<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to
COMMISSION FILE NUMBER: 33-11224-LA
MISSION VALLEY COMFORT SUITES LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0213497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3145 Sports Arena Blvd.
San Diego, CA 92110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(619) 226-1212
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
State the number of limited partnership interests outstanding as
of the latest practicable date: 5,900
<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial
information:
Balance Sheet as of September 30, 1995 and December 31,
1994.
Statement of Operations for the three- and nine-month
periods ended September 30, 1995 and September 30, 1994.
Statement of Cash Flows for the three- and nine-month
periods ended September 30, 1995 and September 30, 1994.
Notes to Financial Statements.
2
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
September 30, 1995 and December 31, 1994
(Unaudited)
(Part 1)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
<S> <C> <C>
Cash and cash equivalents $ 212,014 $ 29,042
Accounts receivable 28,806 22,589
Operating supplies 15,994 14,718
Prepaid expenses 5,389 33,956
Due from Affiliates (note 4) 0 2,565
---------- ----------
Total current assets 262,203 112,870
Investment property, at cost:
Building and improvements 4,540,795 4,482,611
Furniture, fixtures & equipment 1,172,013 1,111,831
----------- -----------
5,712,808 5,594,442
Less accumulated depreciation 1,931,872 1,809,354
----------- -----------
Total investment property, net
of accumulated depreciation 3,780,936 3,785,088
Construction in progress 0 0
Franchise fees, net (note 3) 32,292 34,167
----------- -----------
$ 4,075,431 $ 3,932,125
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
September 30, 1995 and December 31, 1994
(Unaudited)
(Part 2)
<TABLE>
<CAPTION>
LIABILITIES AND September 30, December 31,
PARTNER'S CAPITAL ACCOUNTS 1995 1994
<S> <C> <C>
Current liabilities:
Notes payable (Note 5) $ 6,322 $ 6,322
Accounts payable and accrued expenses 58,614 49,673
Due to Affiliates (note 4) 18,106 5,879
---------- ----------
Total current liabilities 83,042 61,874
---------- ----------
Long-term debt, less current portion 239,064 243,758
Deferred rent liability (note 6) 1,520,679 1,542,933
---------- ----------
Total liabilities 1,842,785 1,848,565
Partners' capital accounts:
General partners:
Capital contributions 31,210 31,210
Cumulative net earnings (141,150) (165,559)
Cumulative cash distributions (143,140) (133,640)
---------- ----------
(253,080) (267,989)
Limited partners:
Capital contributions,
net of offering costs 5,117,287 5,117,287
Cumulative net earnings (1,270,353) (1,490,030)
Cumulative cash distributions (1,361,208) (1,275,708)
---------- ----------
2,485,726 2,351,549
---------- ----------
Total partners' capital accounts 2,232,646 2,083,560
---------- ----------
$4,075,431 $3,932,125
========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Room revenues $ 577,963 $ 537,816 $1,423,486 $1,292,551
Phone revenue 12,037 11,436 32,595 32,531
Interest income 451 544 505 1,057
Other income 11,216 7,691 21,370 15,702
---------- ---------- ---------- ----------
601,667 557,487 1,477,956 1,341,841
---------- ---------- ---------- ----------
Expenses:
Property operating expenses 171,164 173,749 450,579 454,089
Depreciation 42,839 38,493 122,518 115,480
General and administrative 45,022 38,974 139,913 131,448
Amortization 625 625 1,875 1,875
Management fees 36,073 33,417 88,643 80,447
Royalties and advertising 45,250 43,154 109,364 114,721
Real estate taxes 11,951 15,353 36,653 47,108
Interest expense 5,230 5,168 15,417 15,436
Lease expense 54,625 53,836 163,875 161,508
Marketing 18,494 14,838 41,112 41,710
Repairs & Maintenance 18,511 16,196 63,921 47,803
---------- ---------- ---------- ----------
449,784 433,803 1,233,870 1,211,625
---------- ---------- ---------- ----------
Net earnings $ $151,883 $ 123,684 $ 244,086 $ 130,216
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per limited
partnership interest $ 23.17 $ 18.87 $ 37.23 $ 19.86
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Cash Flows
Three Months and Nine Months
Ended September 30, 1995 and September 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 151,883 $ 123,684 $ 244,086 $ 130,216
