<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB - Quarterly or Transitional Report
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 000-18080
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)
1466 9th Avenue, San Diego, CA 92101
(Address of principal executive offices)
(619) 699-6100
(Issuer's telephone number)
3145 Sports Arena Blvd., San Diego, CA 92110
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the registrant (1) has filed all reports required to be filed
by Sections 13 or 15(d) of the Exchange Act during the last 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, 1996 and December 31, 1995.
Statement of Operations for the three- and nine-month periods ended
September 30, 1996 and September 30, 1995.
Statement of Cash Flows for the three- and nine-month periods ended
September 30, 1996 and September 30, 1995.
Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
September 30, 1996 and December 31, 1995
(Unaudited)
(Part 1 of 2)
September 30, December 31,
ASSETS 1996 1995
--------- ------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 257,545 $ 55,694
Accounts receivable 40,445 26,647
Operating supplies 16,724 15,603
Prepaid expenses 32,048 14,207
Due from Affiliates (note 4) 0 821
----------- -----------
Total current assets 346,762 112,972
Investment property, at cost:
Building and improvements 4,558,026 4,541,600
Furniture, fixtures & equipment 1,209,805 1,177,560
----------- -----------
5,767,831 5,719,160
Less accumulated depreciation 2,108,505 1,983,846
----------- -----------
Total investment property, net
of accumulated depreciation 3,659,326 3,735,314
Construction in progress 26,005 0
Franchise fees, net (note 3) 29,792 31,667
----------- -----------
$ 4,061,885 $ 3,879,953
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
September 30, 1996 and December 31, 1995
(Unaudited)
(Part 2 of 2)
LIABILITIES AND September 30, December 31,
PARTNER'S CAPITAL ACCOUNTS 1996 1995
-------------------------- ------------- ------------
<S> <C> <C>
Current liabilities:
Notes payable (note 5) $ 7,269 $ 6,847
Accounts payable and accrued expenses 75,923 43,538
Due to Affiliates (note 4) 5,522 11,852
---------- ----------
Total current liabilities 88,714 62,237
---------- ----------
Long-term debt, less current
portion (note 5) 231,405 236,911
Deferred rent liability (note 6) 1,491,008 1,513,261
---------- ----------
Total liabilities 1,811,127 1,812,409
---------- ----------
Partners' capital accounts:
General partners:
Capital contributions 31,210 31,210
Cumulative net earnings (111,840) (143,161)
Cumulative cash distributions (170,640) (157,640)
---------- ----------
(251,270) (269,591)
---------- ----------
Limited partners:
Capital contributions,
net of offering costs 5,117,287 5,117,287
Cumulative net earnings (1,006,552) (1,288,444)
Cumulative cash distributions (1,608,707) (1,491,708)
---------- ----------
2,502,028 2,337,135
---------- ----------
Total partners' capital accounts 2,250,758 2,067,544
---------- ----------
$4,061,885 $3,879,953
=========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Operations
Three Months and Nine Months Ended
September 30, 1996 and September 30, 1995
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1996 1995 1996 1995
------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Room revenues $ 605,118 $ 577,963 $1,550,809 $1,423,486
Phone revenue 13,800 12,037 34,756 32,595
Interest income 697 451 1,334 505
Other income 7,248 11,216 21,358 21,370
---------- ---------- ---------- ----------
626,863 601,667 1,608,257 1,477,956
---------- ---------- ---------- ----------
Expenses:
Property operating expenses 177,998 171,164 488,701 450,579
Depreciation 42,002 42,839 124,659 122,518
General and administrative 50,331 45,022 154,695 139,913
Amortization 625 625 1,875 1,875
Management fees 37,566 36,073 96,357 88,643
Royalties and advertising 47,686 45,250 116,188 109,364
Real estate taxes 10,893 11,951 35,815 36,653
Interest expense 4,796 5,230 14,491 15,417
Lease expense 55,771 54,625 167,311 163,875
Marketing 10,285 18,494 31,451 41,112
Repairs & Maintenance 18,161 18,511 63,501 63,921
---------- ---------- ---------- ----------
456,114 449,784 1,295,044 1,233,870
