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Schedule 13E-3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934 and Rule
13e-3 (Section 240.13e-3) thereunder)
[Amendment No._____________]
SIGNATURE X LTD. LIMITED PARTNERSHIP
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(Name of the Issuer)
SIGNATURE X LTD. LIMITED PARTNERSHIP
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(Name of the Person(s) Filing Statement)
UNITS OF LIMITED PARTNERSHIP INTERESTS
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(Title of Class of Securities)
NONE
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(CUSIP Number of Class of Securities)
Thomas N. Eckerle, Esq., Suite 1800, One Indiana Square,
Indianapolis, Indiana 46240
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(317) 634-9777
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
Calculation of Filing Fee
Transaction valuation* Amount of filing fee
$6,035,000 $1,207.00
[ ] Check box if any part of the fees is offset as provided by Rule
0-11(a)(20) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the Date of its filing.
Amount previously paid:__________________________________________
Form or Registration No.:________________________________________
Filing Party:____________________________________________________
Date Filed:______________________________________________________
*$6,035,000 is the total consideration to be received by the Limited Partners
under the transaction being proposed by the General Partner.
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Preliminary Statement
The Rule 13e-3 transaction with respect to which this Rule 13e-3
Transaction Statement is filed involves a transaction subject to Regulation
14A. The information contained in the Solicitation and Information Statement
filed by Signature X Ltd. Limited Partnership with the Securities and Exchange
Commission on July 19 , 1996, pursuant to Regulation 14A is
hereby incorporated by reference into this Rule 13e-3 Transaction Statement
and is attached hereto as Exhibit A. A Cross-Reference Sheet showing the
location of information in the Solicitation and Information Statement required
to be included in response to items of this Rule 13e-3 Transaction Statement
is attached hereto as Exhibit C.
Item 1. Issuer and Class of Securities Subject to the Transaction.
(a) The issuer of the class of securities subject to the Rule 13e-3
transaction is Signature X LTD. Limited Partnership, 250 E. 96th Street, Suite
450 Indianapolis, Indiana 46240 (Telephone (317) 581-1111). Signature X LTD.
Limited Partnership shall hereinafter be referred to as the "Issuer" or the
"Partnership".
Information regarding the organization structure of the Issuer is
hereby incorporated by reference to Section III, "Description of Partnership
Business," pages 10 and 11 of the Issuer's Solicitation and Information
Statement.
The General partner of the Issuer is Signature Inns, Inc., an Indiana
corporation (the "General Partner"). The General Partner was incorporated
under the laws of the State of Indiana on March 31, 1978, and operates under
management and franchise agreements, 23 Signature Inn hotels located in six
midwestern states. The General Partner has five, wholly-owned subsidiary
corporations. Signature Securities Corporation ("SSC"), is an SEC/NASD
registered "limited" broker-dealer which previously was engaged in the offer
and sale of direct participation programs (e.g., limited partnership real
estate offerings) of partnerships affiliated with Signature Inns, Inc. SSC
has marketed thirteen limited partnership programs. However, SSC has not
offered limited partnership interests since 1989.
The Signature Franchise Corporation subsidiary was organized in 1992, and
has never engaged in any business operations.
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The P & N Corporation subsidiary was organized in late 1993 and acts as
the general partner of the Peoria/Normal Signature Limited Partnership, which
owns and operates the Normal and Peoria, Illinois, Signature Inn hotel
properties, the Knoxville Signature Limited Partnership which owns and
operates the Knoxville, Tennessee, Signature Inn hotel property and Meridian
Signature Limited Partnership which owns land and a hotel under construction
in Indianapolis, Indiana. Those properties are managed and franchised under
management and franchise agreements between the partnerships and the General
Partner.
The S.I.E. Corporation subsidiary was organized in December 1995 and acts
as general partner for Signature Northwestern Ltd., I.
The Signature Inn Springfield Corporation subsidiary was organized in
1996, and has not yet engaged in any business activity.
In addition, set forth below is a chart of the organizational structure
of the General Partner and its subsidiaries and affiliates.
(At this point in the text is an organization chart showing
Signature Inns, Inc., its five wholly-owned subsidiaries, its
fifteen affiliated limited partnerships and its six affiliated
joint venture partnerships. A footnote to the display of
partnerships states: The General Partner's ownership interest in
these partnerships ranges between 5% and 50%,
depending upon the capital contributions made and other factors
relating to the structuring of the partnership.)
(b) The exact title of the securities subject to the Rule 13e-3
transaction is "Units of Limited Partnership Interests." The Limited
Partnership Interest are divided into Units representing an investment of
$10,000. There are currently 364 Units issued and outstanding being held by
406 holders of record.
(c) The information required to be disclosed in this Item 1 is hereby
incorporated by reference to Section XVII, "Marketability of Units of
Limited Partnership Interest," page 38, of the
Issuer's Solicitation and Information Statement, which is attached hereto as
Exhibit 1.
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(d) The information required to be disclosed in this Item 1 is hereby
incorporated by reference to Section XII, "Book Value, Distributions and
Income," page 31 of the Issuer's Solicitation and
Information Statement, which is attached hereto as Exhibit 1.
(e) Not applicable.
(f) Not applicable.
Item 2. Identity and Background.
The Issuer is the person filing this statement and is the issuer of the
Units of Limited Partnership Interests which are the subject of this Rule
13e-3 transaction. Signature Inns, Inc., an Indiana corporation (the "General
Partner") has its executive offices located at 250 E. 96th Street, Suite 450
Indianapolis, Indiana 46240. The information required by this item
for each executive officer and director of the General Partner is set forth
below:
Name: John D. Bontreger
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: President, Chief Executive Officer
and Chairman of the Board of Signature Inns,
Inc., since the Company's inception on
March 31, 1978.
Mr. Bontreger has served as President, Chief Executive Officer and
Chairman of the Board of Signature Inns, Inc. since the Company's inception on
March 31, 1978.
Name: David R. Miller
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Secretary, Executive Director of Sales and
Marketing and Director
Mr. Miller has been employed by Signature Inns, Inc. since August 1978
and has served as the Secretary (and Treasurer until May 1986) of the Company
since September, 1978. Since June 1984, he has been President of Signature
Securities Corporation. Since 1990, Mr. Miller has been the Executive
Director of Marketing responsible for hotel room sales programs and the
central reservation system.
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Name: Mark D. Carney
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Vice President Finance, Chief Financial
Officer and Director
Mr. Carney has been employed by Signature Inns, Inc. since September 1992
as Vice President Finance and Chief Financial Officer. Mr. Carney was
previously employed with the public accounting firm KPMG Peat Marwick in its
real estate, hospitality and financial institution practices. He received his
CPA certification in 1982.
Name: Bo Hagood
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Vice President Hotel Operations and Director
Mr. Hagood has been employed by Signature Inns, Inc. since December 1980
starting as General Manager. In January 1984, he was promoted to Director of
Hotel Operations and then to Vice President Hotel Operations in 1987. Mr.
Hagood has been in the hospitality industry for over 20 years. Prior to
Signature Inns, Mr. Hagood managed several hotels for national chains.
Name: Martin D. Brew
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Treasurer and Controller
Mr. Brew has been employed by Signature Inns, Inc. since April 1986. In
December 1987, Mr. Brew assumed the position of Controller and additionally,
in April 1992, he began serving as Treasurer. Prior to his employment with
Signature Inns, Mr. Brew worked four years with KPMG Peat Marwick. He
received his CPA certification in 1985.
Name: Orus E. Weaver
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Independent life insurance broker
Mr. Weaver has been an independent life insurance broker since 1981 and
previously assisted in the sale of securities of Signature Inns, Inc. in
various capacities. Mr. Weaver has been a member of the National Association
of Life Underwriters for almost twenty years.
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Name: George A. Morton
Address: 2545 E. State Road 47
Lebanon, IN 46052
Present Employment: Vice President and Treasurer of Morton Farms,
Inc.
Mr. Morton has been part owner of Morton Farms, Inc. since 1962, and
serves as Vice President and Secretary of that company. From April 1987 to
January 1989, Mr. Morton served as Deputy Commissioner of Agriculture for the
State of Indiana. He served as the Indiana Director of Farmers Home
Administration from 1989 to 1993.
Name: Richard E. Shank
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Self-Employed real estate agent.
Mr. Shank has been self-employed in the real estate business since 1961.
Mr. Shank was an elected representative in the Indiana General Assembly
for 21 years, and was a State Senator from 1976 to 1987. He served as
Executive Director of the Indiana Professional Licensing Agency during 1988.
Name: Richard L. Russell
Address: National Retail Hardware Association
5822 W. 74th St.
Indianapolis, IN 46278
Present Employment: Executive Director, Direct Regions of the
National Retail Hardware Association.
Mr. Russell has been the Executive Director, Direct Regions of the
National Retail Hardware Association for almost thirty years. He has also
served as President or director of several community and civic organizations.
Name: Stephen M. Huse
Address: Huse Food Group, Inc.
2620 N. Walnut St.
PO Box 98
Bloomington, IN 47402
Present Employment: President and Chief Executive Officer, Huse
Food Group, Inc.
Mr. Huse has been President and Chief Executive Officer, Huse Food Group,
Inc., in Bloomington, Indiana, since 1986. Mr. Huse is also a director of
Marsh Supermarkets, Inc., and a member of the Advisory Board of Society
National Bank, Central Indiana District, Indianapolis, Indiana.
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None of executive officers or directors of the General Partner during the
last 5 years has been convicted in a criminal proceeding nor has any such
person during the last 5 years been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order
enjoining further violations of, or prohibiting activities subject to, federal
or state securities laws or finding any violation of such laws. All executive
officers and directors of the General Partner are citizens of the United
States.
Item 3. Past Contracts, Transactions or Negotiations.
There are no contracts, negotiations or transactions requiring disclosure
pursuant to this item.
Item 4. Terms of the Transaction.
(a) The information required to be disclosed under this item is hereby
incorporated by reference to Section IV, "The Proposed Sale/Purchase
Transaction Between the Partnership, as Seller, and Signature Inns, Inc., as
Buyer," pages 13-19, and Section V, "Required Amendments to the Partnership
Agreement," pages 20 and 21, of the Issuer's Solicitation and Information
Statement, which is attached hereto as Exhibit 1.
(b) Not applicable.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) The information required to be disclosed under this item is hereby
incorporated by reference to Section II, "Special Factors" pages 2-6 ;
Section IV, "The Proposed Sale/Purchase Transaction Between the
Partnership, as Seller, and Signature Inns, Inc., as Buyer," pages 13-19 ;
Section V, "Required Amendments to the Partnership Agreement," pages 20 and
21 ; and Section VI, "Dissolution, Termination and Final Distributions,"
pages 20 and 21 , of the Issuer's Solicitation and Information Statement,
which is attached hereto as Exhibit 1.
(b) The information required to be disclosed under this item is hereby
incorporated by reference to Section II, "Special Factors, Summary of
Proposals," page 2 ; and Section IV, "The Proposed Sale/Purchase
Transaction Between the Partnership, as Seller, and Signature Inns, Inc., as
Buyer," pages 13-19 , of the Issuer's Solicitation and Information
Statement, which is attached hereto as Exhibit 1.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
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(f) The proposed Rule 13e-3 transaction will not cause the Units of Limited
Partnership to become eligible for termination of registration pursuant to
Section 12g-4 of the Securities Exchange Act of 1934. The Units were eligible
for such termination of registration upon the amendment of Rule 12g-4,
effective May 9, 1996. The Partnership filed Form 15 electing to terminate
the registration of the Units on July 17, 1996, and such termination shall
become effective 90 days after such filing.
(g) Not applicable.
Item 6. Source and Amounts of Funds or Other Consideration.
(a) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors; Source and
Amount of Funds and Other Consideration," page s 5 and 6 , of the
Issuer's Solicitation and Information Statement, which is attached hereto as
Exhibit 1.
(b) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors; Source and
Amount of Funds and Other Consideration," page 6 , of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit 1.
(c) Not applicable.
(d) Not applicable.
Item 7. Purposes, Alternatives, Reasons and Effects.
(a) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," pages 3-5 of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit 1.
(b) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," page 3, of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit 1.
(c) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," pages 3-4, of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit 1.
(d) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," pages 4 and
5, and Section X, "Federal Income Tax Consequences," pages 27-29, of the
Issuer's Solicitation and Information Statement, which is attached hereto as
Exhibit 1.
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Item 8. Fairness of the Transaction.
(a) The Issuer reasonably believes that the proposed Rule 13e-3 transaction
is fair to the Limited Partners of the Issuer.
(b) The information required to be disclosed in this paragraph (b) of Item 8
is hereby incorporated by reference from Section II, "Special Factors;
Fairness of the Transaction," pages 6-9 , of the Issuer's Solicitation and
Information Statement, which is attached hereto as Exhibit 1.
(c) Under Section 1.13 and 14.01 of the Partnership Agreement of the Issuer,
the affirmative vote or written consent of Limited Partners then holding of
record more than 50% of the outstanding Units of the Partnership is required
to approve the proposed transaction.
(d) Upon approval of the Rule 13e-3 transaction by the limited partners of
the Issuer, the General Partner shall select and engage on behalf of the
Issuer independent legal counsel to represent the Issuer with respect to the
terms (other than price) of the Purchase Agreement and related documents and
the consummation of the transaction.
(e) Not applicable.
(f) Not applicable.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
The information required to be disclosed by this item is hereby
incorporated by reference to Section XV, "Appraisal Reports," pages
32-36 , and Exhibits 2 and 3 attached hereto .
Item 10. Interest in Securities of Issuer.
(a) No Units of Limited Partnership Interests are currently owned by the
General Partner, any pension, profit sharing or similar plan of the issuer or
the General Partner, or any affiliate of either, or any executive officer or
director of the General Partner.
(b) Not applicable.
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Item 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
There are no contracts, arrangements, understandings or
relationships in connection with the Rule 13e-3 transaction between the
Partnership and any person with respect to the Units of Limited Partnership
Interest other than the General Partner's Undertaking With Respect to the
Units of Limited Partnership Interest Which It Holds, attached hereto as
Exhibit 7, in which the General Partner undertakes to abstain from voting the
Units of Limited Partnership Interest which it holds in connection with the
proposed transaction.
Item 12. Present Intention and Recommendation of Certain Persons with Regard
to the Transaction.
(a) No executive officer, director or affiliate of the Issuer nor any
executive officer, director or affiliate of the General Partner is a holder of
any Unit of Limited Partnership Interest. Accordingly, there are no
statements of present intention with respect to the voting intentions of such
persons.
(b) To the knowledge of the Issuer each director of the General Partner
has voted in support of the proposed Rule 13e-3 transaction.
Item 13. Other Provisions of the Transaction.
(a) Under the Indiana Revised Uniform Limited Partnership Act no appraisal
or dissenters' rights are provided to Limited Partners. No such appraisal or
dissenters' rights are provided by the Amended Certificate and Agreement of
Limited Partnership of the Issuer and none are being accorded voluntarily by
the Issuer in connection with the Rule 13e-3 transaction.
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information.
(a) (1) The information required to be disclosed in this item
is hereby incorporated by reference to the Issuer's Form 10-KSB/A (Exhibit A
thereto) attached hereto as Exhibit 4.
(a) (2) The information required to be disclosed in this item is hereby
incorporated by reference to the Issuer's Financial Statements for the six
months ended June 30, 1996, attached hereto as Exhibit 5.
(a) (3) The Issuer's ratio of earnings to fixed charges for the two most
recent fiscal years and the six months ended June 30, 1996 are as follows:
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Six Months Ended June 30, 1996: 1.3X
Fiscal Year Ended December 31, 1995: 1.2X
Fiscal Year Ended December 31, 1994: 1.0X
(a) (4) The information required to be disclosed in this item is hereby
incorporated by reference to the Issuer's Form 10-KSB/A (page 4 of Exhibit A
thereto) attached hereto as Exhibit 4, and page 2 of the Issuer's Financial
Statements for the six months ended June 30, 1996, attached hereto as Exhibit
5.
(b) Certain pro forma financial information is set forth and described in
Section VII, "Summary of Estimated Benefits from Sale of Properties and
Liquidation of Partnerships," page 23, and Section XII, "Pro Forma Financial
Information," page 31 of the Issuer's Solicitation and Information Statement,
which is attached hereto as Exhibit 1, and such information is hereby
incorporated herein by this reference thereto.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) No officer or employee of Issuer has been or is proposed to be employed,
availed of or utilized by the Issuer or an affiliate in connection with this
Rule 13e-3 transaction.
(b) Consents may be solicited by directors, officers or employees of the
General Partner without additional compensation in connection with the Rule
13e-3 transaction.
Item 16. Additional Information.
Not applicable.
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Item 17. Index to Exhibits
Exhibit 1: Issuer's Solicitation and Information Statement dated
_______, 1996
Exhibit 2: Appraisal Report for Florence, Kentucky
Exhibit 3: Appraisal Report for Sharonville, Ohio
Exhibit 4: Signature X Ltd. Limited Partnership, Form 10-KSB/A for
the fiscal year ended December 31, 1995
Exhibit 5: Signature X Ltd. Limited Partnership, Financial Statements
for the six months ended June 30, 1996
Exhibit 6 : Cross-Reference Sheet
Exhibit 7: General Partner's Undertaking With Respect to the Units
of Limited Partnership Interest Which It Holds
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
___________________________________
(Date)
s/:
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(Signature)
Mark D. Carney, Vice President Finance and
Chief Financial Officer
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(Name and Title)
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 14A
Information Required in Proxy Statement
Reg. Section 240.13a-101
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14A of the
Securities and Exchange Act of 1934
(Amendment No.1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[] Confidential, for Use of the Commision Only
(as permitted by Rule 14a-6(e)(2))
[] Definitive Proxy Statement
[] Definitive Additional Materials
[] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
SIGNATURE X LTD. LIMITED PARTNERSHIP
(Name of Registrant as Specified In Its Charter)
_____________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[] $500 per each party to the controversy pursuant to Ecxhange Act
Rule 14a-6(i)(3).
[] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
______________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
______________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________________
5) Total fee paid:
[X Fee paid previously with preliminary materials.
[] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the previous filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
__________________________________________________________
2) Form, Schedule or Registration statement No.:
__________________________________________________________
3) Filing Party:
__________________________________________________________
4) Date Filed:
__________________________________________________________
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TABLE OF CONTENTS
I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Special Factors . . . . . . . . . . . . . . . . . 2
III. Description of Partnership Business . . . . . . . . . . . . . . 11
IV. The Proposed Sale/Purchase Transaction Between the
Partnership, as Seller, and Signature Inns, Inc., as Buyer. . 13
V. Required Amendments to the Partnership Agreement. . . . . . . . 20
VI. Dissolution, Termination and Final Distributions. . . . . . . . 21
VII. Summary of Estimated Benefits from Sale
of Properties and Liquidation of Partnership. . . . . . . . . 23
VIII. Purpose and Procedures for Majority Vote by Limited Partners. . 24
IX. General Partner's Duties, Conflicts of Interest and
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . 24
X. Federal Income Tax Consequences . . . . . . . . . . . . . . . . 27
XI. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 29
XII. Book Value, Distributions and Income. . . . . . . . . . . . . . 31
XIII. Pro Forma Financial Information . . . . . . . . . . . . . . . . 31
XIV. Regulatory Requirements . . . . . . . . . . . . . . . . . . . . 31
XV. Appraisal Reports . . . . . . . . . . . . . . . . . . . . . . . 32
XVI. Material Contracts. . . . . . . . . . . . . . . . . . . . . . . 36
XVII. Marketability of Units of Limited Partnership Interests . . . . 37
XVIII. Amended Form 10-KSB Report; and Form 10-QSB Report
and June 30, 1996 Unaudited Financial Statements. . . . . . . 38
XIX. Amended Rule 13e-3 Transaction Statement. . . . . . . . . . . . . 38
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EXHIBITS
A Amended Form 10-KSB Report for 1995
B Form 10-QSB Quarterly Report for Quarter Ended March 31, 1996
C Summary Report of Complete Appraisal of Signature Inn
- Florence, Kentucky
D Summary Report of Complete Appraisal of Signature Inn
- Sharonville, Ohio
E Text of Consent Resolutions of Limited Partners
F Text of Amendments to Partnership Agreement
G Rule 13e-3 Transaction Statement (without exhibits)
H Financial Statements of June 30, 1996 (unaudited)
I Irrevocable Consent of Limited Partner
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SIGNATURE X LTD. LIMITED PARTNERSHIP
Signature Inn Florence, Kentucky
Signature Inn Sharonville, Ohio
SOLICITATION
AND
INFORMATION STATEMENT
REGARDING
PROPOSED SALE OF PARTNERSHIP ASSETS
AND OTHER MATTERS
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION
NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
August ______, 1996
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SIGNATURE X LTD. LIMITED PARTNERSHIP
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
Telephone (317) 581-1111
SOLICITATION AND INFORMATION STATEMENT
August ___, 1996
I. Introduction
This Solicitation and Information Statement (the "Statement") and the
enclosed form of Irrevocable Consent (the "Consent") are being mailed to
limited partners (the "Limited Partners") of Signature X Ltd. Limited
Partnership (the "Partnership") on or about August __, 1996, which date is
more than 20 days before the "Deadline" for the return of the Consents, as
established below. This Statement is being furnished in connection with the
General Partner's solicitation of Consents in connection with the General
Partner's proposals described below. A Limited Partner who executes and
returns a Consent may not revoke, modify or renounce the consent at any time
before February 28, 1997, which is the expiration date of the Consents.
The entire cost of soliciting Consents will be borne by the Partnership.
In addition to the use of the mails, Consents may be solicited by personal
interview, telephone and facsimile transmission by directors, officers and
employees of Signature Inns, Inc., the General Partner of the Partnership,
without extra compensation. The Partnership also will furnish, upon request,
a sufficient number of copies of this Statement to brokers, dealers, banks,
voting trustees, custodians and nominees, if any, for delivery to the
beneficiaries of units of limited partnership interest (the "Units"), and the
Partnership will undertake to reimburse such persons for their actual and
reasonable expenses incurred by such persons in forwarding consent material to
beneficial owners of the Units.
The General Partner has fixed the close of business on ___________,
August _____, 1996, as the record date for the determination of Unit Holders
entitled to receive this Statement and to give or withhold the Consent which
accompanies this Statement. Only Unit Holders of record at the close of
business on that date will be entitled to give or withhold a Consent. As of
the record date, there were 364 Units of Limited Partnership Interest which
were held by the Limited Partners of the Partnership. The Holders of a
"majority" must provide their written Consents to the proposed transactions in
order for them to be approved and effectuated. The General Partner of the
Partnership owns ten (10) Units of Limited Partnership Interest. For the
purpose of determining a "Majority Vote", the Units of Limited Partnership
held by the General Partner shall not be considered "outstanding" and shall
not be voted by the General Partner. Accordingly, the holders of 178 Units
must provide their written consent to the proposed transactions in order for
them to be approved.
You are urged to read all sections of this Statement carefully. You are
also urged to discuss the General Partner's proposals, as well as the
information set forth in this Statement, with your tax consultant and with
your other professional advisors. Following your review of this Statement and
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your discussions with your professional advisors, you are urged to sign the
enclosed Irrevocable Consent of Limited Partner (yellow consent form) and
return it to the General Partner in the enclosed, self-addressed, stamped
yellow envelope so that it is received no later than September
_____, 1996 (the "Deadline"). In its discretion, the General Partner may
extend the Deadline.
The General Partner believes that the proposed transactions are fair to
the Limited Partners, and that they represent an excellent opportunity for the
Limited Partners of the Partnership to liquidate their investments in the
Partnership at an appropriate time and at an acceptable price, for the reasons
stated herein (particularly Section II hereof) and in the cover letter which
accompanies this Statement.
II. Special Factors
Summary of the Proposals. In accordance with Sections 14.04 and 20.01 of
the Signature X Ltd. Limited Partnership Amended Certificate and Agreement of
Limited Partnership, as amended, (the "Partnership Agreement"), the General
Partner of the Partnership is soliciting from the Limited Partners their
written Consents to certain proposals of the General Partner. Specifically,
the General Partner is proposing: (a) the sale by the Partnership to the
General Partner of an undivided 85% interest (equal to the 85% interest of the
Limited Partners in the Partnership ) in the real estate, improvements,
furnishings, furniture, fixtures and other tangible and intangible personal
property which comprise the Partnership's two Hotel Properties, as described
in Section IV of this Statement (the "Sale"), and the distribution of 100% of
the net proceeds of the Sale to the Limited Partners; (b) the adoption of
certain Amendments to Articles VII and VIII of the Partnership Agreement, as
described in Section V of this Statement, which amendments are necessary to
accomplish the proposed transactions; and, (c) the dissolution, termination,
liquidation and winding-up of the Partnership, as described in Section VI of
this Statement and, in connection therewith, the distribution in kind of the
remaining 15% interest (equal to the 15% interest of the General Partner in
the Partnership ) in the Hotel Properties to the General Partner (the
"Proposals"). Currently, the Limited Partners own an 85% interest and the
General Partner owns a 15% interest in the Partnership.
These transactions will result in a per Unit distribution to the Limited
Partners of approximately $2,000, which includes (a) 100% of the net proceeds
from the Sale of the undivided 85% interest in the Partnership's real estate
to the General Partner and (b) 85% of the net operating assets which will be
realized upon the winding-up of the Partnership. However, this number is an
estimate, and the which ultimately will be distributed to the Limited Partners
amount may be reduced or increased as a result of changes in closing
adjustments, prorations and credits and increases/decreases in cash balances,
pre-paid items, accounts receivable, trade accounts payable, mortgage balances
and other cash and expense items over which neither the General Partner nor
the Partnership will have any control. See Sections IV and VI of this
Statement.
Purposes, Alternatives, Reasons and Effects of the Proposed Transactions.
The investment by the Limited Partners in the Partnership always has been and
will continue to be illiquid. Currently, there is no ready market for the
resale of Units of limited partnership interest, and it is not likely that a
market for the Units ever will develop. Further, there are a number of
restrictions on transferability of Units contained in the Partnership
Agreement. A bsent a liquidation of the Partnership through a
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sale of all or substantially all of the Partnership's properties, Limited
Partners' investment in the Partnership will remain illiquid. Accordingly,
one of the primary purposes of the proposed transaction is to afford the
Limited Partners the opportunity to "cash out" their investments in the
Partnership through the Sale by the Partnership of its assets to the General
Partner and the liquidation and winding-up of the Partnership.
The General Partner has not considered any other alternative means to
accomplish the "cash out" of the Limited Partners' investments in the
Partnership other than the proposed Sale by the Partnership of its Hotel
Properties to the General Partner, as described herein. Another possible
alternative would be for the Partnership to sell its assets to an independent,
third-party for cash or securities. The General Partner has not actively
solicited the sale of the Partnership's assets to any other party because the
General Partner believes that a sale to a third-party would not likely obtain
any greater purchase price or other benefit for the Partnership and would be
potentialy disruptive to the Partnership's business, since a sale to a
third-party would necessarily entail: (a) the complication and costs of
"re-flagging" (i.e. operating under a different name) the Hotel Properties;
(b) the uncertainty and expense of a lengthy due diligence period during which
the third-party buyer would satisfy itself as to such matters as title,
survey, environmental and labor; and (c) the possible involvement of a realtor
with the consequence that a real estate commission may be paid, thereby
reducing net cash proceeds to the Partnership.
The General Partner believes that occupancy trends in the hotel
industry and overall values of hotel properties have
increased steadily over the past few years . Accordingly, it is the
General Partner's belief that this may be an opportune time for the Limited
Partners to liquidate their investments in the Partnership at an optimum
price. With hotel prices generally increasing, and with supply of
hotel rooms more closely in balance with demand for those rooms, performances
of many individual properties have improved, making them more
appealing to prospective purchasers, including the General Partner.
Because of the General Partner's dual role in the
transaction , the proposed purchase of the Hotel Propert ies
by the General Partner cannot be considered arms-length. Also, the General
Partner is subject to a number of conflicts of interest in connection with the
proposed transactions as described in Section IX of this Statement. The
purchase prices to be paid by the General Partner for those properties are,
however, supported by written appraisals by a nationally recognized,
qualified and independent appraisal firm. Further, the engagement by the
General Partner on behalf of the Partnership of an independent, qualified
legal counsel to represent the Partnership in reviewing the Asset Purchase
Agreement s also is designed to provide added assurance of the
commercial reasonableness of the proposed transaction s to
the Partnership and its Limited Partners. Finally, the fiduciary duty of the
General Partner, as described in Section IX of this Statement, requires the
General Partner to exercise the utmost good faith and fairness in its dealings
with the Partnership.
The General Partner believes that the proposed transactions serve its own
best interests, as well as the best interests of the Limited Partners .
Currently, the hotels which comprise the Signature Inn System are owned by a
total of 21 legally distinct and separate entities, each of which is bound to
the General Partner through an elaborate plan of partnership, management and
franchise contracts and relationships. By eliminating this complicated and
cumbersome system , and by replacing it with a simplified,
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unified company-owned hotel structure, the General Partner
expects to:
(1) Combine all 23 existing Signature Inn
hotels into a single portfolio of hotels, the combined revenues
of which will afford much greater income stability and income
predictability than the current system of
essentially "one-op" (i.e., single hotel) operating entities;
(2) Achieve through this combination a greatly enhanced
ability to obtain pools of financing from hotel lenders for
new hotels and for refinancings of existing hotels ,
rather than single hotel loans on individual properties, as
currently is the case;
(3) Be able to retain earnings from hotel operations to
fund future growth, rather than being required to pay
all cash available for distribution to Partners under the
current Partnership Agreements; and,
(4) Increase value for its shareholders by reducing
substantially the legal risks, liabilities and obligations
which attend the General Partner's exercise of its fiduciary
and other duties under the existing partnership, management
and franchise system , which include, among others, the duties
to operate all aspects of the Partnerships' businesses,
periodically provide reports to a total of approximately 1,857
limited partners, file tax returns and statements on behalf of
the partnerships, obtain insurance coverages on the partnerships'
properties, account for and distribute cash to the limited
partners, and hire, train and supervise the Partnerships'
approximate 700 employees .
Accordingly, the General Partner believes that the proposed
transaction s will provide substantial benefits to each
of its affiliated limited partnerships and their limited partners and to
the General Partner and its shareholders , as well .
Thus, the ultimate goal and effect of the proposed transactions between
the General Partner and its affiliated limited partnerships, including the
Partnership, is to: (a) allow all limited partners to liquidate their
investments in the affiliated partnerships at values of the
various hotel properties which equal or, in some cases, exceed, the fair
market value of those properties as established by an independent, qualified
appraiser; (b) place the fee simple ownership and complete operations of all
of the existing Signature Inn hotels within the General Partner, thereby
eliminating, entirely, the current system of affiliated partnerships,
management contracts and franchise relationships, with a view to enhancing the
value and prospects of the General Partner; and, (c) accomplishing the goals
of (a) and (b) in a manner which is least disruptive to the current business,
operations, value and prospects of the affiliated partnerships and the General
Partner. The specific federal tax consequences to the Partnership
resulting from the proposed transactions are described under
Section X of this Statement.
The primary detriment to the Limited Partners which will result from the
consummation of the proposed transactions, as pointed out in Section IX of
this Statement, is that the Limited Partners will no longer share in any
future income, distributions and credits or any other benefits to be generated
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by the future operations of the Partnership's Hotel Properties. Also, the
Limited Partners will not share in any future increases, if any, in the values
of the Hotel Properties. However, the Partnership's ability to produce future
income, distributions and credits and other benefits to the Limited Partners
is subject to the same competitive factors and vagaries of the market place as
were described in the prospectus pursuant to which the Units were sold to the
Limited Partners. Those factors include, among other things,
cyclical-overbuilding in the lodging industry, varying levels of demand for
rooms and related services, adverse affects of general and local economic
conditions, changes in local market conditions, over-supply or a reduction in
demand for hotel rooms, changes in travel patterns, changes in governmental
regulations that influence or determine wages, prices or construction costs,
changes in interest rates and the availability of credit and changes in real
estate taxes and other operating expenses. In addition, hotels are capital
intensive and, in order to remain competitive, facilities must be constantly
maintained, modernized and refurbished on an ongoing basis at substantial
costs. Hotel businesses are also subject to inflationary pressures,
seasonality of demand and energy and environmental factors relating to real
estate ownership generally. The operation of hotels is highly competitive,
and Signature Inn hotels compete with other hotels of varying quality and
size, including hotels which are a part of a national or regional chain and
which may have available to them greater financial resources than the General
Partners. Moreover, there can no assurance that the values of hotel
properties (including the Partnership's Hotel Properties) will not
decrease .
Source and Amounts of Funds or Other Consideration. The General Partner
intends to fund its proposed acquisition of the Partnership's Hotel
Properties and the hotel properties of its other affiliated
limited partnership entities through an equity offering/placement and through
the assumption by the General Partner of the current first mortgage
indebtedness on those properties. The total equity funds which will be
required to acquire the Hotel Properties owned by the Partnership will be
approximately $420,000, and approximately $4,450,000 of mortgage indebtedness
will be assumed by the General Partner. The balance of the purchase price
represents the amount of the value of the General Partner's interest in the
Partnership and debt forgiveness by the General Partner. The General
Partner's ability to obtain both equity and debt financing of the acquisitions
are conditions precedent to the General Partner's obligation to acquire the
properties. As a result, if the General Partner is unable to obtain equity
financing and debt assumptions sufficient to allow it to acquire the hotel
properties, the proposals will be withdrawn and the proposed acquisitions
terminated.
The Partnership will incur certain expenses in connection with the
proposed transactions. An itemized list of those expenses is as follows:
<TABLE>
<CAPTION>
<S> <C>
(a) Appraisal Fees $10,000
(b) Legal Fees 1,000
(c) Proxy Statement and
Schedule 13E-3 Filing Fees 1,332
(d) Printing, Mailing and
Other Solicitation Expenses 3,000
-------
Total: $15,332
-------
-------
</TABLE>
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In addition to the foregoing direct costs and expenses to the Partnership
resulting from the proposed transactions, the Partnership will incur the
adjustments, prorations and charges described under Sections V I and VII
of this Statement in connection with the closing of the Sale and the
winding-up and liquidation of the Partnership.
Fairness of the Transaction. The General Partner reasonably believes
that the proposed transactions are fair to the Limited Partners of the
Partnership. The entire nine-member Board of Directors of the General
Partner (five of whom are outside, non-employee directors) voted
unanimously in favor of approving the proposed transactions from the
standpoint both of the General Partner and the Partnership.
The material factors upon which the General Partner's belief is
based , the weight, if any, assigned to each factor by the
General Partner and whether the factor supports the General Partner's
belief as to fairness are as follows:
(1) Net Book Value of Hotel Properties. The
Partnership's cost basis for the property and equipment
which comprise its two Hotel Properties totaled $10,876,853,
as of June 30, 1996. After deducting accumulated depreciation
through that date, the depreciated, net book value of the
Partnership's two Hotel Properties totaled $7,685,274.
All items of property and equipment are recorded on the
Partnership's balance sheets at cost and include assets
leased under non-cancelable agreements and construction loan
interest and fees. Depreciation is determined on the
straight-line basis over the estimated useful lives of the
related assets. Because net book value of the Partnership's
Hotel Properties has little relationship to the current fair
market values of those properties, the net book value of the
Hotel Properties neither supports nor fails to support the
General Partner's belief as to fairness, and the General
Partner attaches no weight to that factor.
(2) Appraised Values of Hotel Properties. On
March 11, 1996, USRC Realty Consultants, Inc., a nationally
recognized, qualified and independent appraisal firm, issued
two separate reports which estimated the fair market values
on a going concern basis of the Partnership's Florence,
Kentucky Hotel Property at $3,800,000 and the fair market
value on a going concern basis of the Partnership's Sharonville,
Ohio Hotel Property at $3,300,000, for an aggregate appraised
value of $7,100,000. The se appraisals of the
Partnership's Hotel Properties by an independent, qualified
appraiser, which analyzed all appropriate data and which
estimated the fair market value of the Hotel Properties based
upon the Income Capitalization Approach and the Sales Comparison
Approach (which approaches are described in Section XV),
completely support the General Partner's belief as to fairness,
and they provide the most substantial weight and basis upon
which the General Partner is relying to ensure that fairness.
They are intended by the General Partner to constitute the
primary assurance to the Limited Partners that the prices proposed
by the General Partner to be paid for the Partnership's Hotel
Properties represent the true, fair market values of those
properties. See Section XV for a complete discussion of the
USRC appraisal reports, summaries of which are also attached to
this Statement as Exhibits C and D.
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(3) Going Concern or Liquidation Values.B The USRC appraisal
reports described under subparagraph (2) above are based upon going
concern, rather than liquidation, values of the assets. As stated
in the appraisal reports, the appraiser's opinion is based upon "the
market value of the fee simple interest of the going concern" in the
Hotel Properties, as of February 28, 1996. Basing the value of the
Hotel Properties on a going concern basis, rather than the
liquidation basis, supports the General Partner's belief as to
fairness, although the weight assigned to this factor is subsumed
within the weight assigned to the appraisal reports, themselves.
(4) Current and Historical Market Prices. As a part of
its appraisal process, USRC reviewed the comparable selling
prices of a total of 63 sales of limited service hotels in the
Mid-Western, Middle-Atlantic, Southern and New England regions
of the United States. The data was verified by USRC through
sources deemed to be reliable, and using commonly accepted
appraisal methodology. USRC incorporated in its written
appraisals tables entitled "Summary of Improved Sale Comparables
- Select Nationwide Limited - Service Hotels," which listed
the names, locations, dates of sale, ages, sales prices, number
of rooms, sales price per room and occupancy, ADR and REVPAR
information for each of those 63 hotels. All of this information
was utilized by USRC in making its determination of value.
Nonetheless, as pointed out in the appraisal reports, USRC's
analysis made comparisons of the transactions primarily upon
economic lines, rather than on the lines of comparable sale
prices. In the opinion of the appraiser, a buyer's criteria
for the purchase of a hotel property is predicated primarily
on the property's income characteristics. The comparable sales
indicated a range of price per room which provided an indication
of value for the Partnership's Hotel Properties. This information,
together with other analyses, were used as a part of the appraiser's
Sales Comparison Approach. The appraiser placed less weight on
this approach due to the lack of recent truly comparable sales
in the market. However, the conclusions reached by the appraiser
via this approach supported the appraiser's conclusions as to value
based upon the Income Capitalization Approach.