Adjustments to reconcile net income to cash:
Depreciation and amortization 43,464 39,118 124,393 117,355
(Increase) decrease in:
Accounts receivable 1,767 (6,472) (6,217) (11,420)
Operating supplies (795) (193) (1,276) (520)
Prepaid expenses 17,948 15,918 28,567 31,666
Increase (decrease) in:
Accounts payable and accrued expenses (5,412) (23,863) 8,941 (20,671)
Due to Affiliates 25,611 2,795 24,792 2,932
Deferred rent liability (7,418) (7,430) (22,254) (22,290)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 227,048 143,557 401,032 227,268
---------- ---------- --------- ----------
Cash flows from investing activities:
Investment property expenditures (13,671) 0 (118,366) (10,779)
---------- ---------- --------- ----------
Net cash used in investing activities (13,671) 0 (118,366) (10,779)
---------- ---------- --------- ----------
Cash flows from financing activities:
Proceeds/(Payments) of notes payable (1,596) (1,474) (4,694) (4,334)
Cash distributions to partners (65,000) (50,000 (95,000) (79,998)
---------- ---------- --------- ----------
Net cash provided by (used in)
financing activities (66,596) (51,474) (99,694) (84,332)
---------- ---------- --------- ----------
Net increase in cash and cash equivalents 146,783 92,084 182,972 132,158
Cash and cash equivalents, beginning of period 65,231 81,434 29,042 41,360
---------- ---------- --------- ----------
Cash and cash equivalents, end of period $ 212,014 $ 173,518 $ 212,014 $ 173,518
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
September 30, 1995
(Unaudited)
Readers of this quarterly report should refer to the partnership audited
financial statements and annual report Form 10-KSB (File No. 33-11224-LA)
for the period ended December 31, 1994, as certain footnote disclosures
which would substantially duplicate those contained in such financial
reports have been omitted from this report.
1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mission Valley Comfort Suites Ltd., A California Limited Partnership (the
Partnership), (formerly Motels of America Series X), a California Limited
Partnership, was formed on September 18, 1987 pursuant to the California
Revised Uniform Limited Partnership Act. The purpose of the Partnership is
to construct, own, and operate a 122-room "suites only" motel under a
franchise agreement with Quality Inns International, Inc. The motel was
opened in September 1988.
The following is a summary of the Partnership's significant accounting
policies:
Cash and Cash Equivalents
The Partnership considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Investment Property
Investment property is recorded at cost. Depreciation is computed using
the straight-line method based on estimated useful lives of 5 to 35 years.
Maintenance and repair costs are expensed as incurred, while significant
improvements, replacements, and major renovation are capitalized.
Franchise Fees
Franchise fees are amortized over the 20-year life of the franchise
agreement.
Income Taxes
No provision for income taxes has been made as any liability for such taxes
would be that of the partners rather than the Partnership.
(Continued)
7
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements, Continued
Net Income per Interest
Net income per interest is based upon the 90% allocated to limited partners
divided by 5,900 limited partner interests outstanding throughout the year.
2. PARTNERSHIP AGREEMENT
Net income or loss and cash distributions from operations of the
Partnership are allocated 90% to the limited partners and 10% to the
general partner. Profits from the sale or other disposition of Partnership
property are to be allocated to the general partner until its capital
account equals zero; thereafter, to the limited partners until their
capital accounts equal their capital contributions reduced by prior
distributions of cash from sale or refinancing plus an amount equal to a
cumulative but not compounded annual 8% return thereon which cumulative
return shall be reduced (but not below zero) by the aggregate amount of
prior distributions of cash available for distribution; thereafter, gain
shall be allocated 15% to the general partner and 85% to the limited
partners. Loss from sale shall be allocated 1% to the general partner and
99% to the limited partners.
