<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
/x/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission File No.: 33-11224-LA
Mission Valley Comfort Suites Ltd., A California Limited Partnership
(Name of small business issuer in its charter)
California 33-0213497
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1466 9th Avenue, San Diego, California 92101
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (619) 699-6100
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Interests
(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. /x/ Yes / / No
State issuer's revenues for its most recent fiscal year: $2,040,601.
The aggregate market value of the voting securities held by non-affiliates is
not determinable as there is no established market and the securities have only
limited voting rights.
State the number of limited partnership interests outstanding as of December
31, 1997: 5,900 interests held by 880 limited partners.
1
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DOCUMENT INCORPORATED BY REFERENCE
Definitive Prospectus dated February 6, 1987, as supplemented December 2,
1987 is incorporated by reference into Part III.
PART I
Item 1. Business
Mission Valley Comfort Suites Ltd., A California Limited Partnership, formerly
Motels of America Series X, A California Limited Partnership, (the Partnership)
was formed on September 18, 1987 pursuant to the California Revised Uniform
Limited Partnership Act. As of December 31, 1997, the Partnership consisted
of a general partner, GHG Hospitality, Inc. (GHG), and 880 limited partners
owning 5,900 limited partnership interests. The limited partnership interests
sold at a public offering price of $1,000 each commencing February 6, 1987
pursuant to a Registration Statement on Form S-18 under the Securities Act of
1933 (Registration 33-11224-LA). The offering of $5,900,000 was fully sub-
scribed and closed on March 21, 1988.
The Partnership was organized to lease a parcel of land in the Mission Valley
area of San Diego, California and build and operate thereon a 122-room
Comfort Suites motel as a franchise of Choice International. The land was
leased from Colony Ventures Ltd., a nonaffiliated party, by Motels of America,
Inc. (MOA) and the former general partners in November 1986, and was held for
the benefit of the Partnership until the Partnership had raised sufficient funds
to build the motel. MOA and the former general partners assigned the land lease
to the Partnership for their actual carrying costs. The motel was opened for
business in September 1988 under a twenty-year franchise agreement with Choice
International 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.
Since January 1, 1990, the motel has been operated pursuant to a management
agreement with GHG.
The profitability of a motel is subject to general economic risks, the manage-
ment ability of the operator, intense competition, desirability of a particular
location, and other factors relating to its operations. The demand for parti-
cular accommodations may vary seasonally and may be affected by economic reces-
sions, changes in travel patterns caused by changes in energy prices, strikes,
relocation of highways, the construction of additional highways and other
factors. To meet competition in the industry and to maintain economic values,
continuing expenditures must be made for modernizing, refurnishing, and main-
taining existing facilities prior to the expiration of their anticipated useful
lives.
2
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There is no assurance that the Partnership's motel can be profitably operated.
Further, there is no assurance the motel can be sold at a profit. Consequently,
there is no guarantee of any profit or that the limited partners' investments
will be preserved against loss.
There is significant competition in the lodging market. The Partnership is in
competition either directly or indirectly with a large number of hotels and
motels of varying quality and sizes, including other motels which are part of
national or regional chains. Such hotels and motels may have greater financial
resources and personnel with more experience than the Partnership and the
general partner. The San Diego area in particular has a large number of hotel
and motel projects that in the aggregate could dilute average occupancy and
affect profitability.
The Partnership has no employees.
At the time of the public offering in 1987 and 1988, the Prospectus stated that
the general partner expected that the Partnership would consider selling or
refinancing the motel after operating it for a period of approximately six to
ten years. A recent informal survey conducted by the general partner of a
number of limited partners indicated that a substantial majority would like the
motel to be sold. For these reasons, the general partner decided in early 1998
to initiate the process which could possibly result in a sale of the motel.
On March 3, 1998, the Partnership entered into an agreement with Hotel Partners,
Inc., a real estate broker specializing in hotel and motel properties, to list
the motel for sale. The initial listing price is $5,000,000. However, there is
no assurance that a buyer can be found or that the motel can be sold for this
price. Furthermore, any sale would be subject to the approval of limited part-
ners holding a majority of the limited partnership interests.
Item 2. Property
The Partnership was assigned the land lease on September 18, 1987. The Part-
nership constructed the following property which was completed in September
1988. The Partnership does not intend to acquire any additional property.
Property name and address Property description
Comfort Suites A 122-room "suites only" motel on
631 Camino del Rio South approximately 1.83 acres of land,
San Diego, CA 92108 subject to a 60-year lease expiring
in 2046.