(5) Independent Counsel. The planned engagement
by the General Partner on behalf of the Limited Partners of
the Partnership of an independent, qualified attorney to
represent the Limited Partners of the Partnership in
connection with the execution of the Asset Purchase Agreement s
by reviewing the commercial reasonableness of the terms (other
than assets purchased and price) of that agreement is
also intended by the General Partner to provide additional
assurance of the commercial reasonableness of
the transactions to the Partnership and its Limited Partners.
Although a draft of an Asset Purchase Agreement has been
prepared by counsel to the General Partner (the general terms
of which are described below), the independent counsel to the
Limited Partners will review that draft of Asset Purchase
Agreement in its entirety, prior to its execution by the
Partnership, and such independent counsel will have the
opportunity to negotiate on behalf of the Limited Partners
all terms of the purchase, except for the description of the
assets to be purchased and the purchase prices established
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therefore, both of which terms are a function of the
appraisal reports. It is not currently contemplated that
the independent counsel will prepare and issue a report to the
Limited Partners in relation to the commercial reasonableness
of the terms (other than assets purchased and price) of the
Asset Purchase Agreements.
(6) Industry Data. According to
Smith Travel Research, industry-wide hotel occupancy
rates, average daily room rates, revenue per available room,
gross operating profit and net income levels, as well as the
market value of hotel properties, have been increasing
during the past several years. As a result, the General
Partner believes that the economic and market conditions in
the hotel industry favor the sale of the Partnership's
properties to the General Partner at this time ,
and that these conditions provide additional assurance of
fairness.
(7) Competitive Bids. The General Partner has not
received any offer by any unaffiliated person during the
preceeding 18 months for (a) the merger or consolidation of
the Partnership into or with any such person, (b) the sale
or transfer of all or any substantial part of the Partnership's
Hotel Properties to such other person, or (c) the sale or
other transfer of all or any part of the Limited Partnership
interests of the Partnership to such other person.
The foregoing material factors supporting the General Partner's belief as
to fairness should not be considered separately, but rather as an overall
program. Current and historical sales prices of comparable properties were
considered by USRC in arriving at the appraised values. Net book value of the
Partnership's Hotel Properties had little significance to the determination of
those values. The appraiser determined that the Income Capitalization
Approach was the best indicator of value on a going concern basis, although
the other approaches described under Section XV of this Statement were
utilized by the appraiser to provide additional support for its conclusions as
to value.
The Purchase Price and Appraisal. The purchase price to be paid by the
General Partner for the 85% undivided fractional interest in the Hotel
Properties will be $6,035,000, which equals 85% of the $7,100,000, appraised
fair market value of the Hotel Properties, as supported by appraisals as of
February 28 and 29, 1996. The appraisal s were performed
by USRC Realty Consultants, Inc. of Columbus, Ohio, an independent,
experienced and qualified real estate and hotel appraiser. A description of
the experience, qualifications and independence of the appraiser and a Summary
of the Complete Appraisal Reports, as well as other information, is set forth
in Section XV and in Exhibits C and D of this Statement. All
appraisal reports shall be made available for inspection and copying at the
principal executive offices of the General Partner at 250 E. 96th Street,
Suite 450 Indianapolis, Indiana 46240 during its regular business hours by
any interested Limited Partner or his representative who has been so
designated in writing. A copy of any such appraisal reports will be
transmitted by the General Partner to any interested Limited Partner or his
representative who has been so designated in writing upon written request and
at the expense of the requesting Limited Partner.
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Limited Partner Consents. Under Article XIV of the Partnership
Agreement, the Limited Partners are granted the exclusive right by "Majority
Vote" and without concurrence of the General Partner to, among other things,
approve or disapprove the Sale of the Partnership's Hotel Properties. Under
Section 1.25 of the Partnership Agreement, the term "Majority Vote" is defined
as the "affirmative vote or written consent of Limited Partners then owning of
record more than 50% of the outstanding Units of the Partnership."
Accordingly, whether or not the General Partner favors or opposes a proposed
sale of the Partnership's Hotel Properties is not determinative, since the
General Partner's concurrence is not required. For the purpose of these
transactions, the General Partner has agreed not to vote the Units of
limited partnership interest which it holds, if any .
The Partnership currently has 364 Units of limited partnership interest,
which are held by its Limited Partners, including 10 which are held by the
General Partner. Because the 10 Units held by the General Partner will not be
considered "outstanding" for the purpose of determining a "Majority Vote", the
holders of 178 Units must provide their written consent to the proposed
transactions in order for those transactions to be approved. The General
Partner shall not vote its 10 Units of Limited Partnership Interest.
Amendments to Partnership Agreement. In connection with the approval of
the Sale of the Partnership's Hotel Properties to the General Partner, it will
be necessary to amend certain subparagraphs of Articles VII and VIII of the
Partnership Agreement in order to allow the allocation of 100% of the income
and the distribution of 100% of the cash proceeds of the Sale to the Limited
Partners, as a group, and the distribution in kind of the remaining 15%
undivided interest in the Hotel Properties to the General Partner.
Accordingly, at the conclusion of the transactions, the Limited Partners will
receive 100% of the cash proceeds of the Sale, and the General Partner will
receive 100% of the Hotel Properties. The Sale is being structured in this
two-step manner in order to provide certain tax advantages to the General
Partner, but without prejudice to the tax considerations of the Limited
Partners. As with the Sale transaction, the written consent of the holders of
a majority of Units is necessary to approve the amendments to the Partnership
Agreement. Copies of the proposed amendments to the Partnership Agreement
and copies of the consent resolutions adopting those amendments are attached
as Exhibits E and F to this Statement.
Dissolution of Partnership. Assuming that the conditions to closing set
forth in the Asset Purchase Agreement are satisfied and that the Sale
transaction is completed, the Partnership will be dissolved in accordance with
Section 18.01(e) of the Partnership Agreement and liquidated in accordance
with Article XIX of the Partnership Agreement. However, the General Partner,
in its discretion, may elect not to close the Sale transaction in the event
that: (a) the General Partner is unable to obtain required financing with
which to complete the Sale; (b) the General Partner is unable to obtain the
consents of the mortgage lenders to the assumption by the General Partner of
the mortgage indebtedness on the Partnership's Hotel Properties; (c) the
holders of a majority of the Units of limited partnership interest in the
Partnership fail to approve the transactions by timely supplying their written
Consents; or, (d) the General Partner is unable to complete its
proposed transactions with any of the other affiliated
partnerships. In any such event, the Asset Purchase Agreements will be
canceled, and the Partnership will continue to own and operate the Hotel
Properties as it has done in the past.
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General Partner Duties and Conflicts. The duties of the General Partner,
as well as certain conflicts of interest between the General Partner and the
Partnership, in connection with the Proposals as well as certain risk factors,
are described in Section IX of this Statement.
Cash Payments and Tax Consequences. I f the Proposals are
approved and the transactions closed and consummated, you will receive
$2,000 per each Unit of Limited Partnership . The overall
economic benefits of the proposed transactions to the General and Limited
Partners are described later in Section VII under the heading "Summary of
Estimated Benefits from Sale of Property and Liquidation of Partnership".
Also, the federal tax consequences of the proposed transactions are generally
described later in Section X. Finally, certain historical financial
information is set forth in the Amended Form 10-KSB
Report and Form 10-QSB Report and June 30, 1996
Financial Statements which are attached to this Statement as Exhibits A, B
and H .
III. Description of Partnership Business
The Partnership was originally organized pursuant to a Certificate and
Agreement of Limited Partnership dated September 19, 1986, which was filed for
record with the Recorder's Office of Marion County, Indiana, (the "Recorder")
on September 19, 1986, in accordance with the Indiana Uniform Limited
Partnership Act ("ULPA") (I.C. Section 23-4-2-1 et seq.). On April 15, 1988,
an Amended Certificate and Agreement of Limited Partnership was executed by
and between the General Partner and the Limited Partners, which was filed for
record with the Recorder on April 15, 1988. On June 15, 1988, a second
Amended Certificate and Agreement of Limited Partnership was executed by and
between the General Partner and the Limited Partners, which was filed for
record with the Recorder on June 15, 1988. On July 1, 1988, the Partnership
filed a Certificate of Limited Partnership under the Revised Uniform Limited
Partnership Act ("INRULPA"), thereby electing to be governed under the
provisions of INRULPA. As a result, effective on July 1, 1988, the
Partnership became a partnership governed by INRULPA rather than by the ULPA.
Subsequent to its organization, the Partnership commenced a Securities
and Exchange Commission ("SEC") registered, public offering of Units of
limited partnership interest (the "Units") at $10,000 per Unit, with a minimum
subscription of one-half Unit pursuant to a Registration Statement which
originally became effective on May 29, 1987. The offering was concluded in
October, 1988, and a total of 364 Units, aggregating $3,640,000, was sold in
the offering to 386 purchasers who became the limited partners of the
Partnership. Signature Inns, Inc., in its capacity as General Partner,
contributed $404,445 as its capital contribution to the Partnership. In
addition, to its capital contribution in its capacity as a General Partner,
Signature Inns, Inc. acquired 10 Units in the offering at the same price and
on the same terms as paid by all other investors in the offering.
The business of the Partnership currently consists exclusively of the
ownership and operation of two Signature Inn hotels located in Florence,
Kentucky, and Sharonville, Ohio (on the north side of the Cincinnati
metropolitan area) (the "Hotel Properties"). A listing of these hotels, the
number of rooms, location and opening dates is as follows:
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<TABLE>
<CAPTION>
<S> <C> <C>
Location of Hotel Number of Rooms Opening Date
----------------- --------------- ------------
I-75/71 & Turfway Road 125 07/14/87
Florence, Kentucky
I-75 & Sharon Road 130 09/08/87
Sharonville, Ohio
</TABLE>
Each of the foregoing properties is operated as a franchisee of the
General Partner. The Partnership has entered into a standard Signature Inn
Individual Hotel License Agreement (the "Franchise Agreement") with the
General Partner with respect to each of the Hotel Properties. By the terms of
those Franchise Agreements, the Partnership pays to the General Partner
monthly franchise fees (i.e., royalties) equal to 4% of the gross receipts of
each of the Partnership's two hotels, and, in addition, contributes an
additional 3.5% of gross receipts to advertising and reservation funds
administered by the General Partner to fund cooperative advertising programs
and a reservation system. The terms of each of the Franchise Agreements is 10
years, with each expiring in December, 2003. The Partnership has an option to
renew each of those agreements for an additional term of 5 years. Under the
franchise agreements, the Partnership is authorized to use the name "Signature
Inn," as well as other trademarks and logos associated with the Signature
system, and the General Partner provides a multitude of services in relation
to that system.
Each of the Partnership's hotels is managed by the General Partner
pursuant to a Management Agreement entered into between the Partnership and
the General Partner. Under the Management Agreements, the General Partner
establishes policies for the Partnership's employees having direct
responsibility for the hotel's operation. In addition, the General Partner
establishes room rates, directs the promotional activity of the Partnership's
employees, supervises the purchase and replacement of equipment and supplies,
supervises maintenance activities and selects vendors, suppliers and
independent contractors. In addition, the General Partner performs all
bookkeeping and administrative duties in connection with each of the Hotel
Properties and administers payments and reports to the Limited Partners. The
Partnership is required to pay to the General Partner, as compensation for its
management services, an amount equal to 5% of the gross receipts per month for
each of the Hotel Properties. This compensation is in addition to the cost of
compensating the Partnership's own employees and the costs of goods and
services acquired by the Partnership from independent contractors. However,
the management fee covers all of the General Partner's overhead for which
there is no separate charge. The terms of the management agreements both
expire in July, 1999.
A mortgage loan of $2,730,000 at December 31, 1995, relating to
industrial revenue bonds issued by the City of Florence, Kentucky, is secured
by the Florence hotel and includes various principal amounts which bear
interest at an effective rate of 9.75% and mature serially to 2016. The bond
indenture requires the maintenance of a debt service fund of $225,000 before
distributions can be made to the partners. Withdrawals from the fund are
permitted for working capital and other operating needs.
A mortgage loan of $2,504,869 at December 31, 1995, is secured by the
Sharonville hotel and is payable in monthly installments of $23,503, including
interest at 10.0%. The interest rate and monthly installments are adjustable
at three-year intervals to 3.75% above the three-year U.S. Treasury Constant
Maturity rate, based on maturity in 2018. The interest rate is not to exceed
15% through maturity in 1998, or be less than 10%.
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The Partnership's note payable to the General Partner in the amount of
$ 2,577,361 is non-interest bearing and repayments are dependent
on future annual cash flows of the Partnership. The note matures in 2004 and
requires annual principal payments equal to 50% of defined available cash flow
but not in excess of $237,736. In connection with the Sale, a total of
approximately $1,297,833 will be paid to the General Partner in full
settlement and satisfaction of the Note, and the $1,279,228 remaining
balance will be forgiven.
Additional information concerning the Partnership's business is set forth
under Part I, Item 1, entitled "Business of Signature X Ltd. Limited
Partnership," of the Amended Form 10-KSB Report, which is
attached to this statement as Exhibit A.
IV. The Proposed Sale/Purchase Transaction Between
the Partnership, as Seller, and Signature Inns, Inc., as Buyer
Introduction. The General Partner intends to acquire 100% of the
Partnership's Hotel Properties, which, as of February 29, 1996, had a combined
appraised value of $7,100,000. However, the acquisition will be accomplished
in two parts. Part one will involve a sale of a portion of the Hotel
Properties to the General Partner, and the second part will involve a
liquidating distribution of the remaining portion of the Hotel Properties to
the General Partner.
First, the Partnership will sell and the General Partner will purchase an
undivided 85% interest (the "Initial Interest") in all of the real estate,
improvements, fixtures, furnishings, furniture, equipment and all other
tangible and intangible personal property which comprise the Partnership's
Hotel Properties (the "Sale"). For the Initial Interest, the General Partner
will pay to the Partnership a purchase price of $6,035,000 (i.e. 85% of the
$7,100,000 appraised value), of which: (1) approximately $65,000 will be
deducted to defray 85% of the anticipated property tax prorations and closing
costs; (2) approximately $420,000 will be paid in cash at the time of
closing;(3) approximately $4,450,000 will be paid through the assumption by
the General Partner of a portion of the mortgage indebtedness owed by the
Partnership as of the date of closing; and, (4) approximately $1,100,000 will
be applied against the note payable to the General Partner.
The entire net cash proceeds of the Sale will be distributed to the
Limited Partners, as a group. The General Partner will receive a portion of
those proceeds for the 10 Units which it holds. As the second part of the
transaction, the General Partner will receive a liquidating distribution of
the remaining undivided 15% interest (the "Remaining Interest") in the Hotel
Properties at the time of the dissolution of the Partnership (the
"Distribution In-kind").
The net result of the Sale and the Distribution In-kind will be to
allocate to the Limited Partners, as a group, 100% of the net cash proceeds of
the Sale (i.e. 85% of the value of the Hotel Properties) for their 85%
partnership interest in the Partnership and to distribute in-kind to the
General Partner the 15% Remaining Interest in the Hotel Properties in
liquidation of the General Partner's 15% interest in the Partnership.
The transaction is being structured in this manner in order to provide
certain tax advantages to the General Partner. The Limited Partners will not
be prejudiced by this two part structure, however, since they will receive the
same share of cash and the same tax consequences as they would have received
had the entire transaction been structured as an outright purchase by the
General Partner of 100% of the Partnership's Hotel Properties.
-16-
<PAGE>
Assuming that Limited Partners holding the required number of Units
consent to these transactions, the Partnership, as seller, and the General
Partner, as buyer, will immediately enter into a written Asset Purchase
Agreement s (the "Purchase Agreement s "). However, the
Purchase Agreements will not be executed until the independent counsel
retained on behalf of the Limited Partners reviews the drafts of Purchase
Agreements and negotiates with the General Partner the final terms thereof.
All terms of the Purchase Agreements will be negotiable except for the
description of the assets to be purchased and the purchase prices to be paid.
Upon execution, the Purchase Agreement s shall constitute
legally binding obligation s of both the Partnership to sell and
the General Partner to purchase the Initial Interest in the Hotel Properties.
However, the General Partner's obligations under the Purchase
Agreement s shall be conditioned upon the satisfaction of several
conditions precedent to closing, which are described below. Each of these
conditions must be satisfied or, in the discretion of the General Partner,
waived on or before February 28, 1997.
If those conditions are not satisfied or waived on or before that date,
the Purchase Agreement s will be terminated and canceled, and the
proposed transactions will not occur.
The remainder of t his Section IV to the Statement is devoted to an
explanation of some of the terms of the Purchase Agreement s . The
description includes a brief discussion of the general terms of the Purchase
Agreement s , the adjustments, prorations and credits which will be made
in connection with the Sale, the conditions precedent to closing, the closing
procedures and the distribution of net sale proceeds to the Limited Partners.
However, this is a summary only of some of the terms of the Purchase
Agreement s and, accordingly, does not describe all of the terms of
these Agreement s . Upon request, Limited Partners may
inspect the actual form of the Purchase Agreement s which will be
executed by and between the Partnership and the General Partner following
receipt of the Limited Partners' written consent and after review by the
independent counsel representing the Limited Partners . Inspection may be
made at the corporate offices of the General Partner at 250 East 96th Street,
Suite 450, Indianapolis, Indiana 46240.
General Terms of the Purchase Agreement s
Description of Property to be Sold. The Initial Interest to be purchased
by the General Partner will be equal to an undivided 85% interest in all of
the real and personal property comprising the Hotel Properties, consisting of:
(1) real estate; (2) all improvements constructed on the real estate; (3) all
furniture, furnishings, fixtures, equipment and other tangible personal
property owned by the Partnership and located on or used in connection with
the operation or maintenance of the Hotel Properties; (4) all of the
Partnership's interests in all equipment leases and contracts relating to the
ownership, maintenance, use or operation of the Hotel Properties; (5) all of
the Partnership's interests in room rental and other lease agreements (if
any); and (6) all of the Partnership's rights, title and interest in and to
all intangible personal property used in connection with the Hotel Properties,
including all books and records, plans and specifications, drawings, reports,
rights, guarantees, licenses, permits and warranties.
Purchase Price and Payment. For the Initial Interest, the General
Partner will pay to the Partnership a Purchase Price of $6,035,000 (i.e. 85%
of the $7,100,000 appraised value). Of that amount: approximately $65,000
will be deducted to defray 85% of tax prorations and closing costs;
-17-
<PAGE>
approximately $420,000 will be paid in cash at the time of closing,
approximately $4,450,000 will be paid through the assumption by the General
Partner of a portion of certain mortgage indebtedness owed by the Partnership
to its mortgage lenders as of the date of closing, and approximately
$1,100,000 will be applied against the Note payable to the General Partner.
The Purchase Price will be subject to certain adjustments, prorations and
credits, as described below. A $2,500 earnest money deposit (the "Earnest
Money") will be required to be paid by the General Partner at the time of the
signing of the Purchase Agreement. In the event the Purchase Agreement
expires or is terminated by the General Partner, the Earnest Money will be
paid to the Partnership in consideration for its agreement to allow the
General Partner until February 28, 1997, in which to satisfy the conditions
precedent to Closing.
Date of Closing. The Closing of the Sale shall take place on or before
February 28, 1997. It can be expected that Closing of the Sale, the
distributions of cash and the Remainder Interest and dissolution of the
Partnership will occur simultaneously.
Real Estate Commissions. Payment of commissions to a real estate broker
in the range of from 3% to 5% of the purchase price for a property is normal
and customary in commercial real estate transactions. Because the General
Partner is the buyer, however, no real estate commission, finders fee or
similar compensation will be paid by the Partnership or the General Partner to
any person in connection with the Sale. Therefore, the net proceeds to be
realized by the Partnership will be greater than they would have been in a
brokered sale.
Title Insurance, Survey and Environmental Matters. The Partnership will
be required to furnish to the General Partner, at the Partnership's expense, a
commitment (the "Title Commitment") to issue an owner's policy of title
insurance insuring fee simple title to the Hotel Properties in the name of the
General Partner upon delivery of a limited warranty deed from the Partnership
to the General Partner. The Title Commitment shall set forth the state of
title to the real estate together with all exceptions or conditions to such
title, including, but not limited to, all easements, restrictions,
rights-of-way, covenants, reservations and all other encumbrances affecting
the real estate which would appear in an owner's policy of title insurance
issued pursuant to the Title Commitment. The Title Commitment will contain
the commitment of the title Company to insure such title in the General
Partner for the full amount of the appraised value of the Hotel Properties,
and will contain the further agreement of the title company to insure access
from the real estate to a dedicated public right-of-way which is contiguous to
the boundary of the real estate, a 3.0 zoning endorsement certifying that the
real estate is zoned under the zoning ordinance of the zoning jurisdiction in
which the real estate is located to permit the use of the real property as a
hotel.
The Partnership shall also be required to furnish the General Partner, at
the Partnership's expense, a boundary survey of the real estate prepared by a
surveyor or engineer who is licensed by the appropriate governmental
authorities of the state in which the real estate is located and who is
acceptable to the General Partner. The Survey shall be prepared in accordance
with Minimum Standard Detail Requirements for Land Title Surveys jointly
established and adopted by ALTA and ACSM in 1992, and shall certify that the
real estate is not located within a Special Flood Hazard Area. The Survey
shall be certified to the Partnership, the General Partner, and such other
parties as the General Partner may request.
18-
<PAGE>
It is customary in real estate transactions such as the Sale for an
environmental survey to be provided to the purchaser. Because the General
Partner was involved in the original purchase of the real estate and the
construction of the Hotel and has managed the Hotel Properties continuously
since then, no environmental survey is being required by the General Partner
in connection with the Sale. The waiver by the General Partner of an
environmental survey is a benefit to the Partnership and the Limited Partners.
Covenants, Representations and Warranties. The Purchase Agreement will
require the General Partner and the Partnership, at all times between the
signing of the Purchase Agreement and Closing: (1) not to enter into any new
undertakings or agreements relating to the management, financing or
maintenance of the Hotel Properties, other than in the ordinary course of
business; (2) to continue to operate and maintain the Hotel Properties in the
same manner that the Partnership has operated and maintained the Hotel
Properties during its ownership, and to continue complying with all provisions
of the service contracts and other agreements to which they are parties, and
to continue compliance with all applicable laws, ordinances, rules and
regulations to which the Partnership or the Hotel Properties is subject; (3)
to maintain all insurance on the Hotel Properties; (4) not to remove any
personal property from the Hotel Properties unless such personal property is
replaced with property of like kind and like value; (5) not to enter into any
agreement granting to any other party the right to purchase the Hotel
Properties or to alienate, lien, encumber or otherwise transfer any portion of
the Hotel Properties or any interest therein.
The Partnership and the General Partner will make the following
representations and warranties to each other in the Purchase Agreement: (1)
that they are duly organized and validly existing under the laws of Indiana;
(2) that they have the power and authority to enter into the Purchase
Agreement and that all necessary action has been taken to authorize their
respective executions and performance of the Purchase Agreement and the
consummation of the transactions contemplated therein; (3) that the
Partnership owns good, marketable and indefeasible fee simple title to the
Hotel Properties free and clear of all liens, encumbrances, security interests
and other defects in title other than permitted exceptions; and; (4) that the
Partnership owns good and marketable title to the personal property free and
clear of all liens, encumbrances security interests and other defects in title
other than permitted exceptions.
The General Partner will not assume any indebtedness, obligations,
commitments or liabilities of the Partnership relating to the Hotel Properties
imposed under any law relating to the environment, health or safety, and
arising out of any act, event or condition occurring or existing prior to the
Closing. Although customary in transactions such as the Sale, the Partnership
will not be required to make any representations or warranties regarding
environmental matters. The waiver by the General Partner of any requirement
that the Partnership make environmental warranties and representations is a
benefit to the Partnership.
Agreement Regarding Employees. The Partnership will take all action as
is necessary to terminate the employment of all Partnership employees as of
the Closing Date. The General Partner will take all action as is necessary to
employ all Partnership employees as of the Closing Date in the positions and
with the compensation and benefits equivalent to those employees' employment
with the Partnership. The General Manager and Assistant General Manager
currently already are employees of the General Partner.
19-
<PAGE>
Closing Costs. The Partnership and the General Partner each shall be
responsible for their respective costs and expenses (including attorneys fees)
incurred in connection with the execution of the Purchase Agreement and the
closing of the transactions contemplated therein.
Default and Remedies. If the General Partner fails to perform any of its
obligations under the Purchase Agreement, or fails to keep or observe any
other covenant, agreement or obligation to be kept or observed by the General
Partner under the Purchase Agreement and does not cure such failure prior to
Closing, then the Partnership shall have the right to terminate the Purchase
Agreement in which event the Earnest Money shall be paid to the Partnership
and the Partnership may pursue any and all other rights available at law or in
equity. If the Partnership fails to perform any of its obligations under the
Purchase Agreement, or the Partnership fails to keep or perform any other
covenant, agreement or obligation to be kept or performed by the Partnership
under the Purchase Agreement and does not cure such failure prior to the
Closing then the General Partner may terminate the Purchase Agreement or the
General Partner may enforce specific performance of the Purchase Agreement.
If the Purchase Agreement is terminated for cause by the General Partner, the
Earnest Money shall be immediately returned to the General Partner.
Separate Legal Representation. Upon approval of the Proposals by the
Limited Partners of the Partnership, the General Partner shall select and
engage on behalf of the Limited Partners independent legal
counsel to represent the Limited Partners with respect to the
terms (other than assets to be purchased and price) of the Purchase
Agreements and related documents and the consummation of the transactions
contemplated therein.
Conditions Precedent to Closing. The obligation of the General Partner
to consummate the Sale will be, at the General Partner's option, subject to
the occurrence of the following events prior to February 28, 1997:
Financing Condition. The General Partner shall have
obtained financing in amounts and subject to terms satisfactory
to the General Partner in its sole discretion, including, but
not limited to, the satisfactory completion of a public
offering of the General Partner's common stock.
Lender and Other Consents. The Partnership shall have
received consents of all third parties necessary to consummate
the Proposals and the transaction s , including, but not
limited to consents from mortgage lenders.
Limited Partnership Approval by Majority Vote. The Sale
shall have received the consent of the holders of a majority
of the Units of limited partnership interests in the
Partnership in accordance with the Partnership Agreement
and applicable law.
Closings of Other Transactions With Related, Affiliated
Partnerships. The General Partner shall have obtained the
approval of the limited partners holding a majority of units
of limited partnership interests of Signature I, II, III, IV,
V, VI, VII, VIII, IX, XI, XII, XIV, XVII, XXI, Northwestern,
Southport, Elkhart, Normal/Peoria and Knoxville, Ltd. Limited
Partnerships to the sale of the respective hotel properties
owned by those partnerships to the General Partner in accordance
-20-
<PAGE>
with asset purchase agreements similar to the Purchase
Agreements, and the General Partner shall have satisfied or
waived all conditions to closing of each of those asset purchase
agreements, subject to the General Partner's right, in its
discretion, to waive this condition with respect to the
acquisition of one or more of the other affiliated partnership
properties.
Adjustments, Prorations and Credits. Set forth below are certain items
to be adjusted, prorated or credited between the Partnership and the General
Partner at Closing. All credits to the General Partner from the Closing
adjustments and prorations described herein shall reduce the cash payable at
Closing, and all credits to the Partnership from the Closing adjustments and
prorations described herein shall increase the cash payable at Closing.
For purposes of this discussion, it is assumed that the Sale and the
Distribution In-kind will occur on the same day.
Taxes and Assessments. All real estate and personal property taxes
assessed against the Hotel Properties for years prior to the year of the
Closing and all penalties and interest thereon shall be paid by the
Partnership. All real estate and personal property taxes assessed against the
Hotel Properties for the year of the Closing shall be prorated between the
Partnership and the General Partner as of the Closing Date on the basis of the
exact number of days each will own the Hotel Properties.
Utilities. Water, electricity, sewer, gas, cable television, telephone
and other utility charges shall be prorated based, to the extent practicable,
on final meter readings and final invoices, and on the basis of the actual
number of days of the month which shall have elapsed as of the Closing Date.
The Partnership shall be responsible for all such charges for the periods
prior to the Closing Date. The General Partnership shall be responsible for
such charges for the period on and after the Closing Date.
Accounts Payable. Accounts payable accrued prior to the Closing Date
shall be the responsibility of the Partnership. The General Partner shall be
responsible for all accounts payable accruing on and after the Closing Date.
Guest Advance Deposits. The liability for all unearned guest advance
deposits (if any) on the books of the Partnership on the Closing Date shall be
assumed by the General Partner and shall be credited against payment of the
Purchase Price.
Accrued Payroll and Employee Expenses. To the extent practicable, all
accrued but unpaid employee salaries and benefits and all accrued but unpaid
payroll, F.I.C.A., employee benefit and other employee-related taxes
("Employees Costs") due and payable for the period prior to the Closing Date
shall be paid by the Partnership in full at or prior to Closing without
proration or contribution from the General Partner. The General Partner shall
assume and receive credit against payment of the Purchase Price for all
accrued Employees Costs prior to Closing which are not paid on or before
Closing. The General Partner shall be responsible for all Employee Costs
accruing on and after Closing.
Sales/Lodging Taxes. All sales and/or lodging taxes applicable to guest
room rental charges or public room rental charges accruing prior to the
Closing Date shall be the responsibility of the Partnership. The General
Partner shall be responsible for such taxes accruing on or after the Closing
Date.
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<PAGE>
Prepaid Insurance. Any amounts of prepaid insurance on the books of the
Partnership as of the Closing Date representing payments for insurance
coverage for any period subsequent to the Closing Date shall be credited to
the Partnership and paid at Closing.
Accounts Receivable. All accounts receivable accruing prior to the
Closing Date shall remain the sole property of the Partnership, and the
General Partner shall have no rights, title or interest in such accounts
receivable.
Closing Procedures. If the Proposals are approved, Closing of the Sale
shall take place as follows:
Closing shall occur on a date specified by the General
Partner not earlier than five (5) days following satisfaction
of all conditions to closing in the Purchase Agreements.
The Closing shall occur in the offices of Johnson Smith
Pence Densborn Wright & Heath, Indianapolis, Indiana, or at
such other location as may be selected by the General Partner.
Distributions to Limited Partners of Net Sale Proceeds: Procedures and
Timetables. On or within five business days after the Closing Date, the
Partnership shall make cash distributions to the Limited Partners in an amount
equal to 100% of the net proceeds of Sale which represents 85% of the
appraised value of the Hotel Properties. See Section VI below for a
description of distributions to Limited Partners in connection with the
dissolution and termination of the Partnership.
V. Required Amendments to the Partnership Agreement
As noted above under the "Introduction" portion of Section IV of this
Statement, the General Partner intends to acquire 100% of the Partnership's
Hotel Properties in a two-part transaction. Part one will involve a sale of
the portion of the Hotel Properties to the General Partner which will be
equivalent to the Limited Partners' 85% interest in the Partnership. The
second part of the transaction will involve a liquidating distribution of the
remaining 15% portion of the Hotel Properties to the General Partner, in-kind.
The net result of this two-part method of sale will be to allocate to the
Limited Partners, as a group, 100% of the net cash proceeds of the sale (i.e.
85% of the value of the Hotel Properties) for their 85% partnership interest
in the Partnership and to distribute in-kind to the General Partner the 15%
remaining interest in the Hotel Properties in liquidation of the General
Partner's 15% interest in the Partnership. In order to facilitate the
sale of the Hotel Propert ies , the following revisions, deletions
and additions to the Partnership Agreement have been determined to be
necessary. The complete text of the revisions, deletions and additions appear
in the Second Amendment to Second Amended Certificate and Agreement of Limited
Partnership of Signature X Ltd. Limited Partnership (the "Amendment") which is
attached to this Statement as Exhibit F and incorporated herein and by this
reference made a part hereof:
Amendment to Section 7.06 of the Partnership Agreement. Section 7.06
contains provisions concerning the allocation of gain or loss on the sale of
partnership property. The Amendment adds new language which provides that in
the case of a sale of an undivided fractional interest in the partnership
property by the Partnership to the General Partner which undivided fractional
interest is equal to the aggregate units of limited partnership interests in
the Partnership owned by all Limited Partners (as a group), the gain or loss
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<PAGE>
on the sale of such undivided fractional interest shall be allocated entirely
to the Limited Partners (as a group), provided that: (a) the Limited Partners
(as a group) receive all distributable cash sale proceeds resulting from that
sale; and, (b) the General Partner receives the distribution of the remaining
undivided fractional interest in the partnership property as a distribution in
kind in connection with the dissolution and termination of the Partnership in
accordance with Article XVIII of the Partnership Agreement.
Amendments to Section 8.02 of the Partnership Agreement. Section 8.02
contains provisions concerning the distribution of net proceeds of sales,
financings and refinancings of Partnership properties. The Amendment adds new
language which provides that in the event of any sale of an undivided
fractional interest in the Partnership properties to the General Partner which
undivided fractional interest is equal to the aggregate units of limited
partnership interests in the Partnership owned by all Limited Partners (as a
group), all net proceeds of such sale shall be allocated and distributed to
the Limited Partners (as a group), and the General Partner shall not receive
any allocation or distribution of any such cash. Rather, the General Partner
shall receive instead a distribution in-kind of the remaining undivided
fractional interest in the Partnership's property represented by the General
Partner's interest in the Partnership in connection with the dissolution and
termination of the Partnership. The purpose of these revisions is to ensure
that, in the event of a sale of an undivided fractional interest in the
Partnership property to the General Partner, the Limited Partners will receive
100% of all distributable cash from the Net Sale Proceeds, and the General
Partner will receive the remaining undivided fractional interest in the
Partnership property.
VI. Dissolution, Termination and Final Distributions
Dissolution/Termination of Partnership. Pursuant to Section 18.01(e) of
the Partnership Agreement and the consents of the holders of a majority of
Units, the Partnership will be dissolved and terminated upon the Sale of the
Hotel Properties. Following Closing, the General Partner will cause to be
filed with the Secretary of State of Indiana a Certificate of Cancellation of
Indiana Limited Partnership to effectuate such dissolution. This Certificate
will effectively terminate the legal existence of the Partnership.
Under Section 19.01 of the Partnership Agreement, upon the dissolution
and final termination of the Partnership, the General Partner must take
account of the Partnership's assets and liabilities and must conduct the
liquidation of such assets as promptly as is consistent with obtaining the
fair market thereof. Any proceeds received from the liquidation of the assets
are required to be applied in the following order:
(1) To the payment of all debts and liabilities of the
Partnership to creditors in the order of priority provided by
law and to the expenses of liquidation;
(2) To the establishment of any reserves deemed necessary
for any contingent liabilities or obligations of the Partnership;
(3) To the repayment of any loans or advances that may
have been made by any Partner to the Partnership;
(4) To the Limited Partners in an amount equal to the
excess, if any, of their capital contributions over prior
distributions to them from all sources; and
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<PAGE>
(5) Eighty-five percent (85%) of any remaining balance
shall be allocated to the Limited Partners based on their
percentage interest in the Partnership and fifteen percent
(15%) to the General Partner, except that the General Partner
shall not receive any part of any balance of cash remaining
from the Net Sale Proceeds.
Pursuant to Section 19.03 of the Partnership Agreement, each Limited
Partner will be furnished with a Liquidation Statement describing the
disposition of the assets and liabilities of the Partnership and reporting any
other information with respect to the liquidation of the Partnership.
Finally, Limited Partners shall be provided with a notice that the Partnership
has been dissolved and that a Certificate of Cancellation of the Partnership
has been filed in accordance with applicable law.
Termination of Contracts. The Partnership's obligations under the
Management Agreements between the General Partner and the Partnership, and the
Partnership's obligations under the Franchise Agreements between the
Partnership and the General Partner shall be canceled and terminated without
cost or penalty to the Partnership upon the dissolution of the Partnership.
Thus, the Partnership will have no further duties, obligations or
responsibilities with respect to either the Management Agreements or the
Franchise Agreements.
Final Cash Distributions to Limited and General Partners. As described
above, the Limited Partners of the Partnership will receive 100% of the net
cash proceeds of the Sale on or within five business days of Closing. Upon
the final wind-up of the Partnership, the Limited Partners will receive their
allocable share of 85% of all other remaining cash, including (a) accounts
receivable collections, (b) the net balance at Closing of the FF&E cash
reserve, (c) the net cash balance at Closing of the Tax Escrow Account, (d)
all cash generated from the operations of the Partnership up to the date of
Closing, and (e) interest on such amounts, which amounts will be reduced by
any and all liabilities of the Partnership which are not assumed by the
General Partner in connection with the Sale, and which were not credited
against the General Partner's payment of the Purchase Price. The General
Partner will receive the remaining 15% of those items of cash .
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
VII. Summary of Estimated Benefits from Sale
of Properties and Liquidation of Partnership
The following table includes pro forma financial information as if the
Sale and the other proposed transactions occurred on December 31, 1995 and
illustrates the disposition of proceeds of Sale, including payment of the
Partnership's liabilities and the completion of distributions to the Limited
Partners.
<TABLE>
<CAPTION>
Table of Estimated Benefits
---------------------------
<S> <C> <C>
Pro forma
Purchase of Hotel Properties 12/31/95
- ---------------------------- ---------
Hotel Appraised Value
(real estate and personal property) $ 7,100,000
(Less) estimated costs for title insurance,
survey, appraisal, etc. (34,000)
Adjustments for Real Estate Taxes unpaid (42,084)
-----------
Adjusted Hotel Appraised Value 7,023,916
(Less) Mortgage Settlement or Assumption:
Principal Outstanding Balance (5,234,868)
Debt Service Reserve Balance 3,000
(Less) Note Payable to Signatures,
Inns, Inc. ("SII") (2,577,061)
Discount of Note Balance offered by SII 1,279,228
---------
Note payable net of discount (1,297,833)
---------
Net Proceeds from Real Estate Sale (note 1) 494,215
Limited Partners Share 85%
Limited Partners Share Amount $ 420,082
Number of Limited Partner Units 364
Amount per Limited Partner Unit $ 1,154
Note 1: The General Partner's share of Net Proceeds from Real
Estate Sale shall be distributed in the form of a deed
of the "Remaining Interest" in the Hotel Properties.
