<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, 1998
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 33-11224-LA
Mission Valley Comfort Suites Ltd., A California Limited Partnership
(Exact name of small business issuer as specified in its charter)
California 33-0213497
(State or other jurisdiction of I.R.S.Employer
incorporation or organization) Identification Number)
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
<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of March 31, 1998 and December 31, 1997.
Statement of Operations for the three month period ended March 31, 1998
and March 31, 1997.
Statement of Cash Flows for the three month period ended March 31, 1998
and March 31, 1997.
Notes to Financial Statements.
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
March 31, 1998 and December 31, 1997
(Unaudited)
(Part 1 of 2)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
-------- -------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 131,061 $ 146,672
Accounts receivable 49,097 14,255
Operating supplies 17,587 15,011
Prepaid expenses 42,825 36,150
----------- ----------
Total current assets 240,570 212,088
Investment property, at cost:
Building and improvements 4,633,720 4,617,037
Furniture, fixtures & equipment 1,253,298 1,225,209
----------- -----------
5,887,018 5,842,246
Less accumulated depreciation 2,408,264 2,357,571
----------- -----------
Total investment property, net
of accumulated depreciation 3,478,754 3,484,675
Franchise fees, net (note 2) 26,042 26,667
----------- -----------
$ 3,745,366 $ 3,723,430
=========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 1
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.
A California Limited Partnership
Balance Sheet
March 31, 1998 and December 31, 1997
(Unaudited)
(Part 2 of 2)
<TABLE>
<CAPTION>
LIABILITIES AND March 31, 1998 December 31, 1997
PARTNER'S CAPITAL ACCOUNTS ----------------- -----------------
<S> <C> <C>
Current liabilities:
Current portion on long-term debt $ 10,635 $ 9,891
Accounts payable and accrued expenses 79,459 41,166
Due to Affiliates (note 5) 10,716 54,973
---------- ----------
Total current liabilities 100,810 106,030
---------- ----------
Long-term debt, less current portion 187,479 197,190
Deferred rent liability(note 6 and note 8) 1,446,500 1,453,917
----------- ------------
Total liabilities 1,734,789 1,757,137
----------- ------------
Partners' capital accounts:
General partners:
Capital contributions 31,210 31,210
Cumulative net earnings (97,358) (101,786)
Cumulative cash distributions (209,140) (209,140)
------------ ----------
(275,288) (279,716)
------------ ----------
Limited partners:
Capital contributions,
net of offering costs 5,117,287 5,117,287
Cumulative net earnings (876,214) (916,070)
Cumulative cash distributions (1,955,208) (1,955,208)
----------- -------------
2,285,865 2,246,009
----------- --------------
Total partners' capital accounts 2,010,577 1,966,293
----------- --------------
$3,745,366 $3,723,430
=========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 2
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Operations
Three Months Ended
March 31, 1998 and March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
1998 1997
----- ----
<S> <C> <C>
Revenues:
Room revenues $ 457,395 $ 457,555
Phone revenue 7,516 10,182
Interest income 916 71
Other income 25,664 7,615
---------- ---------
491,491 475,423
----------- ---------
Expenses:
Property operating expenses 160,489 154,336
Depreciation 50,693 48,288
General and administrative 47,581 42,779
Amortization 625 625
Management fees 28,283 28,526
Royalties and advertising 31,726 28,950
Real estate taxes 17,925 17,424
Interest expense 4,285 5,726
Lease expense 57,815 57,038
Marketing 17,105 19,126
Property and liability insurance 9,712 9,568
Repairs & Maintenance 20,968 17,080
---------- -------
447,207 428,466
---------- -------
Net earnings $ 44,284 $ 46,957
========== ==========
Net earnings per limited
partnership interest $ 6.76 $ 7.16
======= ========
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Statement of Cash Flows
Three Months Ended
March 31, 1998 and March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 44,284 $ 46,957
Adjustments to reconcile net income to cash:
Depreciation and amortization 51,318 48,913
(Increase) decrease in:
Accounts receivable (34,842) 13,740
Operating supplies (2,576) (441)
Prepaid expenses (6,675) 15,745
Increase (decrease) in:
Accounts payable and
accrued expenses 11,949 6,574
Due to/from Affiliates (17,913) 23,228
Deferred rent liability (7,417) (7,418)
Net cash provided by (used in) ----------- ----------
operating activities 38,128 147,298
----------- ----------
Cash flows from investing activities:
Investment property expenditures (44,772) (2,315)
----------- ----------
Net cash used in
investing activities (44,772) (2,315)
---------- ----------
Cash flows from financing activities:
Proceeds/(Payments) of notes payable (8,967) (3,974)
Cash distributions to partners 0 0
Net cash provided by (used in) ---------- ----------
financing activities ( 8,967) (3,974)
---------- -----------
Net decrease in cash and
cash equivalents (15,611) 141,009
Cash and cash equivalents,
beginning of year 146,672 75,541
--------- -----------
Cash and cash equivalents, end of year 131,061 216,550
========= ==========
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE>
MISSION VALLEY COMFORT SUITES LTD.,
A California Limited Partnership
Notes to Financial Statements
March 31, 1998
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, 1997, 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 39 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)
Page 5
<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 6
<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, 1998 and March 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Three Months Ended
3/31/98 3/31/97
--------- ---------
<S> <C> <C>
Management Fees $28,283 $26,526
Reimbursement for partnership
administration expenses 9,238 9,387
Salaries and other
alocated expenses 23,689 19,954
</TABLE>
In addition, all motel employees are paid by GMS. For the three months ended
March 31, 1998, the Partnership reimbursed GMS $98,517. for the wages of these
employees which includes a one percent processing fee.