---------- ---------- ---------- ----------
Net earnings $ 170,749 $ 151,883 $ 313,213 $ 244,086
========== ========== ========== ==========
Net earnings per limited
partnership interest $ 26.05 $ 23.17 $ 47.78 $ 37.23
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Cash Flows
Three Months and Nine Months Ended
September 30, 1996 and September 30, 1995
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 170,749 $ 151,883 $ 313,213 $ 244,086
Adjustments to reconcile net income to cash:
Depreciation and amortization 42,627 43,464 126,534 124,393
(Increase) decrease in:
Accounts receivable (9,939) 1,767 (13,800) (6,217)
Operating supplies (1,313) (795) (1,121) (1,276)
Prepaid expenses 6,221 17,948 (17,841) 28,567
Increase (decrease) in:
Accounts payable and accrued expenses 19,073 (5,412) 32,385 8,941
Due to Affiliates (24,964) 25,611 (5,509) 24,792
Deferred rent liability (7,418) (7,418) (22,253) (22,254)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 195,036 227,048 411,608 401,032
---------- ---------- ---------- ----------
Cash flows from investing activities:
Investment property expenditures (48,041) (13,671) (74,676) (118,366)
---------- ---------- ---------- ----------
Net cash used in investing activities (48,041) (13,671) (74,676) (118,366)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds/(Payments) of notes payable (1,728) (1,596) (5,084) (4,694)
Cash distributions to partners (90,000) (65,000) (129,999) (95,000)
Net cash provided by (used in) ---------- ---------- ---------- ----------
financing activities (91,728) (66,596) (135,083) (99,694)
---------- ---------- ---------- ----------
Net increase in cash and cash equivalents 55,269 146,783 201,851 182,972
Cash and cash equivalents, beginning of period 202,276 65,231 55,694 29,042
---------- ---------- ---------- ----------
Cash and cash equivalents, end of period 257,545 212,014 257,545 212,014
========== ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
September 30, 1996
Readers of this quarterly report should refer to the partnership
audited financial statements and annual report Form 10-KSB (File No.
000-18080) for the period ended December 31, 1995, 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 Choice Hotels 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.
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.
(Continued)
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
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 Choice Hotels 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
Hospitality, Inc. (GHG), the general partner. 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), formerly
Grosvenor Management Services, Inc., allocate to the Partnership
certain marketing, accounting, and maintenance salaries and certain
other expenses directly related to the operation of the
Partnership.
(Continued)
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
4. RELATED PARTY TRANSACTIONS (Continued)
Fees and reimbursements for partnership administration expenses
paid to GHG and GMS for the three months and nine months ended
September 30, 1996 and September 30, 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
------------------ ------------------
<S> <C> <C> <C> <C>
Management Fees $37,566 $36,073 $96,357 $88,643
Reimbursement for
partnership admini-
stration expenses $ 9,875 $ 8,105 $29,624 $24,316
Salaries and other
allocated expenses $31,873 $32,111 $80,990 $86,504
</TABLE>
In addition, all motel employees are paid by GMS. For the three
months ended September 30, 1996, the Partnership reimbursed GMS
$83,737 for the wages of these employees which includes a one
percent processing fee.
At September 30, 1996, $5,522 was due to GHG and GMS relating to
reimbursement for these operating expenses.
5. LONG-TERM DEBT
The Partnership has a note payable which is due in monthly
installments of $2,175, including 8% interest, through April 2013.
The note is secured by a trust deed on the Partnership's motel.
The balance outstanding was $238,674 as of September 30, 1996. The
fair value of long-term debt approximates its carrying amount based
on borrowing rates currently available to the Partnership for loans
with similar terms.