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Pro forma
Winding-up of Partnership 12/31/95
- ------------------------- ---------
Add assets acquired by Buyer or liquidated:
Working capital cash balance $
200,163
Prepaid Insurance 5,536
Account Receivables 47,288
Supplies 46,000
FF&E Cash Reserve 87,841
Tax Escrow Cash Account 50,307
(Less) liabilities assumed by Buyer or paid:
Trade Accounts Payable $ (24,349)
Guests Advance Deposits (742)
Accrued Payroll Expense (34,290)
Sales and Lodging Taxes (15,498)
Net Business Assets and Liabilities (note 2) $ 362,256
Limited Partners Share 85%
Limited Partners Share Amount $ 307,918
Number of Limited Partner Units 364
Amount per Limited Partner Unit $ 846
Note 2 - Does not include Limited Partner's Share of operating
income from January 1, 1996.
</TABLE>
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<PAGE>
VIII. Purpose and Procedures for Majority Vote by Limited Partners
Requirements Under Applicable Securities Laws. Under applicable state
securities laws, regulations and policies pursuant to which the Units of
limited partnership interests were sold to the Limited Partners, the General
Partner was required to include in the Partnership Agreement certain
"democracy" voting rights for the Limited Partners. Pursuant to those
"democracy" rights, the Limited Partners are required to be given the right to
determine by majority vote of limited partnership interests, among other
matters, whether or not to (1) amend the partnership agreement, (2) approve or
disapprove the sale of all or substantially all of the assets of the
partnership, and (3) dissolve the partnership. All of these determinations
are authorized to be done by the Limited Partners, only, and without
concurrence of the General Partner. Moreover, the General Partner may be
prohibited by certain regulations/policies from exercising any vote or consent
with respect to any Unit of limited partnership interest owned by the General
Partner regarding any matter submitted to the vote of the Limited Partners.
Requirements Under Article XIV of the Partnership Agreement. Article XIV
of the Partnership Agreement grants to the Limited Partners, as a group, the
sole right, by a "Majority Vote" of units of limited partnership interest, and
without the concurrence of the General Partner, to among other matters: (a)
amend the Partnership Agreement; (b) dissolve the Partnership; and (c) approve
or disapprove the sale or exchange of all or substantially all of the
properties of the Partnership. Under Section 1.25 of the Partnership
Agreement, the term "Majority Vote" is defined as the "affirmative vote or
written consent of Limited Partners then holding of record more than 50% of
the outstanding Units of the Partnership". Accordingly, under Article XIV of
the Partnership Agreement, the Limited Partners are granted the exclusive
right to approve or disapprove the transactions proposed by the General
Partner. The Partnership currently has 364 Units of Limited Partnership
interest, which are held by its Limited Partners. Ten (10) Units of Limited
Partnership interest are held by the General Partner. For the purpose of
determining a "Majority Vote", the Units of Limited Partnership held by the
General Partner shall not be considered "outstanding" and shall not be voted
by the General Partner. Accordingly, the holders of 178 Units must provide
their written consent to the proposed transactions in order for them to be
approved.
Voting Procedures and Instructions. The procedures and instructions for
voting on (i.e. consenting to) the proposed transactions are set forth on both
sides of the "Irrevocable Consent of Limited Partner of Signature X Ltd.
Limited Partnership," which accompanies this Statement. Please read those
instructions carefully.
IX. General Partner's Duties, Conflicts of Interest and Risk Factors
General Partner's Fiduciary and Other Duties to the Partnership and Its
Limited Partners. A General Partner in an Indiana limited partnership has a
fiduciary duty to exercise the utmost good faith, fairness and loyalty with
respect to limited partners under both statutory and common law. This standard
requires the General Partner to determine the best interests of the
partnership and its limited partners and to conduct the business and affairs
of the limited partnership accordingly. The fiduciary duty of a General
Partner to a limited partnership and its limited partners is one of the
highest duties recognized by law.
In addition to the above-described general duties which obligate a
General Partner as a matter of law, the Partnership Agreement requires the
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General Partner to perform other particular duties. These duties include,
among others, the overall management, conduct and operation of the Partnership
in all matters respecting the Partnership, its business and its property,
subject to certain restrictions enumerated in the Partnership Agreement.
However, provision has been made in the Partnership Agreement to the effect
that the General Partner shall have no liability to the Partnership for any
loss arising out of any act or omission by the General Partner, provided that
the General Partner determined in good faith that its conduct was in the best
interest of the Partnership and, provided, further that its conduct did not
constitute fraud, gross negligence or intentional misconduct.
The fiduciary duty of a General Partner to a limited partnership and its
partners also includes the duty to disclose to the limited partners all
significant and material information regarding the partnership and its
affairs. Additionally, General Partners must exercise reasonable care in
furnishing such information to the limited partners. With respect to a sale
of the partnership assets, the General Partner of a syndicated partnership
must obtain the limited partners' consent, and the General Partner bears the
burden of complete disclosure of material facts relevant to the limited
partners' decision whether or not to consent to such a transaction.
In transactions between a limited partnership and its General Partner,
the actions of the General Partner are subject to even greater scrutiny
because the terms of the transaction are not the result of arms's length
negotiations, and the General Partner is in a position to control all terms of
the transaction. Such terms must be the result of the exercise of the General
Partner's judgment in a manner consistent with its fiduciary responsibility to
the limited partners and the partnership.
The General Partner has endeavored in all respects to structure a
commercially reasonable sale pursuant to a Purchase Agreement s
containing terms and provisions which are fair and reasonable to both parties.
Although the price for the Hotel Properties has not been determined
from an arm's length bargaining process, as described in Section IV. of this
Statement, the price offered by the General Partner is the result of
independent appraisal s conducted by a qualified appraiser which
has extensive experience in appraising hotel properties. The General Partner
believes that the appraisal s reflect the fair market value of
the Hotel Properties.
Conflicts of Interest. The General Partner is subject to various
conflicts of interest arising out of its relationships with the Partnership
and its Limited Partners. Because the Partnership originally was organized by
the General Partner and because the Partnership has continuously been operated
by the General Partner since then, these conflicts cannot be resolved through
arms-length negotiations but must be resolved, if at all, through the exercise
by the General Partner of its judgment consistent with its fiduciary
responsibilities to the Partnership and its Limited Partners and the
investment objectives and policies of the Partnership. These conflicts
include, but are not limited to, the following:
Transactional Conflicts. The General Partner is the
proposed purchaser of the Partnership's Hotel Properties.
As such, the General Partner is naturally desirous of obtaining
the lowest possible price and the most favorable terms to it in
connection with the transaction. As the proposed seller, the
Partnership is naturally desirous of obtaining the highest
possible price and the most favorable terms to it in connection
with the transaction. However, by virtue of its dual position
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as the General Partner of the Partnership and as the purchaser
in the transaction, the General Partner is in the position of
exercising complete control over all of the terms of the Sale,
both for itself as buyer and for the Partnership as seller.
Therefore, there exists the potential for the General Partner
to fashion the terms of the transaction in ways which are more
favorable to it as the buyer than to the Partnership as the seller.
The General Partner has endeavored to minimize these conflicts by
engaging a qualified, independent appraiser to appraise the fair
market value of the Hotel Properties on behalf of the Partnership
in order to provide a more independent basis for determining the
purchase price for the Hotel Properties to be paid by the General
Partner. In addition, the General Partner has attempted to further
reduce the conflicts by planning to engage the services of an
independent counsel to review the Purchase Agreement, prior to
its execution by the parties, to determine the general commercial
reasonableness and fairness (other than price) of the terms of that
Agreement. However, these efforts cannot eliminate totally the
conflicts which exist.
Choice of Legal Representative. Because of its position as
manager of the Partnership, the General Partner will have complete
control over the selection of the legal counsel to represent the
Limited Partners in connection with the review of
the Purchase Agreement s to determine commercial
reasonableness and fairness of its terms. However, the General
Partner believes that it will be able to retain an independent,
qualified legal counsel to represent the Limited
Partners in these matters.
Choice of Appraiser. In its capacity as manager of the
Partnership, the General Partner had total control over the
selection of US Realty Consultants, Inc., as the appraiser
of the Hotel Properties. However, the General Partner believes
that USRC is a qualified, independent appraiser possessing
extensive experience in appraising hotel properties and that
USRC's appraisal is an accurate estimation of the fair market
value of the Hotel Properties.
Risk and Other Factors. In addition to the factors set forth elsewhere
in this Statement, limited partners should specifically consider the following
risk factors before signing the Consent accompanying this Statement:
Failure to Satisfy Conditions Precedent. As explained in
Section IV of this Statement, the Purchase Agreement s
contain certain conditions precedent which must be satisfied
before closing. Among others, these conditions include the
requirement that the General Partner be able to acquire any
or all of the properties owned by other affiliates of the
General Partner. If any condition precedent to those proposed
acquisitions is not satisfied, the closing and consummation of
the subject transaction s may not occur.
Tax Effect. As more completely described in Section X of
this Statement, the subject transaction s will result in
certain federal income tax effects with respect to the Limited
Partners. These effects include, among others, the treatment
of the distribution of the Sale proceeds of the Hotel Properties
to the Limited Partners as a fully taxable transaction. Although
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highly unlikely, the federal income tax liability could exceed
the amount of cash received by the Limited Partner upon
dissolution. Limited partners should carefully review Section X
of this Statement and consult their tax advisors where appropriate.
Release of Rights to Future Revenues. Although the
General Partner believes that current trends in the hotel
industry are such that now is a favorable time for Limited
Partners to cash out their investments, there can be no
assurance that values of hotel properties (including the
Partnership's Hotel Properties) will not continue to rise.
Limited Partners should be aware that, by consenting to the
subject transaction s , they are releasing and
terminating any and all rights they may have to share in
any future income, distributions and credits to be generated
by the Partnership's Hotel Properties.
Partners in More Than One Partnership. As described
earlier in this Statement, the General Partner is proposing
to acquire each of the hotel properties owned by all of its
affiliated limited partnerships, including the Hotel Properties
owned by this Partnership. The successful acquisition by the
General Partner of each of those hotel properties is a
condition precedent to the closing of the purchase of the
Hotel Properties of this Partnership and the other transactions
as described in this Statement. Therefore, a limited partner
who is a partner in both this Partnership and one or more of
the other partnerships may be faced with a dilemma in deciding
whether to provide his /her consent to each of the proposed
transactions.
For example, a partner of the Partnership may wish to
consent to the sale by this Partnership of its Hotel Properties
to the General Partner, but may wish to withhold his consent to
the proposed sale by another partnership of its hotel properties
to the General Partner. The withholding of such a limited partner's
consent in connection with another proposed transaction between
the General Partner and another partnership, however, may adversely
effect the consummation of the proposed sale by this Partnership
of its Hotel Properties, since closing of the transaction with this
Partnership is conditional upon the General Partner's ability to
consummate each of the other proposed transactions.
X. Federal Income Tax Consequences
The following is a summary of the principal U.S. Federal income tax
consequences resulting from the transactions described in the General
Partner's Proposals. This summary does not purport to consider all the
possible U.S. Federal income tax consequences of those transactions and is not
intended to reflect the individual tax position of any Limited Partner. The
actual tax consequences of the Proposals to any Limited Partner will depend on
that Partner's own tax circumstances. This summary deals with interests in the
Partnership held as capital assets. Because the General Partner is unaware of
the existence of Limited Partners who are tax-exempt entities or non-United
States persons not subject to U.S. Federal income tax on worldwide income,
this summary is inapplicable to such persons. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), and regulations as now
in effect and as currently interpreted and does not take into account possible
changes in such laws or interpretations, any of which may be applied
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retroactively. Except as described in Possible Indiana Tax Withholding below,
this summary does not include any description of the tax laws of any state,
local or foreign governments possibly applicable to the transactions
contemplated by the Proposals. Limited Partners should consult their own tax
advisors concerning the application of U.S. Federal tax laws to their
particular situations as well as any consequences to them under the laws of
any other taxing jurisdiction.
Sale of Interest in Hotel Property/Special Allocation. The sale of an
undivided interest in the Hotel Properties will be a taxable event to the
Partnership and Limited Partners. Each Limited Partner will be required to
take into account the share of income, gain or loss realized from that sale
which is allocable to such Partner's interest in the Partnership. By reason
of the proposed special allocation of Partnership income, all income, gain or
loss from the sale of the Hotel Properties will be allocated to the Limited
Partners in the aggregate. In determining the tax consequences of the
proposed sale, each Limited Partner will be required to take into account
separately his, her or its distributive share of the gains or losses realized
by the Partnership from transfers of property described in Section 1245 and
1231 of the Code (relating to certain depreciable and other property used in a
trade or business) and certain "tax benefit" income. Gain allocable to any
Section 1245 property and "tax benefit" income will be taxable as ordinary
income. The aggregate net gain or loss recognized by a Limited Partner on
dispositions of Section 1231 property in any taxable year will be taxable as
long-term capital gain or ordinary loss, respectively, except that any net
Section 1231 gain will be treated as ordinary income to the extent of net
losses from the sale or exchange of Section 1231 property in the previous five
years.
Receipt of Special and Liquidating Distributions. Upon receipt of the
final liquidating distribution, each Limited Partner will recognize capital
gain or loss from the dissolution of the Partnership in an amount equal to the
difference between the sum of all liquidating distributions received from the
Partnership, which will include the special distribution of proceeds from the
sale of Hotel Properties, and his, her or its basis in the interest in the
Partnership. Such gain or loss will be long-term capital gain or loss if the
interest in the Partnership is held by the Limited Partner for more than
twelve months. The entire amount of gain or loss recognized on the
dissolution of the Partnership must be taken into account by each Limited
Partner in the taxable year in which the final liquidating distribution is
received. It is expected that the Closing Date will occur in the same taxable
period in which all liquidating distributions will be made available to the
Limited Partners. If the taxable period in which the Closing Date occurs does
close before the final liquidating distribution becomes available, the Limited
Partners must account for the tax consequences from the sale of Hotel
Properties in the first such taxable period and for the tax consequences from
the dissolution of the Partnership in the latter taxable period.
Basis of Units. In general, each Limited Partner had an initial tax
basis in his interest in the Partnership ("Initial Basis") equal to the cash
or other property he transferred to acquire that interest. A Limited
Partner's Initial Basis in his interest in the Partnership generally is
increased by (i) such Limited Partner's share of Partnership taxable and
tax-exempt income and (ii) increases in such Limited Partner's allocable share
of liabilities of the Partnership. Generally, such Partner's basis in his
interest in the Partnership is decreased (but not below zero) by (A) such
Partner's share of Partnership distributions, (B) decreases in such partner's
allocable share of liabilities of the Partnership, (C) such Partner's share of
losses of the Partnership and (D) such partner's share of nondeductible
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<PAE>
expenditures of the Partnership that are not chargeable to his capital
account. In calculating a Limited Partner's basis in his interest in the
Partnership for purposes of determining gain or loss on the dissolution of the
Partnership, such Partner will take into account his, her or its allocable
share of income, gain, loss and deduction of the Partnership, including gain
or loss on the sale of the Hotel Properties, for the year or years of the
Partnership which include the Closing Date and the date on which the final
liquidating distribution is made available to the Limited Partners. Any U.S.
Federal income tax consequences resulting from the partial satisfaction of the
Partnership's note payable to the General Partner will be allocated to or
otherwise borne by the General Partner only.
Suspended Losses. Certain taxpayers, including individuals and
"closely-held C corporations," are prohibited from deducting in any taxable
year otherwise allowable losses from a particular business or activity,
including losses allocable to an investment in the Partnership, in excess of
the aggregate amount such taxpayers are "at risk" with respect to such
business or activity as of the end of such year. Losses of the Partnership
not deductible by a Limited Partner in the year they are initially sustained
because of the "at risk" limitation may be deductible in succeeding tax
periods, again subject to the "at risk" and other limitation provisions. In
general, a Limited Partner will be considered "at risk" in respect of his
interest in the Partnership to the extent of the sum of (i) that Partner's
Initial Basis; (ii) the difference between gains and profits of the
Partnership allocated to that Partner over losses and deductions of the
Partnership allocated to such Partner; (iii) any Partnership"qualified
nonrecourse financing" (as defined under Section 465(b)(6) of the Code)
allocable to that Partner; and (iv) any gain recognized by that Partner on the
dissolution of the Partnership.
Separate and apart from the "at risk" rules described above, Section 469
of the Code generally prohibits certain taxpayers, including individuals,
estates, trusts and personal service corporations, from deducting in any
taxable year otherwise allowable losses from "passive" activities in excess of
income and gains from the same or other "passive" activities in such year.
(In addition, certain "closely-held C corporations" will be subject to the
passive activity loss limitation rule except that losses from "passive"
activities may offset net "active" income, but not "portfolio" income.) For
this purpose, "passive" income does not include interest, dividends, annuities
and royalties not derived in the ordinary course of a trade or business and
gain or loss derived from the disposition of property producing such income or
held for investment ("portfolio" income). A Limited Partner's determination
of income which passive losses may currently offset must exclude such
"portfolio" income. Disallowed losses carry forward and are treated as
"passive" losses in subsequent years to the extent of the taxpayer's net
"passive" income in such year. Disallowed "passive" losses will be deductible
by a Limited Partner upon the completion of the transactions described in the
General Partner's Proposals, offsetting, in the following order, income or
gain realized in respect of the Partnership, other net "passive" income, and
any "portfolio" and "active" income.
Possible Indiana Tax Withholding. The General Partner will be required
to withhold Indiana gross income, adjusted gross income and net supplemental
income tax from gain, loss or income realized by the Partnership on the sale
of the Hotel Property located in Indiana or the conduct of Indiana-situs
operations which is allocable to Limited Partners not resident or qualified to
do business in Indiana, unless such Partner is resident in a jurisdiction for
which a full credit may be available.
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XI. Selected Financial Data
The following table sets forth certain historical financial data relating
to the Partnership's operating revenues, income (loss) from continuing
operations, total assets and long term obligations for the five year period
from 1991 through 1995. Income (loss) from continuing operations per Unit, as
well as other per Unit information, is set forth in Section XII.
<TABLE>
<CAPTION>
Schedule of Selected Five Year Financial Data
Concerning the Partnership's Operations
Hotels: Florence & Sharonville
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Statistics: 1991 1992 1993 1994 1995
- ---------- ---- ---- ---- ---- ----
Number of Rooms
- Florence 125 125 125 125 125
Number of Rooms
- Sharonville 130 130 130 130 130
Occupancy
- Florence 50.5% 57.3% 63.5% 66.2% 67.3%
Occupancy
- Sharonville 49.1% 57.8% 53.5% 56.8% 55.6%
Average Daily Rate
- Florence $ 48.86 $ 47.26 $ 46.87 $ 48.94 $ 51.74
Average Daily Rate
- Sharonville $ 48.42 $ 47.91 $ 50.43 $ 53.40 $ 54.59
Revpar
- Florence $ 24.67 $ 27.08 $ 29.76 $ 32.40 $ 34.82
Revpar
- Sharonville $ 23.77 $ 27.69 $ 26.98 $ 30.33 $ 30.35
Operating Results:
- -----------------
Hotel Revenue
- Florence $1,151,176 $1,258,840 $1,392,543 $1,522,097 $1,624,252
Hotel Revenue
- Sharonville $1,172,779 $1,339,666 $1,337,702 $1,489,641 $1,475,081
Net Income (Loss)
- Florence $ (354,183) $ (225,716) $ (156,692) $ (11,230) $ 81,830
Net Income (Loss)
- Sharonville $ (459,827) $ (354,226) $ (261,418) $ 25,943 $ 8,453
Total Assets:
- ------------
Florence $4,357,115 $4,219,069 $4,107,779 $4,000,785 $4,038,033
Sharonville $4,974,007 $4,685,879 $4,465,184 $4,425,408 $4,353,208
Total $9,331,122 $8,904,948 $8,572,963 $8,426,193 $8,391,241
</TABLE>
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<TABLE>
<CAPTION>
Long Term Debt Obligations:
- --------------------------
<S> <C> <C> <C> <C> <C>
Florence $2,535,000 $2,570,000 $2,605,000 $2,645,000 $2,685,000
Sharonville $3,055,104 $2,923,353 $2,779,142 $2,638,835 $2,512,742
Total $5,590,104 $5,493,353 $5,384,142 $5,283,835 $5,197,742
</TABLE>
XII. Book Value, Distributions and Income
The following table sets forth certain information concerning the
Partnership's book value per Unit, cash distributions declared and paid per
Unit and income (loss) per Unit from continuing operations for the five year
period from 1991 through 1995:
<TABLE>
<CAPTION>
Schedule of Per Unit Book Value,
Cash Distributions and Income (Loss)
------------------------------------
<S> <C> <C> <C> <C> <C>
Book Value: 1991 1992 1993 1994 1995
- ---------- ---- ---- ---- ---- ----
Total (Florence
& Sharonville) $ 603,963 $ 24,021 $(393,530) $ 281,866 $ 372,149
Number of L.P. Units 364 364 364 364 364
Per Limited Partner Unit $ 1,410 $ 56 $ (919) $ 658 $ 869
Limited Partner Cash Distributions:
- ----------------------------------
Total (Florence
& Sharonville) $ 0 $ 0 $ 0 $ 0 $ 0
Number of L.P. Units 364 364 364 364 364
Per Limited Partner Unit $ 0 $ 0 $ 0 $ 0 $ 0
Cumulative Limited Partner Distributions $0.00
Per Unit, 1986 to 1995 As a percentage of 0.0%
Original Investment Per Unit
Income (Loss):
- -------------
Total Net Income (Loss)
(Florence & Sharonville) $(814,010) $(579,942) $(418,110) $14,713 $90,283
Number of L.P. Units 364 364 364 364 364
Income (Loss) Per
Limited Partner Unit $ (1,900) $ (1,354) $ (976) $ 35 $ 211
</TABLE>
XIII. Pro Forma Financial Information
The Summary of Estimated Benefits from Sale of Property and Liquidation
of Partnership, which is included in Section VII of this Statement, sets forth
certain pro forma financial information concerning the Sale and the other
proposed transactions, as if the Sale and the other transactions had occurred
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on December 31, 1995, the end of the Partnership's last fiscal year. The
purpose of that pro forma financial information is to provide the Limited
Partners with information concerning the impact of the proposed transactions
by showing how the transactions might have effected historical financial
statements, had the transactions been consummated at an earlier time.
However, because the Partnership will be liquidated and dissolved, assuming
the transactions are effectuated, no pro forma financial information is being
supplied with respect to the future prospects of the Partnership as would
ordinarily be required under Article 11 of Regulation SX.
XIV. Regulatory Requirements
The Partnership is required to comply with the rules and regulations
promulgated under the federal and state securities laws administered by the
Indiana Secretary of State, other state regulatory agencies and the United
States Securities and Exchange Commission ("SEC") in connection with the
solicitation of Consents with respect to, and the consummation of, the
transactions proposed herein by the General Partner. The Partnership must
also comply with the substantive and procedural requirements of the
Partnership Agreement. Please refer to Section XVI of this Statement for a
description of the terms and conditions of the Partnership Agreement. The
Partnership believes that it is, and will continue to be, in full compliance
with all the requirements of federal and state securities laws and the
Partnership Agreement.
Other than the requirements of federal and state securities laws and the
Partnership Agreement, there are no federal or state regulatory requirements
which must be complied with or with respect to which approval must be obtained
in connection with the transactions proposed herein by the General Partner.
XV. Appraisal Reports
US Realty Consultants, Inc. Appraisal Reports. On February 16, 1996 the
general partner on behalf of the partnership engaged the services of US Realty
Consultants, Inc. ("USRC") to perform appraisals of the Partnership's two
Hotel Properties located in Florence, Kentucky and Sharonville, Ohio and to
estimate the fair market value (on a going concern basis) of the fee simple
estate in those properties, including the furniture, fixtures and equipment
components thereof. The scope of the appraisals involved the systematic
research and analysis necessary for USRC to reach value conclusions for the
Hotel Properties. In connection with their analysis, USRC inspected both
Hotel Properties, conducted market research in regard to similar and
comparable hotel properties, assembled data from the general market area for
the Hotel Properties and studied the competitive hotel markets for the Hotel
Properties. In addition, USRC gathered and analyzed data in regard to income,
expense, capitalization rate, discount rate, comparable improved sales and
real estate tax, zoning and flood plane data relating to the Hotel Properties.
A more detailed explanation of the appraisal process as described in the
Summary Appraisals is as follows:
The initial step was to inspect the subject,
general market area, and neighborhood. Market research
included the assembly of data from public records, real
estate specialists, governmental entities, real estate
publications, as well as owners/investors, management
and hotel managers at similar and comparable properties.
Information from the market area was collected and studied
in order to define the character, composition and the
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propensity for change in the subject trade area. This
information was analyzed to determine the influences
which will impact the surrounding market area and the
value of the subject property.
After analyzing the macro-environment, research was
conducted relevant to the valuation process, including
gathering income, expense, capitalization rate, and
discount rate data; comparable improved sales; real
estate tax, zoning, and flood plain data and any other
information pertinent to the valuation of the subject
property. This information was reviewed, confirmed when
necessary, and analyzed through the approaches to value.
The competitive hotel market was analyzed. Management
of most of the competitive hotel properties were interviewed.
Improved sale comparables were all analyzed, and where
possible were confirmed with either the buyer, the seller
or a knowledgeable third party.
In order to estimate the market value of the Hotel Properties, USRC
utilized the Income Capitalization and the Sales Comparison approaches to
commercial real estate valuations.
The appraiser deemed the Income Capitalization Approach to be the most
applicable method to estimate the fair market value of the Partnership's Hotel
Properties. The Sales Comparison Approach was utilized to provide an
additional point of reference. Numerous hotel sales were analyzed, and the
analysis rendered a meaningful conclusion of value. Due to the age of the
Partnership's Hotel Properties, significant depreciation exists, which is
difficult and subjective to quantify. As a result, the "Cost Approach," which
estimates the cost to replace the improvements, was not completed. In
addition, the Cost Approach would not reflect the reasoning or approach taken
by an investor for a property of the age and type of the Partnership's
Properties. A discussion of the Income Capitalization and Sales Comparison
approaches is as follows:
Income Capitalization Approach. Under the Income Capitalization Approach
an appraiser analyzes a property's capacity to generate income (or other
monetary benefits) and converts this capacity into an indication of value.
The approach is suitable for properties that have obvious earning power and
investment appeal but is inappropriate for properties that have no readily
discernible income potential. Further, this approach is based on the premise
that the value of a property is represented by the present worth of
anticipated future benefits to be derived from ownership. There are two basic
techniques which can be used for analysis purposes: Direct Capitalization and
Discounted Cash Flow.
Direct Capitalization converts an estimate of a single year's income
expectancy or an annual average of several years' income expectancies into an
indication of value in one direct step. Direct Capitalization is especially
useful when analyzing a property that has achieved a stabilized level of
operations and occupancy.
Discounted Cash Flow analysis is a market reflective method of estimating
the present worth of anticipated income benefits. This analysis converts a
stream of expected income into a present value and is most appropriate when
valuing a property that has not yet reached stabilized occupancy.
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In valuing the Partnership's Hotel Properties, it was the opinion of the
appraiser that the direct capitalization valuation technique was most useful
in the analysis. The appraiser estimated cash flow for a typical stabilized
year. Their estimates were based upon results of the Partnership's Hotel
Properties' historical operations, the performance of comparable Signature Inn
facilities, industry standards and assumptions regarding the environment in
which the subject hotels operate.
On the basis of this approach, the appraiser estimated the market value
of the fee simple estate of the going concern of the Florence, Kentucky Hotel
Property to be $3,800,000 of the Sharonville, Ohio Hotel Property to be
$3,300,000, for an aggregate of $7,100,000.
Sales Comparison Approach. The Sales Comparison Approach is defined in
"The Dictionary of Real Estate Appraisal," Third Edition, (published by the
Appraisal Institute, 1993), as:
A set of procedures in which a value indication is
derived by comparing the property being appraised to similar
properties that have been sold recently, applying appropriate
units of comparison, and making adjustments to the sale prices
based on the elements of comparison.
This approach is based on the premise that the market value of a property
is directly related to the prices paid for similar properties which have
recently sold. Inherent in this approach is the principle of substitution,
which holds that when a property is replaceable, its price tends to be set at
the cost of acquiring an equally desirable substitute property, assuming that
no costly delay is encountered in making the substitution.
Under this approach, USRC collected information concerning a number of
transactions involving the sale of limited services hotels in the Mid-Western,
Mid-Atlantic, Southern and New England regions. The data was verified by USRC
through sources deemed reliable, using commonly accepted appraisal
methodology.
Two techniques were utilized in this valuation approach. First, a Linear
Regression Analysis was performed to demonstrate that the sale price is a
function of income. Next, Effective Rooms Revenue Multiplier was developed
which adjusts the sales prices of the comparables based on differences in room
revenue. The presentation of these techniques then led to the appraiser
determining an estimate of market value via the Sales Comparison Approach.
Using this approach, the appraiser estimated the fair market value of the
going concern of the fee simple estate in the Florence Hotel Property to be
$3,800,000 and the Sharonville Hotel Property to be $3,400,000, for an
aggregate of $7,200,000.
Reconciliation of Value. The two approaches, Income Capitalization
Approach and Sales Comparison Approach, represent alternative ways of viewing
market phenomena. A final estimate of value was by the appraiser as the
dominate tendency or most probable outcome from the range of possible
outcomes. In final analysis, the appraiser based its estimate of value on the
Income Capitalization Approach, since the Partnership's Hotel Properties
represent investments capable of attracting investor capital. The Sales
Comparison Approach was used to provide additional support for the appraiser's
conclusions.
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<PAGE>
Based upon their research and analysis, and using applicable, standard
appraisal techniques in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 and 1994, and the Uniform Standards of Professional
Appraisal Practice (1995 Edition), USRC estimated the market value of the
fee simple estate of the going concern of the Florence, Kentucky Signature Inn
Hotel, as of February 28, 1996, at $3,800,000 and the similar value of the
Sharonville, Ohio Signature Inn Hotel , as of February 29, 1996, at
$3,300,000, for a combined appraised value of both hotels of $7,100,000. USRC
issued Summary Reports of Complete Appraisals on both Hotel Properties dated
March 11, 1996, copies of which are attached to this statement as Exhibits C
and D. In addition, USRC has issued more descriptive summary
reports . All appraisal reports shall be made available for
inspection and copying at the principal executive offices of the General
Partner at 250 E. 96th Street, Suite 450 Indianapolis, Indiana 46240
during its regular business hours by any interested Limited Partner or his
representative who has been so designated in writing. A copy of any such
appraisal reports will be transmitted by the General Partner to any interested
Limited Partner or his representative who has been so designated in writing
upon written request and at the expense of the requesting Limited
Partner.
Experience and Qualifications of the Appraiser. USRC was organized in
1983. USRC operates regional offices in Atlanta, Georgia, Chicago, Illinois
and Florence, Kentucky. USRC specializes in providing commercial real estate
appraisal and consulting services in four major areas of the real estate
industry: Health Care Services Facilities, Hospitality & Resort Industry
Services, Golf and Country Club Services and Real Estate Appraisal Services.
Through its Hospitality & Resort Industry Services Group, USRC has
extensive experience in providing appraisal services for the hotel industry.
USRC employs professionally-trained hoteliers with outstanding academic
credentials and over forty combined years of industry experience. USRC has
participated in over 500 hotel and resort-related engagements since 1991 and
has knowledge and experience in all product segment types of the hotel
industry including limited-service to full-service, hard-budget to luxury
resort, commercial to convention and extended-stay to all-suite.
Many of USRC's hotel appraisal assignments have been national in scope
and have included national brand name affiliations such as Best Western, Days,
Embassy Suites, Fairfield Inn, Hampton Inn, Hilton, Holiday Inn, Howard
Johnson, Knights Inn, LaQuinta, Quality, Radisson, Ramada, Red Roof, Sheraton
and Westin. USRC has been a major participant in the development of
analytical software programs designed specifically for hospitality and resort
consulting and appraising purposes. As further evidence of USRC's expertise
in providing appraisal services in the hotel industry, USRC publishes a
seasonal pamphlet titled Hospitality Perspectives which provides information
with respect to trends in the hotel industry including regional reports on
average daily rates and occupancy.
Selection of the Appraiser. The General Partner considered and reviewed
the credentials of three other nationally recognized firms, before selecting
USRC as the appraiser to conduct the appraisal on the Partnership's Hotel
Properties. The other three firms which had been considered by the General
Partner were Hospitality Valuation Services of Miami, Florida, and Cushman &
Wakefield, Inc. of New York, New York, as well as the Financial Advisory
Services Department of the accounting firm, Coopers & Lybrand LLP. The
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<PAGE>
General Partner made its decision to hire USRC over the other firms based upon
the criteria established by the Company, included years of experience,
national reputation, specialization in appraising hotel properties and
experience in appraising hotels in the Mid-West region of the United
States.
Independence of the Appraiser. Prior to its engagement by the General
Partner on behalf of the Partnership, USRC had only minor prior business
relationship with the General Partner or any of its other affiliated entities.
However, the General Partner, on behalf of certain other of its affiliated
Limited Partnerships, has engaged USRC to conduct appraisals on behalf of
those entities, as well. Nonetheless, the General Partner does not believe
that the engagement of USRC by other affiliated partnerships for purposes of
appraising their respective properties interferes with the independence of
USRC in conducting the appraisal of the Partnership's Hotel Properties. In
order to document USRC's independence, the General Partner has obtained from
USRC a completed due diligence questionnaire which supports the independence
of the appraiser.
Cost of Appraisal. The Partnership has a paid the $10,000 cost of the
appraisals.
XVI. Material Contracts
A. Past and Present Material Contracts.
The Franchise Agreements. The Partnership has entered into a standard
Signature Inn Individual Hotel License Agreement with the General Partner with
respect to each of the Hotel Properties. Those agreements are more fully
described in Section III of this Statement.
The Management Agreements. The Partnership has also entered into a
Management Agreement with the General Partner with respect to each of the
Hotel Properties. Those agreements are more fully described in Section III of
this Statement.
The Partnership Agreement. The Partnership Agreement sets forth the
terms and conditions pursuant to which the affairs of the Partnership are
governed and the relative rights and duties of the General Partner and the
Limited Partners. The discussion which follows refers only to the Partnership
Agreement, that is, the Second Amended Certificate and Agreement of Limited
Partnership dated August 13, 1986, as amended, and not to any preceding
certificates or agreements. Please refer to Section III of this Statement for
a discussion of prior certificates and agreements.
Powers of the General Partner. The General Partner has
full, exclusive, and complete authority and discretion in the
management and control of the business of the Partnership.
Limited Partners have no right or power to take part in the
management of, or to bind, the Partnership.
Liabilities of the Limited Partners. The Partnership
Agreement provides that no Limited Partner shall be liable
for any debts or obligations of the Partnership in excess
of the amount of his/her Capital Contribution which has not
been previously returned to him/her, except that, under
applicable law, the Limited Partners may be required to
return (with interest) amounts distributed to them as a
return of their Capital Contributions if the Partnership is
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<PAGE>
unable to pay creditors who extended credit to the Partnership
prior to the date of any such return of capital. In addition,
all undistributed Cash Available for Distribution and proceeds
of the sale or financing of Partnership Properties which
would otherwise be distributed to the Partners are available,
along with all Partnership assets, to creditors to satisfy the
debts and obligations of the Partnership until actually distributed.
Upon payment in full of the subscription price, Units acquired by
Limited Partners pursuant to the Partnership Agreement become fully
paid and nonassessable. No Limited Partner has the right to
withdraw all or any portion of his Capital Contribution until
the full and complete winding up and liquidation of the business
of the Partnership, except as otherwise provided by law.
Voting Rights of the Limited Partners. Limited Partners
may, with the affirmative vote of those holding more than 50%
of the Units, take action on the following matters: (a) the
approval or disapproval of the sale or exchange of all or
substantially all of the Partnership's properties; (b)
dissolution of the Partnership; (c) removal of a General
Partner or any successor General Partner; (d) election of
new General Partner upon the removal, retirement, bankruptcy,
insolvency or death of a General Partner or any successor
General Partner; (e) amendment of the Partnership Agreement.
The right of the Limited Partners to amend the Partnership
Agreement, however, is limited with respect to amendments
affecting limited liability of the Limited Partners and the
rights and interests of the General Partner. Amendments
receiving the requisite vote will be executed by the General
Partner on behalf of all Limited Partners acting pursuant to
the power of attorney contained in the Partnership Agreement.
Other Terms and Conditions. For a more complete
description of the terms and conditions of the Partnership
Agreement please refer to the Partnership's Amended
Form 10-KSB Report for 1995 attached hereto as Exhibit A.
B. Proposed Material Contracts
The General Partner is proposing that the General Partner and the
Partnership enter into an Asset Purchase Agreement which shall constitute a
legally binding obligation of both the Partnership to sell and the General
Partner to buy the Initial Interest in the Hotel Properties. A
description of the terms and conditions of the Asset Purchase Agreement is set
forth in Section IV of this Statement.
XVII. Marketability of Units of Limited Partnership Interests
The Partnership's common equity consists of Units of limited partnership
interest in the Partnership. There is only one class of Units, and all Units
have the same rights and the same interests in income, loss, distributions and
capital of the Partnership. Each Unit represents a total required capital
contribution of $10,000. Units are not subject to assessment for additional
contributions. Holders of the Units possess certain limited voting rights
(with respect to those matters which are submitted to a vote of the Limited
Partners) and rights to certain distributions. Such voting and distribution
rights will be based upon the number of Units owned by each Limited Partner.
The Partnership Agreement contains a number of restrictions on the
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<PAGE>
transferability of the Units. The General Partner does not have the right and
is not obligated to redeem or repurchase the Units, and the Partnership
Agreement prohibits the holders of the Units from withdrawing their respective
capital contributions.
The Units are not listed on any securities exchange and are not subject
to any quotations under the "NASDAQ" system. The Units are not actively
traded in any established public trading market. Units are expected to be
transferable, if at all, only in privately negotiated transactions.
Accordingly, the Partnership is unable to furnish any information with respect
to ranges of high and low bid quotations for the Units during the past two
years.
The following table sets forth the number of Units outstanding and the
approximate number of holders or record of the Units as of the date of this
report:
<TABLE>
<CAPTION>
<S> <C>
Number of Number of
Outstanding Units Holders of Record
----------------- -----------------
364 406
</TABLE>
XVIII. Amended Form 10-KSB Report;
and Form 10-QSB Report
and June 30, 1996 Unaudited Financial Statements
Until recently, the Partnership was required to file annual, quarterly
and current reports with the Securities and Exchange Commission ("SEC"),
pursuant to the requirements of Section 12(g) of the Securities Exchange Act
of 1934 (the "Act"). As a result, however, of a recent amendment to Rule
12g-1 promulgated by the SEC under the Act, the Partnership became eligible
for an exemption from the registration and reporting requirements under
Section 12(g), provided that the Partnership file a Form 15 Certification and
Notice of Termination of Registration under Section 12(g) of the Act ("Form
15"). The Partnership filed its Form 15 on July 17, 1996, and, under Rule
12g-4, termination of the Partnership's registration of its Units of Limited
Partnership Interest shall take effect 90 days thereafter (i.e., October 15,
1996).