The Partnership was assigned the land lease and reimbursed MOA and the former
general partners for approximately $218,500 in lease payments they paid prior to
the assignment of the land lease to the Partnership. The Partnership completed
construction and opened the motel in September 1988.
3
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In the opinion of the Partnership's management, the property is adequately
covered by insurance.
The property is subject to a trust deed with a balance of $207,081 as of
December 31, 1997. The trust deed requires monthly payments of $2,175,
including interest at 8%, until paid in full.
Item 3. Legal Proceedings
The Partnership is not subject to any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Limited Partnership Interests and Related Partner Matters
There is no public trading market for the Partnership's limited partnership
interests. There were approximately 880 holders of the Partnership's 5,900
limited partnership interests as of December 31, 1997. Cash distributions to
holders of limited partnership interests totalled $193,500 ($32.80 per
interest) in 1997 and $270,000 ($45.76 per interest) in 1996.
Item 6. 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. In 1993, the note was amended to add accrued interest
of $60,000 to the principal balance so that the new balance was $260,000.
The note is payable in monthly installments of $2,175, including interest at 8%,
over a 20-year period. The note is secured by a trust deed on the Partner-
ship's motel. In March 1997, the Partnership voluntarily began making
4
<PAGE>
monthly payments of $4,350 in order to retire the note earlier than scheduled
and reduce interest expense over the term of the note. The balance outstanding
on the note was $207,081 as of December 31, 1997.
An independent appraisal valued the Partnership's investment property at
$4,000,000 as of July 23, 1997. The carrying amount of investment property
on the Partnership's financial statements was $3,484,675 as of December 31,
1997.
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 prin-
ciples 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, 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.
Consequently, rent expense is now being recognized based on the amount due each
month rather than on the straight-line basis. 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.
Choice International is requiring all franchisees to convert to their compu-
terized property management system by 1999. The Partnership is expected to
complete the conversion in the fourth quarter of 1998 at an estimated cost of
$30,000. Management also plans to install phone lines for data ports and voice
mail in 1998 for an estimated cost of $20,000 in order to better serve
government and corporate guests. The cost of the computer conversion and phone
line installation will be funded by cash from operations.
As discussed in Item 1, the general partner decided in early 1998 to initiate
the process which could possibly result in a sale of the motel. Any sale would
be subject to the approval of limited partners holding a majority of the
limited partnership interests. If a sale is consummated, the net sale proceeds,
after payment of all liabilities and costs to wind down the affairs of the Part-
nership, would be paid to the limited partners in the form of a final liquid-
ating distribution and the Partnership would be dissolved.
Results of Operations:
Net income was $129,950 in 1997 and $283,799 in 1996. Total revenues were
$2,040,601 in 1997 and $2,025,358 in 1996. The property operated at an
occupancy of 73.87% in 1997 and 73.86% in 1996. The average daily room
rate was $59.73 in 1997 and $59.11 in 1996.
5
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In 1997, the Partnership incurred costs of $108,403 associated with a proposal
to reorganize the Partnership into a real estate investment trust (REIT).
The efforts were discontinued when management and the proposed sponsor of
the REIT were unable to negotiate mutually acceptable terms and conditions for
a reorganization.
During 1996 a motel property approximately one mile from the Mission Valley
Comfort Suites became a Comfort Inn and Suites franchisee of Choice
International and began participating in the Choice Reservations System used by
the Partnership's motel. Due to the proximity of this motel to the Partner-
ship's motel and the availability of suites, it is in direct competition with
Mission Valley Comfort Suites and has decreased the number of reservations that
otherwise would have been received from the Choice Reservations System. The
Choice Reservations System accounted for 7,688 room nights (23% of total room
nights) in 1997 compared to 6,493 room nights (20% of total room nights) in
1996. Management believes the increase in room nights provided by the Choice
Reservations System would have been even greater if not for the new competition.
The effect of current operations on liquidity was net cash provided by operating
activities of $343,146 in 1997 and $422,595 in 1996. The cash was used
primarily for cash distributions to partners which were $215,000 in 1997 and
$300,000 in 1996, payments of long-term debt which were $29,830 in 1997 and
$6,847 in 1996, and investment property expenditures which were $27,185 in
1997 and $95,901 in 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 oper-
ations to have negative cash flow during this weak period.
