<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, 1999
-----------------
Commission file number 33-11096
-----------------
CRI HOTEL INCOME PARTNERS, L.P.
- -----------------------------------------------------------------------
(Name of small business issuer 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)
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. $9,823,672.
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.
1999 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-3
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-8
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . II-8
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. As of December 31, 1999, the Partnership
remained invested in four hotels and one leasehold interest, as 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 matured. 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 made 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 have provided 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 concerning the 1997
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. See the
notes to the financial statements for additional information concerning these
services.
ITEM 2. PROPERTIES
----------
A description of the hotels and the leasehold interest owned by the
Partnership as of December 31, 1999, follows.
I-2
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
<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.
I-3
<PAGE>
PART I
------
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 1999.
I-4
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------
(a) 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. This halt was
lifted effective January 1, 2000.
(b) As of March 17, 2000, there were approximately 1,436 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 $755,736 and $990,274 to BAC Holders during 1999 and 1998,
respectively. See Part II, Item 6, Management's Discussion and Analysis of
Financial Condition and Results of Operations, for additional information
concerning the distributions during the years ended December 31, 1999 and
1998, and for a discussion of factors which will affect future distribution
levels.
By letter dated February 11, 2000, the Partnership notified BAC Holders
that, due to reduced cash flow caused by decreasing occupancy and room
rates, no cash distribution would be made for the calendar quarter ended
December 31, 1999.
II-1
<PAGE>
PART II
-------
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 reserves, the General Partner determined
that certain capital improvements were 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 and the capital
improvements reserves to the hotels for such capital improvements. During 1999,
the General Partner funded $209,880 from the working capital reserve and the
capital improvements reserves held by the lender to the hotels for capital
improvements. As of March 17, 2000, the General Partner has approved the
expenditure of approximately $70,000 for the renovation of a portion of the
guest rooms at the Roseville hotel.
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 liquidity and cash flow in an effort to ensure that sufficient cash
is available for operating requirements and for possible distributions to BAC
Holders. The Partnership's net cash provided by operating activities for 1999
and 1998, 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 increased slightly
in 1999 as net additions to property and equipment decreased from 1998. Cash
and cash equivalents decreased in 1998 principally due to debt service payments
made in connection with the terms of the Partnership's new financing, as
discussed below. 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 to fund the working capital and capital improvements reserves.
Current liabilities as of December 31, 1999 totalled $945,376, which amount
represents an $80,639 decrease from the 1998 balance. This decrease resulted
primarily from a decrease in distributions payable, partially offset by an
increase in hotel trade payables.
II-2
<PAGE>
PART II
-------
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 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. See the notes to the financial statements for further information
concerning the acquisition and servicing of this loan.
The Partnership made installments of principal and interest aggregating
$804,589 during each of 1999 and 1998. The Partnership's balance on this loan
was $8,666,770 and $8,778,243 as of December 31, 1999 and 1998, respectively.
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 $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.
II-3
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
As of December 31, 1999 and 1998, the servicer held $82,400 and $53,486,
respectively, for real estate taxes and $178,010 and $373,151, respectively, for
capital improvements reserves.
Working Capital Reserve
- -----------------------
The working capital reserve of $107,248 and $122,541 as of December 31,
1999 and 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.
Distributions
- -------------
Distributions paid or accrued to BAC Holders of record during 1999 and 1998
follow.
II-4
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
1999 1998
Distributions to Distributions to
BAC Holders BAC Holders
------------------------ ------------------------
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
December 31 -- -- 182,419 0.21
----------- ------- ----------- -------
Total $ 755,736 $ 0.87 $ 990,274 $ 1.14
=========== ======= =========== =======
</TABLE>
As a result of reduced cash flow from the hotels, the distribution levels
for 1999 decreased from 1998, and the distribution to BAC holders for the
quarter ended December 31, 1999, was suspended. The General Partner continues
to monitor closely the operations and cash flow of the hotels, with the goal of
resuming distributions if and when improved cash flow so permits. Distributions
are dependent on the net cash flow produced from hotel operations, net of
Partnership expenses. The cash flow from certain hotels may be materially
affected by changing market conditions and by seasonality.