On or about August 21 , 1996, the Partnership filed its
Amended Form 10-KSB Report with the SEC for the year ended
December 31, 1995. A copy of that report is attached to this Statement as
Exhibit A. Also, on May 15, 1996, the Partnership filed its Form 10-QSB
Quarterly Report with the SEC for the quarter ended March 31, 1996. A copy of
that report is attached to this Statement as Exhibit B. Also, the
Partnership's June 30, 1996 unaudited financial statements are attached to the
Statement as Exhibit H.
XIX. Amended Rule 13e-3 Transaction Statement
Rule 13e-3 promulgated by the SEC under the Act requires the Partnership
to file a Schedule 13E-3 with the SEC in connection with this Statement. A
copy of the Schedule 13E-3 (without exhibits) is attached to this
Statement as Exhibit G.
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<PAGE>
EXHIBIT INDEX
A Amended Form 10-KSB Report for 1995
B Form 10-QSB Quarterly Report for Quarter Ended March 31, 1996
C Summary Report of Complete Appraisal of Signature Inn
- Florence, Kentucky
D Summary Report of Complete Appraisal of Signature Inn
- Sharonville, Ohio
E Text of Consent Resolutions of Limited Partners
F Text of Amendments to Partnership Agreement
G Rule 13e-3 Transaction Statement (without exhibits)
H Financial Statements of June 30, 1996 (unaudited)
I Irrevocable Consent of Limited Partner
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<PAGE> 1
SUMMARY
APPRAISAL REPORT
OF THE
SIGNATURE INN - TURFWAY
30 CAVALIER COURT
FLORENCE, KENTUCKY
AS OF
FEBRUARY 28, 1996
FOR
MR. MARK CARNEY
VICE PRESIDENT
SIGNATURE INN X LIMITED
ONE PARKWOOD CROSSING
250 EAST 96TH STREET
SUITE 450
INDIANAPOLIS, INDIANA 46240
<PAGE> 2
April 3, 1996
Mr. Mark Carney
Vice President
Signature Inn X Limited
One Parkwood Crossing
250 East 96th Street
Suite 450
Indianapolis, Indiana
RE: SIGNATURE INN - TURFWAY
FLORENCE, KENTUCKY
Dear Mr. Carney:
In accordance with the engagement letter dated February 16, 1996, we have
appraised the property referenced above. The purpose of this appraisal is to
estimate the market value of the going concern of the fee simple estate in the
subject, including the furniture, fixtures, and equipment component.
The subject's site contains 3.738 acres and is improved with a 125-unit,
limited-service Signature Inn hotel. A complete description of the property, the
sources of information, and the bases of the estimates are stated in the
accompanying report. Your attention is called to the Standard and Special
Conditions and Certification which follow. This appraisal conforms to the
guidelines stipulated by the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice.
MARKET VALUE
Subject to all conditions and explanations contained in this report, and based
upon our analyses of the subject and the market, together with our experience
and knowledge acquired in appraising similar properties, it is our opinion that
the market value of the going concern of the fee simple estate in the subject
(including the contributory value of the existing furniture, fixtures, and
equipment), expressed in terms of financial arrangements equivalent to cash, as
of February 28, 1996, is:
THREE MILLION EIGHT HUNDRED THOUSAND DOLLARS
$3,800,000
<PAGE> 3
Mr. Mark Carney
April 3, 1996
Page 2
CONTRIBUTORY VALUE OF THE FURNITURE, FIXTURES, AND EQUIPMENT
The estimate of value stated above includes the value of the furniture,
fixtures, and equipment (FF&E). Based on our analysis, the contributory value of
the FF&E is $440,000.
The accompanying prospective financial analyses are based on estimates and
assumptions developed in connection with the appraisal. The assumptions are
believed to be correct and reasonable; however, some assumptions may not
materialize, and unanticipated events and circumstances may occur; therefore,
actual results achieved during the period covered by our prospective financial
analyses may vary from our estimates and the variations may be material.
Further, we have not been engaged to evaluate the effectiveness of management,
and we are not responsible for future marketing efforts and other management
actions upon which actual results will depend.
This report and its contents are intended solely for your information and
assistance for the function stated above, and should not be relied upon for any
other purpose. Otherwise, neither our report nor any of its contents nor any
reference to the appraisers or U S Realty Consultants, Inc. may be included or
quoted in any document, offering circular or registration statement, prospectus,
sales brochure, other appraisal, or other agreement without U S Realty
Consultants prior written approval of the form and context in which it appears.
Such permission will not be unreasonably withheld.
Respectfully submitted,
U S REALTY CONSULTANTS, INC.
- ---------------------------------- ----------------------------------
James A. Powers, MAI, CRE Robert J. Feeley, MAI
President Vice-President
Kentucky General Appraiser #000935
- ----------------------------------
Jeffrey H. Walker, CHSE
Director of Hospitality Development
<PAGE> 4
APPRAISAL REPORT
OF THE
SIGNATURE INN - TURFWAY
30 CAVALIER COURT
FLORENCE, KENTUCKY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. PREFACE
Standard Conditions............................................................................ I-1
Special Conditions............................................................................. I-3
Executive Summary.............................................................................. I-4
Representative View of the Subject............................................................. I-5
II. INTRODUCTION
Property Identification........................................................................ II-1
Purpose and Function of the Appraisal.......................................................... II-1
Legal Interest Appraised....................................................................... II-1
Effective Date of Valuation.................................................................... II-1
Definition of Value............................................................................ II-2
Exposure Time and Marketing Period............................................................. II-2
Appraisal Development and Reporting Process.................................................... II-3
History of the Subject......................................................................... II-5
Competency of Appraisers....................................................................... II-5
III. DESCRIPTIVE DATA
Regional Analysis.............................................................................. III-1
Neighborhood Analysis.......................................................................... III-1
Property Description........................................................................... III-5
IV. MARKET ANALYSIS
Lodging Market Overview........................................................................ IV-1
Signature Inns................................................................................. IV-4
Competitive Lodging Market Analysis............................................................ IV-4
Competitive Position of the Subject............................................................ IV-14
V. HIGHEST AND BEST USE.............................................................................. V-1
VI. INCOME CAPITALIZATION APPROACH.................................................................... VI-1
VII. SALES COMPARISON APPROACH......................................................................... VII-1
VIII. RECONCILIATION.................................................................................... VIII-1
IX. CERTIFICATION..................................................................................... IX-1
</TABLE>
<TABLE>
<S> <C>
ADDENDA
Legal Description..................................................................... Addendum I
Neighborhood and Subject Photographs.................................................. Addendum II
Qualifications........................................................................ Addendum III
</TABLE>
<PAGE> 5
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PREFACE I-1
- --------------------------------------------------------------------------------
STANDARD CONDITIONS
The following Standard Conditions apply to real estate appraisals by U S Realty
Consultants, Inc. Appraisals are performed and written reports are prepared by,
or under the supervision of, members of the Appraisal Institute in accordance
with the Institute's Standards of Professional Practice and Code of Professional
Ethics.
No opinion is rendered as to property title, which is assumed to be good and
marketable. Unless otherwise stated, no consideration is given to liens or
encumbrances against the property. Sketches, maps, photos, or other graphic aids
included in appraisal reports are intended to assist the reader in ready
identification and visualization of the property and are not intended for
technical purposes.
Appraisal reports may contain prospective financial information, estimates, or
opinions to represent the appraisers' view of reasonable expectations at a
particular point in time, but such information, estimates, or opinions are not
offered as predictions or as assurances that a particular level of income or
profit will be achieved, that events will occur, or that a particular price will
be offered or accepted. Actual results achieved during the period covered by our
prospective financial analyses will vary from those described in our report, and
the variations may be material.
It is assumed that legal, engineering, or other professional advice, as may be
required, has been or will be obtained from professional sources and that the
appraisal report will not be used for guidance in legal or technical matters
such as, but not limited to, the existence of encroachments or easements or
other discrepancies affecting the legal description of the property. It is
assumed that there are no concealed or dubious conditions of the subsoil or
subsurface waters including water table and flood plain, unless otherwise noted.
We further assume no regulations of any government entity control or restrict
the use of the property unless specifically referred to in the report. It is
assumed that the property will not operate in violation of any applicable
government regulations, codes, ordinances, or statutes.
In the absence of competent technical advice to the contrary, it is assumed that
the property being appraised is not adversely affected by concealed or
unapparent hazards such as, but not limited to, asbestos, hazardous or
contaminated substances, toxic waste, or radioactivity.
The report and the final estimate of value and prospective financial analyses
included in it are intended for the information of the person or persons to whom
they are addressed, solely for the purposes stated, and should not be relied
upon for any other purpose. Permission will be granted only upon meeting
certain conditions.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; but no responsibility, whether legal
or otherwise, is assumed for its accuracy, and it cannot be guaranteed as being
certain. No single item of information was completely relied upon to the
exclusion of other information.
Appraisal assignments are accepted with the understanding that there is no
obligation to furnish services after completion of the original assignment. If
the need for subsequent services related to an appraisal assignment (for
example, testimony, updates, conferences, reprint or copy services) is
contemplated, special arrangements acceptable to U S Realty Consultants, Inc.
must be made in advance.
<PAGE> 6
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I-2 PREFACE
- --------------------------------------------------------------------------------
No significant change is assumed in the supply and demand patterns indicated in
the report. The appraisal assumes market conditions as observed as of the
current date of our market research stated in the letter of transmittal. These
market conditions are believed to be correct; however, the appraisers assume no
liability should market conditions materially change because of unusual or
unforeseen circumstances.
The valuation applies only to the property described and for the purpose so
stated and should not be used for any other purpose. Any allocation of total
price between land and the improvements as shown is invalidated if used
separately or in conjunction with any other report.
Neither the report nor any portions thereof (especially any conclusions as to
value, the identity of the appraisers or U S Realty Consultants, Inc., or any
reference to the Appraisal Institute or the MAI designation) shall be
disseminated to the public through public relations media, news media, sales
media or any other public means of communication without the prior written
consent and approval of the appraisers and U S Realty Consultants, Inc.
The date of the valuation to which the value estimate conclusions apply is set
forth in the letter of transmittal and within the body of the report. The values
are based on the purchasing power of the United States dollar as of that date.
It should be specifically noted by any prospective mortgagee that the appraisal
assumes that the property will be competently managed, leased, and maintained by
financially sound owners over the expected period of ownership. This appraisal
engagement does not entail an evaluation of management's or owner's
effectiveness, nor are we responsible for future marketing efforts and other
management or ownership actions upon which actual results will depend.
The Americans with Disabilities Act ("ADA") became effective January 26, 1992.
We will not be responsible for conducting a specific compliance survey and
analysis of this property to determine whether or not it is in conformity with
the various detailed requirements of the ADA. It is possible that a compliance
survey of the property, together with a detailed analysis of the requirements of
the ADA, could reveal that the property is not in compliance with one or more of
the requirements of the Act. If so, this fact could have a negative effect upon
the value of the property. Since we will have no direct evidence relating to
this issue, we will not be considering possible non-compliance with the
requirements of ADA in estimating the value of the property.
It is strongly recommended that the reader should rely upon only authorized
copies of this report. Authorized copies are printed on recycled grey paper and
contain original U S Realty Consultants, Inc. letterhead. Our letterhead is
printed with grey ink on an evenly- shaded grey background. All original
signatures are in blue ink. Any copy that does not have the above is
unauthorized and may have been altered. If the reader is uncertain as to the
authenticity of this report, please contact U S Realty Consultants, Inc. at
(614) 221-9494.
<PAGE> 7
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PREFACE I-3
- --------------------------------------------------------------------------------
SPECIAL CONDITIONS
It is assumed that qualified professional hospitality management with
demonstrated expertise in management of hotels operating in the market will
operate the subject. It is assumed that adequate funds will be available for
upkeep and repair of the facility.
It is assumed that the subject will continue to operate as a Signature Inn or
similar chain affiliation with access to a national reservation system. We have
assumed that competent and efficient management of the hotel will be in place.
We have assumed that a strong marketing effort will be put forth by the
management of the motel.
Historical revenues and expenses of the subject have been provided by Signature
Inns. We have used these unaudited financial statements in developing our bases
for the prospective financial analysis contained in the Income Capitalization
Approach. We based our analysis on 1993 through 1995 performance. All financial
information provided to us is assumed to be accurate, and we bear no
responsibility for inaccuracies that may exist.
We have not been provided with a detailed environmental assessment of the
subject. During our inspection, there were no visible signs of contamination at
the property that would indicate possible environmental hazards. Discussions
with local assessment officials and area real estate professionals did not
indicate that the property had formerly been used for a purpose that would have
led to soil contamination or indicate that hazardous materials would be found on
the site.
U S Realty Consultants, Inc. has no expertise in evaluation of environmental
hazards, and therefore expresses no independent opinion as to the existence
thereof. If environmental hazards, such as asbestos or other forms of
contamination of the ground or improvements are subsequently found to exist, the
negative impact on the estimate of market value for the property could be
substantial.
<PAGE> 8
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I-4 PREFACE
- --------------------------------------------------------------------------------
EXECUTIVE SUMMARY
PROPERTY IDENTIFICATION Signature Inn - Turfway
PROPERTY LOCATION 30 Cavalier Court
Florence, Kentucky
PERTINENT DATES:
EFFECTIVE DATE OF VALUATION February 28, 1996
DATE OF INSPECTION February 28, 1996
LEGAL INTEREST APPRAISED Fee simple estate
PROPERTY DATA:
SITE 3.738 acres
BUILDING 125 units
HIGHEST AND BEST USE:
AS IMPROVED A limited-service hotel
AS THOUGH VACANT A limited-service hotel
INDICATION OF VALUE:
INCOME CAPITALIZATION APPROACH $3,800,000
DIRECT CAPITALIZATION RATE 12.25%
SALES COMPARISON APPROACH $3,800,000
FINAL ESTIMATE OF MARKET VALUE: $3,800,000
CONTRIBUTORY VALUE OF THE FF&E $440,000 (Included in market value)
UNIT OF COMPARISON $30,400 per room
ESTIMATE OF EXPOSURE TIME/
MARKETING PERIOD Less than 12 months
<PAGE> 9
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PREFACE I-5
- --------------------------------------------------------------------------------
REPRESENTATIVE VIEW OF THE SUBJECT
[PICTURE OMITTED]
<PAGE> 10
- --------------------------------------------------------------------------------
INTRODUCTION II-1
- --------------------------------------------------------------------------------
PROPERTY IDENTIFICATION
The subject consists of a 125-unit, limited-service Signature Inn hotel, located
at 30 Cavalier Court, Florence, Boone County, Kentucky. The subject was
originally constructed in 1987. The property is considered to be in average
condition. The legal description of the subject is presented in the addenda.
PURPOSE AND FUNCTION OF THE APPRAISAL
The purpose of the appraisal is to estimate the as is market value of the going
concern of the fee simple estate in the subject, including furniture, fixtures
and equipment (FF&E), subject to the Uniform Standards of Professional Appraisal
Practice (USPAP), and Title XI (and amendments) of the Financial Institution
Reform Recovery and Enforcement Act of 1989 and 1994 (FIRREA). This report is to
be used to assist the limited partners regarding the possible acquisition of the
subject by the general partner.
LEGAL INTEREST APPRAISED
The legal interest appraised herein is the fee simple estate in the land and
improvements. A fee simple estate is defined as follows:
Absolute ownership unencumbered by any other interest or estate, subject
only to the limitations imposed by the governmental powers of taxation,
eminent domain, police power and escheat.(1)
With respect to this motel, the property rights appraised include all items of
personal property, including the existing furniture, fixtures and equipment, and
licenses and agreements required to operate the property and related facilities.
The "business assets" or business component included as an integrated
constituent of value includes "tangible and intangible resources other than
personal property and real estate that are employed by a business enterprise in
its operations.(2) This category includes, but is not necessarily limited to,
all intangible property and documents evidencing trademarks, trade names,
governmental operating rights, licenses, privileges, permits, copyrights, and
goodwill as a going-concern.
EFFECTIVE DATE OF VALUATION
The appraisal is based upon market conditions as of February 28, 1996, the
current date of our market research and property inspection.
- ----------------------
(1) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd Ed.,
p. 140.
(2) Uniform Standards of Professional Appraisal Practice, 1987.
<PAGE> 11
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II-2 INTRODUCTION
- --------------------------------------------------------------------------------
DEFINITION OF VALUE
The purpose of the appraisal is to estimate the market value of the subject
property. Market value is defined in the Uniform Standards of Professional
Practice, 1995 Edition as follows:
"The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the
buyer and seller each acting prudently and knowledgeably, and assuming
the price is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in
what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in United States dollars or
in terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale."
For the purpose of this report, the definition of going-concern value shall be
as follows:
The value created by a proven property operation; considered as a
separate entity to be valued with a specific business
establishment.(3)
EXPOSURE TIME AND MARKETING PERIOD
The concept of exposure time is historical in nature and is presumed to have
occurred prior to the effective date of the appraisal. Alternatively, marketing
period occurs after the effective date of the appraisal and may or may not be
directly related to the value presented. The actual sale price could increase,
decrease, or remain static during the marketing period depending upon market
conditions and the type of property being appraised.
- --------
(3) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd
Edition, (Chicago: Appraisal Institute, 1993), p. 160.
<PAGE> 12
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INTRODUCTION II-3
- --------------------------------------------------------------------------------
We referenced a number of sources in estimating a probable exposure period. U S
REALTY CONSULTANTS, INC. Spring 1995 Hotel Investor Survey reported typical
marketing time for hotels/motels was 3 to 18 months with an average of 7.2
months. KORPACZ's Real Estate Investor Survey - Fourth Quarter 1995 stated that
their survey respondents indicated that average marketing time for all
commercial real estate is approximately 9.95 months.
Since most investors' perceptions and estimates of marketing period are based
largely on exposure times that they have recently encountered in similar
transactions, it stands to reason that there should be some correlation between
marketing periods and exposure times. In fact, in the absence of perceived
changes in the market or other extenuating circumstances, marketing period and
exposure time should be identical. That is to say, if all other things are held
constant, a property that (retrospectively) required an exposure time of say one
year should be expected to have a marketing period (prospectively) also of one
year.
Differences in the two concepts should appear when there is a perceived change
in the market. To use the same example presented above, if a property required
an exposure time of one year but perceived market conditions are improving, an
appropriate estimate of marketing period could reasonably be expected to be less
than one year. Conversely, if market conditions were anticipated to worsen,
marketing period might exceed exposure time.
Objectively quantifying such differences would be virtually impossible. However,
understanding the relationship between the two concepts and how they are
affected by perceived changes in the market allows one to better estimate
(subjectively) a reasonable period for exposure time and marketing period. This
is especially important during periods when actual market evidence is limited by
a lack of transactions. Extracting transaction- driven estimates can also be
tenuous since many properties are often originally placed on the market at
inflated asking prices. It is then necessary to decide if exposure time began
when the property was first offered for sale or when the price was dropped to
(or near) the ultimate sale price. Further complicating the issue is the
question of whether exposure time ends when a sale contract is signed or whether
it ends at the closing date of a sale. Recent transactions of hotels during the
past twelve months indicate that marketing times have been decreasing to a range
of 3 to 9 months.
Based upon our investigations, we believe that a marketing period of less than
12 months is reasonably appropriate. Furthermore, it is our opinion that the
exposure time commensurate with our estimate of value for the subject would also
be less than 12 months.
APPRAISAL DEVELOPMENT AND REPORTING PROCESS
The scope of this appraisal involves the systematic research and analysis
necessary to reach a value conclusion for the hotel. The initial step was to
inspect the subject, general market
<PAGE> 13
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II-4 INTRODUCTION
- --------------------------------------------------------------------------------
area, and neighborhood. Market research included the assembly of data from
public records, real estate specialists, governmental entities, real estate
publications, as well as owners/investors, management and hotel managers at
similar and comparable properties. Information concerning the subject was also
collected and consisted of ad valorem taxes, zoning information, sales history,
governmental restrictions, environmental regulations and other factors which may
affect its operating performance and resulting value. Site and title studies
were not commissioned at the same time USRC was engaged to provide valuation
services. USRC reserves the right to amend our value conclusions in the event
that these studies are conducted and reveal material discrepancies. Information
from the market area was collected and studied in order to define the character,
composition and the propensity for change in the subject trade area. This
information was analyzed to determine the influences which will impact the
surrounding market area and the value of the subject property.
After analyzing the macro-environment, research was conducted relevant to the
valuation process, including gathering income, expense, capitalization rate, and
discount rate data; comparable improved sales; real estate tax, zoning, and
flood plain data and any other information pertinent to the valuation of the
subject property. This information was reviewed, confirmed when necessary, and
analyzed through the approaches to value. The subject-specific data considered
in our analysis was provided by Signature Inns.
The hotel market was analyzed. Management of the hotel comparables were
interviewed. Improved sale comparables were all analyzed, and where possible
were confirmed with either the buyer, the seller or a knowledgeable third party.
APPLICABILITY OF APPROACHES
THE INCOME CAPITALIZATION APPROACH: This approach analyzes the property's
capacity to generate income (or other monetary benefit) and converts this
capacity into an indication of market value. The approach is suitable for
properties that have obvious earning power and investment appeal but is
inappropriate for properties that have no readily discernible income potential.
THE SALES COMPARISON APPROACH: This approach compares the subject property to
other properties that have changed hands fairly recently, at known price levels.
The approach is most meaningful when there is adequate market data involving
comparable properties. Reliability of the approach varies directly with the
quantity and quality of available market data.
THE COST APPROACH: In this approach, the cost to replace the improvements is
estimated. A deduction is made for any depreciation, and the result is combined
with the estimated value of the underlying land. The approach is applicable when
each component is
<PAGE> 14
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INTRODUCTION II-5
- --------------------------------------------------------------------------------
independently measurable, and when the sum of all components is believed to
reflect market value. The approach is not applicable to unimproved land or
obsolete improvements.
APPLICABILITY TO SUBJECT PROPERTY: The Income Capitalization Approach was deemed
the most applicable method to estimate market value for the subject. The Sales
Comparison Approach was utilized to provide an additional point of reference.
Numerous hotel sales were analyzed, and the analysis rendered a meaningful
conclusion of value.
The Cost Approach has not been completed. Due to the age of the subject,
significant depreciation exists, which is difficult and subjective to quantify.
In addition, the Cost Approach would not reflect the reasoning or approach taken
by an investor for a property of this age and type.
This appraisal engagement has been conducted using applicable standard appraisal
techniques and in conformity with the requirements of the Code of Professional
Ethics and the Standards of Professional Practice of the Appraisal Institute,
the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989
and 1994, and the Uniform Standards of Professional Appraisal Practice (USPAP)
1995 Edition.
The definition of market value presented previously discusses the conditions of
a market where buyers and sellers are acting freely and are not under duress.
Within the valuation process we have attempted to balance the buyer and seller
perspectives in our consideration of assumptions and rates. This has been done
by evaluating available market data and available surveys. In addition, we have
also spoken with active market participants. The primary emphasis of this
research was to discover differences in valuation criteria from a buyer's versus
a seller's perspective. The results provide support for analysis bases such as
capitalization and discount rates.
HISTORY OF THE SUBJECT
According to public records, the subject is owned by Signature X Limited.
According to management, the property was constructed by in 1987 and there have
been no transfers of the property over the past three years. Additionally, there
are no current agreements for sale, options, or listings of the subject as of
the date of the appraisal.
COMPETENCY OF THE APPRAISERS
U S Realty Consultants, Inc. has performed numerous appraisals and reviews of
appraisals on income producing properties such as the subject. Files are
maintained with historical and current data relative to the changing market with
respect to the subject. Competency has been established in both the property
type and geographical area, either through previous engagements or through
current research of germane market trends. Therefore, we possess the knowledge
and experience to conduct the inspection, analysis, and reasoning necessary to
accurately estimate the value of the appraised interest in the subject.
<PAGE> 15
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DESCRIPTIVE DATA III-1
- ------------------------------------------------------------------------------
REGIONAL ANALYSIS
The subject is located within the Cincinnati PMSA, which is composed of the four
Ohio counties of Brown, Clermont, Hamilton, and Warren; the six Kentucky
counties of Boone, Campbell, Gallatin, Grant, Kenton, and Pendleton; and the two
Indiana counties of Dearborn and Ohio. The Ohio River divides Kentucky from Ohio
and Indiana, thus dividing the PMSA. The Cincinnati PMSA is Ohio's second
largest metropolitan area, containing nearly 1.6 million people. Of this total,
approximately 22.6% reside in Cincinnati, which is located in Hamilton County.
During the 1980s, the population in the PMSA and Cincinnati increased at
compound annual rates of 0.4% and -0.6%, respectively. According to National
Planning Data Corporation, the population in the PMSA and Cincinnati is
projected to increase at compound annual rates of 0.8% and -0.3%, respectively.
From this analysis, we can conclude that the majority of the population growth
is occurring the communities surrounding Cincinnati.
Major employers in Cincinnati include Procter & Gamble Co., the University of
Cincinnati, and G.E. Aircraft Engines. During 1995, approximately 804,000 jobs
were available in the Cincinnati PMSA, 27% of which were concentrated in the
services sector, 20% in the retail trade sector, and 18% in the manufacturing
sector. According to the Ohio Bureau of Employment Services, the PMSA's
employment base expanded by 6.2% between 1992 and 1995, primarily due to strong
job growth in services and retail trade. Together, these sectors added
approximately 32,000 new jobs. During this time, the manufacturing sector lost
4,000 jobs, largely due to changes at G.E. Aircraft Engines, which has laid-off
approximately 8,000 peoples since 1993. The PMSA's 1995 annual unemployment rate
was 4.2%, reflecting a decline of 1.8 percentage points since 1992. Overall,
these population and employment trends bode well for the prospects of long-terms
economic growth in the Cincinnati PMSA.
NEIGHBORHOOD ANALYSIS
The neighborhood surrounding a hotel impacts the property's status, class, style
of operation, and its ability to attract and properly serve a particular market
segment of users. The subject property is located in the city of Florence,
Kentucky, at 30 Cavalier Court, in the southwest quadrant of Turfway Road and
Interstate 71/75. The area is developed with a variety of motel, restaurant,
highway service, and office uses.
SURROUNDINGS: In general, Turfway Road, the main east/west artery through the
neighborhood, is lined with hotel, restaurant, and highway-services uses. Large
commercial office developments are located west along Turfway Road as well as
the Turfway Park. The subject fronts Cavalier Court, an access road which runs
somewhat parallel to Turfway Road, and provides access to the subject, as well
as the Ryan's Family Steakhouse, Courtyard by Marriott, and the Fairfield Inn
located further south. The office buildings serve as significant demand
generators for the area hotels and restaurants as well as many manufacturing,
distributing, and warehousing companies such as Mayzak, Levi's, Toyota, Avery
Express,
<PAGE> 16
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III-2 DESCRIPTIVE DATA
- ------------------------------------------------------------------------------
Skyway Transportation, and Sachs Automotive. Demand is also generated by the
Greater Cincinnati International Airport located about five to ten minutes
northwest and Turfway Park Thoroughbred Race Track which is less than a mile
west on Turfway Road.
ACCESS AND EXPOSURE: The subject property is accessed from I-71/75 by exiting
Turfway Road, then turning north (right) onto Houston Road followed a right turn
head east on Turfway Road. A traveller must pass under the interstate and turn
south onto Price Pike followed by a right turn (west) onto Cavalier Court. The
subject is then straight ahead with the parking lot wrapping around the
property. As noted, access is considered to be slightly below average. However,
the subject has excellent visibility to I-71/75 because of its location adjacent
the interstate.
<PAGE> 17
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DESCRIPTIVE DATA III-3
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[REGIONAL MAP
SIGNATURE INN - TURFWAY
FLORENCE, KENTUCKY]
<PAGE> 18
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III-4 DESCRIPTIVE DATA
- ------------------------------------------------------------------------------
[AREA ATTRACTIONS (MAP FROM SIGNATURE INNS SHOWING LOCATION AND SURROUNDINGS)]
<PAGE> 19
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DESCRIPTIVE DATA III-5
- ------------------------------------------------------------------------------
SITE ANALYSIS
The site contains 3.738 acres and is irregular in shape. The site is near street
grade level with Cavalier Court and has excellent visibility to I-75 and easy
access. The subject is located in a O2 (office) and PD (planned development)
district within Florence. The subject is considered to be a legally conforming
land use. According to flood map community panel #2100-130-00 B dated June 15,
1981, the site is located in Zone C, an area of minimal flooding. No easements
or encroachments, other than normal utility easements, were made known to the
appraiser, and none are assumed to exist. All public utilities are available to
the site and are considered adequate for the existing hotel operation.
IMPROVEMENT ANALYSIS
Based upon information provided by Signature Inn's corporate offices, and
confirmed during our inspection, the property is constructed with steel frame
and concrete block walls, with exterior brick cover, on a concrete slab
foundation. Roofs are sloped and covered with metal siding, which extends
partially over the side of the buildings. Interior finishes consist of paint or
wall vinyl, with carpeting or tile flooring throughout. The buildings consist of
two stories, surrounded by concrete walks, with average landscaping.
Guests rooms are somewhat typical of a mid-priced, corporate-oriented,
limited-service hotel. All rooms feature a bedside table, a low chest of
drawers, a small table and chairs, a desk and chair, color remote-control
television with HBO, and a vanity with sink outside of the bathroom. In
addition, Signature Rooms feature a larger 12-foot desk, and a reclining chair.
Each room has its own individually controlled electrical heating and cooling
units. Guest room amenities include free local phone calls, and a guest voice
mail system is currently being installed in all Signature Inns. A complimentary
newspaper is delivered to the guest room every weekday, and complimentary
continental breakfast is served daily.
The subject contains 125 guest rooms, consisting of 61 Double/Doubles, 59
Signature Queens, 2 Signature Kings, 2 Studios with a fold-up "Murphy bed", and
1 Spa King. Guest rooms are in average condition.
Although the property is limited-service, it offers several extra amenities
geared toward the corporate traveller. All Signature Inns have recently
installed Business Centers for the complimentary use of their guests. These
private offices include a computer, printer, copier, and speaker phone.
Additionally, the properties have two interview centers located on the balcony
above the lobby, which feature a desk and local telephone service in a
comfortable, partially enclosed workspace. The property contains two meeting
rooms totalling approximately 1,800 square feet.
<PAGE> 20
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III-6 DESCRIPTIVE DATA
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[FLOOR PLAN (FROM SIGNATURE INNS)]
<PAGE> 21
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DESCRIPTIVE DATA III-7
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The hotel contains a small exercise room, and an outdoor pool of approximately
800 square feet. Guests receive a discount at selected nearby restaurants.
In 1995, the subject underwent some capital improvements, including new door
locks, sign, and guest room chairs. Based upon these improvements, as well as
the age and condition of the building, we have estimated a 4% Replacement
Reserve throughout our analysis period.
REAL ESTATE AND PERSONAL PROPERTY TAXES
The subject is located within the city of Florence. Commercial property in Boone
County are subject to three types of taxes based on real estate, tangible or
personal property, and intangible assets or accounts receivable, stocks, bonds,
etc. The taxable assets are identified by their 1995 tax bill numbers which are
#15248 for real estate, #2805 for personal property, and #429 for intangible
assets. Assessed value is 100% of market value. The assessed figure is
multiplied by the prevailing tax rate (per $1,000 of value) to arrive at the tax
amount due with the exception of the intangible assets. These assets are
multiplied by a set rate of $0.25 per $100 of assessed value.
The commercial real estate tax rate for 1995 (payable in 1995) for the county is
$8.284 per $1,000 of assessed value and 2.56 per $1,000 for the city. Commercial
property is reassessed every three years with 1996 being the most recent update.
However, as of the effective date of our appraisal, the subject has not been
reassessed. Accordingly, we have relied on historical assessments for
calculating the real estate, personal property, and intangible asset taxes as
well as historical tax rates for each respective tax assessment. The historical
real estate taxes for the subject property, payable in years 1994 and 1995 are
shown in the following table.
<TABLE>
<CAPTION>
TABLE III-6
HISTORICAL REAL ESTATE TAXES
YEAR TAXES DUE
<S> <C>
1994 $31,146
1995 31,448
Growth Rate 0.1%
</TABLE>
Source: Boone County Tax Assessor's Office
Note: Taxes include both county and city real estate taxes.
We researched the market for other hotels located in the city and their current
assessment. Table III-7 lists these properties.
<PAGE> 22
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III-8 DESCRIPTIVE DATA
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE III-7
REAL ESTATE TAX COMPARABLES
ASSESSED
PROPERTY ROOMS ASSESSED VALUE VALUE PER
ROOM
<S> <C> <C> <C>
Signature Inn (Subject) 125 $2,900,000 $23,200
Fairfield Inn 135 2,795,000 20,704
Holiday Inn 306 7,966,000 26,033
</TABLE>
Source: Boone County Assessor's Office
Note: Assessed values represent 1993 amounts since updated amounts were
not available.
The above listed comparables indicate that the subject's assessed value is
within the range of comparables as both total assessment and a per room
assessment. Based upon the age of the subject, this appears to be reasonable.
According to the assessor's office, no individual property sale triggers
reassessment. Accordingly, we have based our future projections of real estate
taxes on the 1993 property assessment and 1995 effective millage rate used.
After adjusting the taxes payable in 1995 by a 3.5% compound annual inflation
factor, we estimate stabilized real estate taxes to be $32,549.
Personal property taxes were assessed in 1995 at a effective rate of $11.77 per
$1,000 of assessed value by the county and $2.80 per $1,000 by the city. The
subject's assessed personal property value in 1995 was $435,820, indicating a
tax due of $5,130 for the county and $1,220 for the city (total = $6,350).
Again, we have inflated this by a 3.5% annual compound factor, and projected
1996 taxes of $6,572.
As mentioned before, intangible assets are assessed at a rate of $0.25 per $100
of assessed value. The 1995 reported assessed value was $187,849 which indicates
a tax amount due of $470. We have inflated this by a 3.5% annual compound factor
and projected 1996 taxes of $486. Accordingly, we have projected total real
estate, personal property, and intangible asset taxes of $40,000 (rounded) for
our stabilized year in 1996 dollars.
<PAGE> 23
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MARKET ANALYSIS IV-1
- ------------------------------------------------------------------------------
NATIONAL LODGING MARKET OVERVIEW
HISTORICAL PERFORMANCE
Occupancy and average daily rate figures for most regions in the United States
showed a strong improvement between 1992 and 1995 as the lodging industry
rebounded from a severe recession and over-supply of rooms. Prior to 1991, the
hotel industry was focused more on the impact of segmentation than its
underlying problems. These problems ranged from over-building to a tightening of
credit in the financial markets. A positive improvement of industry statistics
is projected to continue into 1996. The occupancy and average daily rate figures
for the United States are presented in the table below.
TABLE IV-1
HISTORIC OCCUPANCY AND RATE FIGURES
UNITED STATES
<TABLE>
<CAPTION>
Occupancy Percent Average Room Rate
------------------------------- ------------------------------------
1995 1994 1993 1992 1995 1994 1993 1992
---- ---- ---- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES 65.5% 64.7% 63.7% 61.9% $67.34 $64.24 $61.30 $59.62
REGION:
NEW ENGLAND 60.5 58.8 59.3 57.7 78.38 74.75 74.53 71.35
MIDDLE ATLANTIC 66.6 66.5 64.2 61.8 87.18 82.50 78.79 77.03
SOUTH ATLANTIC 65.8 64.4 64.0 62.7 65.28 62.38 60.47 59.29
EAST NORTH CENTRAL 63.0 62.4 60.3 59.1 61.38 58.43 56.28 54.77
EAST SOUTH CENTRAL 64.0 64.2 63.0 61.5 51.45 49.19 47.14 45.65
WEST NORTH CENTRAL 64.2 63.6 63.1 62.1 52.29 50.13 48.76 47.35
WEST SOUTH CENTRAL 65.5 64.5 62.7 61.7 58.1 55.55 53.86 52.22
MOUNTAIN 67.8 68.2 65.2 63.7 66.61 62.89 58.41 52.87
PACIFIC 66.2 64.6 62.5 62.5 75.56 72.39 71.17 70.85
</TABLE>
SOURCE: SMITH TRAVEL RESEARCH
ALL REGIONS BENEFITTED FROM THE INCREASE IN DEMAND FOR HOTEL ROOMS IN 1995 OVER
THE PREVIOUS THREE YEARS. THE INCREASE IN OCCUPANCY NATIONWIDE FOR 1995 WAS
APPROXIMATELY 1.2%, WHILE THE AVERAGE ROOM RATE INCREASED BY 4.8%. IN 1995,
PROPERTIES IN THE NEW ENGLAND STATES EXPERIENCED THE STRONGEST LEVEL OF DEMAND
GROWTH ACHIEVING 2.9% INCREASE IN OCCUPANCY FROM 1994. THE REVENUE PER AVAILABLE
ROOM (REVPAR EQUALS OCCUPANCY MULTIPLIED BY AVERAGE DAILY RATE) FIGURE IN THE
EAST SOUTH CENTRAL REGION ALSO SHOWED THE LARGEST GROWTH AT 8.5%. THE EAST NORTH
CENTRAL REGION SHOWED COMPARATIVELY MODERATE GROWTH.
<PAGE> 24
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IV-2 MARKET ANALYSIS
- ------------------------------------------------------------------------------
OCCUPANCY AND RATE PROJECTIONS
The 1996 forecasted figures indicate further improvement though at a slower rate
as the United States lodging industry is experiencing tangible change for the
better. This is due to the following:
- Year to date profits indicate increases, as debt is better-managed through
refinancing. Occupancies have continued to rise at an acceptable pace.
- Participants in the rate wars that have plagued the industry over the past
few years have called a truce. Discounting has become more regionally
targeted, and has been only offered during the true shoulder seasons
rather than throughout the entire year. This has resulted in rising
average daily rates (ADR), which in many markets is outpacing inflation.
This ultimately has yielded higher revenues.
- Demand in all the three major segments of travel - commercial, group, and
tourist/leisure - have risen at a consistent pace.