6
<PAGE>
Item 7. Financial Statements and Supplementary Data
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
I N D E X
Pages
Independent Auditor's Report 8
Balance Sheets, December 31, 1997 and 1996 9-10
Statements of Operations, Years Ended December 31, 1997
and 1996 11
Statements of Partners' Capital, Years Ended December 31,
1997 and 1996 12-13
Statements of Cash Flows, Years Ended December 31, 1997
and 1996 14
Notes to Financial Statements 15-20
7
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Independent Auditor's Report
----------------------------
The Partners
Mission Valley Comfort Suites Ltd.,
A California Limited Partnership
We have audited the balance sheets of Mission Valley Comfort Suites Ltd., A
California Limited Partnership, as of December 31, 1997 and 1996, and the
related statements of operations, partners' 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 audits.
We conducted our audits in accordance with generally accepted auditing stand-
ards. 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 Mission Valley Comfort Suites
Ltd., A California Limited Partnership, as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Levitz, Zacks, & Ciceric, CPAs
San Diego, California
February 10, 1998
8
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MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Balance Sheets, page 1
December 31, 1997 and 1996
<TABLE>
<CAPTION>
...ASSETS...
1997 1996
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 146,672 $ 75,541
Accounts receivable 14,255 38,797
Operating supplies 15,011 15,540
Prepaid expenses 36,150 22,422
Due from affiliate -0- 4,848
----------- ----------
Total current assets 212,088 157,148
----------- ----------
Investment property, at cost:
Building and improvements 4,617,037 4,603,619
Furniture, fixtures and equipment 1,225,209 1,211,442
------------ ------------
5,842,246 5,815,061
Less accumulated depreciation 2,357,571 2,163,096
------------ ------------
Investment property, net 3,484,675 3,651,965
------------ ------------
Franchise fees, net 26,667 29,167
------------ ------------
Total assets $3,723,430 $3,838,280
============ ============
</TABLE>
See accompanying notes to financial statements.
9
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MISSION VALLEY COMFORT SUITES, LTD.,
A California Limited Partnership
Balance Sheets, page 2
December 32, 1996 and 1997
<TABLE>
<CAPTION>
...LIABILITIES AND PARTNERS' CAPITAL...
1997 1996
<S> <C> <C>
Current Liabilities:
Accounts payable $ 24,136 $ 41,816
Accrued expenses 17,030 13,180
Due to affiliate 28,629 11,440
Guest deposits 26,344 -0-
Current portion of long-term debt 9,891 7,415
----------- -----------
Total current liabilities 106,030 73,851
Long-term debt, less current portion 197,190 229,496
Deferred rent liability 1,453,917 1,483,590
------------- ------------
Total liabilities 1,757,137 1,786,937
------------ ------------
Partners' Capital:
General partner:
Capital contributions 31,210 31,210
Cumulative net loss (101,786) (114,781)
Cumulative cash distributions (209,140) (187,640)
------------- -------------
(279,716) (271,211)
------------- -------------
Limited partners (5,900 interests):
Capital contributions,
net of offering costs 5,117,287 5,117,287
Cumulative net loss (916,070) (1,033,025)
Cumulative cash distributions (1,955,208) (1,761,708)
------------- -------------
2,246,009 2,322,554
------------- -------------
Total partners' capital 1,966,293 2,051,343
------------- -------------
Total liabilities and
partners' capital $3,723,430 $ 3,838,280
============= ==============
</TABLE>
10
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MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statements of Operations
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION> 1997 1996
<S> <C> <C>
Revenues:
Room revenues $ 1,964,912 $ 1,949,461
Phone revenues 34,090 45,151
Interest income 3,227 2,095
Other 38,372 28,651
------------ -------------
Total revenues 2,040,601 2,025,358
------------ -------------
Expenses:
Property operating expenses 660,221 631,071
Land rent 228,411 223,504
Depreciation 194,475 185,610
General and administrative 165,599 165,028
Royalties and chain-affiliated advertising 151,056 153,915
Management fees 122,243 121,396
REIT proposal costs 108,403 -0-
Marketing 77,207 60,703
Repairs and maintenance 76,470 82,188
Real estate taxes 66,817 59,228
Property and liability insurance 38,553 37,163
Interest 18,696 19,253
Amortization 2,500 2,500
----------- -----------
Total expenses 1,910,651 1,741,559
----------- -----------
Net income $ 129,950 $ 283,799
=========== ===========
Net income per interest $ 19.82 $ 43.29
======= =======
</TABLE>
See accompanying notes to financial statements.
