<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 March 31, 1997
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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)
1466 9th Avenue, San Diego, CA 92101
(Address of principal executive offices)
(619) 699-6100
(Issuer's telephone number)
(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
1
<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of March 31, 1997 and December 31, 1996.
Statement of Operations for the three month period ended March 31, 1997
and March 31, 1996.
Statement of Cash Flows for the three month period ended March 31, 1997
and March 31, 1996.
Notes to Financial Statements.
2
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
March 31, 1997 and December 31, 1996
(Unaudited)
(Part 1 of 2)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
-------- -------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 216,550 $ 75,541
Accounts receivable 25,057 38,797
Operating supplies 15,981 15,540
Prepaid expenses 6,677 22,422
Due from Affiliates (note 4) 0 4,848
----------- -----------
Total current assets 264,265 157,148
Investment property, at cost:
Building and improvements 4,605,934 4,603,619
Furniture, fixtures & equipment 1,211,442 1,211,442
----------- -----------
5,817,376 5,815,061
Less accumulated depreciation 2,211,384 2,163,096
----------- -----------
Total investment property, net
of accumulated depreciation 3,605,992 3,651,965
Franchise fees, net (note 2) 28,542 29,167
----------- -----------
$ 3,898,799 $ 3,838,280
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
March 31, 1997 and December 31, 1996
(Unaudited)
(Part 2 of 2)
<TABLE>
<CAPTION>
LIABILITIES AND March 31, 1997 December 31, 1996
PARTNER'S CAPITAL ACCOUNTS ------------------ ----------------
<S> <C> <C>
Current liabilities:
Current portion on long-term debt $ 7,698 $ 7,415
Accounts payable and accrued expenses 61,570 54,996
Due to Affiliates (note 5) 29,820 11,440
---------- ----------
Total current liabilities 99,088 73,851
---------- ----------
Long-term debt, less current portion 225,239 229,496
Deferred rent liability (note 6 and note 8) 1,476,172 1,483,590
----------- -----------
Total liabilities 1,800,499 1,786,937
------------ ------------
Partners' capital accounts:
General partners:
Capital contributions 31,210 31,210
Cumulative net earnings (110,085) (114,781)
Cumulative cash distributions (187,640) (187,640)
------------- -------------
(266,515) (271,211)
--------------- -------------
Limited partners:
Capital contributions, net of
offering costs 5,117,287 5,117,287
Cumulative net earnings (990,764) (1,033,025)
Cumulative cash distributions (1,761,708) (1,761,708)
------------- --------------
2,364,815 2,322,554
------------- --------------
Total partners' capital accounts 2,098,300 2,051,343
------------- --------------
$3,898,799 $3,838,280
=========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Operations
Three Months Ended
March 31, 1997 and March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
1997 1996
----- ----
<S> <C> <C>
Revenues:
Room revenues $ 457,555 $ 428,784
Phone revenue 10,182 8,751
Interest income 71 225
Other income 7,615 5,048
---------- ----------
475,423 442,808
----------- ----------
Expenses:
Property operating expenses 154,336 149,938
Depreciation 48,288 41,025
General and administrative 42,779 45,350
Amortization 625 625
Management fees 28,526 26,555
Royalties and advertising 28,950 29,225
Real estate taxes 17,424 11,930
Interest expense 4,726 5,043
Lease expense 57,038 55,770
Marketing 19,126 11,491
Property and liability insurance 9,568 9,615
Repairs & Maintenance 17,080 21,609
---------- ----------
428,466 408,176
---------- ----------
Net earnings $ 46,957 $ 34,632
========== ==========
Net earnings per limited
partnership interest $ 7.16 $ 5.28
========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Cash Flows
Three Months Ended
March 31, 1997 and March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 46,957 $ 34,632
Adjustments to reconcile net income to cash:
Depreciation and amortization 48,913 41,650
(Increase) decrease in:
Accounts receivable 13,740 (10,870)
Operating supplies (441) (1,335)
Prepaid expenses 15,745 17,484
Increase (decrease) in:
Accounts payable/accrued expenses 6,574 20,134
Due to/from Affiliates 23,228 21,960
Deferred rent liability (7,418) (7,418)
Net cash provided by (used in) ------------ -------------
operating activities 147,298 81,269
------------- ------------
Cash flows from investing activities:
Investment property expenditures ( 2,315) (15,233)
-------------- ------------
Net cash used in investing
activities (2,315) (15,233)
-------------- ------------
Cash flows from financing activities:
Proceeds/(Payments) of notes payable (3,974) (1,661)
Cash distributions to partners 0 0
Net cash provided by (used in) ------------- -------------
financing activities ( 3,974) ( 1,661)
------------- -------------
Net increase/(decrease) in cash
and cash equivalents 141,009 64,375
Cash and cash equivalents,
beginning of period 75,541 55,694
------------- -------------
Cash and cash equivalents, end of period $216,550 $120,069
========= ========
</TABLE>
6
See accompanying notes to financial statements.
