<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(MARK ONE)
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 1996
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: 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)
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 June 30, 1996 and December 31, 1995.
Statement of Operations for the three- and six-month periods
ended June 30, 1996 and June 30, 1995.
Statement of Cash Flows for the three- and six-month periods
ended June 30, 1996 and June 30, 1995.
Notes to Financial Statements.
1
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
June 30, 1996 and December 31, 1995
(Unaudited)
(Part 1 of 2)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 202,276 $ 55,694
Accounts receivable 30,506 26,647
Operating supplies 15,411 15,603
Prepaid expenses 38,269 14,207
Due from Affiliates (note 4) 0 821
----------- -----------
Total current assets 286,462 112,972
Investment property, at cost:
Building and improvements 4,552,868 4,541,600
Furniture, fixtures & equipment 1,192,927 1,177,560
----------- -----------
5,745,795 5,719,160
Less accumulated depreciation 2,066,503 1,983,846
----------- -----------
Total investment property, net
of accumulated depreciation 3,679,292 3,735,314
Construction in progress 0 0
Franchise fees, net (note 3) 30,417 31,667
----------- -----------
$ 3,996,171 $ 3,879,953
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
June 30, 1996 and December 31, 1995
(Unaudited)
(Part 2 of 2)
<TABLE>
<CAPTION>
LIABILITIES AND June 30, December 31,
PARTNER'S CAPITAL ACCOUNTS 1996 1995
------------- ------------
<S> <C> <C>
Current liabilities:
Notes payable (note 5) $ 7,125 $ 6,847
Accounts payable and accrued expenses 56,850 43,538
Due to Affiliates (note 4) 30,486 11,852
---------- ----------
Total current liabilities 94,461 62,237
---------- ----------
Long-term debt, less current
portion (note 5) 233,277 236,911
Deferred rent liability (note 6) 1,498,426 1,513,261
---------- ----------
Total liabilities 1,826,164 1,812,409
---------- ----------
Partners' capital accounts:
General partners:
Capital contributions 31,210 31,210
Cumulative net earnings (128,915) (143,161)
Cumulative cash distributions (161,640) (157,640)
---------- ----------
(259,345) (269,591)
---------- ----------
Limited partners:
Capital contributions,
net of offering costs 5,117,287 5,117,287
Cumulative net earnings (1,160,228) (1,288,444)
Cumulative cash distributions (1,527,707) (1,491,708)
---------- ----------
2,429,352 2,337,135
---------- ----------
Total partners' capital accounts 2,170,007 2,067,544
---------- ----------
$3,996,171 $3,879,953
=========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Operations
Three Months and Six Months Ended
June 30, 1996 and June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Room revenues $ 516,907 $ 457,243 $ 945,691 $ 845,523
Phone revenue 12,205 8,351 20,956 20,558
Interest income 412 0 637 54
Other income 9,062 6,003 14,110 10,154
---------- ---------- ---------- ----------
538,586 471,597 981,394 876,289
---------- ---------- ---------- ----------
Expenses:
Property operating expenses 160,765 146,388 310,703 279,415
Depreciation 41,632 39,840 82,657 79,679
General and administrative 49,399 45,555 104,364 94,891
Amortization 625 625 1,250 1,250
Management fees 32,236 28,307 58,791 52,570
Royalties and advertising 39,277 34,329 68,502 64,114
Real estate taxes 12,992 11,951 24,922 24,702
Interest expense 4,652 5,078 9,695 10,187
Lease expense 55,770 54,625 111,540 109,250
Marketing 9,675 12,654 21,166 22,618
Repairs & Maintenance 23,731 25,405 45,340 45,410
---------- ---------- ---------- ----------
430,754 404,757 838,930 784,086
---------- ---------- ---------- ----------
Net earnings $ 107,832 $ 66,840 $ 142,464 $ 92,203
========== ========== ========== ==========
Net earnings per limited
partnership interest $ 16.45 $ 10.20 $ 21.73 $ 14.06
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Cash Flows
Three Months and Six Months Ended
June 30, 1996 and June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 107,832 $ 66,840 $ 142,464 $ 92,203
Adjustments to reconcile net income to cash:
Depreciation and amortization 42,257 40,465 83,907 80,929
(Increase) decrease in:
Accounts receivable 7,011 (4,752) (3,861) (7,984)
Operating supplies 1,527 (364) 192 (481)
Prepaid expenses (6,578) 1,108 (24,062) 10,619
Increase (decrease) in:
Accounts payable and accrued expenses (6,825) 20,036 13,312 14,351
Due to Affiliates (2,505) (21,328) 19,455 (819)
Deferred rent liability (7,417) (7,418) (14,835) (14,836)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 135,302 94,587 216,572 173,982
---------- ---------- ---------- ----------
Cash flows from investing activities:
Investment property expenditures (11,402) (43,609) (26,635) (104,695)
---------- ---------- ---------- ----------
Net cash used in investing activities (11,402) (43,609) (26,635) (104,695)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds/(Payments) of notes payable (1,695) (1,564) (3,356) (3,098)
Cash distributions to partners (39,999) (30,000) (39,999) (30,000)
Net cash provided by (used in) ---------- ---------- ---------- ----------
financing activities (41,694) (31,564) (43,355) (33,098)
---------- ---------- ---------- ----------
Net increase in cash and cash equivalents 82,207 19,414 146,582 36,189
Cash and cash equivalents, beginning of period 120,069 45,817 55,694 29,042
---------- ---------- ---------- ----------
Cash and cash equivalents, end of period 202,276 65,231 202,276 65,231
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
June 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)
6
<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)
7
<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 six months ended
June 30, 1996 and June 30, 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ------------------
6/30/96 6/30/95 6/30/96 6/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees $32,236 $28,307 $58,791 $52,570
Reimbursement for
partnership admini-
stration expenses $10,711 $ 8,106 $19,749 $16,211
Salaries and other
allocated expenses $23,527 $31,380 $49,117 $54,393
</TABLE>
In addition, all motel employees are paid by GMS. The
Partnership reimbursed GMS $85,552 for the wages of these
employees which includes a one percent processing fee.