- Hotel companies have stepped up their pace of new development,
conversions, and renovations due to improved market conditions and a
slight increase in the availability of financing and new debt. However,
this increase has been within reason so far such that it hasn't negatively
effected most market occupancies. The economy, limited- service sector has
been experiencing the most new supply growth.
- A cautioning note is the number of new rooms entering the market. Rooms
starts totaled 81,900 in 1995, which was the highest level since 1989.
There are a number of new brands being announced by the larger chains
(Wingate, Mainstay, Hilton Garden, Microtel) which are expected to
increase rooms supply in the late 1990s, particularly in the limited
service sector.
Projections for national occupancy levels through 1997 indicate further
improvement. Coopers and Lybrand in their Hospitality Directions publication
forecasts that the average national occupancy rate will rise steadily to 66.5%
in 1996, and 67.2% in 1997. This is the highest annual level since 1979. This
will occur due to moderate levels of demand growth in the nation that are
forecast to equal 2.4% in 1996 and 2.4% in 1997. This compares to higher levels
of growth of 4.6% that occurred during the last steep occupancy rise from 1976
to 1979. It is interesting to note that the Coopers and Lybrand projections are
lower than in their late 1993 forecast due to a higher number of projected rooms
completions. Overall, this suggests that the higher projected occupancies of the
1990s will be more supply-driven than demand-driven, as supply growth will
remain under reasonable control by the continued restraints on available credit.
Other industry forecasts are not quite as optimistic, but all forecasters show
an improvement in occupancy figures on a nationwide basis.
<PAGE> 25
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MARKET ANALYSIS IV-3
- ------------------------------------------------------------------------------
Industry experts indicate average daily rate projections for 1996 range between
an increase of 3% and 5% on a national basis which is expected to be similar to
that of the projected inflation rate of 3.5%. Coopers and Lybrand projects
average daily rate increases of 3.9% in 1996 and 4.5% in 1997.
HOTEL EXPENSE LEVELS
Operating expense ratios in the hotel industry have shown improvement in recent
years. According to the HOST report for 1994, gross operating profit (before
management fees) improved from 27.4% of total sales in 1993 to 30.8% in 1994.
Smaller properties less than 150 rooms, and those in suburban locations tended
to report the highest GOP. This represents a dramatic improvement from the early
1990s and explains the increased investor interest in hotels. In 1994, fixed
charges total $6,952 per available room resulting in a net profit of $1,939 per
available room. This compares to a net loss of $719 per available room in 1991
and a small net gain of $159 per available room in 1992 indicating the dramatic
turnaround in profitability for the hotel industry. We project a stabilization
in the overall profitability of hotels as the payments for interest charges have
been reduced and other expenses are projected to remain stable.
HOTEL SALES PERFORMANCE
The decline in prices for hotels from the late 1980s appears to have stopped as
prices have stabilized. A leveling out of hotel sales prices nationwide began in
1991 with increases reported beginning in 1994. Nationwide prices averaged
$19,068 per room in 1994. This 1994 figure compares to $17,411 in 1993, $18,741
in 1992, $18,400 in 1991, and $21,549 in 1990. These figures are taken from the
Hotel Motel Broker Association's (HMBA) Transactions Publication which provides
averages of hotels which they have sold. The trend shows a steady decline in
prices in the early 1990s. Figures for 1995 indicate an improvement from 1994
and are indicative of current trends showing increasing prices for hotels.
Industry experts are predicting that prices will continue to slowly increase as
financing becomes more available. Conventional buyers and sellers are beginning
to return to the marketplace. Due to the current and expected business cycle,
the life insurance companies and pension funds have begun marketing their hotel
properties.
Overall, competition is rising among buyers of good quality, full-service, and
economy/ limited-service hotels. Many new buyers have entered the market during
1994 and 1995, increasing competition for hotels and shortening marketing
periods. The spread between asking price and bids is also narrowing.
<PAGE> 26
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IV-4 MARKET ANALYSIS
- ------------------------------------------------------------------------------
SIGNATURE INNS OVERVIEW
Signature Inns was founded in 1978, and opened its first hotel in Indianapolis
in 1981. The company was one of the earliest innovators of the value-oriented
mid-priced hotel concept geared primarily to the corporate traveller, a concept
that has since been mass marketed by chains such as Hampton Inn and Courtyard by
Marriott. Although the Signature Inn concept is limited-service in that none of
the properties contain a restaurant, many extra amenities are available for
guests, such as business centers, interview centers, meeting space, and
newspaper delivery to the guest rooms. The "Signature Rooms" were one of the
first guest room lay-outs designed for the business traveller, with one bed, a
reclining chair, and a 12-foot corner desk with telephone.
Today, Signature Inns operates twenty-three hotels, with two additional
properties in the active stages of development. The company enjoys a fine
reputation for quality and consistency in the central Midwest, but has little
name recognition outside that region. In 1995, the company was voted fifth
nationally among mid-priced hotel chains by the readers of Business Travel News,
outscoring many national chains. Similarly, Consumer Reports ranked the chain
third in overall value among moderately priced chains, behind only Homewood
Suites and Residence Inn, but ahead of all other national chains.
COMPETITIVE LODGING MARKET ANALYSIS
EXISTING COMPETITIVE SUPPLY: Based on our research, we have identified a current
competitive hotel supply with a total of 2,180 guest rooms in fourteen lodging
facilities (including the subject). The properties are considered competitive
due primarily to their location near Turfway Road of I-71/75 on Cincinnati's
south side (Florence, Kentucky). The table on the following page lists the
selected competitive hotels and characteristics about each property.
A map and photographs of each competitor follow.
<PAGE> 27
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MARKET ANALYSIS IV-5
- ------------------------------------------------------------------------------
[SIGNATURE INN - TURFWAY
COMPETITIVE MARKET SUPPLY]
<PAGE> 28
- ------------------------------------------------------------------------------
IV-6 MARKET ANALYSIS
- ------------------------------------------------------------------------------
[MAP]
<PAGE> 29
- ------------------------------------------------------------------------------
MARKET ANALYSIS IV-7
- ------------------------------------------------------------------------------
Photograph Not Available
(up arrow) VIEW OF HOLIDAY INN
VIEW OF HOJO INN (down arrow)
<PAGE> 30
- ------------------------------------------------------------------------------
IV-8 MARKET ANALYSIS
- ------------------------------------------------------------------------------
(up arrow) VIEW OF COMFORT INN
VIEW OF KNIGHT'S INN (down arrow)
<PAGE> 31
- ------------------------------------------------------------------------------
MARKET ANALYSIS IV-9
- ------------------------------------------------------------------------------
(up arrow) VIEW OF DRAWBRIDGE INN
VIEW OF RAMADA INN (down arrow)
<PAGE> 32
- ------------------------------------------------------------------------------
IV-10 MARKET ANALYSIS
- ------------------------------------------------------------------------------
(up arrow) VIEW OF HOLIDAY INN - AIRPORT
VIEW OF DAYS INN (down arrow)
<PAGE> 33
- ------------------------------------------------------------------------------
MARKET ANALYSIS IV-11
- ------------------------------------------------------------------------------
(up arrow) VIEW OF HAMPTON INN
VIEW OF CROSS COUNTRY (down arrow)
<PAGE> 34
- ------------------------------------------------------------------------------
IV-12 MARKET ANALYSIS
- ------------------------------------------------------------------------------
(up arrow) VIEW OF CROSS COUNTRY - FLORENCE
VIEW OF SUPER 8 MOTEL (down arrow)
<PAGE> 35
- ------------------------------------------------------------------------------
MARKET ANALYSIS IV-13
- ------------------------------------------------------------------------------
(up arrow) VIEW OF FAIRFIELD INN
<PAGE> 36
- ------------------------------------------------------------------------------
IV-14 MARKET ANALYSIS
- ------------------------------------------------------------------------------
PROPOSED HOTEL DEVELOPMENT: Based upon discussions with local industry
participants, there are currently no new hotel projects in the active stages of
development within the immediate market area.
HISTORICAL LODGING DEMAND: Based on information compiled by Smith Travel
Research, and supported by our own interviews with management of the competitive
properties, and our knowledge of the market area, we have estimated historical
market occupancy levels. The following table indicates that the market occupancy
has changed over the period but is primarily the result of a change in the
reported competitive supply from 1993 to 1994. Two of the larger first-class
hotels in the area were listed as competitors in 1993 but were removed in 1994
and 1995 while other smaller limited-service properties were added.
TABLE IV - 2
HISTORICAL MARKET OCCUPANCY AND ADR
<TABLE>
<CAPTION>
Year 1993 1994 1995
<S> <C> <C> <C>
Estimated Market Occupancy 70% 63% 64%
Estimated Market ADR $57.50 $53.00 $55.00
</TABLE>
Source: Smith Travel Research and local market interviews. Occupancies have been
rounded to the nearest point, while ADR's have been rounded to the nearest $.50.
Market occupancies increased by approximately one point between 1994 and 1995,
with modest 3.8% growth in ADR between the past two years. The market has been
affected by the following:
- Growth in the Florence area, particularly around the Turfway Park business
area, has caused increases in corporate demand for hotels. The area's
large commercial office expansions, including Toyota and Levi's, help
drive commercial growth within the local market.
- A strong national economy has led to increased demand on a national level.
(See National Market Overview.) In particular, as hotels have regained
occupancy, many properties have attempted to boost profits with rate
hikes, leading to increased realized ADR.
- With improvement in the U.S. economy, consumer confidence has increased,
leading to additional leisure travel to the area. Turfway Park
Thoroughbred Race Track has been a strong leisure demand generator in the
area and is located less than a mile from the subject.
COMPETITIVE POSITION OF SUBJECT PROPERTY
We have assessed the projected competitive position of the subject property as
it relates to the defined competitive lodging supply. Based on interviews with
representatives of competitive hotels, our general knowledge of the market area,
and consideration of factors
<PAGE> 37
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MARKET ANALYSIS IV-15
- ------------------------------------------------------------------------------
such as competent and efficient management, a well defined marketing program,
the location of the subject property, and the quality of the facility, we have
estimated future occupancy and ADR for the subject.
Table IV - 3 presents the historical occupancy and ADR for the subject.
TABLE IV - 3
HISTORICAL SUBJECT OCCUPANCY AND ADR
<TABLE>
<CAPTION>
Year 1993 1994 1995
<S> <C> <C> <C>
Subject Occupancy 63.5% 66.2% 67.3%
Subject ADR $46.63 $48.88 $51.63
</TABLE>
Source: Signature Inns
Subject occupancy has significantly lagged behind occupancy for the period 1993
but with the change in competitive properties in 1994 and 1995, the subject
property has shown strong occupancy levels compared to the market. However, the
subject's ADR has remained behind the market which may be a good indicator as to
why its occupancy level is very strong. The subject's ADR growth rate is a
healthy 5.2% annually which is greater than the market but lower than the market
on a dollar basis.
The following property characteristics were considered as competitive advantages
and disadvantages when analyzing historical trends and estimating future
penetration rates for the subject:
- The subject location along I-71/75 is considered a competitive advantage
because the property has excellent visibility and exposure to the
interstate.
- The subject's location near Turfway Park Thoroughbred Race Track as well
as major shopping outlets is considered a competitive advantage as
compared to a few of the competitors.
- The Signature Inn affiliation and reservation system provides an very good
reputation for consistency and value for the mid-economy oriented
traveller, particularly among the corporate segment, in the central
mid-west. However, for travellers from areas outside its geographic circle
of dominance, the flag is lesser known, and commands little loyalty.
(Please see Signature Inn corporate overview earlier in this section.)
- Free local phone calls and continental breakfast add a sense of value to
budget- conscious consumers.
<PAGE> 38
- ------------------------------------------------------------------------------
IV-16 MARKET ANALYSIS
- ------------------------------------------------------------------------------
- Subject amenities, including a private guest business center and interview
stations, are unique to the market.
- The subject is considered to be in average condition, and guest rooms are
clean and attractive.
ESTIMATED OCCUPANCY AND AVERAGE DAILY RATE
To estimate the stabilized occupancy and average daily room rate (ADR) for the
subject property, we analyzed historical occupancy and average daily rates
achieved by the subject and the competitors, the discounting practices of these
hotels, the projected supply and demand changes in the market, and the
competitive advantages and disadvantages of the subject.
Based upon the condition of the property and market, discussion with the
property's general managers, as well as its historical occupancy and ADR market
trends, we project the subject will achieve a stabilized occupancy of 68% at an
ADR of $53.00. The occupancy reflects a slight increase in rooms occupied, based
upon the historical trend for the subject. The projected ADR allows for a modest
2.7% increase in rate, which will be held down by increased competition in the
area for corporate demand.
HOTEL SUPPLY AND DEMAND CONCLUSION
The competitive supply has demonstrated moderate demand growth, with strong
increases in ADR. The subject has consistently under-performed as compared to
market occupancy levels. With increased competitive pressures, we believe
occupancy levels will stabilize at 68%, and have projected a stabilized ADR of
$53.00.
Our estimates of annual occupancy and average daily room rate, as outlined in
this section of the report, are predicated on the following assumptions:
1. The subject hotel will continue to be professionally managed and
maintained;
2. The subject hotel will be effectively promoted with a well-targeted
marketing program throughout the analysis period;
3. The subject hotel will continue to be operated under the existing chain
affiliation as a Signature Inn, or a comparable chain affiliation; and,
4. The subject will undergo a continued program of periodic replacement of
furniture, fixtures and equipment, which will continue throughout the
analysis period.
<PAGE> 39
- ------------------------------------------------------------------------------
HIGHEST AND BEST USE V-1
- ------------------------------------------------------------------------------
HIGHEST AND BEST USE
According to The Dictionary of Real Estate Appraisal published by the Appraisal
Institute, Highest and Best Use is defined as:
The reasonable and probable use that supports the highest present value of
vacant land or improved property, as defined, as of the date of the
appraisal.
The reasonably probable and legal use of land or sites as though vacant,
found to be physically possible, appropriately supported, financially
feasible, and that results in the highest present land value.
The most profitable use.
Land must always be valued at its highest and best use as if vacant. Thus, we
evaluate the highest and best use of the site both as if vacant and as currently
improved. The highest and best use of the site as if vacant may differ from the
highest and best use of the property as improved.
The hierarchial order for determining the highest and best use for both the land
as though vacant and the property as improved is that the use must be:
1. Physically possible.
2. Legally permissible.
3. Financially feasible.
4. Maximally productive.
The synthesis of these four factors was considered to determine a most probable
and profitable use for the subject parcel of real estate.
HIGHEST AND BEST USE, AS THOUGH VACANT
The major considerations in estimating the highest and best use as though vacant
include the zoning classification and locational attributes of the site, the
quality and quantity of surrounding land use patterns, the current availability
of infrastructure, and the supply and demand factors currently affecting the
real estate marketplace.
PHYSICALLY POSSIBLE: The initial step in our analysis involved estimating what
uses were physically possible. The site has supported the existing hotel use for
approximately nine years. This is testimony to its physical possibility. A
number of other uses are also
<PAGE> 40
- ------------------------------------------------------------------------------
V-2 HIGHEST AND BEST USE
- ------------------------------------------------------------------------------
physically possible on a site of this size. Those uses include, but are not
limited to commercial, industrial, retail, residential, and service related
uses.
LEGALLY PERMISSIBLE: The subject site is zoned O2 (office) and PD (planned
development) district within Florence. The subject is considered to be a legally
conforming land use. Other allowed uses included general offices, retail stores,
highway service, and restaurants.
FINANCIALLY FEASIBLE: The next step in our narrowing of options for highest and
best use involved determining what physically possible and legally permissible
uses would be financially feasible and compatible with surrounding developments.
The area in the vicinity of the site is developed with a variety of retail,
restaurant, hotel, residential, and commercial uses. We have examined the
current hotel market performance and projected operating performance of the
subject. The development of a new hotel on the site is currently marginally
justified based upon the occupancy and average daily rate currently being
achieved by the competitive supply. The performance of the subject attests to
the market viability of a hotel on the site, as if vacant.
An analysis of other possible uses for the site indicate some financial
feasibility. Possible uses may include office, or highway service. The
surrounding land uses include nearly all of these uses. These improvements
appear to be supported by the market.
MAXIMALLY PRODUCTIVE: In the final analysis, a determination must be made as to
which feasible use is the highest and best use, providing the maximum net return
to the land over the longest period of time. To maximize value, a property must
be financially feasible and legally permissible while coinciding with the
surrounding existing land uses. Based upon our analysis of the zoning code, the
existing surrounding properties, the financial feasibility, and the status of
the land, it is our opinion that the highest and best use for the subject, as
though vacant, is for development of a limited-service hotel similar to the
subject, and assuming that the financing could be obtained.
HIGHEST AND BEST USE, AS IMPROVED
In analyzing the highest and best use of the existing improvements, the four
tests which were previously discussed are also applied to the subject as
improved. This simple test is undertaken in order to determine whether an
alternative use could generate a greater return to the land and removal of the
existing improvements is justified. Since the improvements, as they currently
exist, continue to make a substantial contribution to the overall value of the
property, the continuation of the existing use is justified. There is no
alternative, economically feasible use that could justify removal of the
existing improvements at this time. Therefore, the highest and best use of the
subject, as improved, is the continued use as a limited service hotel.
<PAGE> 41
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-1
- --------------------------------------------------------------------------------
INTRODUCTION
This approach analyzes a property's capacity to generate income (or other
monetary benefit) and converts this capacity into an indication of value. The
approach is suitable for properties that have obvious earning power and
investment appeal but is inappropriate for properties that have no readily
discernible income potential. Further, this approach is based on the premise
that the value of a property is represented by the present worth of anticipated
future benefits to be derived from ownership. There are two basic techniques
which can be used for analysis purposes: direct capitalization and discounted
cash flow.
Direct capitalization converts an estimate of a single year's income expectancy
or an annual average of several years' income expectancies into an indication of
value in one direct step. Direct capitalization is especially useful when
analyzing a property that has achieved a stabilized level of operations and
occupancy.
The discounted cash flow (DCF) analysis is a market reflective method of
estimating the present worth of anticipated income benefits. This analysis
converts a stream of expected income into a present value and is most
appropriate when valuing a property that has not yet reached stabilized
occupancy.
In valuing the subject, it is our opinion that the direct capitalization
valuation technique is useful in the analysis. We have estimated cash flow for a
typical stabilized year. These financial estimates are based on the results of
the subject property's historical operations, the performance of comparable Red
Roof Inn facilities, industry standards, and assumptions regarding the
environment in which the subject hotel operates.
All amounts have been rounded to the nearest one thousand dollars and account
classifications generally conform to the definitions prescribed by the American
Hotel and Motel Association in the Uniform System of Accounts for Hotels. All
percentages, amounts per available room or amounts per occupied room presented
in the following pages were first computed on the basis of the revenue and
expenses expressed in constant dollars and then inflated. All dollar amounts are
expressed in stated year dollars unless otherwise noted.
OVERVIEW OF HISTORICAL FINANCIAL PERFORMANCE
Historical financial statements for years 1993 through 1995 were provided by
Signature Inns. These are based upon an available room count of 125 rooms. These
unaudited financial statements were formatted to follow the Uniform System of
Accounts for Hotels, and are presented on the following pages. In utilizing
these statements, it should be noted that the historical financial information
was not audited or reviewed by us. Accordingly, we express no opinion as to the
reliability of this financial information.
<PAGE> 42
- --------------------------------------------------------------------------------
VI-2 INCOME CAPITALIZATION APPROACH
- --------------------------------------------------------------------------------
During the period, the subject's overall financial performance has improved. The
income before reserves has increased from $414,434 in 1993 to $485,805 in 1995.
Top line revenue increased from $1,350,812 in 1993 to $1,585,279 in 1995.
Departmental expenses demonstrated an increase as a percentage of total revenue
between 1993 and 1995 from 26.8% to 27.9%, while undistributed expenses showed a
decrease from 39.1% to 38.2%.
<PAGE> 43
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-3
- --------------------------------------------------------------------------------
[HISTORICALS]
<PAGE> 44
- --------------------------------------------------------------------------------
VI-4 INCOME CAPITALIZATION APPROACH
- --------------------------------------------------------------------------------
PROSPECTIVE FINANCIAL ANALYSIS
COMPARABLES: The prospective financial analysis is based on the results of
historical operations of the subject property, results of operations of
comparable facilities, industry standards, and projections regarding the future
environment in which the hotel will operate. This includes the assumption that
the property will be operated in a competent and professional manner, and it
will be properly advertised and promoted.
We have compared the operating performance of the subject to a 17-property
portfolio of Signature Inns located in the mid-west. Their average, high, and
low performance is presented on the following page. The industry standards
presented on the next page are from the Host Report 1994, published by Arthur
Anderson and Smith Travel Research, and the Trends Report 1994, published by PKF
Consulting. We have utilized the standards for mid-priced, limited-service
properties.
<PAGE> 45
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-5
- --------------------------------------------------------------------------------
[PORTFOLIO EXPENSE DATA]
<PAGE> 46
- --------------------------------------------------------------------------------
VI-6 INCOME CAPITALIZATION APPROACH
- --------------------------------------------------------------------------------
[HOST/TRENDS DATA]
<PAGE> 47
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-7
- --------------------------------------------------------------------------------
ROOMS DEPARTMENT
ROOMS REVENUE: Rooms department revenue was calculated by estimating annual
occupancy and average daily rate per occupied room. Our estimates of occupancy
and ADR, and the rationale supporting these estimates, are presented in the
Market Analysis section of this report. We estimate the 125-room subject will
achieve a stabilized occupancy of 68% and an average daily rate of $53.00.
ROOMS EXPENSES: This category includes rooms payroll and related expenses, guest
supplies, paper goods, cleaning supplies, laundry, linen, and other items for
maintaining guest rooms as well as miscellaneous expenses.
These expenses increased from 26.2% of departmental revenue in 1993 to 27.1% of
rooms revenue in 1995. Comparable Signature Inns in the portfolio averaged a
1995 rooms expense of 24.3%, with a range of 20.5% to 28.8%. The Host Report
indicates an industry standard of 27.2%, while Trends reports a 24.1%. We
estimate the rooms expense to equal a stabilized 26.5% of rooms revenue based
upon historical statistics and the comparables.
TELEPHONE DEPARTMENT
TELEPHONE REVENUE: This revenue includes income from local calls, long distance
calls, and access charges. Historically, the subject realized telephone revenue
per occupied room increased from $0.91 to $1.36. Telephone revenues at the
subject are relatively low since the property does not charge for local
telephone calls, which is becoming increasingly common at limited-service
hotels. The portfolio averaged telephone sales of $1.45 per occupied room, with
a range of $1.19 to $1.96. Industry standards indicated $1.01 and $1.27 per
available room. Based upon the subject's pricing practices, as well as its
historical telephone income, we project income of $1.30 per occupied room.
TELEPHONE EXPENSES: These expenses reflect the cost of providing local and long
distance cells. Historical telephone expenses at the property ranged from 85.9%
to 96.8% of telephone revenue. The portfolio averaged 48.6% per occupied room,
ranging from 59.6% to 99.9%, while industry standards indicate 66.7% and 59.2%
per occupied room. Based upon the telephone pricing practices at the subject, we
have projected a stabilized expense of 85% of telephone revenues.
RENTALS AND OTHER INCOME: This line item includes all net income associated with
vending machines, laundry, movie rental, rentals, faxes, and any other
miscellaneous income generated by the hotel. The subject has shown net income in
rentals and other income category within a range of $41,631 to $45,610. Based
upon the historical levels, we have estimated rentals and other income to be
$42,000 upon stabilization.
<PAGE> 48
- --------------------------------------------------------------------------------
VI-8 INCOME CAPITALIZATION APPROACH
- --------------------------------------------------------------------------------
UNDISTRIBUTED OPERATING EXPENSES
ADMINISTRATIVE AND GENERAL EXPENSES: These expenses represent payroll costs and
other expenses for management and administration. Administrative and general
(A&G) expenses include such items as the cost of accounting and legal fees,
credit card commissions, printing, stationery, general liability insurance,
donations, and postage costs.
These expenses increased from $1,496 per available room in 1993 to $1,738 in
1995. The Signature Inn portfolio averaged $1,597 per available room, ranging
from $1,146 to $2,062. Industry standards indicate $1,335 and $1,170 per
available room. Based upon the increasing historical trend, and supported by the
portfolio and standards, we have projected an A&G expense of $1,750 per
available room for the stabilized year.
MANAGEMENT FEE: Signature Inns has historically charged a management fee of 5%
of rooms revenue and most rental revenue. However, since the purpose of our
appraisal is to estimate market value, management fees for the property must
reflect current market management fees, since existing management contracts are
not binding upon subject transfer. U S Realty Consultants' Fall 1995 survey
indicated a management fee range of 3% to 6% for properties without incentive
fees. The overall base management fee for new contracts was 2.9%, down from a
3.4% average in our database of existing contracts. However, it should be noted
that this average does not include incentive fees incorporated into some
agreements. Based upon the declining trend for new contracts, as well as our
knowledge of current market fees, we have estimated this expense to be 4% of
total revenue.
MARKETING EXPENSES: include payroll and related benefits, the cost of
advertising in various media such as newspapers, magazines and directories, as
well as direct mail campaign, bill boards and miscellaneous sales and marketing
expenses.
Historically, the marketing expenses at the subject hotel have ranged from $555
to $648 per available room. The portfolio averaged $687 per available room.
Industry standards reflect an expense of $693 and $471 per available room. Based
upon the historical performance, as well as the portfolio and industry standard,
we have projected a marketing expense of $650 per available room for the
subject.
FRANCHISE FEE: Signature Inn historically has charged a franchise fee of 4% of
rooms revenue. However, as discussed in our management fee section, a potential
buyer would need to affiliate the subject with a similar franchise in order to
achieve the occupancy and ADR projected. Currently, the Signature Inn
affiliation is a contributing factor in the subject's ability to penetrate the
market. After examining the franchise costs of more than sixty national
franchises, we have determined that a franchise fee of 4% of rooms revenue is
appropriate for the level of corporate support and brand recognition provided by
the Signature Inn affiliation.
<PAGE> 49
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-9
- --------------------------------------------------------------------------------
PROPERTY OPERATION AND MAINTENANCE EXPENSES: include both payroll and related
benefits and other expenses associated with periodic preventive maintenance and
repairs to the physical structure and mechanical equipment.
Historically, property operations and maintenance expenses at the subject hotel
varied from $720 per available room in 1993 to $928 per available room in 1995.
Property operation and maintenance expenses in the portfolio averaged $857 per
available room, ranging from $687 to $1,082. Industry standards reflect an
average of $624 and $729 per available room. Based upon the increasing
historical trend and the portfolio information available, we have projected a
stabilized expense of $950 per available room for the subject.
ENERGY EXPENSES: represent expenditures for electricity, heating, fuel, water,
waste removal and related operating supplies. The subject hotel experienced
energy expenses ranging from $666 in 1995 to $735 in 1994. We have based our
projection on the historical energy costs. We estimate the energy expense at
$700 per available room for the stabilized year.
FIXED CHARGES
REAL ESTATE, PERSONAL PROPERTY, AND INTANGIBLE ASSET TAXES: Historical property
taxes were detailed in the Descriptive Data section previously. We have
projected stabilized real estate and personal property taxes for in 1996 dollars
to be $40,000.
BUILDING AND PROPERTY INSURANCE: This expense includes building and property
insurance expenses at the subject hotel.
This expense has historically ranged from $237 to $351 per available room at the
subject, while the portfolio averaged $251 per available room. Based upon the
historical expense and portfolio average, we have projected an expense of $325
per available room.
RESERVE FOR REPLACEMENT: represents a reserve set aside to provide for the
periodic replacement of furniture, fixtures and equipment during the life of the
building. Historically the subject hotel has posted a 4% replacement reserve to
its operating statement. As discussed in the Descriptive Data section, our
reserve is estimated at 4% of total sales throughout the analysis period. A 4%
replacement reserve is projected as it is in keeping with industry guidelines
for a hotel of the subject's age, size, and volume of operation. Additionally,
the amount is considered to be appropriate due to the level and extent of
furniture, fixtures and equipment replacement necessary to maintain and improve
the overall condition of the subject over its useful life.
STABILIZED OPERATING STATEMENT: A projected stabilized operating statement for
FY 1996 is presented on the following page. This projection is rounded to the
nearest one hundred dollars. The estimated cash flow will be used to estimate
the subject property's market value by direct capitalization.
<PAGE> 50
- --------------------------------------------------------------------------------
VI-10 INCOME CAPITALIZATION APPROACH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STABILIZED OPERATING STATEMENT
SIGNATURE INN - TURFWAY
1996 DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
OCCUPANCY/ADR 68% at $53.00
</TABLE>
<TABLE>
<CAPTION>
PER OCC.
AMOUNT RATIO AMT\RM ROOM
<S> <C> <C> <C> <C>
REVENUES:
ROOMS $1,644,000 95.2% $13,152 $52.99
TELEPHONE 40,333 2.3% 323 1.30
RENTALS & OTHER INCOME 42,000 2.4% 336 1.35
---------- ---- ------- ------
TOTAL REVENUE $1,726,333 100.0% $13,811 $55.64
DEPARTMENTAL EXPENSES: (1)
ROOMS $ 435,660 26.5% $ 3,485 $14.04
TELEPHONE 34,283 85.0% 274 1.11
---------- ---- ------- ------
TOTAL DEPARTMENTAL EXPENSES $ 469,943 27.2% $ 3,760 $15.15
TOTAL OPERATED INCOME $1,256,000 72.8% $10,048 $40.50
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL $ 218,750 12.7% $ 1,750 $ 7.05
MANAGEMENT FEE 69,053 4.0% 552 2.23
MARKETING 81,250 4.7% 650 2.62
FRANCHISE FEES 65,760 3.8% 526 2.12
PROPERTY OPERATION & MAINT 118,750 6.9% 950 3.83
ENERGY 87,500 5.1% 700 2.82
---------- ---- ------- ------
TOTAL $ 641,063 37.1% $ 5,129 $20.66
INCOME BEFORE FIXED CHARGES $ 615,000 35.6% $ 4,919 $19.83
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES $ 40,000 2.3% $ 320 $ 1.29
BUILDING & CONTENTS INSURANCE 40,625 2.4% 325 1.31
---------- ---- ------- ------
TOTAL FIXED CHARGES $ 80,625 4.7% $ 645 $ 2.60
INCOME BEFORE RESERVE $ 534,000 30.9% $ 4,274 $17.23
RESERVE FOR REPLACEMENT $ 69,053 4.0% $ 552 $ 2.23
---------- ---- ------- ------
INCOME BEFORE OTHER DEDUCTIONS (2) $ 465,000 26.9% $ 3,720 $15.01
</TABLE>
NOTES:
(1) Each departmental expense ratio is based on the department's
estimated revenue and does not add to the total departmental expense
ratio.
(2) Income before other fixed charges such as interest, amortization,
depreciation, and income taxes.
Note: This statement is based upon a room inventory 125
THIS STATEMENT SHOULD BE READ SUBJECT TO THE COMMENTS CONTAINED IN THE
ATTACHED REPORT
<PAGE> 51
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH VI-11
- --------------------------------------------------------------------------------
VALUATION ANALYSIS
In order to provide a value estimate via the Income Capitalization Approach an
analysis to estimate probable overall capitalization rates was necessary. We
relied upon input from a number of sources including discussions with market
participants, our own experience, and awareness of current money rates and
investment trends.
In developing a capitalization rate for income-producing real estate, factors
such as the quality and durability of the estimated income stream were analyzed.
A hotel property has special risk resulting from the generally single purpose
nature of the construction and its sensitivity to change in market conditions
and the lodging industry. An appropriate capitalization rate must reflect these
factors and their relationship to the subject property. An examination of the
capitalization rates for hotel properties that have recently been purchased has
been undertaken.
The table below presents current yields and capitalization rates as tracked by
the Korpacz Investor Survey, a widely utilized barometer of investment
parameters.
================================================================================
TABLE VI-1
KORPACZ INVESTOR SURVEY - HOTELS
FOURTH QUARTER 1995
================================================================================
<TABLE>
<CAPTION>
===================================================================================================================
NATIONAL NATIONAL NATIONAL
FULL-SERVICE ECONOMY/LIMITED- LUXURY
HOTELS SERVICE HOTELS HOTELS
===================================================================================================================
<S> <C> <C> <C>
FREE & CLEAR EQUITY CAP RATE
===================================================================================================================
Range 8.0% - 15.0% 8.0% - 18.0% 7.0% - 15.0%
===================================================================================================================
Average 10.65% 12.53% 10.17%
===================================================================================================================
Source: Korpacz Real Estate Investor Survey, First Quarter 1995.
===================================================================================================================
</TABLE>
Table VI - 1 provides information from the most recent overall hotel survey
conducted by Korpacz. The survey indicated a capitalization rate for
limited-service hotels in the range of 8% to 18% with an average of 12.53%.
As with other property types, there exists a degree of uncertainty in today's
real estate market. Nevertheless, for purposes of determining an appropriate
capitalization rate for the subject, we considered the capitalization rates from
the limited sales presented within Sales Comparison Approach.
<PAGE> 52
- --------------------------------------------------------------------------------
VI-12 INCOME CAPITALIZATION APPROACH
- --------------------------------------------------------------------------------
The sales in the Sales Comparison Approach indicate capitalization rates ranging
from 9.4% to 18.8%, with an average of 12.5%. Inconsistencies between properties
and accounting methodologies diminish the market extraction of rates for hotel
property sales. We have, therefore, also considered recent surveys in assessing
buyer requirements on potential hotel cash flows.
The upside of the subject is that it has historically achieved a very stable
occupancy, with increasing ADR. The property is considered to be in average
condition. The downside is that it is performing well under its fair share of
market penetration, due primarily to a location with difficult access and
limited visibility.
In viewing all available data, we have focused in the middle of the range. Our
projected capitalization rate is similar to the average of the sales utilized in
the Sales Comparison Approach, and supported by the timely data of the Korpacz
survey. THEREFORE, BASED ON THE AFOREMENTIONED ANALYSIS, WE HAVE ESTIMATED THAT
A DIRECT CAPITALIZATION RATE OF 12.25% IS APPROPRIATE TO CONVERT THE STABILIZED
NET OPERATING INCOME INTO AN INDICATION OF MARKET VALUE.
The result of this procedure, using the market-driven capitalization rate of
12.25% is presented in the following calculation.
$465,000 net operating income / 12.25% capitalization rate = $3,795,918
or
$3,800,000 (rounded)
Based on the above analyses, we estimate that the market value of the fee simple
estate of the going concern of the subject property via the Income
Capitalization Approach (including the contributory value of the FF&E) as of
February 28, 1996, is:
THREE MILLION EIGHT HUNDRED THOUSAND DOLLARS
$3,800,000
<PAGE> 53
- ------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-1
- ------------------------------------------------------------------------------
INTRODUCTION
The Sales Comparison Approach is defined in The Dictionary of Real Estate
Appraisal, Third Edition, (published by The Appraisal Institute, 1993), as:
A set of procedures in which a value indication is derived by comparing
the property being appraised to similar properties that have been sold
recently, applying appropriate units of comparison, and making adjustments
to the sale prices based on the elements of comparison.
It is based on the premise that the market value of a property is directly
related to the prices paid for similar properties which have recently sold.
Inherent in this approach is the principle of substitution, which holds that
when a property is replaceable in the market, its price tends to be set at the
cost of acquiring an equally desirable substitute property, assuming that no
costly delay is encountered in making the substitution.
METHODOLOGY
Information was collected on a number of transactions involving the sale of
limited service hotels in the Midwestern, Middle Atlantic, Southern and New
England regions. The data was verified by USRC through sources deemed to be
reliable, and using commonly accepted appraisal methodology. Summary data for
these sales is presented within the table on the following page, from which
price trends may be identified for the extraction of value parameters. We
segregated the data by year of sale to lend additional perspective to our
analysis. Comparability in economic characteristics is the most important
criteria in analyzing these sales in relation to the subject property. However,
it is also extremely important to recognize that hotels are distinct physical
entities by virtue of their age and design, visibility and accessibility, their
services, as well as the uses within the neighborhood. Thus, the Sales
Comparison Approach, when utilized to value a hotel such as the subject, can at
best only establish a reasonable range of parameters within which the typical
investor operates.
Two techniques were utilized in this valuation approach. First, a Linear
Regression Analysis was performed to demonstrate that sale price is a function
of income. Next, an Effective Rooms Revenue Multiplier was developed, which
adjusts the sale prices of the comparables based on differences in rooms
revenue. The presentation of these techniques are followed by an estimate of
market value via the Sales Comparison Approach.
<PAGE> 54
- ------------------------------------------------------------------------------
VII-2 SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
[INSERT SALES TABLE]
<PAGE> 55
- ------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-3
- ------------------------------------------------------------------------------
CRITERIA FOR COMPARABLE SELECTION
As indicated on the preceding summary charts, a total of 63 hotel sales were
utilized as comparable data. Physical factors such as location, sale date, year
of construction and size were considered. However, our analysis makes
comparisons of the transactions primarily along economic lines. In our opinion,
a buyer's criteria for the purchase of a hotel property is predicated primarily
on the property's income characteristics.
STATISTICAL MEASURES
Various statistical measures of the data are calculated and presented in the
following table. These basic descriptive statistics are measures of central
tendency and measures of variation or scatter.
TABLE VII-2
STATISTICAL MEASURES
<TABLE>
<CAPTION>
MEASUREMENT TYPES ADR REVPAR INCOME/ROOM ERRM RO (%)
<S> <C> <C> <C> <C> <C>
Sample Size: 57 63 54 63 54
Measures of Central Tendency
Mean $44.20 $29.95 $3,679 2.68 12.54
Median 45.00 30.34 3,721 2.66 12.50
Measures of Variation
Highest Value $63.03 $46.80 $7,164 4.25 18.82
Lowest Value 14.50 8.70 1,496 1.10 9.40
Data Range 48.53 38.10 5,668 3.15 9.42
Standard Deviation 8.98 8.46 1,362 0.65 1.97
Coefficient of Variability 20.3% 28.3% 37.0% 24.1% 15.7%
</TABLE>
The mean and median are both measures of central tendency. The mean is the
mathematical average of the numerical data. The median of a set of values is a
number such that half of the values are less than that number, and half of the
values are greater than that number.
In studying the measures of central tendency, consideration is given to the
advantages and disadvantages of each, as they relate to the data analyzed. One
of the major considerations is how symmetrical the distribution of the data is.