Principal payments on this note are due as follows:
1996 $ 1,763
1997 7,415
1998 8,031
1999 8,697
2000 9,419
Thereafter 203,349
--------
$238,674
========
(Continued)
<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. Prior to April 1, 1993,
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. The rent payment was $21,063
per month as of December 31, 1995. As a result of the amendment to
the lease agreement, a 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
Partnership is required to pay real estate taxes, insurance, and
maintenance for the leased land and improvements thereon.
Future minimum lease payments are due as follows:
1996 $ 252,756
1997 252,756
1998 252,756
1999 252,756
2000 252,756
Thereafter 11,605,713
-----------
$12,869,493
===========
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, 1996.
8. SUBSEQUENT EVENT
In November 1996, the Partnership paid a distribution of
$152,999.71 to the limited partners.
(Continued)
<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.
The majority of the proceeds were used to acquire and construct the
property identified in Item 2 above.
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.
Results of Operations:
For the three months ended September 30, 1996, room revenues were
$605,118, the occupancy rate was 82.4% and the average daily rate
was $65.31. This compares to the three months ended September 30,
1995 when room revenues were $577,963, the occupancy rate was
83.56% and the average daily rate was $61.62.
For the nine months ended September 30, 1996, room revenues were
$1,550,809, the occupancy rate was 77.59% and average daily rate
was $59.79. This compares to September 30, 1995 with room revenues
of $1,423,487, occupancy rate of 72.7% and average daily rate of
58.79.
(Continued)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The three months ended September 30, 1996 compared with the three
months ended September 30, 1995, shows an average daily rate
increase of $3.69 per room while occupancy increased by
approximately one percentage point, resulting in an increase in
room revenue of $27,155. Profit for the three months ended
September 30, 1996 increased by $18,866 when compared with the
three months ended September 30, 1995. Year-to-date figures for
the nine months ended September 30, 1996 show occupancy increased
by approximately five percentage points and room revenue is
$127,322 more than the nine months ended September 30, 1995.
Choice contributed a total of 3228 room nights (approximately 35%
of our business) through its reservation system, approximately 190
room nights greater than last year.
The San Diego Union published an article in early November 1996
reporting that the Mission Valley area of San Diego had experienced
an occupancy increase for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995 of 4.2%. The
partnership's occupancy for this same period increased by 4.9%.
This same article in the San Diego Union reported that the Mission
Valley area experienced an increase to average rate of 7% for the
nine months ended September 30, 1996 compared to the nine months
ended September 30, 1995. The partnership's rate for this nine
month period increased by approximately 2%.
In compliance with Choice requirements, the electronic locks
installation was completed in October in all the guest rooms for a
total costs of $39,055.
The effect of current operations on liquidity was net cash provided
by operating activities of $411,608 for the nine months ended
September 30, 1996 and $401,032 for the nine months ended September
30, 1995.
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. It is not unusual for the motel operations to have
negative cash flow during this weak period.
<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 14, 1996
BY (SIGNATURE) /s/ Sylvia Mellor Clark
(NAME AND TITLE) Sylvia Mellor Clark, Controller
(DATE) November 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 257,545
<SECURITIES> 0
<RECEIVABLES> 40,445
<ALLOWANCES> 0
<INVENTORY> 16,724
<CURRENT-ASSETS> 346,762
<PP&E> 5,767,831
<DEPRECIATION> 2,108,505
<TOTAL-ASSETS> 4,061,885
<CURRENT-LIABILITIES> 88,714
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,061,885
<SALES> 0
<TOTAL-REVENUES> 1,608,257
<CGS> 0
<TOTAL-COSTS> 1,280,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,491
<INCOME-PRETAX> 313,213
<INCOME-TAX> 0
<INCOME-CONTINUING> 313,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313,213
<EPS-PRIMARY> 47.78
<EPS-DILUTED> 47.78
</TABLE>