11
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MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statements of Partners' Capital, page 1
Years Ended December 31, 1997 and 1996
General Partner
<TABLE>
<CAPTION>
Cumulative Cumulative
Capital Net Cash
Contributions Loss Distributions Total
<S> <C> <C> <C> <C>
Balance,
December 31,1995 $ 31,210 $(143,161) $(157,640) $ (269.591)
Net income, year ended
December 31, 1996 -0- 28,380 -0- 28,380
Cash distributions
($45.76 per interest) -0- -0- (30,000) (30,000)
--------- ---------- --------- ----------
Balance,
December 31, 1996 31,210 (114,781) (187,640) (271,211)
Net income, year ended
December 31, 1997 -0- 12,995 -0- 12,995
Cash distributions
($32.80 per interest) -0- -0- (21,500) (21,500)
--------- --------- --------- ---------
Balance,
December 31, 1997 $ 31,210 $ (101,786) $(209,140) $(279,716)
========== =========== ========== ===========
</TABLE>
See Accompanying notes to financial statements.
12
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MISSION VALLEY COMFORT SUITES, LTD.,
A California Limited Partnership
Statements of Partners' Capital, page 2
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Limited Partners
Capital Cumulative Cumulative Total
Contributions Net Cash Total Partners'
Loss Distributions Capital
<S> <C> <C> <C> <C> <C>
Balance,
Dec. 31, 1995 $ 5,117,287 $(1,288,444) $(1,491,708) $2,337,135 $2067,544
Net income,
year ended
Dec. 31, 1996 -0- 255,419 -0- 255,419 283,799
Cash distributions
($45.76 per interest) -0- -0- (270,000) (270,000) (300,000)
----------- ------------ ------------ ---------- ---------
Balance,
Dec. 31, 1996 5,117,287 (1,033,025) (1,761,708) 2,322,554 2,051,343
Net income,
year ended
December 31, 1997 -0- 116,955 -0- 116,955 129,950
Cash Distributions
($32..80 per interst) -0- -0- (193,500) (193,500 (215,.000)
----------- --------- ----------- --------- ----------
Balance,
Dec. 31, 1997 $5,117,287 $(916,070) $1,955,208) $2,246,009 $1,966,293
=========== ========== =========== ========== ==========
</TABLE>
13
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MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statements of Cash Flows
<TABLE> Years Ended December 31, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 129,950 $ 283,799
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 196,975 181,750
(Increase) decrease in:
Accounts receivable 24,542 (12,150)
Operating supplies 529 63
Prepaid expenses (13,728) (8,215)
Due from affiliate 4,848 (4,027)
Increase (decrease) in:
Accounts payable (17,680) 12,813
Accrued expenses 3,850 (1,355)
Due to affiliate 17,189 (412)
Guest deposits 26,344 -0-
Deferred rent liability (29,673) (29,671)
-------- --------
Net cash provided by operating activities 343,146 422,595
-------- --------
Cash flows from investing activities:
Investment property expenditures (27,185) (95,901)
-------- --------
Net cash used in investing activities (27,185) (95,901)
-------- --------
Cash flows from financing activities:
Cash distributions to partners (215,000) (300,000)
Payments of long-term debt (29,830) (6,847)
--------- ---------
Net cash used in financing activities (244,830) (306,847)
--------- ---------
Net increase in cash and cash equivalents 71,131 19,847
Cash and cash equivalents, beginning of year 75,541 55,694
-------- --------
Cash and cash equivalents, end of year $146,672 $75,541
Supplemental disclosure of cash flow information:
Interest paid $(18,696) $(19,253)
======== =========
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
MISSION VALLEY COMFORT SUITES, LTD.,
A California Limited Partnership
Notes to Financial Statements
Note 1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Mission Valley Comfort Suites Ltd., A California Limited Partnership (the Part-
ner ship), formerly Motels of America Series X, A California Limited Partner-
ship, was formed on September 18, 1987 pursuant to the California Revised
Uniform Limited Partnership Act. The Partnership consists of a general partner
which owns a 10% interest and 880 limited partners which collectively own a 90%
interest. The purpose of the Partnership is to construct, own, and operate a
122-room "suites only" motel in San Diego, California under a franchise agree-
ment with Choice International. 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 repairs costs are expensed as incurred, while significant
improvements, replacements, and major renovations are capitalized.