If the data is highly symmetrical, the distribution will be in the form of a
bell-shaped curve, with the mean and median coinciding. However, as the data
becomes more and more skewed or lopsided, the differences in these
<PAGE> 56
- ------------------------------------------------------------------------------
VII-4 SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
measures will become greater. In such a case, the median, by excluding the
extremes, may become a more meaningful measure of central tendency.
The measures of central tendency tell nothing about the variation or scatter
among the observed values. In any set of statistical data, the individual
numerical values will be dispersed to a greater or lesser degree around the
center. Obviously, the less the dispersion, the tighter the data clusters around
the center, and the more meaningful the measures of central tendency become. One
method of measuring dispersion is by calculating the average distance the data
points are from the mean. Since the individual deviations from the mean can be
positive or negative, depending on whether the data point is above or below the
mean, and adding these distances would always equal zero, it is necessary to
square the deviations before adding them. The square root of the sum of these
squared deviations, known as the standard deviation, is one of the most popular
measures of data dispersion.
An equally important descriptive statistic presented on the summary chart is the
coefficient of variability. This is calculated by dividing the standard
deviation by the mean. Since the standard deviation measures data dispersion,
the lower the ratio of the standard deviation (dispersion) to the mean, the more
tightly the data clusters around the mean. Generally speaking, coefficients
below 12% indicate that the data points are found close to the mean, and that
the mean is therefore a fairly good indicator of the tendency of the data. On
the preceding summary chart, the coefficients ranged between 15.7% and 37.0%,
indicating significant data dispersion.
LINEAR REGRESSION ANALYSIS
A strong indication of how sale prices are influenced by revenue is found by
studying the relationship between the two. To illustrate, we have performed two
regression analyses. The first analysis graphs the data points relating to the
REVPAR and sale price per room for each of the sales. This "scatter plot" is
presented on the following page, and shows the positive linear trend in the
data. An analysis plotting income per room versus sale price per room follows.
In the graph, the direct relationship is clearly evident. Hotels that generate
greater revenue per room sell for more, regardless of age, location, size,
appearance, or any other physical factors. This is not to say that those
physical and cosmetic factors do not influence price, but they do so only
insofar as they influence room rates, occupancy, operating expenses, and
ultimately net operating income.
<PAGE> 57
- ------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-5
- ------------------------------------------------------------------------------
[SALES REGRESSION ANALYSIS GRAPH]
Mathematically, the relative strength of the relationship between net income and
price per room can be found by submitting the two variables to a correlation
analysis. A perfect linear relationship would be indicated by a correlation
coefficient of 1 (positive relationship) or -1 (negative relationship). Since
very few markets are perfect, the correlation coefficient will generally fall
between -1.0 and 1.0. Correlation coefficients above .75 (or below -.75)
generally reflect a good linear relationship, meaning that one variable (price
per room) can be predicted if given the second variable (REVPAR).
When the REVPAR and price per room variables on the 63 sale properties were
submitted to a correlation analysis, the correlation coefficient (R squared) was
found to be 0.752, indicating that much of the variation in the dependent
variable (sale price per room) is explained by the independent variable
(REVPAR). This technique works best for limited service hotels since rooms
revenue is the only major source of income. The regression output is detailed on
the following chart.
<PAGE> 58
- ------------------------------------------------------------------------------
VII-6 SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
TABLE VII-3
REGRESSION OUTPUT
COMPARABLE SALE DATA SAMPLE
Constant: ($10,101)
Standard Error of Y Estimate: 6,657
R Squared: 0.752
X Coefficient: 1,333
Standard Error of X Coefficient: 99.65
The constant is the Y-axis intercept and is the value of the dependent variable
(sales price per room) when the independent variable (REVPAR) is zero (0). The X
Coefficient is the slope of the regression line. The X Coefficient measures the
amount of change in the dependent variable for every change in the independent
variable. Given the value of the independent variable (REVPAR), we can estimate
the value of the dependent variable (sale price per room) by using the X
Coefficient and constant.
Based on this information, REVPAR is a significant variable driving the value of
hotels. Although differences in physical characteristics exist, they only affect
value to the extent that they affect room rates and revenue. The regression
formula for the subject can be presented as follows:
Sale Price/Room = (X Coefficient X Subject REVPAR) + Constant
= (1,333 X $36.04) + -$10,101
Sale Price/Room = $37,940
REVPAR for the subject was estimated in the Income Capitalization Approach.
Solving the regression equation yields a predicted price for the subject,
providing a total value estimate as follows:
$37,940 per room X 125 Rooms = $4,742,540
Rounded = $4,700,000
The first analysis graphed the data points relating to the REVPAR and sale price
per room for each of the sales, while this second analysis considers net income
per room as the independent variable. The following "scatter plot" shows the
positive linear trend in the income per room versus sale price per room.
<PAGE> 59
- ------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-7
- ------------------------------------------------------------------------------
In the graph, the direct relationship is clearly evident. Hotels that generate
greater net income per room sell for more, regardless of age, location, size,
appearance, or any other physical factors.
[SALES REGRESSION ANALYSIS GRAPH]
When the net income per room and price per room variables on 54 sale properties
were submitted to a correlation analysis, the correlation coefficient (R
squared) was found to be 0.874, indicating that much of the variation in the
dependent variable (sale price per room) is explained by the independent
variable (income per room). This R squared, or correlation, is higher than that
of the REVPAR regression. The regression output is detailed on the following
chart.
<PAGE> 60
- ------------------------------------------------------------------------------
VII-8 SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
TABLE VII-4
REGRESSION OUTPUT
COMPARABLE SALE DATA SAMPLE
Constant: ($919)
Standard Error of Y Estimate: 4,457
R Squared: 0.874
X Coefficient: 8.462
Standard Error of X Coefficient: 0.445
Based on this information, net income per room is also a significant variable
driving the value of hotels. Although differences in physical characteristics
exist, they only affect value to the extent that they affect room rates,
revenue, and expenses. The regression formula for the subject can be presented
as follows:
Sale Price/Room = (X Coefficient X Subject Inc./Rm.) + Constant
= (8.462 X $3,720) + -$919
Sale Price/Room = $30,560
Net income per room for the subject was estimated in the Income Capitalization
Approach. Solving the regression equation yields a predicted price for the
subject, providing a total value estimate as follows:
$30,560 per room X 125 Rooms = $3,819,955
Rounded = $3,800,000
EFFECTIVE ROOMS REVENUE
We also employed an effective rooms revenue multiplier (ERRM) analysis. This
method is generally used as a check of reasonableness for the linear regression
method.
The ERRM is a factor derived by dividing the sales price of the comparable sale
by the rooms revenue (number of guest rooms available annually multiplied by the
average daily room rate times the occupancy factor). As with the above approach,
room revenue projections for the first full year after purchase were utilized to
reflect the buyer's anticipation of rooms revenues at the time of purchase. The
principal advantage of using economic units of comparison is that rental income
is directly reflected. Therefore, differences between properties which could
involve adjustments, based on subjective judgment estimates, have been resolved
by the free action of the market place. If the comparable properties have some
advantage over the subject in terms of age, condition accessibility, location or
physical characteristics, the difference in actual revenues presumably
<PAGE> 61
- ------------------------------------------------------------------------------
SALES COMPARISON APPROACH VII-9
- ------------------------------------------------------------------------------
reflects the extent of this advantage. The primary disadvantage of a straight
ERRM multiple is that is does not take into consideration variations in food and
beverage revenues and potential profits. However, rooms revenue profit margins
are typically significantly higher than that of food and beverage, making this
disadvantage somewhat less relevant. The fact that the subject is a limited
service hotel and most of the comparables except are limited service properties,
also mitigates this disadvantage.
The following table summarizes the Effective Rooms Revenue Multipliers for the
comparable sales.
TABLE VII-5
EFFECTIVE ROOMS REVENUE MULTIPLIERS
Median 2.66
Mean 2.68
Highest 4.25
Lowest 1.10
Data Range 3.15
Number in Sample 63
The mean of the comparable sales' ERRM is 2.68, while they ranged between 1.10
and 4.15. To supplement this information, we analyzed USRC's internal study that
was performed in the Spring of 1995. This investor survey indicated ERRMs
ranging from 1 to 5, with an average of 2.7. The average of this survey
generally supports the average of the reported sales.
Based on the foregoing analysis, and in consideration of the stability and
income potential of the subject, we estimated an ERRM of 2.5 to be most
appropriate for the subject. Applying this to the effective room revenue
estimate for our stabilized year yields the following:
$1,644,000 rooms revenue X 2.5 ERRM = $4,110,000
Rounded to $4,100,000
<PAGE> 62
- ------------------------------------------------------------------------------
VII-10 SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
CORRELATION OF SALES COMPARISON APPROACH
The preceding value indications derived in the Sales Comparison Approach reflect
an overall value range of $3,800,000 to $4,700,000 for the fee simple estate.
The basis of value was 63 limited service hotel sales located throughout the
United States. The large range in value derived through our Sales Comparison
Approach is a result of using top line revenue (REVPAR Method) to generate an
indication of value verses utilizing net operating income or bottom line income.
The subject property has historically brought around 25% to the bottom line
while the portfolio average is 30.6% which suggests the subject has higher
operating expenses. Therefore, to estimate the value of the subject without
considering the effect of expenses on the overall revenue may be misleading.
Furthermore, typical investors' will consider both approaches in their decision
making process but most often rely more heavily upon the value based on net
income. This statement is generally supported by our net income model's
correlation coeffecient (0.874) being higher than that indicated through the
REVPAR method (0.752). Therefore, in our opinion, the net income model provides
the better indicator of value at $3,800,000.
The ERRM analysis is based upon more subjectivity, and provided a value
indication of $4,100,000, which generally supports the conclusion via the net
operating income model.
Accordingly, it is our opinion that the market value of the going concern of the
fee simple estate, as indicated by the Sales Comparison Approach, in the subject
(including the contributory value of the furniture, fixtures, and equipment), as
of February 28, 1996 is:
THREE MILLION EIGHT HUNDRED THOUSAND DOLLARS
$3,800,000
<PAGE> 63
- ------------------------------------------------------------------------------
RECONCILIATION VIII - 1
- ------------------------------------------------------------------------------
RECONCILIATION
Two of the traditional approaches to value -- Income Capitalization Approach and
the Sales Comparison Approach -- were used to estimate the market value of the
subject property. The indications of value as of February 28, 1996, are as
follows:
INCOME CAPITALIZATION APPROACH $3,800,000
SALES COMPARISON APPROACH $3,800,000
These two approaches represent alternative ways of viewing market phenomena. A
final estimate of value is selected as the dominant tendency or most probable
outcome from a range of possible outcomes.
Within the Income Capitalization Approach, direct capitalization was used to
provide an indication of value. An analysis of the subject's occupancy and
average daily rate was made. Both income and expense estimates were based
primarily upon an analysis of historic data provided from the subject hotel in
addition to data from comparable hotels operating at comparable levels. Current
investment parameters and market conditions were also considered. The
capitalization rate was within the range of the investment criteria of investors
as well as comparable sales.
The Sales Comparison Approach reflects the value of the subject property based
upon an analysis of recent sales of similarly improved properties and reflects
the actions of buyers and sellers of comparable properties in the market. Both
the physical and economic units of comparison were included within the analysis.
The sales indicated a range of price per room which provided an indication of
value for the subject. Less weight was placed on the Sales Comparison Approach
due to the lack of recent truly comparable sales in the market. However, the
conclusion via this approach supported our conclusion via the Income
Capitalization Approach.
MARKET VALUE
Because the subject property represents an investment capable of attracting
investor capital, we have utilized the value estimate produced by the Income
Capitalization Approach. The Sales Comparison Approach provides additional
support for the conclusion. Subject to all conditions and explanations contained
in this report, and based upon our analyses of the subject property and the
market, together with our experience and knowledge acquired in appraising
similar properties, it is our opinion that the market value of the fee simple
interest of the going concern in the 125-room subject (including the
contributory value of the
<PAGE> 64
- ------------------------------------------------------------------------------
VIII - 2 RECONCILIATION
- ------------------------------------------------------------------------------
existing furniture, fixtures, and equipment), expressed in terms of financial
arrangements equivalent to cash, as of February 28, 1996, is:
THREE MILLION EIGHT HUNDRED THOUSAND DOLLARS
$3,800,000
CONTRIBUTORY VALUE OF THE FURNITURE, FIXTURES, AND EQUIPMENT
The final estimate of value stated above includes the estimated value of the
furniture, fixtures, and equipment (FF&E) for the hotel. Based on a report
published by Hospitality Valuation Services, Inc., the cost of new FF&E in a
standard limited-service hotel such as the subject property is typically in the
range of $5,100 to $9,500 per available room in 1994 dollars. We consider the
FF&E cost of $7,000 per unit, or $875,000 to be reasonable for the subject
property.
We have estimated the effective age of the FF&E to be approximately five years
old which takes into account the older case goods, as well as the more recently
replaced soft goods. Based on an expected economic life of ten years, the amount
of total depreciation attributable to the FF&E is $437,500. The contributory
value of the FF&E, based upon this analysis, included in the estimated value of
the property, is $437,500, or rounded to $440,000.
Therefore, it is our opinion that the contributory value of the furniture,
fixtures and equipment, as of February 28, 1996, is:
FOUR HUNDRED FORTY THOUSAND DOLLARS
$440,000
<PAGE> 65
- ------------------------------------------------------------------------------
CERTIFICATION IX - 1
- ------------------------------------------------------------------------------
We certify to the best of our knowledge and belief
- - The statements of fact contained in this report are true and correct.
- - The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
- - We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
- - This appraisal assignment was not based on a requested minimum valuation,
a specific valuation, or the approval of a loan.
- - Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event.
- - Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
- - We certify that, to the best of our knowledge and belief, the reported
analyses, opinions and conclusions were developed, and this report has
been prepared in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Appraisal Practice
of the Appraisal Institute.
- - We certify that the use of this report is subject to the requirements of
the Appraisal Institute relating to review by its duly authorized
representatives.
- - As of the date of this report, James A. Powers, MAI, CRE and Robert J.
Feeley, MAI have completed the requirements of the continuing education
program of the Appraisal Institute
- - Travis D. Ray has made a personal inspection of the property that is the
subject of this report. James A. Powers, Robert J. Feeley, and Jeffrey H.
Walker have not inspected the property.
- - No one other than the undersigned provided significant professional
assistance to the person(s) signing this report.
_________________________ __________________________________
James A. Powers, MAI, CRE Robert J. Feeley, MAI
Kentucky General Appraiser #000935
_________________________ __________________________________
Jeffrey H. Walker, CHSE Travis D. Ray
<PAGE> 66
ADDENDUM I
<PAGE> 67
D E E D
BOOK 355 PAGE 43
CLERK'S OFFICE
SHORT * FORM
DEED
KNOW ALL MEN BY THESE PRESENTS:
PROPERTY TRANSFER TAX PAID $ 749.00
--------
JERRY W. ROUSE, CLERK DC
--------------
THAT TURFWAY DEVELOPMENT CO., an Ohio general partnership
for and in consideration of Seven Hundred Forty-seven Thousand Six Hundred to
them paid by the grantees herein, the receipt of which is acknowledged, do
bargain, sell, and convey to:
Signature X Ltd., an Indiana limited partnership, its
successors and assigns forever, the following described Real Estate, in the City
of Florence ; County of Boone and Commonwealth of Kentucky, to-wit:
------------
Group No. 1693
------
Present Street Address
---------------------------------------------------------
Plat No. 21 , page 3, Mailing Address 941 E. 86th Street, Suite 213,
---- -----------------------------------------
Indianapolis, Indiana 46240 .
- -----------------------------
Situated in the City of Florence, Boone County, Kentucky and being
entire Lot Number Three (3) as designated on the Plat of Turfway
Commercial Park, Section One as recorded in Plat Book 21 , Page 3 of
the County Clerk's Records at Burlington, Kentucky. ---- ---
<PAGE> 68
ADDENDUM II
<PAGE> 69
(up arrow) VIEW OF FRONT DESK
VIEW OF DOUBLE/DOUBLE (down arrow)
<PAGE> 70
(up arrow) VIEW OF SIGNATURE QUEEN
VIEW OF BREAKFAST BAR AREA (down arrow)
<PAGE> 71
(up arrow) VIEW OF MEETING ROOM
VIEW OF OUTDOOR POOL AREA (down arrow)
<PAGE> 72
ADDENDUM III
<PAGE> 73
COMPANY PROFILE
- -------------------------------------------------------------------------
<PAGE> 74
U S REALTY CONSULTANTS, INC. (USRC) was originally formed in January of 1983 as
a Columbus-based firm specializing in commercial real estate appraisal and
market analysis. With regional offices located in Atlanta, Georgia and
Chicago, Illinois, USRC has now grown to be one of the premier real estate
appraisal and consulting practices in the United States.
As we continue our phenomenal growth, our professionals continue to be involved
in literally hundreds of assignments annually, involving millions of dollars of
real estate. Our practice now includes three major areas of services to the
real estate industry: Hospitality & Resort Industry Services, Golf and Country
Club Services, and Real Estate Appraisal Services.
o Hospitality & Resort Industry Services - Evolving from a diversified
background of hospitality and resort market analysts, appraisers, and
operational specialists, USRC has established a hospitality & resort
consulting practice second to none. Our professionally-trained
hoteliers, resort, and golf course specialists, all having achieved
outstanding academic credentials, have over forty combined years of
industry experience. However, our constant involvement in the
consulting and appraising of hotels, motels, restaurants, resorts, and
golf courses have enabled us to be current with, as well as adaptive to,
the ever-changing dynamics of the industry. As a result, our
professionals combine current and in-depth industry experience with
strong analytical and communication skills to yield practical and
effective results tailored to the specific engagement, thus providing
our clients the best in hospitality & resort consulting services.
o Real Estate Appraisal Services - USRC is unique in that it was part of a
movement to pioneer the development of a national real estate appraisal
practice. We specialize in the valuation of real estate portfolios,
which are disbursed both geographically and by property type. Our
valuation expertise is in commercial real estate with emphasis on
office, industrial, retail, mixed-use, hotel, resort, golf course, other
special-use and multifamily projects. These characteristics qualify us
as one of the leading appraisal organizations in the nation.
o Golf and Country Club Services - USRC has recently developed a
burgeoning practice devoted to golf-related and recreational facilities.
The services offered under this practice include valuation and
consultation for private country clubs, daily-fee golf courses,
surrounding residential development, and resort destinations.
The rapid expansion of USRC's experience and capabilities closely parallels the
growth and ever-changing requirements of the clients we serve. The Firm's
emphasis on programs of professional learning ensure that industry requirements
are being met by our people. Clients become the beneficiaries of this
continually expanding knowledge. Many USRC individuals also serve on senior
committees of national and state professional societies and associations,
enabling them to stay current with developing trends in the profession and to
participate in framing new rules and standards.
<PAGE> 75
USRC's clients benefit from the advantage of working with a local firm, yet have
access to the experience and much of the resources of a national firm. With 20
professional staff members - five holding the coveted designation, Member of the
Appraisal Institute (MAI) - and five specifically trained in the analysis of
hotels, restaurants, resorts, and golf courses - and growing, we are determined
to provide the "quality client service" that our customers expect.
U S REALTY CONSULTANTS, INC., with over 55 combined years of real estate
valuation experience, serves many of the nation's most prominent pension funds,
investment managers and advisors, life insurance companies, financial
institutions, and governmental agencies providing quality appraisal and
litigation support services in relation to their real estate needs.
Some of the more significant marketplaces in which USRC holds experience and
important local market knowledge include:
o Albuquerque o Fort Worth o Portland, OR
o Aspen o Houston o Providence
o Atlanta o Indianapolis o Raleigh
o Austin o Kansas City o Sacramento
o Birmingham o Los Angeles o San Diego
o Boston o Louisville o San Francisco
o Charlotte o Minneapolis o San Jose
o Chicago o Milwaukee o Seattle
o Cincinnati o Nashville o St. Louis
o Cleveland o New Orleans o Tampa
o Colorado Springs o Oakland o Toledo
o Columbus o Orlando o Toronto, Ontario
o Dallas o Philadelphia o Washington, D.C.
o Dayton o Phoenix o West Palm Beach
o Denver o Pittsburgh o Wilmington
o Des Moines o Portland, ME o Caribbean
o Detroit
<PAGE> 76
PROFESSIONAL
STAFF
QUALIFICATIONS
--------------------------------------------------------------
<PAGE> 77
James Powers is the founder and President of U S REALTY
CONSULTANTS, INC., overseeing the company from its inception
in 1983. Mr. Powers in now actively involved in the
valuation of all income-producing property types, including
multi-property portfolio appraisal. In addition, he is
called upon to provide expert witness testimony in courts
JAMES A. throughout the country. Mr. Powers is a specialist in the
POWERS, MAI, securitization of real estate through Real Estate Investment
CRE Trusts.
PRESIDENT Mr. Powers received his MAI designation from the Appraisal
Institute in 1974, and is a Certified General Appraiser in
the State of Ohio.
EDUCATION
Bachelor of Science (Major: Engineering), United States
Military Academy, West Point, New York, 1960
Instructor, Lecturer, Real Estate Appraisal
and Investment Topic
Chairman, Education Committee, Columbus Board of
Realtors, 1971 - 1972
PROFESSIONAL AFFILIATIONS
Member, Counselors of Real Estate
Appraisal Institute
Director, Ohio Chapter 1988
Society of Real Estate Appraisers:
Past President, Columbus Chapter 1978 - 1979
American Society of Appraisers:
Past President, Columbus Chapter 1974 - 1975
National Association Review Appraisers
National Association of Real Estate Boards
Ohio Association of Real Estate Boards
Columbus Board of Realtors
Real Estate Securities and Syndications Institute
National Association Corporate Real Estate Executives
Past Chairman, St. Ann's Hospital Board of Trustees,
during the Concept and Implementation Phase of the
Hospital's relocation and redevelopment.
<PAGE> 78
Robert J. Feeley, MAI is Vice President of U S REALTY
CONSULTANTS, INC. He joined the firm in January, 1984 shortly
after the firm's inception in 1983. Mr. Feeley's experience
ROBERT J. includes appraisal and portfolio analysis of investment-grade
FEELEY real estate, valuation of participating debt instruments,
appraisal services for asset valuation and loan underwriting
of FSLIC- and FDIC-insured institutions, and third-party
VICE PRESIDENT appraisal reviews.
Mr. Feeley has extensive experience in the appraisal of both
CBD and suburban office buildings, apartments,
office/warehouse, hotel, retail centers ranging from
neighborhood centers to regional malls, marinas and mixed-use
properties. He has been a member of the Appraisal Institute
since 1993.
EDUCATION
Bachelor of Science, The Ohio State University, 1979
Master of Business Administration with emphasis in real
estate, The Ohio State University, 1983
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Society of Real Estate Appraisers
Delegate to the 1988 and 1989 Young Advisory Council of the
Society of Real Estate Appraisers
PROFESSIONAL AFFILIATIONS
Appraisal Institute
STATE CERTIFICATION
Mr. Feeley holds certification as a General Real Estate
Appraiser in the following states:
State of Indiana, July 1992
State of Kentucky, June 1993
State of Ohio, July 1991
<PAGE> 79
Jeffrey Walker joined the firm in 1992, serving as Director of
Hospitality Development. Mr. Walker's previous experience
includes various hotel and restaurant positions. Most recently
he served as Director of Sales and Marketing with Hyatt Hotels
JEFFREY H. Corporation, where he received the "Hyatt Director of Sales of
WALKER, CHSE the Year" award in 1991.
Mr. Walker is now involved in consulting work for lenders,
DIRECTOR owners, developers and operators. His areas of specialization
HOSPITALITY include hotel marketing consulting, operational review, market
DEVELOPMENT study and analysis, yield management, and advertising and public
relations support for hotels.
EDUCATION
Bachelor of Science, James Madison University, 1985
Completed credit requirements for the following AI courses:
1A1 Real Estate Appraisal Principles
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Ohio Hotel and Motel Association
The Ohio Restaurant Association
PROFESSIONAL AFFILIATIONS
Ohio Hotel and Motel Association, Allied Board of Directors
Columbus Hotel and Motel Association, member
Hotel Sales and Marketing Association, International, member
Greater Washington (D.C.) Society of Association Executives,
1988-92
<PAGE> 1
SUMMARY
APPRAISAL REPORT
OF THE
SIGNATURE INN - CINCINNATI NORTH
11385 CHESTER ROAD
CINCINNATI, OHIO
AS OF
FEBRUARY 29, 1996
FOR
MR. MARK CARNEY
VICE PRESIDENT
SIGNATURE INN X LIMITED
ONE PARKWOOD CROSSING
250 EAST 96TH STREET
SUITE 450
INDIANAPOLIS, INDIANA 46240
<PAGE> 2
April 3, 1996
Mr. Mark Carney
Vice President
Signature Inn X Limited
One Parkwood Crossing
250 East 96th Street
Suite 450
Indianapolis, Indiana
RE: SIGNATURE INN - CINCINNATI NORTH
CINCINNATI, OHIO
Dear Mr. Carney:
In accordance with the engagement letter dated February 16, 1996, we have
appraised the property referenced above. The purpose of this appraisal is to
estimate the market value of the going concern of the fee simple estate in the
subject, including the furniture, fixtures, and equipment component.
The subject's site contains 3.223 acres and is improved with a 130-unit,
limited-service Signature Inn hotel. A complete description of the property,
the sources of information, and the bases of the estimates are stated in the
accompanying report. Your attention is called to the Standard and Special
Conditions and Certification which follow. This appraisal conforms to the
guidelines stipulated by the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice.
MARKET VALUE
Subject to all conditions and explanations contained in this report, and based
upon our analyses of the subject and the market, together with our experience
and knowledge acquired in appraising similar properties, it is our opinion that
the market value of the going concern of the fee simple estate in the subject
(including the contributory value of the existing furniture, fixtures, and
equipment), expressed in terms of financial arrangements equivalent to cash, as
of February 29, 1996, is:
THREE MILLION THREE HUNDRED THOUSAND DOLLARS
$3,300,000
<PAGE> 3
Mr. Mark Carney
April 3, 1996
Page 2
CONTRIBUTORY VALUE OF THE FURNITURE, FIXTURES, AND EQUIPMENT
The estimate of value stated above includes the value of the furniture,
fixtures, and equipment (FF&E). Based on our analysis, the contributory value
of the FF&E is $460,000.
The accompanying prospective financial analyses are based on estimates and
assumptions developed in connection with the appraisal. The assumptions are
believed to be correct and reasonable; however, some assumptions may not
materialize, and unanticipated events and circumstances may occur; therefore,
actual results achieved during the period covered by our prospective financial
analyses may vary from our estimates and the variations may be material.
Further, we have not been engaged to evaluate the effectiveness of management,
and we are not responsible for future marketing efforts and other management
actions upon which actual results will depend.
This report and its contents are intended solely for your information and
assistance for the function stated above, and should not be relied upon for any
other purpose. Otherwise, neither our report nor any of its contents nor any
reference to the appraisers or U S Realty Consultants, Inc. may be included or
quoted in any document, offering circular or registration statement,
prospectus, sales brochure, other appraisal, or other agreement without U S
Realty Consultants prior written approval of the form and context in which it
appears. Such permission will not be unreasonably withheld.
Respectfully submitted,
U S REALTY CONSULTANTS, INC.
____________________________________ ___________________________________
James A. Powers, MAI, CRE Jeffrey H. Walker, CHSE
President Director of Hospitality Development
Ohio General Appraiser #381516
<PAGE> 4
APPRAISAL REPORT
OF THE
SIGNATURE INN - CINCINNATI NORTH
11385 CHESTER ROAD
CINCINNATI, OHIO
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I. PREFACE
Standard Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Special Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
Representative View of the Subject . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5
II. INTRODUCTION
Property Identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Purpose and Function of the Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Legal Interest Appraised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Effective Date of Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Definition of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Exposure Time and Marketing Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Appraisal Development and Reporting Process . . . . . . . . . . . . . . . . . . . . . . . II-3
History of the Subject . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-5
Competency of Appraisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-5
III. DESCRIPTIVE DATA
Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Neighborhood Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Property Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-5
IV. MARKET ANALYSIS
Lodging Market Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
Signature Inns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-4
Competitive Lodging Market Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-4
Competitive Position of the Subject . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-14
V. HIGHEST AND BEST USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
VI. INCOME CAPITALIZATION APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
VII. SALES COMPARISON APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
VIII. RECONCILIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1
IX. CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1
ADDENDA
Legal Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Addendum I
Neighborhood and Subject Photographs . . . . . . . . . . . . . . . . . . . . . . Addendum II
Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Addendum III
</TABLE>
<PAGE> 5
PREFACE I-1
STANDARD CONDITIONS
The following Standard Conditions apply to real estate appraisals by U S Realty
Consultants, Inc. Appraisals are performed and written reports are prepared
by, or under the supervision of, members of the Appraisal Institute in
accordance with the Institute's Standards of Professional Practice and Code of
Professional Ethics.
No opinion is rendered as to property title, which is assumed to be good and
marketable. Unless otherwise stated, no consideration is given to liens or
encumbrances against the property. Sketches, maps, photos, or other graphic
aids included in appraisal reports are intended to assist the reader in ready
identification and visualization of the property and are not intended for
technical purposes.
Appraisal reports may contain prospective financial information, estimates, or
opinions to represent the appraisers' view of reasonable expectations at a
particular point in time, but such information, estimates, or opinions are not
offered as predictions or as assurances that a particular level of income or
profit will be achieved, that events will occur, or that a particular price
will be offered or accepted. Actual results achieved during the period covered
by our prospective financial analyses will vary from those described in our
report, and the variations may be material.
It is assumed that legal, engineering, or other professional advice, as may be
required, has been or will be obtained from professional sources and that the
appraisal report will not be used for guidance in legal or technical matters
such as, but not limited to, the existence of encroachments or easements or
other discrepancies affecting the legal description of the property. It is
assumed that there are no concealed or dubious conditions of the subsoil or
subsurface waters including water table and flood plain, unless otherwise
noted. We further assume no regulations of any government entity control or
restrict the use of the property unless specifically referred to in the report.
It is assumed that the property will not operate in violation of any applicable
government regulations, codes, ordinances, or statutes.
In the absence of competent technical advice to the contrary, it is assumed
that the property being appraised is not adversely affected by concealed or
unapparent hazards such as, but not limited to, asbestos, hazardous or
contaminated substances, toxic waste, or radioactivity.
The report and the final estimate of value and prospective financial analyses
included in it are intended for the information of the person or persons to
whom they are addressed, solely for the purposes stated, and should not be
relied upon for any other purpose. Permission will be granted only upon meeting
certain conditions.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; but no responsibility, whether
legal or otherwise, is assumed for its accuracy, and it cannot be guaranteed as
being certain. No single item of information was completely relied upon to the
exclusion of other information.
Appraisal assignments are accepted with the understanding that there is no
obligation to furnish services after completion of the original assignment. If
the need for subsequent services related to an appraisal assignment (for
example, testimony, updates, conferences, reprint or copy services) is
contemplated, special arrangements acceptable to U S Realty Consultants, Inc.
must be made in advance.
<PAGE> 6
I-2 PREFACE
No significant change is assumed in the supply and demand patterns indicated in
the report. The appraisal assumes market conditions as observed as of the
current date of our market research stated in the letter of transmittal. These
market conditions are believed to be correct; however, the appraisers assume no
liability should market conditions materially change because of unusual or
unforeseen circumstances.
The valuation applies only to the property described and for the purpose so
stated and should not be used for any other purpose. Any allocation of total
price between land and the improvements as shown is invalidated if used
separately or in conjunction with any other report.
Neither the report nor any portions thereof (especially any conclusions as to
value, the identity of the appraisers or U S Realty Consultants, Inc., or any
reference to the Appraisal Institute or the MAI designation) shall be
disseminated to the public through public relations media, news media, sales
media or any other public means of communication without the prior written
consent and approval of the appraisers and U S Realty Consultants, Inc.
The date of the valuation to which the value estimate conclusions apply is set
forth in the letter of transmittal and within the body of the report. The
values are based on the purchasing power of the United States dollar as of that
date.
It should be specifically noted by any prospective mortgagee that the appraisal
assumes that the property will be competently managed, leased, and maintained
by financially sound owners over the expected period of ownership. This
appraisal engagement does not entail an evaluation of management's or owner's
effectiveness, nor are we responsible for future marketing efforts and other
management or ownership actions upon which actual results will depend.
The Americans with Disabilities Act ("ADA") became effective January 26, 1992.
We will not be responsible for conducting a specific compliance survey and
analysis of this property to determine whether or not it is in conformity with
the various detailed requirements of the ADA. It is possible that a compliance
survey of the property, together with a detailed analysis of the requirements
of the ADA, could reveal that the property is not in compliance with one or
more of the requirements of the Act. If so, this fact could have a negative
effect upon the value of the property. Since we will have no direct evidence
relating to this issue, we will not be considering possible non-compliance with
the requirements of ADA in estimating the value of the property.
It is strongly recommended that the reader should rely upon only authorized
copies of this report. Authorized copies are printed on recycled grey paper
and contain original U S Realty Consultants, Inc. letterhead. Our letterhead
is printed with grey ink on an evenly-shaded grey background. All original
signatures are in blue ink. Any copy that does not have the above is
unauthorized and may have been altered. If the reader is uncertain as to the
authenticity of this report, please contact U S Realty Consultants, Inc. at
(614) 221-9494.
<PAGE> 7
PREFACE I-3
SPECIAL CONDITIONS
It is assumed that qualified professional hospitality management with
demonstrated expertise in management of hotels operating in the market will
operate the subject. It is assumed that adequate funds will be available for
upkeep and repair of the facility.
It is assumed that the subject will continue to operate as a Signature Inn or
similar chain affiliation with access to a national reservation system. We
have assumed that competent and efficient management of the hotel will be in
place. We have assumed that a strong marketing effort will be put forth by the
management of the motel.
Historical revenues and expenses of the subject have been provided by Signature
Inns. We have used these unaudited financial statements in developing our
bases for the prospective financial analysis contained in the Income
Capitalization Approach. We based our analysis on 1993 through 1995
performance. All financial information provided to us is assumed to be
accurate, and we bear no responsibility for inaccuracies that may exist.
We have not been provided with a detailed environmental assessment of the
subject. During our inspection, there were no visible signs of contamination
at the property that would indicate possible environmental hazards.
Discussions with local assessment officials and area real estate professionals
did not indicate that the property had formerly been used for a purpose that
would have led to soil contamination or indicate that hazardous materials would
be found on the site.
U S Realty Consultants, Inc. has no expertise in evaluation of environmental
hazards, and therefore expresses no independent opinion as to the existence
thereof. If environmental hazards, such as asbestos or other forms of
contamination of the ground or improvements are subsequently found to exist,
the negative impact on the estimate of market value for the property could be
substantial.
<PAGE> 8
I-4 PREFACE
<TABLE>
<CAPTION>
EXECUTIVE SUMMARY
<S> <C>
PROPERTY IDENTIFICATION Signature Inn - Cincinnati North
PROPERTY LOCATION 11385 Chester Road
Cincinnati, Ohio
PERTINENT DATES:
EFFECTIVE DATE OF VALUATION February 29, 1996
DATE OF INSPECTION February 29, 1996
LEGAL INTEREST APPRAISED Fee simple estate
PROPERTY DATA:
SITE 3.223 acres
BUILDING 130 units
HIGHEST AND BEST USE:
AS IMPROVED A limited-service hotel
AS THOUGH VACANT A limited-service hotel
INDICATION OF VALUE:
INCOME CAPITALIZATION APPROACH $3,300,000
DIRECT CAPITALIZATION RATE 12.25%
SALES COMPARISON APPROACH $3,400,000
FINAL ESTIMATE OF MARKET VALUE: $3,300,000
CONTRIBUTORY VALUE OF THE FF&E $460,000 (Included in market
value)
UNIT OF COMPARISON $25,385 per room
ESTIMATE OF EXPOSURE TIME/
MARKETING PERIOD Less than 12 months
</TABLE>
<PAGE> 9
PREFACE I-5
REPRESENTATIVE VIEW OF THE SUBJECT
<PAGE> 10
INTRODUCTION II-1
PROPERTY IDENTIFICATION
The subject consists of a 130-unit, limited-service Signature Inn hotel,
located at 11385 Chester Road, Cincinnati, Hamilton County, Ohio. The subject
was originally constructed in 1987. The property is considered to be in
average condition. The legal description of the subject is presented in the
addenda.
PURPOSE AND FUNCTION OF THE APPRAISAL
The purpose of the appraisal is to estimate the as is market value of the going
concern of the fee simple estate in the subject, including furniture, fixtures
and equipment (FF&E), subject to the Uniform Standards of Professional
Appraisal Practice (USPAP), and Title XI (and amendments) of the Financial
Institution Reform Recovery and Enforcement Act of 1989 and 1994 (FIRREA).
This report is to be used to assist the limited partners regarding the possible
acquisition of the subject by the general partner.
LEGAL INTEREST APPRAISED
The legal interest appraised herein is the fee simple estate in the land and
improvements. A fee simple estate is defined as follows:
Absolute ownership unencumbered by any other interest or estate,
subject only to the limitations imposed by the governmental powers of
taxation, eminent domain, police power and escheat.(1)
With respect to this motel, the property rights appraised include all items of
personal property, including the existing furniture, fixtures and equipment,
and licenses and agreements required to operate the property and related
facilities. The "business assets" or business component included as an
integrated constituent of value includes "tangible and intangible resources
other than personal property and real estate that are employed by a business
enterprise in its operations.(2) This category includes, but is not
necessarily limited to, all intangible property and documents evidencing
trademarks, trade names, governmental operating rights, licenses, privileges,
permits, copyrights, and goodwill as a going-concern.
EFFECTIVE DATE OF VALUATION
The appraisal is based upon market conditions as of February 29, 1996, the
current date of our market research and property inspection.
(1) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd Ed.,
p. 140.
(2) Uniform Standards of Professional Appraisal Practice, 1987.
<PAGE> 11
II-2 INTRODUCTION
DEFINITION OF VALUE
The purpose of the appraisal is to estimate the market value of the subject
property. Market value is defined in the Uniform Standards of Professional
Practice, 1995 Edition as follows:
"The most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus. Implicit in
this definition is the consummation of a sale as of a specified date
and the passing of title from seller to buyer under conditions
whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in
what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in United States dollars or
in terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale."