Partnership's Results of Operations
-----------------------------------
1999 versus 1998
- ----------------
The Partnership's net income, which consists principally of revenues from
hotel operations, decreased $307,986 in 1999 from 1998, primarily due to a
decrease in revenue from hotel operations which was not offset by a decrease in
hotel departmental expenses, by a slight decrease in interest and other income,
and by a slight increase in interest expense. See the following discussion for
an analysis of each hotel's operating results.
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.
II-5
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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 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 represents Gross Operating
Income less unallocated operating expenses and fixed expenses. The operating
results and average occupancy for the hotels for the years ended December 31,
1999 and 1998 follow.
II-6
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Gross Operating Income
------------------------------------
Hotel Location 1999 1998
-------------- ------------ ------------
<S> <C> <C>
Clearwater, FL $ 958,352 $ 985,726
Minneapolis, MN 1,680,445 1,627,243
Plymouth, MN 854,458 810,457
Roseville, MN 966,256 965,288
Scottsdale, AZ 2,273,121 2,619,781
------------ ------------
Total $ 6,732,632 $ 7,008,495
============ ============
</TABLE>
<TABLE>
<CAPTION>
Operating Income
------------------------------------
Hotel Location 1999 1998
-------------- ------------ ------------
<S> <C> <C>
Clearwater, FL $ 303,085 $ 349,612
Minneapolis, MN 802,845 797,303
Plymouth, MN 247,491 236,265
Roseville, MN 310,487 347,414
Scottsdale, AZ 473,537 664,876
Depreciation and net Partnership
operating expenses (1,200,766) (1,161,089)
------------ ------------
Total $ 936,679 $ 1,234,381
============ ============
</TABLE>
<TABLE>
<CAPTION>
Average Occupancy
------------------------------------
Hotel Location 1999 1998
-------------- ------------ ------------
<S> <C> <C>
Clearwater, FL 58% 60%
Minneapolis, MN 80% 84%
Plymouth, MN 66% 67%
Roseville, MN 77% 85%
Scottsdale, AZ 80% 87%
------------ ------------
Weighted average occupancy (1) 73% 77%
============ ============
</TABLE>
(1) Weighted average occupancy is computed by taking into consideration the
number of rooms at each location.
II-7
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
1999 versus 1998
- ----------------
Clearwater, Florida: Gross operating income and operating income decreased in
- ------------------- 1999 from 1998 as a result of decreased occupancy, without
any offsetting decrease in departmental expenses or increase in average rate.
The decreased occupancy was the result of increased competition caused by the
recent opening of five new hotels in the Clearwater area. A further drop in
operating income was caused by equipment lease payments which began in 1999.
Minneapolis, Minnesota: Gross operating income and operating income increased
- ---------------------- in 1999 from 1998 as a result of an eight percent
increase in average rate, only partially offset by a four percent decrease in
occupancy. The increase in average rates was attributed to effective revenue
management. The increase in gross operating income was substantially offset by
increases in sales and marketing expenses, repair and maintenance expenses, and
property taxes.
Plymouth, Minnesota: Gross operating income and operating income increased in
- ------------------- 1999 from 1998 as a result of a nearly eight percent
increase in average rate, only partially offset by a one percent decrease in
occupancy. The increase in average rate was attributed to guests being willing
to pay higher rates for newly-renovated rooms. The increase in gross operating
income was substantially offset by increases in sales and marketing expenses,
repair and maintenance expenses, and equipment lease payments which began in
1999.
Roseville, Minnesota: Gross operating income was essentially flat in 1999 from
- -------------------- 1998. A nine percent increase in average rate was offset
by an eight percent decrease in occupancy. Operating income decreased in 1999
from 1998 primarily as a result of increased administrative and general
expenses, increased repair and maintenance expenses, and increased equipment
lease payments.
Scottsdale, Arizona: Gross operating income and operating income decreased in
- ------------------- 1999 from 1998 as the result of a seven percent decrease
in occupancy coupled with a three percent decrease in average rate. The
decrease in gross operating profit was partially offset by decreases in sales
and marketing expenses, management and incentive management fees, and land lease
payments (which are tied to revenue performance).
