date of acquisition) if financial conditions in
the future make such sales desirable. During 1997, the General Partner
solicited and reviewed offers for both sale and refinancing opportunities
for the hotels. The solicitation, however, did not result in a purchase
offer which would provide an adequate return to the BAC holders. As a
result, the General Partner chose to refinance the loans on the four
hotels. Proceeds of the refinancing were adequate to pay the maturing
Notes and to set aside reserves for capital improvements, which may enhance
the potential for a higher sale price in the future. The General Partner
is not currently soliciting sale offers.
III-12
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
b. Method of Accounting
--------------------
The financial statements of the Partnership have been prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
c. Use of estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles, the Partnership is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, and of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
d. Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of all time and demand deposits and
repurchase agreements with original maturities of three months or less.
The Partnership has determined that the carrying amounts of its cash and
cash equivalents approximate fair value.
e. Reserve for replacements
------------------------
Since inception of the Partnership's management agreement with
Buckhead, as discussed below, through December 31, 1997, the hotels
retained 3% of gross hotel revenues as a reserve for replacement of fixed
assets. Beginning January 1, 1998, the hotels no longer retain amounts
from gross hotel revenues, as such replacement reserves are paid directly
by the Partnership and held in escrow in accordance with the terms of the
new financing, as discussed below.
f. Depreciation and amortization
-----------------------------
Depreciation is based on the estimated useful lives of depreciable
assets using the straight-line method. In conjunction with the significant
capital additions made during 1998, the General Partner changed the
estimated depreciable lives for those additions; the impact of the change
was not material. The estimated lives used in determining depreciation
follow.
Type of Asset Estimated Life
--------------------------------- -----------------
Building and site improvements 10-30 years
Furniture, fixtures and equipment 7-10 years
Leasehold improvements 7-10 years
Property purchase costs and acquisition fees are amortized over a
30-year period using the straight-line method.
III-13
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
g. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
has been made for income taxes in these financial statements.
h. Fair value of financial instruments
-----------------------------------
In accordance with Statement of Financial Accounting Standards No.
107, "Disclosure About Fair Value of Financial Instruments," the
Partnership has disclosed the fair value information about financial
instruments for which it is practicable to estimate that value. Where
applicable, such information has been disclosed elsewhere in the notes to
the financial statements.
i. Reclassifications
-----------------
Certain amounts in the 1997 financial statements have been
reclassified to conform to the 1998 presentation.
2. HOTELS AND LEASEHOLD INTEREST OWNED BY THE PARTNERSHIP
The number of BACs sold, along with debt instruments issued by the
Partnership, as discussed below, generated sufficient proceeds to purchase five
hotels and one leasehold interest, as follows.
<TABLE>
<CAPTION>
Hotels Date of Purchase Amount of Purchase
- -------------------- ---------------- ------------------
<S> <C> <C>
Clearwater Days Inn 4/01/88 $3,750,000
Days Inn Kankakee (A) 11/01/87 $2,250,000
Minneapolis Days Inn 11/01/87 $4,800,000
Plymouth Days Inn 12/30/87 $4,000,000
Roseville Days Inn 3/01/88 $4,200,000
Leasehold interest Date of Purchase Amount of Purchase
- -------------------- ---------------- ------------------
Scottsdale Days Inn (B) 7/01/88 $2,000,000
</TABLE>
(A) The Kankakee hotel was sold on July 19, 1995.
(B) Included in the purchase of the Scottsdale leasehold interest was $618,000
allocated to furniture, fixtures and equipment.
III-14
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
3. MORTGAGE 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
amounts due on the Former Notes as of December 19, 1997, follow.
<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 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. Scheduled annual principal payments due under the
new loan follow.
1999 $ 131,497
2000 142,015
2001 153,375
2002 165,644
2003 178,894
Thereafter 8,006,818
----------
$8,778,243
==========
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. Subject such prepayment terms, the refinancing of the Former Notes
does not preclude the future sale of the hotels, either individually or as a
portfolio. Additionally, see Note 8 for further information pertaining to the
acquisition and servicing of this loan.
III-15
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
3. MORTGAGE PAYABLE - Continued
During 1998, the Partnership made installments of principal and interest
aggregating $804,589. The Partnership's balance on this loan was $8,778,243 and
$8,900,000 as of December 31, 1998 and December 31, 1997, respectively.
Based upon the recent refinancing, the Partnership has determined that the
carrying value of the new loan approximates fair value.
4. REAL ESTATE TAX 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 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 December 31, 1998 and December 31, 1997, Citicorp held $53,486 and
$75,522, respectively, for real estate taxes and $373,151 and $286,725,
respectively, for capital improvement reserves. These amounts are included in
receivables, capital improvements reserve and other assets in the accompanying
financial statements.
5. WORKING CAPITAL RESERVE
The working capital reserve of $122,541 and $925,000 as of December 31,
1998 and 1997, 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. During 1998 and 1997, the Partnership funded $832,403 and
$361,584, respectively, from the working capital reserve for capital
improvements at the hotels. Of these amounts, $252,942 and $0 as of December
31, 1998 and 1997, respectively, were reimbursable to the Partnership from the
capital improvement reserves held by the lender. As of March 25, 1999, the
Partnership has been reimbursed $298,583 from the capital improvement reserves
held by the lender.