For the purpose of this report, the definition of going-concern value shall be
as follows:
The value created by a proven property operation; considered as a
separate entity to be valued with a specific business
establishment.(3)
EXPOSURE TIME AND MARKETING PERIOD
The concept of exposure time is historical in nature and is presumed to have
occurred prior to the effective date of the appraisal. Alternatively,
marketing period occurs after the effective date of the appraisal and may or
may not be directly related to the value presented. The actual sale price
could increase, decrease, or remain static during the marketing period
depending upon market conditions and the type of property being appraised.
(3) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd
Edition, (Chicago: Appraisal Institute, 1993), p. 160.
<PAGE> 12
INTRODUCTION II-3
We referenced a number of sources in estimating a probable exposure period.
U S REALTY CONSULTANTS, INC. Spring 1995 Hotel Investor Survey reported typical
marketing time for hotels/motels was 3 to 18 months with an average of 7.2
months. KORPACZ's Real Estate Investor Survey - Fourth Quarter 1995 stated
that their survey respondents indicated that average marketing time for all
commercial real estate is approximately 9.95 months.
Since most investors' perceptions and estimates of marketing period are based
largely on exposure times that they have recently encountered in similar
transactions, it stands to reason that there should be some correlation between
marketing periods and exposure times. In fact, in the absence of perceived
changes in the market or other extenuating circumstances, marketing period and
exposure time should be identical. That is to say, if all other things are
held constant, a property that (retrospectively) required an exposure time of
say one year should be expected to have a marketing period (prospectively) also
of one year.
Differences in the two concepts should appear when there is a perceived change
in the market. To use the same example presented above, if a property required
an exposure time of one year but perceived market conditions are improving, an
appropriate estimate of marketing period could reasonably be expected to be
less than one year. Conversely, if market conditions were anticipated to
worsen, marketing period might exceed exposure time.
Objectively quantifying such differences would be virtually impossible.
However, understanding the relationship between the two concepts and how they
are affected by perceived changes in the market allows one to better estimate
(subjectively) a reasonable period for exposure time and marketing period.
This is especially important during periods when actual market evidence is
limited by a lack of transactions. Extracting transaction-driven estimates can
also be tenuous since many properties are often originally placed on the market
at inflated asking prices. It is then necessary to decide if exposure time
began when the property was first offered for sale or when the price was
dropped to (or near) the ultimate sale price. Further complicating the issue
is the question of whether exposure time ends when a sale contract is signed or
whether it ends at the closing date of a sale. Recent transactions of hotels
during the past twelve months indicate that marketing times have been
decreasing to a range of 3 to 9 months.
Based upon our investigations, we believe that a marketing period of less than
12 months is reasonably appropriate. Furthermore, it is our opinion that the
exposure time commensurate with our estimate of value for the subject would
also be less than 12 months.
APPRAISAL DEVELOPMENT AND REPORTING PROCESS
The scope of this appraisal involves the systematic research and analysis
necessary to reach a value conclusion for the hotel. The initial step was to
inspect the subject, general market
<PAGE> 13
II-4 INTRODUCTION
area, and neighborhood. Market research included the assembly of data from
public records, real estate specialists, governmental entities, real estate
publications, as well as owners/investors, management and hotel managers at
similar and comparable properties. Information concerning the subject was also
collected and consisted of ad valorem taxes, zoning information, sales history,
governmental restrictions, environmental regulations and other factors which
may affect its operating performance and resulting value. Site and title
studies were not commissioned at the same time USRC was engaged to provide
valuation services. USRC reserves the right to amend our value conclusions in
the event that these studies are conducted and reveal material discrepancies.
Information from the market area was collected and studied in order to define
the character, composition and the propensity for change in the subject trade
area. This information was analyzed to determine the influences which will
impact the surrounding market area and the value of the subject property.
After analyzing the macro-environment, research was conducted relevant to the
valuation process, including gathering income, expense, capitalization rate,
and discount rate data; comparable improved sales; real estate tax, zoning,
and flood plain data and any other information pertinent to the valuation of
the subject property. This information was reviewed, confirmed when necessary,
and analyzed through the approaches to value. The subject-specific data
considered in our analysis was provided by Signature Inns.
The hotel market was analyzed. Management of the hotel comparables were
interviewed. Improved sale comparables were all analyzed, and where possible
were confirmed with either the buyer, the seller or a knowledgeable third
party.
APPLICABILITY OF APPROACHES
THE INCOME CAPITALIZATION APPROACH: This approach analyzes the property's
capacity to generate income (or other monetary benefit) and converts this
capacity into an indication of market value. The approach is suitable for
properties that have obvious earning power and investment appeal but is
inappropriate for properties that have no readily discernible income potential.
THE SALES COMPARISON APPROACH: This approach compares the subject property to
other properties that have changed hands fairly recently, at known price
levels. The approach is most meaningful when there is adequate market data
involving comparable properties. Reliability of the approach varies directly
with the quantity and quality of available market data.
THE COST APPROACH: In this approach, the cost to replace the improvements is
estimated. A deduction is made for any depreciation, and the result is
combined with the estimated value of the underlying land. The approach is
applicable when each component is
<PAGE> 14
INTRODUCTION II-5
independently measurable, and when the sum of all components is believed to
reflect market value. The approach is not applicable to unimproved land or
obsolete improvements.
APPLICABILITY TO SUBJECT PROPERTY: The Income Capitalization Approach was
deemed the most applicable method to estimate market value for the subject.
The Sales Comparison Approach was utilized to provide an additional point of
reference. Numerous hotel sales were analyzed, and the analysis rendered a
meaningful conclusion of value.
The Cost Approach has not been completed. Due to the age of the subject,
significant depreciation exists, which is difficult and subjective to quantify.
In addition, the Cost Approach would not reflect the reasoning or approach
taken by an investor for a property of this age and type.
This appraisal engagement has been conducted using applicable standard
appraisal techniques and in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the Appraisal
Institute, the Financial Institutions Reform, Recovery and Enforcement Act
(FIRREA) of 1989 and 1994, and the Uniform Standards of Professional Appraisal
Practice (USPAP) 1995 Edition.
The definition of market value presented previously discusses the conditions of
a market where buyers and sellers are acting freely and are not under duress.
Within the valuation process we have attempted to balance the buyer and seller
perspectives in our consideration of assumptions and rates. This has been done
by evaluating available market data and available surveys. In addition, we
have also spoken with active market participants. The primary emphasis of this
research was to discover differences in valuation criteria from a buyer's
versus a seller's perspective. The results provide support for analysis bases
such as capitalization and discount rates.
HISTORY OF THE SUBJECT
According to public records, the subject is owned by Signature X Limited. The
property was constructed by Signature Inns originally in 1987. There have been
no recorded transfers of the subject within the past three years.
Additionally, there are no current agreements for sale, options, or listings of
the subject as of the date of the appraisal.
COMPETENCY OF THE APPRAISERS
U S Realty Consultants, Inc. has performed numerous appraisals and reviews of
appraisals on income producing properties such as the subject. Files are
maintained with historical and current data relative to the changing market
with respect to the subject. Competency has been established in both the
property type and geographical area, either through previous engagements or
through current research of germane market trends. Therefore, we possess the
knowledge and experience to conduct the inspection, analysis, and reasoning
necessary to accurately estimate the value of the appraised interest in the
subject.
<PAGE> 15
DESCRIPTIVE DATA III-1
REGIONAL ANALYSIS
The subject is located within the Cincinnati PMSA, which is composed of the
four Ohio counties of Brown, Clermont, Hamilton, and Warren; the six Kentucky
counties of Boone, Campbell, Gallatin, Grant, Kenton, and Pendleton; and the
two Indiana counties of Dearborn and Ohio. The Ohio River divides Kentucky
from Ohio and Indiana, thus dividing the PMSA. The Cincinnati PMSA is Ohio's
second largest metropolitan area, containing nearly 1.6 million people. Of
this total, approximately 22.6% reside in Cincinnati, which is located in
Hamilton County. During the 1980s, the population in the PMSA and Cincinnati
increased at compound annual rates of 0.4% and -0.6%, respectively. According
to National Planning Data Corporation, the population in the PMSA and
Cincinnati is projected to increase at compound annual rates of 0.8% and -0.3%,
respectively. From this analysis, we can conclude that the majority of the
population growth is occurring the communities surrounding Cincinnati.
Major employers in Cincinnati include Procter & Gamble Co., the University of
Cincinnati, and G.E. Aircraft Engines. During 1995, approximately 804,000 jobs
were available in the Cincinnati PMSA, 27% of which were concentrated in the
services sector, 20% in the retail trade sector, and 18% in the manufacturing
sector. According to the Ohio Bureau of Employment Services, the PMSA's
employment base expanded by 6.2% between 1992 and 1995, primarily due to strong
job growth in services and retail trade. Together, these sectors added
approximately 32,000 new jobs. During this time, the manufacturing sector lost
4,000 jobs, largely due to changes at G.E. Aircraft Engines, which has laid-
off approximately 8,000 peoples since 1993. The PMSA's 1995 annual
unemployment rate was 4.2%, reflecting a decline of 1.8 percentage points since
1992. Overall, these population and employment trends bode well for the
prospects of long-terms economic growth in the Cincinnati PMSA.
NEIGHBORHOOD ANALYSIS
The neighborhood surrounding a hotel impacts the property's status, class,
style of operation, and its ability to attract and properly serve a particular
market segment of users. The subject property is located in the township of
Sharonville (Cincinnati), Hamilton County, Ohio, at 11385 Chester Road, north
of the Sharon Road exit of Interstate 75. The area is developed with a variety
of motel, restaurant, highway service, and office uses.
SURROUNDINGS: In general, Sharon Road, one of the main east/west arteries
through the neighborhood, is lined with hotel, restaurant, and highway-services
uses on the east side of the interstate. On the west side, there are more
residential uses located along this road. The subject is located on the west
side of Chester Road with an ingress/egress point off of Chester Road. Several
of the subject's competitors are within the immediate neighborhood of the
subject along Chester Road which include the Red Roof Inn (behind the
Sharonville Convention Center), Marriott Hotel (directly across the street from
the subject), Super 8 Motel, and Comfort Inn.
<PAGE> 16
III-2 DESCRIPTIVE DATA
ACCESS AND EXPOSURE: The subject property is accessed from I-75 by exiting
Sharon Road west, then turning north onto Chester Road. The subject is located
less than half a mile north on the west side of Chester Road. Access to the
subject is relatively easy but visibility from I-75 is very limited.
<PAGE> 17
[MAP]
REGIONAL MAP
SIGNATURE INN - CINCINNATI NORTH
CINCINNATI, OHIO
<PAGE> 18
AREA ATTRACTIONS
[MAPS]
<TABLE>
<CAPTION>
RESTAURANTS
<S> <C> <C>
1. Skyline Chili 10. Texas Road House 19. Flo & Eddie's
2. Wendy's 11. Emperor's Wok 20. Shoney's
3. Subway 12. Bombay Bicycle Club 21. Pizza Hut
4. Lotus 13. Victoria Station 22. The Grand Finale
5. Long John Silver's 14. Friendly's 23. T.G.I. Friday's
6. Burger King 15. Windjammer 24. Steak 'n' Shake
7. Arby's 16. Captain D's 25. Skyline Chili
8. Taco Bell 17. Bill Knapp's 26. Ponderosa
9. McDonald's 18. Bonanza
</TABLE>
<TABLE>
<CAPTION>
SURROUNDING AREA
<S> <C> <C>
1. Downtown Cincinnati 3. Riverfront Coliseum 7. University of Cincinnati
City Hall 4. Eden Park 8. Malibu Raceways
Garfield Park Cincinnati Art Museum 9. Tri County Mall
Hamilton County Library Museum of Natural History 10. Kenwood Mall
Fountain Square Playhouse in the Park 11. Kings Island and
U.S. Post Office Planetarium Jack Nicklaus
Convention Center 5. Cincinnati Zoo Sports Center
2. Riverfront Stadium 6. River Downs Race Track
</TABLE>
<PAGE> 19
DESCRIPTIVE DATA III-5
SITE ANALYSIS
The site contains 3.223 acres and is somewhat flag shaped. The site is near
street grade level with Chester Road and has limited visibility to I-75 but
easy access. The subject is located in a GB District (General Business) within
Sharonville. The subject is considered to be a legally conforming land use.
According to flood map community panel #390-236-0001 C dated January 2, 1987,
the site is located in a Zone C, an area of minimal flooding. No easements or
encroachments, other than normal utility easements, were made known to the
appraiser, and none are assumed to exist. All public utilities are available
to the site and are considered adequate for the existing hotel operation.
IMPROVEMENT ANALYSIS
Based upon information provided by Signature Inn's corporate offices, and
confirmed during our inspection, the property is constructed with steel frame
and concrete block walls, with exterior brick cover, on a concrete slab
foundation. Roofs are sloped and covered with metal siding, which extends
partially over the side of the buildings. Interior finishes consist of paint
or wall vinyl, with carpeting or tile flooring throughout. The buildings
consist of three stories, surrounded by concrete walks, with average
landscaping.
Guests rooms are somewhat typical of a mid-priced, corporate-oriented,
limited-service hotel. All rooms feature a bedside table, a low chest of
drawers, a small table and chairs, a desk and chair, color remote-control
television with HBO, and a vanity with sink outside of the bathroom. In
addition, Signature Rooms feature a larger 12-foot desk, and a reclining chair.
Each room has its own individually controlled electrical heating and cooling
units. Guest room amenities include free local phone calls, and a guest voice
mail system is currently being installed in all Signature Inns. A
complimentary newspaper is delivered to the guest room every weekday, and
complimentary continental breakfast is served daily.
The subject contains 130 guest rooms, consisting of 62 Double/Doubles, 63
Signature Queens, 2 Signature Kings, 2 Studios with a fold-up "Murphy bed", and
1 Spa King. Guest rooms are in average condition.
Although the property is limited-service, it offers several extra amenities
geared toward the corporate traveller. All Signature Inns have recently
installed Business Centers for the complimentary use of their guests. These
private offices include a computer, printer, copier, and speaker phone.
Additionally, the properties have two interview centers located on the balcony
above the lobby, which feature a desk and local telephone service in a
comfortable, partially enclosed workspace. The property contains two meeting
rooms totalling approximately 1,800 square feet.
<PAGE> 20
SIGNATURE INN
CINCINNATI NORTH'S
FLOOR PLAN
MAP
[MAP]
Thank you for choosing Signature Inn North! We hope your stay with us is
comfortable. This map will not only help you find your room ... but also the
other key areas within the hotel such as our meeting rooms, our guest office
and interview centers. The maps on the reverse side will also help you find
your way around town. In addition, in display cases just off the lobby,
there's a large, detailed map of the Cincinnati area. If you have any questions
or need directions, be sure to ask at the front desk. We'll be glad to help.
Have a pleasant stay!
SIGNATURE INN
[LOGO]
<PAGE> 21
DESCRIPTIVE DATA III-7
The hotel contains a small exercise room, and an outdoor pool of approximately
800 square feet. In addition, guests are given passes for a complimentary
work-out at a local health club. Guests also receive a discount at selected
nearby restaurants.
In 1995, the subject underwent some capital improvements, including new
mattresses and foundations, locks, addition of the exercise room, and a new
sign. Based upon these improvements, as well as the age and condition of the
building, we have estimated a 4% Replacement Reserve throughout our analysis
period.
REAL ESTATE AND PERSONAL PROPERTY TAXES
The subject is located within the township of Sharonville. It is identified as
tax parcels 608-0021-0197-00, -0064-00, and -0158-00. Assessed value is 35% of
the market value. The assessed figure is multiplied by the prevailing tax rate
(per $1,000 of value) less a tax credit and rollback factor to arrive at the
tax amount due.
The effective commercial tax rate for 1994 (payable in 1995) for the city is
$43.377104 per $1,000 of assessed value while the 1995 effective rate (payable
in 1996) is $44.020676 per $1,000 of assessed value. Commercial property was
last appraised in 1993 and is scheduled for re-assessment in 1996 followed by
a physical appraisal in 1999. We have relied on the current tax rate and
assessments in our projections. The historical real estate taxes for the
subject property, payable in years 1994 and 1995 are shown in the following
table.
================================================================================
TABLE III-6
HISTORICAL REAL ESTATE TAXES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR TAXES DUE
-----------------------------------------------------------------------------
<S> <C> <C>
1994 $48,806
1995 46,764
-----------------------------------------------------------------------------
Growth Rate -4.2%
-----------------------------------------------------------------------------
</TABLE>
Source: Hamilton County Tax Assessor's Office
================================================================================
We researched the market for other hotels located in the city and their current
assessment. Table III-7 lists these properties.
<PAGE> 22
III-8 DESCRIPTIVE DATA
================================================================================
TABLE III-7
REAL ESTATE TAX COMPARABLES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
ASSESSED VALUE
PROPERTY ROOMS ASSESSED VALUE PER ROOM
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Signature Inn (Subject) 130 $1,180,350 $9,080
-----------------------------------------------------------------------------
Hampton Inn 130 1,715,000 13,192
-----------------------------------------------------------------------------
Red Roof Inn 108 1,068,200 9,891
-----------------------------------------------------------------------------
Super 8 Motel 143 840,000 5,874
-----------------------------------------------------------------------------
</TABLE>
-----------------------------------------------------------------------------
Source: Hamilton County Assessor's Office
=============================================================================
The above listed comparables indicate that the subject's assessed value is
within the range of comparables as a total assessment, and towards the middle
of the range on a per room assessment. Based upon the age of the subject, this
appears to be reasonable. According to the assessor's office, no individual
property sale triggers re-assessment. Accordingly, we have based our future
projections of real estate taxes on the current property assessment and
effective millage rate used. After adjusting the taxes payable in 1995 by a
3.5% compound annual inflation factor, we estimate stabilized real estate taxes
to be $48,400.
Personal property taxes were assessed in 1994 at a effective rate of $63.27 per
$1,000 of assessed value. The subject's assessed personal property value in
1994 was $64,040 (includes $10,000 exemption), indicating a tax due of $4,052.
Again, we have inflated this by a 3.5% annual compound factor for two years
since these number represent year end 1994, and projected 1996 taxes of $4,300.
Accordingly, we have projected total real estate and personal property taxes of
$52,700 for our stabilized year in 1996 dollars.
<PAGE> 23
MARKET ANALYSIS IV-1
NATIONAL LODGING MARKET OVERVIEW
HISTORICAL PERFORMANCE
Occupancy and average daily rate figures for most regions in the United States
showed a strong improvement between 1992 and 1995 as the lodging industry
rebounded from a severe recession and over-supply of rooms. Prior to 1991, the
hotel industry was focused more on the impact of segmentation than its
underlying problems. These problems ranged from over-building to a tightening
of credit in the financial markets. A positive improvement of industry
statistics is projected to continue into 1996. The occupancy and average daily
rate figures for the United States are presented in the table below.
TABLE IV-1
HISTORIC OCCUPANCY AND RATE FIGURES
UNITED STATES
<TABLE>
<CAPTION>
Occupancy Percent Average Room Rate
------------------- -------------------
1995 1994 1993 1992 1995 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES 65.5% 64.7% 63.7% 61.9% $67.34 $64.24 $61.30 $59.62
REGION:
NEW ENGLAND 60.5 58.8 59.3 57.7 78.38 74.75 74.53 71.35
MIDDLE ATLANTIC 66.6 66.5 64.2 61.8 87.18 82.50 78.79 77.03
SOUTH ATLANTIC 65.8 64.4 64.0 62.7 65.28 62.38 60.47 59.29
EAST NORTH CENTRAL 63.0 62.4 60.3 59.1 61.38 58.43 56.28 54.77
EAST SOUTH CENTRAL 64.0 64.2 63.0 61.5 51.45 49.19 47.14 45.65
WEST NORTH CENTRAL 64.2 63.6 63.1 62.1 52.29 50.13 48.76 47.35
WEST SOUTH CENTRAL 65.5 64.5 62.7 61.7 58.1 55.55 53.86 52.22
MOUNTAIN 67.8 68.2 65.2 63.7 66.61 62.89 58.41 52.87
PACIFIC 66.2 64.6 62.5 62.5 75.56 72.39 71.17 70.85
</TABLE>
SOURCE: SMITH TRAVEL RESEARCH
All regions benefitted from the increase in demand for hotel rooms in 1995 over
the previous three years. The increase in occupancy nationwide for 1995 was
approximately 1.2%, while the average room rate increased by 4.8%. In 1995,
properties in the New England states experienced the strongest level of demand
growth achieving 2.9% increase in occupancy from 1994. The revenue per
available room (REVPAR equals occupancy multiplied by average daily rate)
figure in the East South Central Region also showed the largest growth at 8.5%.
The East North Central region showed comparatively moderate growth.
<PAGE> 24
IV-2 MARKET ANALYSIS
OCCUPANCY AND RATE PROJECTIONS
The 1996 forecasted figures indicate further improvement though at a slower
rate as the United States lodging industry is experiencing tangible change for
the better. This is due to the following:
o Year to date profits indicate increases, as debt is better-managed
through refinancing. Occupancies have continued to rise at an
acceptable pace.
o Participants in the rate wars that have plagued the industry over
the past few years have called a truce. Discounting has become
more regionally targeted, and has been only offered during the
true shoulder seasons rather than throughout the entire year.
This has resulted in rising average daily rates (ADR), which in
many markets is out-pacing inflation. This ultimately has yielded
higher revenues.
o Demand in all the three major segments of travel - commercial,
group, and tourist/leisure - have risen at a consistent pace.
o Hotel companies have stepped up their pace of new development,
conversions, and renovations due to improved market conditions and
a slight increase in the availability of financing and new debt.
However, this increase has been within reason so far such that it
hasn't negatively effected most market occupancies. The economy,
limited-service sector has been experiencing the most new supply
growth.
o A cautioning note is the number of new rooms entering the market.
Rooms starts totaled 81,900 in 1995, which was the highest level
since 1989. There are a number of new brands being announced by
the larger chains (Wingate, Mainstay, Hilton Garden, Microtel)
which are expected to increase rooms supply in the late 1990s,
particularly in the limited service sector.
Projections for national occupancy levels through 1997 indicate further
improvement. Coopers and Lybrand in their Hospitality Directions publication
forecasts that the average national occupancy rate will rise steadily to 66.5%
in 1996, and 67.2% in 1997. This is the highest annual level since 1979. This
will occur due to moderate levels of demand growth in the nation that are
forecast to equal 2.4% in 1996 and 2.4% in 1997. This compares to higher
levels of growth of 4.6% that occurred during the last steep occupancy rise
from 1976 to 1979. It is interesting to note that the Coopers and Lybrand
projections are lower than in their late 1993 forecast due to a higher number
of projected rooms completions. Overall, this suggests that the higher
projected occupancies of the 1990s will be more supply-driven than
demand-driven, as supply growth will remain under reasonable control by the
continued restraints on available credit. Other industry forecasts are not
quite as optimistic, but all forecasters show an improvement in occupancy
figures on a nationwide basis.
<PAGE> 25
MARKET ANALYSIS IV-3
Industry experts indicate average daily rate projections for 1996 range between
an increase of 3% and 5% on a national basis which is expected to be similar to
that of the projected inflation rate of 3.5%. Coopers and Lybrand projects
average daily rate increases of 3.9% in 1996 and 4.5% in 1997.
HOTEL EXPENSE LEVELS
Operating expense ratios in the hotel industry have shown improvement in recent
years. According to the HOST report for 1994, gross operating profit (before
management fees) improved from 27.4% of total sales in 1993 to 30.8% in 1994.
Smaller properties less than 150 rooms, and those in suburban locations tended
to report the highest GOP. This represents a dramatic improvement from the
early 1990s and explains the increased investor interest in hotels. In 1994,
fixed charges total $6,952 per available room resulting in a net profit of
$1,939 per available room. This compares to a net loss of $719 per available
room in 1991 and a small net gain of $159 per available room in 1992 indicating
the dramatic turnaround in profitability for the hotel industry. We project a
stabilization in the overall profitability of hotels as the payments for
interest charges have been reduced and other expenses are projected to remain
stable.
HOTEL SALES PERFORMANCE
The decline in prices for hotels from the late 1980s appears to have stopped as
prices have stabilized. A leveling out of hotel sales prices nationwide began
in 1991 with increases reported beginning in 1994. Nationwide prices averaged
$19,068 per room in 1994. This 1994 figure compares to $17,411 in 1993,
$18,741 in 1992, $18,400 in 1991, and $21,549 in 1990. These figures are taken
from the Hotel Motel Broker Association's (HMBA) Transactions Publication
which provides averages of hotels which they have sold. The trend shows a
steady decline in prices in the early 1990s. Figures for 1995 indicate an
improvement from 1994 and are indicative of current trends showing increasing
prices for hotels.
Industry experts are predicting that prices will continue to slowly increase as
financing becomes more available. Conventional buyers and sellers are
beginning to return to the marketplace. Due to the current and expected
business cycle, the life insurance companies and pension funds have begun
marketing their hotel properties.
Overall, competition is rising among buyers of good quality, full-service, and
economy/ limited-service hotels. Many new buyers have entered the market
during 1994 and 1995, increasing competition for hotels and shortening
marketing periods. The spread between asking price and bids is also narrowing.
<PAGE> 26
IV-4 MARKET ANALYSIS
SIGNATURE INNS OVERVIEW
Signature Inns was founded in 1978, and opened its first hotel in Indianapolis
in 1981. The company was one of the earliest innovators of the value-oriented
mid-priced hotel concept geared primarily to the corporate traveller, a concept
that has since been mass marketed by chains such as Hampton Inn and Courtyard
by Marriott. Although the Signature Inn concept is limited-service in that
none of the properties contain a restaurant, many extra amenities are available
for guests, such as business centers, interview centers, meeting space, and
newspaper delivery to the guest rooms. The "Signature Rooms" were one of the
first guest room lay-outs designed for the business traveller, with one bed, a
reclining chair, and a 12-foot corner desk with telephone.
Today, Signature Inns operates twenty-three hotels, with two additional
properties in the active stages of development. The company enjoys a fine
reputation for quality and consistency in the central Midwest, but has little
name recognition outside that region. In 1995, the company was voted fifth
nationally among mid-priced hotel chains by the readers of Business Travel
News, outscoring many national chains. Similarly, Consumer Reports ranked the
chain third in overall value among moderately priced chains, behind only
Homewood Suites and Residence Inn, but ahead of all other national chains.
COMPETITIVE LODGING MARKET ANALYSIS
EXISTING COMPETITIVE SUPPLY: Based on our research, we have identified a
current competitive hotel supply with a total of 2,180 guest rooms in fourteen
lodging facilities (including the subject). The properties are considered
competitive due primarily to their location near the Sharon Road exit of I-75
on Cincinnati's north side. The table on the following page lists the selected
competitive hotels and characteristics about each property.
A map and photographs of each competitor follow.
<PAGE> 27
MARKET ANALYSIS IV-5
SIGNATURE INN - CINCINNATI NORTH
COMPETITIVE MARKET SUPPLY
<TABLE>
<CAPTION>
Map Year Restaurant/ Published
# Built Rooms Lounge Pool Corridor Rack Rates Comments
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 SIGNATURE INN 1987 130 No Outdoor Interior $54 - $61 Easy access; good visibility from
I-75; Located adjacent Convention
Center.
2 HOLIDAY INN 1966 408 Yes Indoor Interior $89 - $119 Holidome property with sauna,
whirlpool, conf. rms; Good
visibility and easy access from
I-75.
3 HAMPTON INN 1987 130 No Indoor Interior $85 - $135 Strong name recognition; good
visibility from I-75; Adjacent
golf driving range.
4 SHERATON INN 1980 267 Yes Indoor Interior $79 - $99 Excellent exposure to I-275 nw of
subject; Fair access;
full-service amenities.
5 SUPER 8 MOTEL 1979 143 No Outdoor Interior $36 - $68 Converted La Quinta Motel;
Adjacent Convention Center;
budget oriented property; fair
condition.
6 RED ROOF INN 1978 108 No None Exterior $29 - $58 Located behind Convention Center;
no interstate visibility; low to
mid budget property.
7 MARRIOTT 1960 352 Yes In/Outdoor Interior $85 - $125 Across Chester Rd from subject;
good brand recog. and res.
system; full-service amenities;
avg. cond.
8 HOWARD JOHNSON 1980 120 Yes Outdoor Interior $37 - $60 Located along I-275; good
visibility and access; Fair to
avg. cond.; budget oriented
motel.
9 BUDGETEL 1988 102 No None Interior $39 - $57 Limited visibility from I-275;
fair condition; limited service
and low-end budget property.
10 COMFORT INN 1962 246 Yes Indoor Interior $60 - $125 Converted HoJo located along
Chester Rd.; undergoing
renovations; closed rest. and
part of room inv.
11 HAMPSHIRE HOUSE 1980 150 Yes Indoor Interior $69 - $79 Conference facilities; whirlpool,
exercise room; Located off I-275;
no visibility; quality product.
12 RED ROOF INN 1985 109 No None Exterior $29 - $58 Located adjacent Hampton Inn off
Sharon Road; Low to mid budget
property; good exposure to I-75.
13 CROSS COUNTRY 1989 120 No Outdoor Exterior $33 - $45 Low-end budget motel; good
visibility to I-275; Easy access;
Applebee's next door.
14 STUDIO PLUS 1986 72 No Outdoor Interior $35 - $45 Low-end extended-stay property;
limited amenities; No interstate
visibility; average quality.
Est. 1995 Occupancy 64%
Total/Market Average 2,180
Estimated 1995 ADR $55.00
</TABLE>
<PAGE> 28
[MAP]
COMPETITIVE SUPPLY
SIGNATURE INN - CINCINNATI NORTH
CINCINNATI, OHIO
<PAGE> 29
MARKET ANALYSIS IV-7
VIEW OF HOLIDAY INN - NORTH
VIEW OF HAMPTON INN
<PAGE> 30
IV-8 MARKET ANALYSIS
VIEW OF SHERATON INN
VIEW OF SUPER 8 MOTEL
<PAGE> 31
MARKET ANALYSIS IV-9
VIEW OF RED ROOF INN - CHESTER ROAD
VIEW OF MARRIOTT
<PAGE> 32
IV-10 MARKET ANALYSIS
VIEW OF HOWARD JOHNSON
VIEW OF BUDGETEL
<PAGE> 33
MARKET ANALYSIS IV-11
VIEW OF COMFORT INN
VIEW OF HAMPSHIRE HOUSE
Photograph Not Available
<PAGE> 34
IV-12 MARKET ANALYSIS
VIEW OF RED ROOF INN - OFF SHARON ROAD
VIEW OF CROSS COUNTRY INN
<PAGE> 35
MARKET ANALYSIS IV-13
VIEW OF STUDIO PLUS
<PAGE> 36
IV-14 MARKET ANALYSIS
PROPOSED HOTEL DEVELOPMENT: Based upon discussions with local industry
participants, there are currently two new hotel projects in the active stages
of development within the immediate market area. The first project is the
Extended-Stay America Suites located just north of the subject and is expected
to open in the summer of 1996. The other property is the conversion of the
closed Ramada Inn on the east side of I-75 into a Woodfield Suites. This
property is expected to open by summer/fall of 1996. Considering these two new
developments and the markets both aim to target, it is our opinion that the
subject may be slightly impacted by their opening. However, with new growth
along Kemper Road and the opening of the Sharonville Convention Center, we
project a general off-setting effect from the additional room supply and the
new commercial growth in the area.
HISTORICAL LODGING DEMAND: Based on information compiled by Smith Travel
Research, and supported by our own interviews with management of the
competitive properties, and our knowledge of the market area, we have estimated
historical market occupancy levels. The following table indicates that the
market occupancy has increased over the three year period as demand has been
rising, and supply has been somewhat steady.
TABLE IV - 2
HISTORICAL MARKET OCCUPANCY AND ADR
<TABLE>
<S> <C> <C> <C>
Year 1993 1994 1995
---- -------- -------- ---------
Estimated Market Occupancy 60% 65% 65%
Estimated Market ADR $57.00 $54.00 $56.50
</TABLE>
Source: Smith Travel Research and local market interviews. Occupancies have
been rounded to the nearest point, while ADR's have been rounded to the
nearest $.50.
Market occupancies increased by approximately five points between 1993 and
1994, however, this reflects a change in competitive supply. For example, the
Comfort Inn was a Howard Johnson and the Ramada Sharonville North was open not
under conversion to a Woodfield Suites. The average daily rate decreased with
the change in competitive supply between 1993 and 1994 but increased a health
4.6% by 1995. The market has been affected by the following:
o Growth in the Cincinnati area, particularly on the north side,
has caused increases in corporate demand for hotels. The
neighborhood's strong commercial developments, including The
Tri-County Mall, Sharonville Convention Center, office and
professional buildings, help drive commercial growth within
the local market.
o A strong national economy has led to increased demand on a
national level. (See National Market Overview.) In
particular, as hotels have regained occupancy, many
properties have attempted to boost profits with rate hikes,
leading to increased realized ADR.
o With improvement in the U.S. economy, consumer confidence has
increased, leading to additional leisure travel to the area.
Although further away than the Signature Inn
<PAGE> 37
MARKET ANALYSIS IV-15
Northeast from King's Island, area managers along Sharon Road
indicated some overflow does reach their properties during the
summer months.
COMPETITIVE POSITION OF SUBJECT PROPERTY
We have assessed the projected competitive position of the subject property as
it relates to the defined competitive lodging supply. Based on interviews with
representatives of competitive hotels, our general knowledge of the market
area, and consideration of factors such as competent and efficient management,
a well defined marketing program, the location of the subject property, and the
quality of the facility, we have estimated future occupancy and ADR for the
subject.
Table IV - 3 presents the historical occupancy and ADR for the subject.
TABLE IV - 3
HISTORICAL SUBJECT OCCUPANCY AND ADR
<TABLE>
<S> <C> <C> <C>
Year 1993 1994 1995
- ---- ------- -------- -------
Subject Occupancy 53.5% 56.8% 55.6%
Subject ADR $50.19 $53.13 $54.18
</TABLE>
Source: Signature Inns
Subject occupancy has significantly lagged behind market occupancy for the
period 1993 through 1995. However, subject occupancy has remained relatively
stable. ADR growth has increased 3.9% annually, but is still lower on a dollar
basis than the market.
The following property characteristics were considered as competitive
advantages and disadvantages when analyzing historical trends and estimating
future penetration rates for the subject:
- The subject's location near I-75 is considered a competitive
advantage however, the property's exposure is limited.
Overall access to the property is relatively easy, but one
must pass several of the competitor's before arriving at the
subject property.
- The Signature Inn affiliation and reservation system provides
an very good reputation for consistency and value for the mid-
economy oriented traveller, particularly among the corporate
segment, in the central mid-west. However, for travellers
from areas outside its geographic circle of dominance, the
flag is lesser known, and commands little loyalty. (Please
see Signature Inn corporate overview earlier in this section.)
- A new Extended-Stay America Suites is being built and the old
Ramada Inn is being converted to a Woodfield Suites by
summer/fall 1996. Both are expected to impact the subject,
however, with the recent retail and commercial growth in the
Sharonville area, the overall impact is expected to be
minimal.
<PAGE> 38
IV-16 MARKET ANALYSIS
- The Sharonville Convention Center which opened in 1994 is
beginning to reach a higher level of utilization due to the
amount of time required to book convention space.
- The subject's location adjacent the Sharonville Convention
Center is considered a competitive advantage.
- Free local phone calls and continental breakfast add a sense
of value to budget-conscious consumers.
- Subject amenities, including a private guest business center
and interview stations, are unique to the market.
- The subject is considered to be in average condition, and
guest rooms are clean and attractive.
ESTIMATED OCCUPANCY AND AVERAGE DAILY RATE
To estimate the stabilized occupancy and average daily room rate (ADR) for the
subject property, we analyzed historical occupancy and average daily rates
achieved by the subject and the competitors, the discounting practices of these
hotels, the projected supply and demand changes in the market, and the
competitive advantages and disadvantages of the subject.
Based upon the condition of the property and market, discussion with the
property's general managers, as well as its historical occupancy and ADR market
trends, we project the subject will achieve a stabilized occupancy of 56% at an
ADR of $55.00. The occupancy reflects a slight increase in rooms occupied,
based upon the growth in the convention and retail markets. We also considered
the opening of the Extended-Stay America Suites and the conversion of the
Ramada Inn to a Woodfield Suites. The projected ADR allows for a modest 1.5%
increase in rate, while occupancy indicates a stabilized level from those
achieved over the past two years.
HOTEL SUPPLY AND DEMAND CONCLUSION
The competitive supply has demonstrated moderate demand growth, with strong
increases in ADR. The subject has consistently under-performed as compared to
market occupancy levels. With increased competitive pressures, we believe
occupancy levels will stabilize at 56%, and have projected a stabilized ADR of
$55.00.
Our estimates of annual occupancy and average daily room rate, as outlined in
this section of the report, are predicated on the following assumptions:
<PAGE> 39
MARKET ANALYSIS IV-17
1. The subject hotel will continue to be professionally managed
and maintained;
2. The subject hotel will be effectively promoted with a
well-targeted marketing program throughout the analysis
period;
3. The subject hotel will continue to be operated under the
existing chain affiliation as a Signature Inn, or a comparable
chain affiliation; and,
4. The subject will undergo a continued program of periodic
replacement of furniture, fixtures and equipment, which will
continue throughout the analysis period.
<PAGE> 40
HIGHEST AND BEST USE V-1
HIGHEST AND BEST USE
According to The Dictionary of Real Estate Appraisal published by the Appraisal
Institute, Highest and Best Use is defined as:
The reasonable and probable use that supports the highest present value
of vacant land or improved property, as defined, as of the date of the
appraisal.
The reasonably probable and legal use of land or sites as though vacant,
found to be physically possible, appropriately supported, financially
feasible, and that results in the highest present land value.
The most profitable use.
Land must always be valued at its highest and best use as if vacant. Thus, we
evaluate the highest and best use of the site both as if vacant and as
currently improved. The highest and best use of the site as if vacant may
differ from the highest and best use of the property as improved.
The hierarchial order for determining the highest and best use for both the
land as though vacant and the property as improved is that the use must be:
1. Physically possible.
2. Legally permissible.
3. Financially feasible.
4. Maximally productive.
The synthesis of these four factors was considered to determine a most probable
and profitable use for the subject parcel of real estate.
HIGHEST AND BEST USE, AS THOUGH VACANT
The major considerations in estimating the highest and best use as though
vacant include the zoning classification and locational attributes of the site,
the quality and quantity of surrounding land use patterns, the current
availability of infrastructure, and the supply and demand factors currently
affecting the real estate marketplace.