Year 2000 Computer Issue
------------------------
The Partnership experienced little to no interruption in its computer
operations, or otherwise, as a result of the transition from the year 1999 to
2000. The Partnership's expenses associated with upgrading and testing its
internal hardware and software systems, data interfaces, business operations and
non-information technology functions which could have been affected by the
transition were not material.
II-8
<PAGE>
PART II
-------
ITEM 7. FINANCIAL STATEMENTS
--------------------
The information required by this item is contained in Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
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, 63, 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, 53, 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.
Susan R. Campbell, 41, 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.
Melissa Cecil Lackey, 44, 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.
III-1
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
(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.
The following table sets forth certain information concerning any
person (including any "group") who is known to the Partnership to be
the beneficial owner of more than five percent of the issued and
outstanding BACs at March 17, 2000.
<TABLE>
<CAPTION>
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership BACs issued
- ----------------------- ----------------------- ------------
<S> <C> <C>
Equity Resources Group,
Incorporated, et. al. 50,170 BACS 5.8%
14 Story Street
Cambridge, MA 02138
</TABLE>
(b) Security ownership of management.
The following table sets forth certain information concerning all BACs
beneficially owned, as of March 17, 2000, 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 10 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
--------------------------------
(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
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. Form of Beneficial Assignee Certificate, incorporated by
reference to the Registration Statement on Form S-1 filed on
December 24, 1986.
d. 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.
III-4
<PAGE>
PART III
--------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K - Continued
--------------------------------
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended December
31, 1999.
On February 11, 2000, the Partnership filed a report on Form 8-K,
notifying BAC Holders that due to reduced cash flow caused by
decreasing occupancy and room rates, no cash distribution would be
made for the calendar quarter ended December 31, 1999.
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 17, 2000 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 17, 2000 by: /s/ H. William Willoughby
- ----------------- ------------------------------------
DATE H. William Willoughby,
Director, President
and Secretary
March 17, 2000 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, 1999 and
1998, and the related statements of income, changes in partners' (deficit)
capital, 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the results of its operations,
changes in partners' (deficit) capital, and cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United
States.
Grant Thornton LLP
Vienna, VA
March 6, 2000
III-7
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Property and equipment - at cost:
Land $ 1,574,490 $ 1,574,490
Buildings and site improvements 13,990,707 13,899,723
Furniture, fixtures and equipment 1,768,678 1,722,517
Leasehold improvements 1,738,913 1,734,899
------------ ------------
19,072,788 18,931,629
Less: accumulated depreciation and amortization (7,160,891) (6,469,906)
------------ ------------
11,911,897 12,461,723
Cash and cash equivalents 295,559 230,935
Working capital reserve 107,248 122,541
Receivables, capital improvements reserves and other assets 820,708 997,354
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $405,940 and $371,936, respectively 614,164 648,168
Property purchase costs, net of accumulated amortization
of $72,182 and $66,106, respectively 110,084 116,161
------------ ------------
Total assets $ 13,859,660 $ 14,576,882
============ ============
LIABILITIES AND PARTNERS' (DEFICIT) CAPITAL
Current liabilities:
Distributions payable $ -- $ 186,142
Accounts payable and accrued expenses 521,321 531,423
Hotel trade payables 295,044 176,953
Short-term portion of mortgage payable 129,011 131,497
------------ ------------
Total current liabilities 945,376 1,026,015
------------ ------------
Long term debt:
Mortgage payable 8,537,759 8,646,746
------------ ------------
Total liabilities 9,483,135 9,672,761
------------ ------------
Commitments and contingencies
Partners' (deficit) capital:
General Partner (301,252) (290,700)
Beneficial Assignee Certificates (BACs) Series A;
868,662 BACs issued and outstanding 4,677,777 5,194,821
------------ ------------
Total partners' capital 4,376,525 4,904,121
------------ ------------
Total liabilities and partners' capital $ 13,859,660 $ 14,576,882
============ ============
</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,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Rooms $ 9,054,014 $ 9,275,373
Telephone 245,072 289,969
Rental and other 363,372 348,238