3. FRANCHISE AGREEMENT
The Partnership has entered into a twenty-year franchise agreement with
Quality Inns International, Inc. to provide the Partnership with
consultation in the areas of design, construction and operation of the
motel. The agreement required the payment of initial franchise fees of
$50,000 and requires ongoing royalty and chain-affiliated advertising fees
based on a percentage of gross room revenues.
4. RELATED PARTY TRANSACTIONS
The motel is operated pursuant to a management agreement with GHG. The
agreement provides for the payment of monthly management fees of 6% of
gross revenues.
The Partnership has agreed to reimburse GHG for certain expenses related to
services performed in maintaining the books and administering the affairs
of the Partnership.
GHG and an affiliate, GMS Management Services, Inc. (GMS), allocate to the
Partnership certain marketing, accounting, and maintenance salaries and
certain other expenses directly related to the operation of the
Partnership.
Fees and reimbursements for partnership administration expenses paid to GHG
and GMS for the three months ended September 30, 1995 and September 30,
1994 and for the nine months ended September 30, 1995 and September 30,
1994 are as follows:
(Continued)
8
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements, Continued
4. RELATED PARTY TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ------------------
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees $36,073 $33,417 $88,643 $80,447
Reimbursement for
partnership admini-
stration expenses $ 8,106 $ 8,550 $24,316 $25,650
</TABLE>
In addition, all motel employees are paid by GMS. The Partnership
reimbursed GMS $76,032 for the wages of these employees plus a one percent
processing fee.
At September 30, 1995, $18,106 was due to GHG and GMS relating to
reimbursement for these operating expenses.
5. LONG-TERM DEBT
The Partnership had a note payable to its land lessor with a principal
balance of $200,000 which was due May 1, 1991. The note required monthly
interest payments at 15%. As of April 1, 1993, the Partnership had not
made monthly interest payments on this note since May 1, 1991, and accrued
interest totalled $60,000. As of April 1, 1993, the note payable was
amended to add the accrued interest to the principal balance so that the
new principal balance was $260,000. This balance is payable over
approximately 20 years in monthly installments of $2,175 including 8%
interest. The note is secured by a trust deed on the Partnership's motel.
Principal payments on this note are due as follows:
1995 $ 6,322
1996 6,847
1997 7,415
1998 8,031
1999 8,697
Thereafter 212,768
--------
$250,080
--------
--------
(Continued)
9
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements, Continued
6. LEASE
The Partnership leases the land underlying its motel under an operating
lease which expires in 2046. As of December 31, 1992, rents were subject
to annual increases based on the greater of 2-1/2% or the increase in the
Consumer Price Index. The total minimum rentals over the life of the
lease, including the effects of the 2-1/2% minimum annual increases, were
being recognized on the straight-line basis as required by generally
accepted accounting principles. Effective April 1, 1993, the lease was
amended to lower the rent payment to $20,000 per month. Rents are still
subject to annual increases based on the increase in the Consumer Price
Index, but the maximum annual increase is 5% and there is no minimum annual
increase. As a result of this amendment to the lease agreement, deferred
rent liability of $1,594,894, which was incurred prior to April 1, 1993, is
being credited to income on a straight-line basis over the remaining term
of the lease. The balance of deferred rent liability at September 30, 1995
is $1,520,679. The Partnership is required to pay real estate taxes,
insurance, and maintenance for the leased land and improvements thereon.
Future minimum land lease is to be expensed as follows:
1995 $ 248,172
1996 248,172
1997 248,172
1998 248,172
1999 248,172
Thereafter 11,643,403
-----------
$12,884,263
-----------
-----------
7. ADJUSTMENTS
In the opinion of the general partners, all adjustments (consisting solely
of normal recurring adjustments) necessary for a fair presentation have
been made to the accompanying figures as of and for the nine months ended
September 30, 1995.