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1997
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, 1996, 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 renovations 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)
7
<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 limitedpartners 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 distri-
bution; 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 Hospital-
ity, 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)
8
<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 ended March 31, 1997 and March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Three Months Ended
3/31/97 3/31/96
--------- ---------
<S> <C> <C>
Management Fees $28,526 $26,555
Reimbursement for partnership
administration expenses 9,387 9,038
Salaries and other
allocated expenses 19,954 25,590
In addition, all motel employees are paid by GMS. For the three months ended
March 31, 1997, the Partnership reimbursed GMS $90,238. for the wages of
these employees which includes a one percent processing fee.
At March 31, 1997, $29,820 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 $232,937.
as of March 31,1997 and $242,097 as of March 31, 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. Begin-
ning with the March 1997 note payment, the Partnership elected to pay $4,350
per mont (double the $2,175 installment amount due each month). The results
of this increase in the monthly payments will save the Partnership $126,169 in
interest expense over the remaining term of the note, and the note will pay in
full in October 2002 rather than April 2013.
Principal payments on this note are due as follows:
<S> <C>
April 1997- December 1997 $ 5,750
1998 8,222
1999 8,905
2000 9,644
2001 10,444
Thereafter 189,132
--------
$ 232,097
==========
</TABLE>
(Continued)
9
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
<TABLE>
<CAPTION>
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 $21,485 per month as of March 31, 1997. 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:
<S> <C>
1997 $ 257,820
1998 257,820
1999 257,820
2000 257,820
2001 257,820
Thereafter 11,580,751
----------
$12,869,851
===========
7. ADJUSTMENTS
In the opinion of the general partner, 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 three months ended March
31, 1997.
8. SUBSEQUENT EVENT
In May 1997, the Partnership paid a distribution of $58,501 to the limited
partners.
</TABLE>
(Continued)
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. 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. Beginning with the March 1997
note payment, the Partnership elected to pay $4,350 per month (double the
$2,175 installment amount due each month). The results of this increase in
the monthly payments will save the Partnership $126,169 in interest expense
over the term of the note, and the note will pay in full in October 2002
rather than April 2013.
An independent appraisal valued the Partnership's motel property at $3,440,000
as of October 21, 1996. The carrying amount of investment property on the
Partnership's financial statements was $3,651,965 as of December 31, 1996.
Management expects that undiscounted cash flows from the motel will exceed
its carrying value and, therefore, an impairment loss has not been recorded.
The deferred rent liability represents amounts accrued under the Partner-
ship'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. The rent payment was
$21,485 per month as of March 31, 1997. 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 March 31, 1997, room revenues were $457,555 the
occupancy rate was 73.2% and the average daily rate was $56.93. This
compares to the three months ended March 31, 1996 when room revenues were
$428,784, the occupancy rate was 70.48% and the average daily rate was $54.80.
(Continued)
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The three months ended March 31,1997 compared with the three months ended March
31, 1996, shows an average daily rate increase of $2.13 per room while occupancy
increased by approximately three percentage points, resulting in an increase
in room revenue of $28,177. Profit for the three months ended March 31,
1997 increased by $12,325 when compared with the three months ended March 31,
1996.
Choice contributed a total of 3,097 room nights (approximately 38.5% of our
business) through its reservation system, approximately 583 room nights
greater than last year.
The effect of current operations on liquidity was net cash provided by operating
activities of $147,298 for the three months ended March 31, 1997 and $81,269
for the three months ended March 31, 1996.
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.
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) May 9, 1997
By (SIGNATURE) /s/ Sylvia Mellor Clark
(NAME AND TITLE) Sylvia Mellor Clark, Controller
(DATE) May 9, 1997
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 216,550
<SECURITIES> 0
<RECEIVABLES> 25,057
<ALLOWANCES> 0
<INVENTORY> 15,981
<CURRENT-ASSETS> 264,265
<PP&E> 5,817,376
<DEPRECIATION> 2,211,384
<TOTAL-ASSETS> 3,898,799
<CURRENT-LIABILITIES> 99,088
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,898,799
<SALES> 0
<TOTAL-REVENUES> 475,423
<CGS> 0
<TOTAL-COSTS> 423,740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,726
<INCOME-PRETAX> 46,957
<INCOME-TAX> 0
<INCOME-CONTINUING> 46,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,957
<EPS-PRIMARY> 7.16
<EPS-DILUTED> 7.16
</TABLE>