At March 31, 1998, $10,716 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. In March 1997, The Partner-
ship voluntarily began making monthly payments of $4,350 in order to retire
the note earlier that 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 $198,114. as of March 31,1998 and $232,91 as of
March 31, 1997. 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.
(Continued)
Page 7
<PAGE>
MISSION VALLEY COMFORT SUITES, LTD.,
A California Limited Partnership
Notes to Financial Statements (Continued)
LONG TERM DEBT (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>
4/1/98 - 12/31/98 $ 7,896
1999 11,291
2000 12,228
2001 13,243
2002 14,342
Thereafter 139,114
----------
$ 198,114
==========
</TABLE>
(Continued)
Page 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 prin-
ciples. 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 $21,744 per
month as of March 31, 1998 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:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 260,928
1999 260,928
2000 260,928
2001 260,928
2002 260,928
Thereafter 11,580,751
-----------------
$12,764,068
===========
</TABLE>
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,
1998.
(Continued)
Page 9
<PAGE>
8. SUBSEQUENT EVENT
In May 1997 the Partnership paid a distribution of $26,999 to the limited
partners.
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 Partnership's
motel. 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 balance outstanding on the note was
$198,114 as of March 31, 1998.
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 $3,478,754 as of March 31, 1998.
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, annual rent increases are based on the lesser of the
increase in the Consumer Price Index or 5%, and there is no minium 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.
Page 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, continued
Choice International is requiring all franchisees to convert to their
computerized property management system by 1999. The Partnership is expected
to complete the conversion in the forth 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 costs of computer conversion and phone
line installation will be funded by cash from operations.
As requested by the limited partners in an informal survey conducted by the
general partner, now that the partnership is nearing its 10th year, the
majority of the limited partners want the motel to be sold and the partnership
dissolved. Consequently, the hotel brokerage firm of Hotel Partners Inter-
national has been engaged by the partnership to market the hotel for sale to
qualified buyers at the highest and best selling price. The initial listing
price is $5,000,000. Marketing packages have been sent out to hundreds of
potential buyers and the level of interest is high. The general partner
will review all offers and select one or more offers to submit to the limited
partners for approval.
Results of Operations:
For the three months ended March 31, 1998, room revenues were $457,395 the
occupancy rate was 63.6% and the average daily rate was $65.45.
This compares to the three months ended March 31, 1997 when room revenues
were $457,555, the occupancy rate was 73.2% and the average daily rate was
$56.93.
As budgeted, Comfort Suites first quarter occupancy did not equal 1997,
which was a record year. Surveys of competitive properties found declining
occupancy typical with most properties showing similar occupancy to 1996.
Management has been focusing on Average Daily Rate, though trying to
stabilize Revenue Per Available Room (REVPAR).
January 1997 REVPAR $39.65 January 1998 REVPAR $39.58
February 1997 REVPAR $46.25 February 1998 REVPAR $43.39
March 1997 REVPAR $45.39 March 1998 REVPAR $42.10
Super Bowl XXXII has mixed results. Although we were able to get high prices
for the rooms, our general occupancy was down as it appeared normal travelers
were avoiding San Diego. Numerous groups are reserved for April arrivals and
they will boost year to date occupancies.
Management conducted a Phoenix sales blitz, a Central Reservations promotional
visit, and attended the annual ASTA trade show, in addition to normal sales
activities to attract the leisure market from Phoenix. Other main feeder
cities, Las Vegas and Orange County, will be targeted in the second quarter.
(Continued)
Page 11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued
In January, Choice reservations accounted for 21.93% in 1998, as compared to
23.88% in 1997. February totals were 22.94% in 1998, and 27.15% in 1997.
March percentages were 22.25% in 1998, and 21.59% in 1997. This is a decline
of 2.3% averaged over the first quarter. A visit to the Central Reservations
Office in Grand Junction, Colorado, is being planned to promote the property
to the agents there.
The effect of current operations on liquidity was net cash provided by operating
activities of $38,128 for the three months ended March 31, 1998, and $147,298
for the three months ended March 31, 1997.
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 a negative cash flow during this weak period.
Page 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/ Stephen D. Burchett
(NAME AND TILE) Stephen D. Burchett, Vice President
(DATE) May 14, 1998
By (SIGNATURE) /s/ Sylvia Mellor Clark
(NAME AND TITLE) Sylvia Mellor Clark, Controller
(DATE) May 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 131,061
<SECURITIES> 0
<RECEIVABLES> 49,097
<ALLOWANCES> 0
<INVENTORY> 17,587
<CURRENT-ASSETS> 240,570
<PP&E> 5,887,018
<DEPRECIATION> 2,408,264
<TOTAL-ASSETS> 3,745,366
<CURRENT-LIABILITIES> 100,810
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,745,366
<SALES> 0
<TOTAL-REVENUES> 491,491
<CGS> 0
<TOTAL-COSTS> 442,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,285
<INCOME-PRETAX> 44,284
<INCOME-TAX> 0
<INCOME-CONTINUING> 44,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,284
<EPS-PRIMARY> 6.76
<EPS-DILUTED> 6.76
</TABLE>