At June 30, 1996, $30,846 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 $240,402 as of June 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 $ 6,847
1997 7,415
1998 8,031
1999 8,697
2000 9,419
Thereafter 203,349
--------
$243,758
========
(Continued)
8
<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 six months ended June 30, 1996.
8. SUBSEQUENT EVENT
In August 1996, the Partnership paid a distribution of $81,000.90
to the limited partners.
9
<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.
In 1994, the Partnership was notified by its franchisor, Choice
Hotels International, Inc., that it was required to make certain
improvements to its motel property in order to retain the
franchise. In addition, the Partnership decided to make certain
discretionary improvements to its motel property. The total cost
of these improvements were approximately $148,000.
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 June 30, 1996, room revenues were
$516,908, the occupancy rate was 79.7% and the average daily rate
was $58.42. This compares to the three months ended June 30,
1995 when room revenues were $457,243, the occupancy rate was
69.2% and the average daily rate was $59.52.
(Continued)
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
For the six months ended June 30, 1996, room revenues were
$945,691, the occupancy rate was 75.09% and average daily rate
was $56.72. This compares to June 30, 1995 with room revenues of
$845,524, occupancy rate of 67.18% and average daily rate of
$57.00.
The three months ended June 30, 1996 compared with the three
months ended June 30, 1995, shows an average daily rate decrease
of $1.10 per room while occupancy increased by more than ten
percentage points, resulting in an increase in room revenue of
$59.664. Profit for the three months ended June 30, 1996
increased by $40.992 when compared with the three months ended
June 30, 1995. Year-to-date figures for the six months ended
June 30, 1996 show occupancy increased by approximately eight
percentage points and room revenue is $100,168 more than the six
months ended June 30, 1995.
Choice contributed a total of 2006 room nights (22.6% of our
business) through its reservation system, approximately 400 room
nights less than last year. The renovated Choice property
located within a mile and a half of our Comfort Suites opened in
June and we received 100 fewer room nights from Choice for June.
Choice reservations were also down previous to the opening of the
renovated property--100 room nights in April and 200 room nights
in May. As shown above, however, our overall occupancy and
revenue is up considerably.
Triple A, a major source of business, recently conducted its
inspection of the hotel. To retain the property's rating in
1997, AAA indicated the pool deck and walkway will require
resurfacing in addition to replacing the lobby/breakfast area
carpet. The approximate cost of these renovations will be
$20,000. In compliance with Choice requirements, electronic
locks will be installed in September at a cost of approximately
$38,000. Choice announced at its recent Regional meeting that
in-room coffeemakers will be a requirements next year.
The effect of current operations on liquidity was net cash
provided by operating activities of $216,572 for the six months
ended June 30, 1996 and $173,982 for the six months ended June
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.
11
<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) August 9, 1996
BY (SIGNATURE) /s/ Sylvia Mellor Clark
(NAME AND TITLE) Controller
(DATE) August 9, 1996
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 202,276
<SECURITIES> 0
<RECEIVABLES> 30,506
<ALLOWANCES> 0
<INVENTORY> 15,411
<CURRENT-ASSETS> 286,462
<PP&E> 5,745,795
<DEPRECIATION> 2,066,503
<TOTAL-ASSETS> 3,996,171
<CURRENT-LIABILITIES> 94,461
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,996,171
<SALES> 0
<TOTAL-REVENUES> 981,394
<CGS> 0
<TOTAL-COSTS> 829,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,695
<INCOME-PRETAX> 142,464
<INCOME-TAX> 0
<INCOME-CONTINUING> 142,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142,464
<EPS-PRIMARY> 21.73
<EPS-DILUTED> 21.73
</TABLE>