Food and beverage 78,381 99,612
------------ ------------
9,740,839 10,013,192
------------ ------------
Departmental expenses:
Rooms (2,674,321) (2,659,915)
Telephone (122,052) (111,638)
Rental and other (152,103) (153,479)
Food and beverage (59,731) (79,665)
------------ ------------
(3,008,207) (3,004,697)
------------ ------------
Gross operating income 6,732,632 7,008,495
------------ ------------
Unallocated operating income (expenses):
Interest and other income 82,833 97,961
General and administrative (1,076,162) (1,024,280)
Building lease (627,944) (702,788)
Marketing (880,921) (889,922)
Depreciation and amortization (980,356) (870,218)
Energy (486,724) (489,859)
Property taxes (585,193) (623,095)
Property operations and maintenance (624,377) (570,194)
Management fees (357,022) (411,428)
Base asset management fee, paid to related parties (93,750) (93,750)
Professional fees (107,337) (99,541)
Loss on disposal of fixed assets (59,000) (97,000)
------------ ------------
(5,795,953) (5,774,114)
------------ ------------
Operating income 936,679 1,234,381
Other expense:
Interest expense (693,116) (682,832)
------------ ------------
Net income $ 243,563 $ 551,549
============ ============
Net income allocated to General Partner (2%) $ 4,871 $ 11,031
============ ============
Net income allocated to BAC Holders (98%) $ 238,692 $ 540,518
============ ============
Net income per BAC, based on 868,662 BACs outstanding $ 0.27 $ 0.62
============ ============
</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' (DEFICIT) CAPITAL
<TABLE>
<CAPTION>
Beneficial
Assignee
General Certificate
Partner Holders Total
---------- ------------ ------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1998 $ (281,520) $ 5,644,577 $ 5,363,057
Distributions of $1.14 per BAC (including
return of capital of $0.52 per BAC) (20,211) (990,274) (1,010,485)
Net income 11,031 540,518 551,549
---------- ------------ ------------
Partners' (deficit) capital,
December 31, 1998 (290,700) 5,194,821 4,904,121
Distributions of $0.87 per BAC (including
return of capital of $0.61 per BAC) (15,423) (755,736) (771,159)
Net income 4,871 238,692 243,563
---------- ------------ ------------
Partners' (deficit) capital,
December 31, 1999 $ (301,252) $ 4,677,777 $ 4,376,525
========== ============ ============
</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,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 243,563 $ 551,549
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 980,356 870,218
Loss on disposal of assets 59,000 97,000
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets, net (28,925) 217,109
Decrease in accounts payable and accrued expenses (10,102) (85,566)
Increase (decrease) in hotel trade payables 118,091 (277,992)
------------ ------------
Net cash provided by operating activities 1,361,983 1,372,318
------------ ------------
Cash flows from investing activities:
Net additions to property and equipment (433,159) (1,091,730)
Net withdrawals from working capital reserve 15,293 802,459
Net withdrawals from (deposits to) capital improvements reserves 189,281 (91,300)
------------ ------------
Net cash used in investing activities (228,585) (380,571)
------------ ------------
Cash flows from financing activities:
Distributions paid to BAC Holders and General Partner (957,301) (1,019,349)
Payment of principal on mortgage payable (111,473) (121,757)
------------ ------------
Net cash used in financing activities (1,068,774) (1,141,106)
------------ ------------
Net increase (decrease) in cash and cash equivalents 64,624 (149,359)
Cash and cash equivalents, beginning of year 230,935 380,294
------------ ------------
Cash and cash equivalents, end of year $ 295,559 $ 230,935
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 683,427 $ 682,832
============ ============
</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 matured. 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 made 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 have provided 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 accounting principles
generally accepted in the United States.
c. Use of estimates
----------------
In preparing financial statements in accordance with accounting
principles generally accepted in the United States, 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.
III-13
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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
thirty-year period using the straight-line method.
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 1998 financial statements have been
reclassified to conform to the 1999 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 of December 31, 1999, the Partnership
remained invested in four hotels and one leasehold interest, as follows.
III-14
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
2. HOTELS AND LEASEHOLD INTEREST OWNED BY THE PARTNERSHIP -
Continued
<TABLE>
<CAPTION>
Hotels Date of Purchase Amount of Purchase
- -------------------- ---------------- ------------------
<S> <C> <C>
Clearwater Days Inn 4/01/88 $3,750,000
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 (A) 7/01/88 $2,000,000
</TABLE>
(A) Included in the purchase of the Scottsdale leasehold interest was $618,000
allocated to furniture, fixtures and equipment.