6. COMMITMENTS
a. Hotel operations management agreements
--------------------------------------
The Partnership entered into management agreements with Buckhead in
connection with operations of the hotels. Each agreement was for an initial
term of ten years, with a five-year renewal option. The agreements called
for a base management fee of 2.5% of gross revenue from operations, a
marketing fee of 1.5% of net room revenues, and a reservation fee of 2.3%
III-16
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS - Continued
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 a modification to the method of
calculating the incentive management fee. Incentive management fees of
$61,082 and $78,281 were accrued or paid in 1998 and 1997, respectively.
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 years ended December 31, 1998 and 1997, annual lease payments were
$702,788 and $734,214, respectively.
The Partnership has also entered into various operating leases for
equipment used at the hotels. These leases expire through 2000. Minimum
lease payments under these leases, including the Scottsdale facility lease,
follow.
1999 $ 224,148
2000 214,073
2001 195,293
2002 140,450
2003 140,450
Thereafter 140,450
----------
$1,054,864
==========
Total rental expense under the leases was $743,628 and $758,279 for
the years ended December 31, 1998 and 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
III-17
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS - Continued
income pursuant to the lease agreement, which is included in Interest and
other income on the accompanying statements of operations, was $54,072 and
$52,243 during 1998 and 1997, respectively.
7. PARTNERS' CAPITAL
The Partnership's Series A profits and losses and distributions are
allocated 98% to the BAC Holders and 2% to the General Partner. Upon reaching a
non-cumulative, annual preferred cash flow return of 12%, the Partnership's
Series A profits and losses and distributions will be allocated 85% to the BAC
Holders and 15% to the General Partner. To date, the annual preferred cash flow
return has not been achieved. Cash available for distribution, as defined in the
Partnership Agreement, is intended to be distributed on a quarterly basis within
60 days after the end of each calendar quarter.
Distributions paid or accrued to BAC Holders of record during 1998 and 1997
follow.
<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
June 30 269,285 0.31 382,211 0.44
September 30 269,285 0.31 382,211 0.44
December 31 182,419 0.21 191,106 0.22
--------- ------- ---------- -------
Total $ 990,274 $ 1.14 $1,337,739 $ 1.54
========= ======= =========== =======
</TABLE>
8. RELATED-PARTY TRANSACTIONS
In accordance with the Partnership Agreement, in 1988, the Partnership paid
the General Partner a fee for services in connection with the review, selection,
evaluation, negotiation and acquisition of the hotels. The fee amounted to
$1,142,516, which was equal to 4.5% of Total Capitalization (Gross Offering
Proceeds plus all receipts of the Partnership arising from mortgage loans). The
acquisition fees were capitalized and are being amortized over a thirty-year
period using the straight-line method. Acquisition fees and accumulated
amortization of acquisition fees of $122,412 and $29,460, respectively, relating
to the Kankakee hotel were written off in connection with the sale of the hotel
in 1995.
The Partnership reimbursed the General Partner or its affiliates for costs
incurred on behalf of the Partnership for real estate appraisals and market
studies, engineering studies, legal consultation and accounting fees, as well as
III-18
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
8. RELATED-PARTY TRANSACTIONS - Continued
travel and communication expenses related to the acquisition of the hotels.
These costs, amounting to $233,474, have been capitalized as property purchase
costs and are being amortized over a thirty-year period using the straight-line
method. Property purchase costs and accumulated amortization of property
purchase costs of $51,207 and $12,160, respectively, relating to the Kankakee
hotel were written off in connection with the sale of the hotel in 1995.
The Partnership, in accordance with the terms of the Partnership Agreement,
is obligated to reimburse the General Partner or its affiliates for their direct
expenses in managing the Partnership. The Partnership paid or accrued $52,397
and $46,935, for the years ended December 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 annual amount of the base asset management fee earned by the General
Partner and/or its affiliates is equal to 0.50% of the weighted average balance
of the adjusted partnership investment during the period, as defined in the
Partnership Agreement. During 1995, the adjusted partnership investment
decreased from $21,000,000 to $18,750,000 as a result of the sale of the
Kankakee hotel on July 19, 1995. During each of the years ended December 31,
1998 and 1997, the Partnership paid or accrued a base asset management fee of
$93,750.
The $8.9 million loan originated and underwritten by Citicorp (see Note 3)
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.
III-19
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
9. RECONCILIATION OF NET INCOME PER FINANCIAL STATEMENTS TO NET INCOME
PER TAX RETURN
A reconciliation of net income per the financial statements to net
income per the tax return follows.
<TABLE>
<CAPTION>
For the year ended
December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net income per the financial statements $ 551,549 $ 521,208
Adjustments for tax purposes:
Depreciation of buildings and site improvements
computed over 40 years for tax purposes, and over
shorter lives for financial statement purposes 135,747 242,685
------------ ------------
Net income per the tax return $ 687,296 $ 763,893
============ ============
</TABLE>
III-20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 230,935
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 18,931,629
<DEPRECIATION> 6,469,906
<TOTAL-ASSETS> 14,576,882
<CURRENT-LIABILITIES> 1,026,015
<BONDS> 8,646,746
0
0
<COMMON> 0
<OTHER-SE> 4,904,121
<TOTAL-LIABILITY-AND-EQUITY> 14,576,882
<SALES> 0
<TOTAL-REVENUES> 10,111,153
<CGS> 0
<TOTAL-COSTS> 8,876,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 682,832
<INCOME-PRETAX> 551,549
<INCOME-TAX> 0
<INCOME-CONTINUING> 551,549
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 551,549
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