Effective January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No.
121 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. There was no effect on the
financial statements from the adoption of SFAS No. 121.
15
<PAGE>
MISSION VALLEY COMFORT SUITES, LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Franchise Fees
Franchise fees are amortized over the 20-year life of the franchise agreement
which expires in 2008.
Note 1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Advertising
Advertising costs are expensed as incurred. Advertising expense was $113,658
for the year ended December 31, 1997 and $104,665 for the year ended December
31, 1996.
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% of net income allocated to
limited partners divided by 5,900 limited partner interests outstanding through-
out the year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
16
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MISSION VALLEY COMFORT SUITES, LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Note 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.
Note 3. FRANCHISE AGREEMENT
The Partnership has entered into a twenty-year franchise agreement expiring in
2008 with Choice International 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.
Note 4. LONG-TERM DEBT
The Partnership has a note payable which is due in monthly payments of $2,175,
including 8% interest, through April 2013. In March 1997, the Partnership
voluntarily began making monthly payments of $4,350 in order to retire the note
earlier than scheduled and reduce interest expense over the term of the note.
The note is secured by a trust deed on the Partnership's motel. The balance
outstanding was $207,081 as of December 31, 1997 and $236,911 as of December
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.
17
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MISSION VALLEY COMFORT SUITES, LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Principal payments on this note, based on the required monthly principal and
interest payments of $2,175, are due as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 9,891
1999 10,712
2000 11,601
2001 12,564
2002 13,606
Thereafter 148,707
---------
$ 207,081
</TABLE> =========
Note 5. 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. Consequently, rent expense is now being
recognized based on the amount due each month rather than on the straight-line
basis. The rent payment was $21,744 per month as of December 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.
18
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MISSION VALLEY COMFORT SUITES, LTD.,
A California Limted Partnership
Notes to Financial Sttaements
(Continued)
Future minimum lease payments are due as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 260,928
1999 260,928
2000 260,928
2001 260,928
2002 260,928
Thereafter 11,459,428
----------
</TABLE> $ 12,764,068
==========
Note 6. 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 agreement expires upon
the termination or dissolution of the Partnership or upon three months' written
notice from the general partner.
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, Grosvenor Management Services, Inc. (GMS), allocate to
the Partnership certain marketing, accounting, and maintenance salaries and
certain other expenses directly related to the operations of the Partnership.
19
<PAGE>
MISSION VALEY COMFORT SUITES, LTD.,
A California Limited Partnership
Notes to Financial Statements
(Continued)
Fees, reimbursements, salaries, and other expenses paid to GHG and GMS and
included in total expenses for the years ended December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Management fees $ 122,243 $ 121,395
Reimbursement for partnership administration
expenses 37,547 39,188
Salaries and other allocated expenses 113,263 120,212
-------- --------
$ 273,053 $ 280,795
========= =========
</TABLE>
In addition, all motel staff are employed by GMS. The Partnership reimbursed
GMS $375,625 in 1997 and $337,744 in 1996, including a one percent processing
fee, for the wages of these employees.
Note 7. SUBSEQUENT EVENT
Subsequent to December 31, 1997, the Partnership entered into an agreement with
a real estate broker to list the motel for sale. The initial listing price is
$5,000,000. However, there is no assurance that a buyer can be found or that
the motel can be sold for this price. Furthermore, any sale would be subject to
the approval of limited partners holding a majority of the limited partnership
interests.
20
<PAGE>
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 9. Directors and Executive Officers of the Registrant
The general partner has general responsibility and ultimate authority in all
matters affecting the business of the Partnership.
The general partner and its directors and executive officers as of December 31,
1997 are as follows:
GHG HOSPITALITY, INC. (GHG) was incorporated in November 1989 under
the laws of the state of Delaware. GHG was elected as general partner effective
January 1, 1990.
J. MARK GROSVENOR, 50, is President and a Director of GHG. From 1976 to
1988, he served as chief executive officer of Nite Lite Inns, a California
corporation, which owned Grosvenor Enterprises, a California limited
partnership, which owns Grosvenor Inn. In 1984, he acquired Medallion Foods,
Inc., a food processing company, located in Newport, Arkansas. Mr. Grosvenor
graduated from San Diego State University with a bachelor's degree in business
and finance.