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 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. Scheduled annual principal
payments due under the loan are as follows:
2000 $ 129,011
2001 141,461
2002 152,940
2003 165,349
2004 176,920
Thereafter 7,901,089
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 8 for further information concerning the
acquisition and servicing of this loan.
III-15
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
3. MORTGAGE PAYABLE - Continued
The Partnership made installments of principal and interest aggregating
$804,589 during each of 1999 and 1998. The Partnership's balance on this loan
was $8,666,770 and $8,778,243 as of December 31, 1999 and December 31, 1998,
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 $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 December 31, 1999 and 1998, the servicer held $82,400 and $53,486,
respectively, for real estate taxes and $178,010 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.
5. WORKING CAPITAL RESERVE
The working capital reserve of $107,248 and $122,541 as of December 31,
1999 and 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.
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
III-16
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS - Continued
the Partnership. Incentive management fees of $16,160 and $61,082 were
earned in 1999 and 1998, 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 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 years ended December 31, 1999 and 1998, annual lease payments
were $627,944 and $702,788, respectively.
The Partnership has also entered into various operating leases for
equipment used at the hotels, which expire in 2000. Minimum lease payments
under the operating leases and the Scottsdale facility lease follow.
2000 $ 214,073
2001 195,293
2002 140,450
2003 140,450
2004 140,450
Thereafter 0
---------
$ 830,716
=========
Total rental expense under the leases was $1,423,508 and $743,628 for
the years ended December 31, 1999 and 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 on the accompanying statements of operations, was $55,964 and
$54,072 during 1999 and 1998, respectively.
III-17
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
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 1999 and 1998
follow.
<TABLE>
<CAPTION>
1999 1998
Distributions to Distributions to
BAC Holders BAC Holders
---------------------- ----------------------
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
December 31 -- -- 182,419 0.21
--------- ------- --------- -------
Total $ 755,736 $ 0.87 $ 990,274 $ 1.14
========= ======= ========= =======
</TABLE>
8. RELATED-PARTY TRANSACTIONS
In accordance with terms of 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
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.
III-18
<PAGE>
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
8. RELATED-PARTY TRANSACTIONS - Continued
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 $40,331
and $52,397, for the years ended December 31, 1999 and 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 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,
1999 and 1998, 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 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.
C.R.I., Inc., the general partner of the General Partner, has contracted
with Capitol Hotel Group, Inc. (CHG), to perform certain asset management
services related to the oversight of the operations and management of the
hotels. The Chairman and President of C.R.I., Inc., are the Chairman and
President, respectively, of, and (effective as of January 1, 2000) holders of a
100% equity interest in, CHG.
On August 27, 1999, C.R.I., Inc., 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. On November 15, 1999, the
Scottsdale hotel repaid $100,000 of this loan; the remaining $50,000 balance was
repaid on December 16, 1999. On January 6, 2000, the Partnership advanced
$100,000 to the Scottsdale hotel in the form of a non-interest bearing loan. On
February 4, 2000, the Scottsdale hotel repaid $70,000 of this loan; the
remaining $30,000 balance was repaid on March 1, 2000.
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,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net income per the financial statements $ 243,563 $ 551,549
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 120,983 135,747
---------- ----------
Net income per the tax return $ 364,546 $ 687,296
========== ==========
</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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 295,559
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,072,788
<DEPRECIATION> 7,160,891
<TOTAL-ASSETS> 13,859,660
<CURRENT-LIABILITIES> 945,376
<BONDS> 8,537,759
0
0
<COMMON> 0
<OTHER-SE> 4,376,525
<TOTAL-LIABILITY-AND-EQUITY> 13,859,660
<SALES> 0
<TOTAL-REVENUES> 9,823,672
<CGS> 0
<TOTAL-COSTS> 8,886,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 693,116
<INCOME-PRETAX> 243,563
<INCOME-TAX> 0
<INCOME-CONTINUING> 243,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243,563
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.27
</TABLE>