8. SUBSEQUENT EVENT
In November 1995, the Partnership paid a distribution of $130,501.42 to the
limited partners.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition:
On February 6, 1987, the Partnership commenced its public offering pursuant
to its Prospectus. On March 21, 1988, the Partnership completed the public
offering. The Partnership received $5,117,287 (net of offering costs of
$782,713) from the sale of limited partnership interests. These funds were
available for investment in property, to pay legal fees and other costs
related to the investments, to pay operating expenses, and for working
capital. A portion of the proceeds were used to acquire and construct the
122-room "suites only" motel on 1.93 acres of land, subject to a 60-year
lease expiring in 2046.
As a result of cost overruns related to the acquisition and construction of
the motel, the Partnership borrowed $200,000 from the party that is the
lessor under its land lease. The note is payable in monthly installments
of $2,175, including interest at 8%, over a 20-year period.
The deferred rent liability represents amounts accrued under the
Partnership's land lease prior to April 1, 1993. Under the original land
lease, annual rent increases were based on the greater of 2-1/2% or the
increase in the Consumer Price Index. The Partnership was required by
generally accepted accounting principles to record rent expense and a
deferred rent liability based on projecting the 2-1/2% minimum annual rent
increase over the 60-year term of the lease. Effective April 1, 1993, the
land lease was amended. Under the amended land lease, monthly rent
payments were reduced from $30,138 per month to $20,000 per month. Annual
rent increases are based on the lesser of the increase in the Consumer
Price Index or 5%, and there is no minimum annual increase. Rent expense
under the amended lease is significantly lower than under the previous
lease. In addition, the deferred rent liability accrued prior to April 1,
1993 is being credited to income on a straight-line basis over the
remaining term of the lease.
(Continued)
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results of Operations:
For the three months ended September 30, 1995, room revenues were $577,963,
the occupancy rate was 83.56% and the average daily rate was $61.62. This
compares to the three months ended September 30, 1994 when room revenues
were $537,816, the occupancy rate was 81.06% and the average daily rate was
$59.11.
For the nine months ended September 30, 1995, room revenues were
$1,423,486, the occupancy rate was 72.67% and average daily rate was
$58.81. This compares to September 30, 1994 with room revenues of
$1,292,551, occupancy rate of 67.64% and average daily rate of $57.38.
Until March 31, 1993, rent expense on the land lease was based on a
straight-line recognition of the total minimum rentals over the life of the
lease including the effects of a 2-1/2% minimum annual increase. Due to
changes in the lease agreement, effective April 1, 1993, rent expense is
based on amounts currently payable, and there is no deferred rent expense.
The deferred rent liability, which was incurred prior to April 1, 1993, is
being credited to income over the remaining term of the lease.
The effect of current operations on liquidity was net cash provided by
operating activities of $401,032 for the nine months ended September 30,
1995 and $227,268 for the nine months ended September 30, 1994.
Seasonality:
The motel business is seasonal with the third quarter being the strongest
due to the tourist business and the last half of the fourth quarter and the
first half of the first quarter being the weakest.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
(REGISTRANT) MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
By: GHG Hospitality, Inc.
Corporate General Partner
BY (SIGNATURE) /s/ J. Mark Grosvenor
(NAME AND TITLE) J. Mark Grosvenor, President and Director
(DATE) November 10, 1995
BY (SIGNATURE) /s/ Sylvia Mellor Clark
(NAME AND TITLE) Controller
(DATE) November 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 212,014
<SECURITIES> 0
<RECEIVABLES> 28,806
<ALLOWANCES> 0
<INVENTORY> 15,994
<CURRENT-ASSETS> 262,203
<PP&E> 5,712,808
<DEPRECIATION> 1,931,872
<TOTAL-ASSETS> 4,075,431
<CURRENT-LIABILITIES> 83,042
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,075,431
<SALES> 0
<TOTAL-REVENUES> 1,477,956
<CGS> 0
<TOTAL-COSTS> 1,218,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,417
<INCOME-PRETAX> 244,086
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244,086
<EPS-PRIMARY> 37.23
<EPS-DILUTED> 37.23
</TABLE>