STEPHEN D. BURCHETT, 38, is Vice President of GHG. From 1984 to 1991
he worked in private business law practice in San Diego, California with Schall,
Boudreau & Gore and Kaufman, Lorber, Grady & Farley. Mr. Burchett graduated
from California State University Fullerton in 1981 with a bachelor's degree in
finance and from the University of Santa Clara School of Law in 1984 with a
juris doctorate.
SYLVIA MELLOR CLARK, 53, is Controller of GHG. In 1978, she joined
Grosvenor Industries, Inc., where she is controller and a director. Prior to
joining Grosvenor Industries, Inc., she operated her own accounting firm from
1976 to 1978. Ms. Clark graduated from San Diego State University and National
University.
Item 10. Executive Compensation
The Partnership has not paid and does not propose to pay any executive
compensation to the general partner or any of its affiliates (except as
described in Item 12 below). There are no compensatory plans or arrangements
regarding termination of employment or change of control.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) No person or group is known to the Partnership to be the
beneficial owner of more than 5% of the outstanding limited
partnership interests in the Partnership.
(b) The general partner does not directly or indirectly own any
limited partnership interests in the Partnership. The general
partner does not possess a right to acquire beneficial owner-
ship of limited partnership interests in the Partnership.
21
<PAGE>
(c) There are no arrangements, known to the Partnership, which
may result in a change in control of the Partnership.
Item 12. Certain Relationships and Related 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, Grosvenor Management Services, Inc. (GMS), allocate to
the Partnership certain marketing, accounting, and maintenance salaries and
other expenses directly related to the operation of the Partnership.
Fees, reimbursements, salaries, and other expenses paid to GHG and GMS and
included in total expenses for the years ended December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Management fees $122,243 $121,395
Reimbursement for partnership administration
expenses 37,547 39,188
Salaries and other allocated expenses 113,263 120,212
------- -------
$273,053 $280,795
======== ========
</TABLE>
In addition, all motel employees are paid by GMS. The Partnership reimbursed
GMS $375,625 in 1997 and $337,744 in 1996, including a one percent processing
fee, for the wages of these employees.
22
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements (see Index to Financial Statements
filed with this annual report).
2. Exhibits:
3-A. The Prospectus of the Partnership dated February 6,
1987, as supplemented December 2, 1987, as filed
with the Commission, is hereby incorporated herein
by reference.
3-B. Agreement of Limited Partnership set forth as
Exhibit B to the Prospectus, as filed with the
Commission, is incorporated herein by reference.
3-C. Amendment to Agreement of Limited Partnership dated
January 1, 1990, as filed with the Commission, is
incorporated herein by reference.
(b) No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
No annual report or proxy material for the fiscal year 1997 has been sent to the
limited partners of the Partnership. An annual report will be sent to the
limited partners subsequent to this filing and the Partnership has incorporated
such reports in this filing.
23
<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.
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
By: GHG Hospitality, Inc.
Corporate General Partner
By: /s/ J. Mark Grosvenor Date: March 27, 1998
J. Mark Grosvenor
President and Director of GHG
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.
By: GHG Hospitality, Inc.
Corporate General Partner
By: /s/ J. Mark Grosvenor Date: March 27, 1998
J. Mark Grosvenor
President and Director of GHG
By: /s/ Stephen D. Burchett Date: March 27, 1998
Stephen D. Burchett
Vice President of GHG
By: /s/ Sylvia Mellor Clark Date: March 27, 1998
Sylvia Mellor Clark
Controller of GHG
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 146,672
<SECURITIES> 0
<RECEIVABLES> 14,255
<ALLOWANCES> 0
<INVENTORY> 15,011
<CURRENT-ASSETS> 212,088
<PP&E> 5,842,246
<DEPRECIATION> 2,357,571
<TOTAL-ASSETS> 3,723,430
<CURRENT-LIABILITIES> 106,030
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,723,430
<SALES> 0
<TOTAL-REVENUES> 2,040,601
<CGS> 0
<TOTAL-COSTS> 1,891,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,696
<INCOME-PRETAX> 129,950
<INCOME-TAX> 0
<INCOME-CONTINUING> 129,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129,950
<EPS-PRIMARY> 19.82
<EPS-DILUTED> 19.82
</TABLE>