PHYSICALLY POSSIBLE: The initial step in our analysis involved estimating what
uses were physically possible. The site has supported the existing hotel use
for approximately eight years. This is testimony to its physical possibility.
A number of other uses are also
<PAGE> 41
V-2 HIGHEST AND BEST USE
physically possible on a site of this size. Those uses include, but are not
limited to commercial, industrial, retail, residential, and service related
uses.
LEGALLY PERMISSIBLE: The subject site is zoned GB (General Business District)
by the city of Sharonville. A hotel is considered a legally conforming use.
Other allowed uses included general offices, financial institutions, retail
stores, highway service, and restaurants.
FINANCIALLY FEASIBLE: The next step in our narrowing of options for highest and
best use involved determining what physically possible and legally permissible
uses would be financially feasible and compatible with surrounding
developments. The area in the vicinity of the site is developed with a variety
of retail, restaurant, hotel, residential, and commercial uses. We have
examined the current hotel market performance and projected operating
performance of the subject. The development of a new hotel on the site is
currently marginally justified based upon the occupancy and average daily rate
currently being achieved by the competitive supply. The performance of the
subject attests to the market viability of a hotel on the site, as if vacant.
An analysis of other possible uses for the site indicate some financial
feasibility. Possible uses may include office, or highway service. The
surrounding land uses include nearly all of these uses. These improvements
appear to be supported by the market.
MAXIMALLY PRODUCTIVE: In the final analysis, a determination must be made as
to which feasible use is the highest and best use, providing the maximum net
return to the land over the longest period of time. To maximize value, a
property must be financially feasible and legally permissible while coinciding
with the surrounding existing land uses. Based upon our analysis of the zoning
code, the existing surrounding properties, the financial feasibility, and the
status of the land, it is our opinion that the highest and best use for the
subject, as though vacant, is for development of a limited-service hotel
similar to the subject, and assuming that the financing could be obtained.
HIGHEST AND BEST USE, AS IMPROVED
In analyzing the highest and best use of the existing improvements, the four
tests which were previously discussed are also applied to the subject as
improved. This simple test is undertaken in order to determine whether an
alternative use could generate a greater return to the land and removal of the
existing improvements is justified. Since the improvements, as they currently
exist, continue to make a substantial contribution to the overall value of the
property, the continuation of the existing use is justified. There is no
alternative, economically feasible use that could justify removal of the
existing improvements at this time. Therefore, the highest and best use of the
subject, as improved, is the continued use as a limited service hotel.
<PAGE> 42
INCOME CAPITALIZATION APPROACH VI-1
INTRODUCTION
This approach analyzes a property's capacity to generate income (or other
monetary benefit) and converts this capacity into an indication of value. The
approach is suitable for properties that have obvious earning power and
investment appeal but is inappropriate for properties that have no readily
discernible income potential. Further, this approach is based on the premise
that the value of a property is represented by the present worth of anticipated
future benefits to be derived from ownership. There are two basic techniques
which can be used for analysis purposes: direct capitalization and discounted
cash flow.
Direct capitalization converts an estimate of a single year's income expectancy
or an annual average of several years' income expectancies into an indication
of value in one direct step. Direct capitalization is especially useful when
analyzing a property that has achieved a stabilized level of operations and
occupancy.
The discounted cash flow (DCF) analysis is a market reflective method of
estimating the present worth of anticipated income benefits. This analysis
converts a stream of expected income into a present value and is most
appropriate when valuing a property that has not yet reached stabilized
occupancy.
In valuing the subject, it is our opinion that the direct capitalization
valuation technique is useful in the analysis. We have estimated cash flow
for a typical stabilized year. These financial estimates are based on the
results of the subject property's historical operations, the performance of
comparable Signature Inn facilities, industry standards, and assumptions
regarding the environment in which the subject hotel operates.
All amounts have been rounded to the nearest one thousand dollars and account
classifications generally conform to the definitions prescribed by the American
Hotel and Motel Association in the Uniform System of Accounts for Hotels. All
percentages, amounts per available room or amounts per occupied room presented
in the following pages were first computed on the basis of the revenue and
expenses expressed in constant dollars and then inflated. All dollar amounts
are expressed in stated year dollars unless otherwise noted.
OVERVIEW OF HISTORICAL FINANCIAL PERFORMANCE
Historical financial statements for years 1993 through 1995 were provided by
Signature Inns. These are based upon an available room count of 130 rooms.
These unaudited financial statements were formatted to follow the Uniform
System of Accounts for Hotels, and are presented on the following pages. In
utilizing these statements, it should be noted that the historical financial
information was not audited or reviewed by us. Accordingly, we express no
opinion as to the reliability of this financial information.
<PAGE> 43
VI-2 INCOME CAPITALIZATION APPROACH
During the period, the subject's overall financial performance has improved.
The income before reserves has varied from $378,183 in 1993 to $503,866 in 1994
and $421,231 in 1995. Top line revenue increased from $1,274,079 in 1993 to
$1,429,504 in 1995 which is slightly below the 1994 level of $1,431,960.
Departmental expenses demonstrated an increase as a percentage of total revenue
between 1993 and 1995 from 27% to 28.4%, while undistributed expenses showed a
decrease from 38.8% to 37.8%. Overall 1994 was an exceptional year partly as a
result of the hotel being short staffed and the current manager indicated that
the manager in 1994 did not spend much on routine maintenance. Therefore, in
1995, the new manager spent more on POM as well as staffing.
<PAGE> 44
HISTORICAL OPERATING RESULTS OF THE
SIGNATURE INN X LTD -- CHESTER ROAD
-----------------------------------
<TABLE>
<CAPTION>
1995 ACTUAL 1994 ACTUAL
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF OCC/ADR 55.6% at $54.18 56.8% at $50.13
OCCUPIED ROOMS 26,382 26,952
AVAILABLE ROOMS 47,450 47,450
<CAPTION>
PER AVAIL PER PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM AMOUNT RATIO ROOM OCC ROOM
---------- ----- ------- -------- ---------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
ROOMS $1,429,504 94.7% $10,998 $54.18 $1,431,950 94.1% $11,015 $53.13
TELEPHONE 34,478 2.3% 265 1.31 32,318 2.1% 249 1.20
0 0.0% 0 0.00 0 0.0% 0 0.00
RENTALS & OTHER INCOME 46,576 3.0% 351 1.73 57,652 3.8% 444 2.14
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 1,509,557 100.0% 11,612 57.22 1,521,959 100.0% 11,707 56.47
---------- ----- ------- -------- ---------- ----- ------- --------
DEPARTMENTAL EXPENSES:
ROOMS 397,284 27.8% 3,058 18.08 382,829 20.7% 2,945 14.20
TELEPHONE 30,819 39.4% 237 1.17 22,931 71.0% 176 0.85
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 428,104 28.4% 3,293 16.23 405,760 20.7% 3,121 15.05
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL DEPARTMENTAL PROFIT 1,081,453 71.6% 8,319 40.99 1,110,199 73.3% 8,588 41.41
---------- ----- ------- -------- ---------- ----- ------- --------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 184,727 12.2% 1,421 7.00 173,243 11.4% 1,333 0.43
MANAGEMENT FEE 73,447 4.9% 585 2.78 73,849 4.9% 568 2.74
MARKETING 70,738 4.7% 544 2.88 73,491 4.8% 585 2.73
FRANCHISE FEES 55,738 3.9% 452 2.23 59,080 3.9% 454 2.19
PROPERTY OPERATION & MAINT. 104,348 0.9% 803 3.90 75,282 4.9% 579 2.84
ENERGY 77,902 8.2% 599 2.95 76,007 8.0% 590 2.84
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 589,918 37.8% 4,384 21.60 831,592 34.9% 4,089 19.72
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE FIXED CHARGES 519,505 33,9% 3,935 19.39 684,607 35.4% 4,497 21.09
---------- ----- ------- -------- ---------- ----- ------- --------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 50,875 3.4% 391 1.93 48,019 5.2% 389 1.78
BUILDING & CONTENTS INSURANCE 39,429 2.8% 303 1.49 32,722 2.1% 252 1.21
0 0.0% 0 0.00 0 0.0% 0 0.00
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 90,305 8.0% 695 3.42 80,740 8.3% 621 3.00
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE RESERVE 421,231 27.0% 3,240 15.97 803,800 33.1% 3,878 18.70
---------- ----- ------- -------- ---------- ----- ------- --------
RESERVE FOR REPLACEMENT 80,382 4.0% 484 2.29 80,878 4.0% 408 2.20
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE OTHER DEDUCTIONS $ 360,849 23.9% $ 2,778 $13.88 $ 442,038 29.1% $ 3,408 $18.44
---------- ----- ------- -------- ---------- ----- ------- --------
<CAPTION>
1993 ACTUAL
------------------------------------------
<S> <C> <C> <C>
PERCENTAGE OF OCC/ADR 53.5% at $50.19
OCCUPIED ROOMS 25,388
AVAILABLE ROOMS 47,450
<CAPTION>
PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM
---------- ----- ------- --------
<S> <C> <C> <C> <C>
REVENUE:
ROOMS $1,274,079 93.6% $ 9,801 $50.19
TELEPHONE 23,238 1.7% 179 0.92
0 0.0% 0 0.00
RENTALS & OTHER INCOME 63,023 4.7% 489 2.61
---------- ----- ------- --------
TOTAL 1,380,938 100.0% 10,489 83.01
---------- ----- ------- --------
DEPARTMENTAL EXPENSES:
ROOMS 343,323 28.9% 2,641 13.52
TELEPHONE 24,050 103.6% 185 0.95
---------- ----- ------- --------
TOTAL 357,403 27.0% 2,826 14.47
---------- ----- ------- --------
TOTAL DEPARTMENTAL PROFIT 993,534 73.0% 7,643 39.14
---------- ----- ------- --------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 185,128 13.6% 1,424 7.29
MANAGEMENT FEE 60,108 4.9% 609 2.60
MARKETING 68,300 4.9% 510 2.61
FRANCHISE FEES 52,888 3.9% 407 2.08
PROPERTY OPERATION & MAINT. 84,808 0.2% 652 3.34
ENERGY 72,726 5.3% 859 2.88
---------- ----- ------- --------
TOTAL 528,014 38.6% 4,062 20.80
---------- ----- ------- --------
INCOME BEFORE FIXED CHARGES 405,520 34.2% 3,381 18.34
---------- ----- ------- --------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 56,685 4.2% 438 2.23
BUILDING & CONTENTS INSURANCE 30,052 2.3% 236 1.21
0 0.0% 0 0.00
---------- ----- ------- --------
TOTAL 87,337 8.4% 672 3.44
---------- ----- ------- --------
INCOME BEFORE RESERVE 378,183 27.8% 2,909 14.90
---------- ----- ------- --------
RESERVE FOR REPLACEMENT 64,438 4.0% 419 2.14
---------- ----- ------- --------
INCOME BEFORE OTHER DEDUCTIONS $ 323,748 23.8% $ 2,490 $12.75
---------- ----- ------- --------
</TABLE>
Source: SIGNATURE INNS
Based on 150 rooms
<PAGE> 45
VI-4 INCOME CAPITALIZATION APPROACH
PROSPECTIVE FINANCIAL ANALYSIS
COMPARABLES: The prospective financial analysis is based on the results of
historical operations of the subject property, results of operations of
comparable facilities, industry standards, and projections regarding the future
environment in which the hotel will operate. This includes the assumption that
the property will be operated in a competent and professional manner, and it
will be properly advertised and promoted.
We have compared the operating performance of the subject to a 17-property
portfolio of Signature Inns located in the mid-west. Their average, high, and
low performance is presented on the following page. The industry standards
presented on the next page are from the Host Report 1994, published by Arthur
Anderson and Smith Travel Research, and the Trends Report 1994, published by
PKF Consulting. We have utilized the standards for mid-priced, limited-service
properties.
<PAGE> 46
1995
SIGNATURE INN PORTFOLIO
HISTORICAL AVERAGE, HIGH, AND LOW OPERATING RESULTS
---------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO AVERAGE PORTFOLIO LOW
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF OCC/ADR 66.95% at $55.76 53.70% at $46.40
OCCUPIED ROOMS 29,189
AVAILABLE ROOMS 44,015
<CAPTION>
PER AVAIL PER PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM AMOUNT RATIO ROOM OCC ROOM
---------- ----- ------- -------- ---------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
ROOMS $1,031,154 94.8% $13,527 $55.88 $1,223,933 94.6% $10,150 $41.93
TELEPHONE 42,263 2.5% 350 1.43 30,695 2.4% 256 1.06
RENTALS & OTHER INCOME 47,040 2.8% 395 1.03 28,328 2.2% 235 0.07
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 1,721,057 100.0% 14,272 56.96 1,293,990 100.0% 10,731 44.30
---------- ----- ------- -------- ---------- ----- ------- --------
DEPARTMENTAL EXPENSES:
ROOMS 397,111 24.3% 3,293 13.60 310,450 25.4% 2,675 10.04
TELEPHONE 33,202 76.6% 275 1.14 25,266 51.8% 210 0.07
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 430,313 25.0% 3,568 14.74 341,817 20.4% 2,835 11.71
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL DEPARTMENTAL PROFIT 1,290,744 75.0% 10,074 44.22 912,312 70.5% 7,500 31.25
---------- ----- ------- -------- ---------- ----- ------- --------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 192,580 11.2% 1,597 8.60 163,013 12.0% 1,352 5.56
MANAGEMENT FEE 83,614 4.9% 693 2.80 82,582 4.8% 519 2.14
MARKETING 82,806 4.8% 687 2.84 84,636 5.0% 536 2.21
FRANCHISE FEES 66,591 3.9% 555 2.29 50,066 3.9% 415 1.72
PROPERTY OPERATION & MAINT. 103,337 6.0% 857 3.54 73,021 5.0% 606 2.50
ENERGY 73,848 4.3% 612 2.53 50,065 3.9% 415 1.72
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 603,077 35.0% 5,001 20.66 527,436 40.8% 4,374 16.07
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE FIXED CHARGES 687,667 40.0% 5,703 23.50 384,876 29.7 3,192 13.19
---------- ----- ------- -------- ---------- ----- ------- --------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 62,395 3.6% 517 2.14 33,781 2.6% 280 1.16
BUILDING & CONTENTS INSURANCE 30,315 1.8% 251 1.94 22,309 1.7% 185 0.78
0 0.0% 0 0.00 0 0.0% 0 0.00
---------- ----- ------- -------- ---------- ----- ------- --------
TOTAL 92,710 5.4% 768 3.18 56,531 4.4% 469 1.94
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE RESERVE 594,597 34.6% 4,934 20.38 263,274 20.3% 2,183 9.02
---------- ----- ------- -------- ---------- ----- ------- --------
RESERVE FOR PLACEMENT 68,842 4.0% 571 2.36 51,760 4.0% 429 1.77
---------- ----- ------- -------- ---------- ----- ------- --------
INCOME BEFORE OTHER DEDUCTIONS $ 526,115 30.6% $ 4,363 $18.02 $ 211,514 16.3% $ 1,754 $ 7.25
---------- ----- ------- -------- ---------- ----- ------- --------
<CAPTION>
PORTFOLIO HIGH
------------------------------------------
<S> <C> <C> <C>
PERCENTAGE OF OCC/ADR 81.40% at $64.85
OCCUPIED ROOMS
AVAILABLE ROOMS
<CAPTION>
PER AVAIL PER
AMOUNT RATIO ROOM OCC ROOM
---------- ----- ------- --------
<S> <C> <C> <C> <C>
REVENUE:
ROOMS $2,225,242 95.4% $18,453 $76.23
TELEPHONE 58,935 2.8% 489 2.02
RENTALS & OTHER INCOME 79,199 3.4% 657 2.71
---------- ----- ------- --------
TOTAL 2,331,954 100.0% 19,338 79.69
---------- ----- ------- --------
DEPARTMENTAL EXPENSES:
ROOMS 456,029 20.5% 3,782 15.02
TELEPHONE 47,963 81.4% 398 1.64
---------- ----- ------- --------
TOTAL 407,019 21.3% 4,122 17.03
---------- ----- ------- --------
TOTAL DEPARTMENTAL PROFIT 1,846,380 79.2% 15,311 63.26
---------- ----- ------- --------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 242,323 10.4% 2,010 8.30
MANAGEMENT FEE 113,728 4.9% 943 3.90
MARKETING 107,997 4.6% 596 3.70
FRANCHISE FEES 90,982 3.9% 754 3.12
PROPERTY OPERATION & MAINT. 135,387 5.8% 1,123 4.04
ENERGY 113,718 4.9% 943 3.90
---------- ----- ------- --------
TOTAL 748,100 32.1% 6,204 25.63
---------- ----- ------- --------
INCOME BEFORE FIXED CHARGES 1,098,287 47.1% 9,108 37.83
---------- ----- ------- --------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 115,734 5.0% 960 3.95
BUILDING & CONTENTS INSURANCE 45,338 2.0% 384 1.09
0 0.0% 0 0.00
---------- ----- ------- --------
TOTAL 148,145 8.4% 1,220 5.08
---------- ----- ------- --------
INCOME BEFORE RESERVE 960,388 42.0% 5,130 33.89
---------- ----- ------- --------
RESERVE FOR PLACEMENT 93,278 4.0% 774 3.20
---------- ----- ------- --------
INCOME BEFORE OTHER DEDUCTIONS $ 867,110 38.0% $ 7,357 $30.39
---------- ----- ------- --------
</TABLE>
Source: SIGNATURE INNS
NOTE: Totals will not foot as averages, highs, and lows have been
presented by line item.
Average of 121 rooms
<PAGE> 47
<TABLE>
<CAPTION>
HOST--LIMITED SERVICE TRENDS--LIMITED SERVICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMPARABLE PROPERTY OPERATING RESULTS 1004 MID-PRICED 1004 ALL LIMITED SERVICE
YEAR-END RESULTS rooms 124 rooms 111
PERCENTAGE OF OCCUPANCY/ $52.25 at 72.6% $40.51 at 66.7%
AVERAGE DAILY ROOM RATE
PER AVAIL PER PER AVAIL PER
REVENUE: AMOUNT RATIO ROOM OCC ROOM AMOUNT RATIO ROOM OCC ROOM
------ ----- ---- -------- ------ ----- ---- --------
ROOMS $1,714,506 95.0% $13,627 $50.25 $1,372,465 95.3% $12,305 $40.31
TELEPHONE 32,064 1.8% 200 1.01 35,400 2.5% 310 1.27
RENTALS & OTHER INCOME 38,000 2.1% 307 1.10 14,200 1.0% 128 0.51
OTHER OPERATED DEPTS 19,220 1.1% 155 0.50 17,071 1.2% 101 0.04
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL 1,804,777 100.0% 14,555 65.00 1,439,073 100.0% $12,073 51.73
---------- ------ ------- ----- ---------- ------ ------- ------
DEPARTMENTAL EXPENSES:
ROOMS 466,345 27.2% 3,701 14.21 331,002 24.1% 2,082 11.80
TELEPHONE 22,000 66.7% 177 0.07 20,079 50.2% 100 0.75
OTHER OPERATED DEPTS 96 0.5% 1 0.00 13,008 73.3% 118 0.47
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL 466,442 27.1% 3,030 14.60 355,079 25.4% 3,260 13.12
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL OPERATED INCOME 1,310,335 72.9% 10,010 40.12 1,074,894 74.0% 9,004 30.02
---------- ------ ------- ----- ---------- ------ ------- ------
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL 165,540 0.2% 1,335 5.04 129,570 9.0% 1,170 4.07
MANAGEMENT FEE 65,872 3.8% 563 2.00 84,612 3.8% 492 1.96
MARKETING 85,032 4.5% 603 2.02 52,261 3.0% 471 1.88
FRANCHISE FEES 43,048 2.4% 352 1.33 10,983 1.2% 163 0.01
PROPERTY OPERATION & MAINT. 77,376 4.3% 624 2.30 80,910 6.0% 720 2.01
ENERGY 85,032 4.5% 903 2.02 78,000 6.4% 703 2.80
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL 527,000 20.2% 4,250 10.00 412,000 26.7% 3,718 14.03
---------- ------ ------- ----- ---------- ------ ------- ------
INCOME BEFORE FIXED CHARGES 760,335 43.7% 6,300 24.00 602,100 45.0% 5,000 23.79
---------- ------ ------- ----- ---------- ------ ------- ------
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES 84,976 3.0% 524 1.95 62,715 4.4% 605 2.26
BUILDING & CONTENTS INSURANCE 10,840 1.1% 100 0.60 22,644 1.0% 204 0.81
EQUIPMENT LEASE 0 0.0% 0 0.00 0 0.0% 0 0.00
OTHER 0 0.0% 0 0.00 0 0.0% 0 0.00
---------- ------ ------- ----- ---------- ------ ------- ------
TOTAL 94,810 4.7% 684 2.58 85,359 5.9% 709 3.07
---------- ------ ------- ----- ---------- ------ ------- ------
INCOME BEFORE RESERVE 704,519 30.0% 5,682 21.47 576,837 40.1% 5,197 20.72
---------- ------ ------- ----- ---------- ------ ------- ------
RESERVE FOR REPLACEMENT 0 0.0% 0 0.00 0 0.0% 0 0.00
---------- ------ ------- ----- ---------- ------ ------- ------
INCOME BEFORE OTHER DEDUCTIONS $ 704,519 30.0% $ 5,682 21.47 $ 576,837 40.1% $ 5,197 $20.72
---------- ------ ------- ----- ---------- ------ ------- ------
</TABLE>
<PAGE> 48
INCOME CAPITALIZATION APPROACH VI-7
ROOMS DEPARTMENT
ROOMS REVENUE: Rooms department revenue was calculated by estimating annual
occupancy and average daily rate per occupied room. Our estimates of occupancy
and ADR, and the rationale supporting these estimates, are presented in the
Market Analysis section of this report. We estimate the 130-room subject will
achieve a stabilized occupancy of 56% and an average daily rate of $55.00.
ROOMS EXPENSES: This category includes rooms payroll and related expenses,
guest supplies, paper goods, cleaning supplies, laundry, linen, and other items
for maintaining guest rooms as well as miscellaneous expenses.
These expenses increased from 26.7% of departmental revenue in 1994 to 27.8% of
rooms revenue in 1995. Comparable Signature Inns in the portfolio averaged a
1995 rooms expense of 24.3%, with a range of 20.5% to 28.8%. The Host Report
indicates an industry standard of 27.2%, while Trends reports a 24.1%. We
estimate the rooms expense to equal a stabilized 26.5% of rooms revenue based
upon historical statistics and the comparables.
TELEPHONE DEPARTMENT
TELEPHONE REVENUE: This revenue includes income from local calls, long
distance calls, and access charges. Historically, the subject realized
telephone revenue per occupied room increased from $0.92 to $1.31. Telephone
revenues at the subject are relatively low since the property does not charge
for local telephone calls, which is becoming increasingly common at
limited-service hotels. The portfolio averaged telephone sales of $1.45 per
occupied room, with a range of $1.19 to $1.96. Industry standards indicated
$1.01 and $1.27 per available room. Based upon the subject's pricing
practices, as well as its historical telephone income, we project income of
$1.30 per occupied room.
TELEPHONE EXPENSES: These expenses reflect the cost of providing local and long
distance cells. Historical telephone expenses at the property ranged from 71%
to 103.6% of telephone revenue. The portfolio averaged 48.6% per occupied
room, ranging from 59.6% to 99.9%, while industry standards indicate 66.7% and
59.2% per occupied room. Based upon the telephone pricing practices at the
subject, we have projected a stabilized expense of 85% of telephone revenues.
RENTALS AND OTHER INCOME: This line item includes all net income associated
with vending machines, laundry, movie rental, rentals, faxes, and any other
miscellaneous income generated by the hotel. The subject has shown net income
in rentals and other income category within a range of $45,576 to $63,623.
Based upon the historically declining trend, we have estimated rentals and
other income to be $38,000 upon stabilization.
<PAGE> 49
VI-8 INCOME CAPITALIZATION APPROACH
UNDISTRIBUTED OPERATING EXPENSES
ADMINISTRATIVE AND GENERAL EXPENSES: These expenses represent payroll costs
and other expenses for management and administration. Administrative and
general (A&G) expenses include such items as the cost of accounting and legal
fees, credit card commissions, printing, stationery, general liability
insurance, donations, and postage costs.
These expenses increased from $1,333 per available room in 1994 to $1,424 in
1993. The Signature Inn portfolio averaged $1,597 per available room, ranging
from $1,146 to $2,062. Industry standards indicate $1,335 and $1,170 per
available room. Based upon historical information, and supported by the
portfolio and standards, we have projected an A&G expense of $1,450 per
available room for the stabilized year.
MANAGEMENT FEE: Signature Inns has historically charged a management fee of 5%
of rooms revenue and most rental revenue. However, since the purpose of our
appraisal is to estimate market value, management fees for the property must
reflect current market management fees, since existing management contracts are
not binding upon subject transfer. U S Realty Consultants' Fall 1995 survey
indicated a management fee range of 3% to 6% for properties without incentive
fees. The overall base management fee for new contracts was 2.9%, down from a
3.4% average in our database of existing contracts. However, it should be
noted that this average does not include incentive fees incorporated into some
agreements. Based upon the declining trend for new contracts, as well as our
knowledge of current market fees, we have estimated this expense to be 4% of
total revenue.
MARKETING EXPENSES: include payroll and related benefits, the cost of
advertising in various media such as newspapers, magazines and directories, as
well as direct mail campaign, bill boards and miscellaneous sales and marketing
expenses.
Historically, the marketing expenses at the subject hotel have ranged from $510
to $565 per available room. The portfolio averaged $687 per available room.
Industry standards reflect an expense of $693 and $471 per available room.
Based upon the historical performance, as well as the portfolio and industry
standard, we have projected a marketing expense of $600 per available room for
the subject.
FRANCHISE FEE: Signature Inn historically has charged a franchise fee of 4% of
rooms revenue. However, as discussed in our management fee section, a
potential buyer would need to affiliate the subject with a similar franchise in
order to achieve the occupancy and ADR projected. Currently, the Signature Inn
affiliation is a contributing factor in the subject's ability to penetrate the
market. After examining the franchise costs of more than sixty national
franchises, we have determined that a franchise fee of 4% of rooms revenue is
appropriate for the level of corporate support and brand recognition provided
by the Signature Inn affiliation.
<PAGE> 50
INCOME CAPITALIZATION APPROACH VI-9
PROPERTY OPERATION AND MAINTENANCE EXPENSES: include both payroll and related
benefits and other expenses associated with periodic preventive maintenance and
repairs to the physical structure and mechanical equipment.
Historically, property operations and maintenance expenses at the subject hotel
varied from $579 per available room in 1994 to $803 per available room in 1995.
Property operation and maintenance expenses in the portfolio averaged $857 per
available room, ranging from $687 to $1,082. Industry standards reflect an
average of $624 and $729 per available room. Based upon all the available
information, we have projected a stabilized expense of $700 per available room
for the subject.
ENERGY EXPENSES: represent expenditures for electricity, heating, fuel, water,
waste removal and related operating supplies. The subject hotel experienced
energy expenses ranging from $559 in 1993 to $599 in 1995. We have based our
projection on the increased historical energy costs. We estimate the energy
expense at $600 per available room for the stabilized year.
FIXED CHARGES
REAL ESTATE AND PROPERTY TAXES: Historical property taxes were detailed in the
Descriptive Data section previously. We have projected stabilized real estate
and personal property taxes for in 1996 dollars to be $52,700.
BUILDING AND PROPERTY INSURANCE: This expense includes building and property
insurance expenses at the subject hotel.
This expense has historically ranged from $236 to $391 per available room at
the subject, while the portfolio averaged $251 per available room. Based upon
the historical expense and portfolio average, we have projected an expense of
$300 per available room.
RESERVE FOR REPLACEMENT: represents a reserve set aside to provide for the
periodic replacement of furniture, fixtures and equipment during the life of
the building. Historically the subject hotel has posted a 4% replacement
reserve to its operating statement. As discussed in the Descriptive Data
section, our reserve is estimated at 4% of total sales throughout the analysis
period. A 4% replacement reserve is projected as it is in keeping with
industry guidelines for a hotel of the subject's age, size, and volume of
operation. Additionally, the amount is considered to be appropriate due to the
level and extent of furniture, fixtures and equipment replacement necessary to
maintain and improve the overall condition of the subject over its useful life.
STABILIZED OPERATING STATEMENT: A projected stabilized operating statement
for FY 1996 is presented on the following page. This projection is rounded to
the nearest one hundred
<PAGE> 51
VI-10 INCOME CAPITALIZATION APPROACH
dollars. The estimated cash flow will be used to estimate the subject
property's market value by direct capitalization.
<PAGE> 52
STABILIZED OPERATING STATEMENT
SIGNATURE INN - CINCINNATI NORTH
1996 DOLLARS
<TABLE>
<CAPTION>
OCCUPANCY/ADR 56% at $55.00
PER OCC.
AMOUNT RATIO AMT\RM ROOM
<S> <C> <C> <C> <C>
REVENUES:
ROOMS $1,461,000 95.3% $11,238 $54.98
TELEPHONE 34,544 2.3% 266 1.30
RENTALS & OTHER INCOME 38,000 2.5% 292 1.43
---------- ----- ------- ------
TOTAL REVENUE $1,533,544 100.0% $11,796 $57.71
DEPARTMENTAL EXPENSES: (1)
ROOMS $387,165 26.5% $2,978 $14.57
TELEPHONE 29,362 85.0% 226 1.11
---------- ----- ------- ------
TOTAL DEPARTMENTAL EXPENSES $416,527 27.2% $3,204 $15.68
TOTAL OPERATED INCOME $1,117,000 72.8% $8,592 $42.04
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL $188,500 12.3% $1,450 $7.09
MANAGEMENT FEE 61,342 4.0% 472 2.31
MARKETING 78,000 5.1% 600 2.94
FRANCHISE FEES 58,440 3.8% 450 2.20
PROPERTY OPERATION & MAINT. 91,000 5.9% 700 3.42
ENERGY 78,000 5.1% 600 2.94
---------- ----- ------- ------
TOTAL $555,282 36.2% $4,271 $20.90
INCOME BEFORE FIXED CHARGES $562,000 36.6% $4,321 $21.14
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES $52,700 3.4% $405 $1.98
BUILDING & CONTENTS INSURANCE 39,000 2.5% 300 1.47
---------- ----- ------- ------
TOTAL FIXED CHARGES $91,700 6.0% $705 $3.45
INCOME BEFORE RESERVE $470,000 30.6% $3,616 $17.69
RESERVE FOR REPLACEMENT $61,342 4.0% $472 $2.31
---------- ----- ------- ------
INCOME BEFORE OTHER DEDUCTIONS (2) $409,000 26.7% $3,146 $15.38
</TABLE>
NOTES:
(1) Each departmental expense ratio is based on the department's estimated
revenue and does not add to the total departmental expense ratio.
(2) Income before other fixed charges such as interest, amortization,
depreciation, and income taxes.
Note: This statement is based upon a room inventory of: 130
THIS STATEMENT SHOULD BE READ SUBJECT TO THE COMMENTS CONTAINED IN THE
ATTACHED REPORT
<PAGE> 53
VI-12 INCOME CAPITALIZATION APPROACH
VALUATION ANALYSIS
In order to provide a value estimate via the Income Capitalization Approach an
analysis to estimate probable overall capitalization rates was necessary. We
relied upon input from a number of sources including discussions with market
participants, our own experience, and awareness of current money rates and
investment trends.
In developing a capitalization rate for income-producing real estate, factors
such as the quality and durability of the estimated income stream were
analyzed. A hotel property has special risk resulting from the generally
single purpose nature of the construction and its sensitivity to change in
market conditions and the lodging industry. An appropriate capitalization rate
must reflect these factors and their relationship to the subject property. An
examination of the capitalization rates for hotel properties that have recently
been purchased has been undertaken.
The table below presents current yields and capitalization rates as tracked by
the Korpacz Investor Survey, a widely utilized barometer of investment
parameters.
TABLE VI-1
KORPACZ INVESTOR SURVEY - HOTELS
FOURTH QUARTER 1995
<TABLE>
<CAPTION>
NATIONAL NATIONAL NATIONAL
FULL-SERVICE ECONOMY/LIMITED- LUXURY
HOTELS SERVICE HOTELS HOTELS
------------- ----------------- --------
<S> <C> <C> <C>
FREE & CLEAR EQUITY CAP RATE
Range 8.0% - 15.0% 8.0% - 18.0% 7.0% - 15.0%
Average 10.65% 12.53% 10.17%
</TABLE>
Source: Korpacz Real Estate Investor Survey, First Quarter 1995.
Table VI-1 provides information from the most recent overall hotel survey
conducted by Korpacz. The survey indicated a capitalization rate for
limited-service hotels in the range of 8% to 18% with an average of 12.53%.
As with other property types, there exists a degree of uncertainty in today's
real estate market. Nevertheless, for purposes of determining an appropriate
capitalization rate for the subject, we considered the capitalization rates
from the limited sales presented within Sales Comparison Approach.
<PAGE> 54
INCOME CAPITALIZATION APPROACH VI-13
The sales in the Sales Comparison Approach indicate capitalization rates
ranging from 9.4% to 18.8%, with an average of 12.5%. Inconsistencies between
properties and accounting methodologies diminish the market extraction of rates
for hotel property sales. We have, therefore, also considered recent surveys
in assessing buyer requirements on potential hotel cash flows.
The upside of the subject is that it has historically achieved a relatively
stable occupancy, with increasing ADR. The property is considered to be in
average condition. The downside is that it is performing well under its fair
share of market penetration, due primarily to a location with limited
visibility and a very competitive market.
In viewing all available data, we have focused in the middle of the range.
Our projected capitalization rate is similar to the average of the sales
utilized in the Sales Comparison Approach, and supported by the timely data of
the Korpacz survey. THEREFORE, BASED ON THE AFOREMENTIONED ANALYSIS, WE HAVE
ESTIMATED THAT A DIRECT CAPITALIZATION RATE OF 12.25% IS APPROPRIATE TO CONVERT
THE STABILIZED NET OPERATING INCOME INTO AN INDICATION OF MARKET VALUE.
The result of this procedure, using the market-driven capitalization rate of
12.25% is presented in the following calculation.
$409,000 net operating income / 12.25% capitalization rate =
$3,338,776
or
$3,300,000 (rounded)
Based on the above analyses, we estimate that the market value of the fee
simple estate of the going concern of the subject property via the Income
Capitalization Approach (including the contributory value of the FF&E) as of
February 29, 1996, is:
THREE MILLION THREE HUNDRED THOUSAND DOLLARS
$3,300,000
<PAGE> 55
SALES COMPARISON APPROACH VII-1
INTRODUCTION
The Sales Comparison Approach is defined in The Dictionary of Real Estate
Appraisal, Third Edition, (published by The Appraisal Institute, 1993), as:
A set of procedures in which a value indication is derived by comparing
the property being appraised to similar properties that have been sold
recently, applying appropriate units of comparison, and making
adjustments to the sale prices based on the elements of comparison.
It is based on the premise that the market value of a property is directly
related to the prices paid for similar properties which have recently sold.
Inherent in this approach is the principle of substitution, which holds that
when a property is replaceable in the market, its price tends to be set at the
cost of acquiring an equally desirable substitute property, assuming that no
costly delay is encountered in making the substitution.
METHODOLOGY
Information was collected on a number of transactions involving the sale of
limited service hotels in the Midwestern, Middle Atlantic, Southern and New
England regions. The data was verified by USRC through sources deemed to be
reliable, and using commonly accepted appraisal methodology. Summary data for
these sales is presented within the table on the following page, from which
price trends may be identified for the extraction of value parameters. We
segregated the data by year of sale to lend additional perspective to our
analysis. Comparability in economic characteristics is the most important
criteria in analyzing these sales in relation to the subject property.
However, it is also extremely important to recognize that hotels are distinct
physical entities by virtue of their age and design, visibility and
accessibility, their services, as well as the uses within the neighborhood.
Thus, the Sales Comparison Approach, when utilized to value a hotel such as the
subject, can at best only establish a reasonable range of parameters within
which the typical investor operates.
Two techniques were utilized in this valuation approach. First, a Linear
Regression Analysis was performed to demonstrate that sale price is a function
of income. Next, an Effective Rooms Revenue Multiplier was developed, which
adjusts the sale prices of the comparables based on differences in rooms
revenue. The presentation of these techniques are followed by an estimate of
market value via the Sales Comparison Approach.
<PAGE> 56
TABLE VII-I
SUMMARY OF IMPROVED SALE COMPARABLES
SELECT NATIONWIDE LIMITED-SERVICE HOTELS
<TABLE>
<CAPTION>
Date Sales Price
Property Name Location of Sale Age Sales Price # Rms per Room Ro
------------- -------- ------- --- ----------- ----- ----------- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comfort Inn Mt. Pleasant SC 8-95 1987 $4,100,000 122 $33,607 12.51%
Hampton Inn Flint MI 7-95 1986 $4,300,000 124 $34,677 9.40%
Days Inn Manistee MI 6-95 nav $2,700,000 92 $29,348 11.00%
Days Inn Savannah GA 5-95 1987 $5,031,000 120 $41,925 12.69%
Days Inn Richmond IL 4-95 1988 $1,600,000 60 $26,667 11.31%
Wentworth Inn Traverse City MI 4-95 nav $3,125,000 95 $32,895 9.70%
Best Western Florence SC 3-95 1992 $3,025,000 76 $39,803 15.70%
Hampton Inn Tallahassee FL 1-95 1993 $3,964,440 93 $42,628 10.80%
Hampton Inn Naperville IL 12-94 1987 $6,835,000 130 $52,577 12.00%
Shoney's Inn Hilton Head Island SC 12-94 1989 $5,050,000 138 $36,594 11.09%
Ramada Limited Lima OH 12-94 1974 $1,900,000 121 $15,702 nav
Hampton Inn Gastonia NC 11-94 1989 $6,910,000 109 $63,394 11.30%
Knights Inn Indianapolis IN 11-94 1984 $1,350,000 99 $13,636 12.00%
Hampton Inn Shelby NC 11-94 1989 $3,000,000 78 $38,462 10.69%
Knights Inn North Columbus OH 10-94 1986 $2,000,000 115 $17,391 11.50%
Comfort Inn Abingdon VA 10-94 1987 $2,600,000 80 $32,500 11.50%
Shoney's Inn Columbia SC 10-94 1987 $1,950,000 122 $15,984 11.90%
Hampton Inn Hilton Head Island SC 10-94 1991 $4,250,000 125 $34,000 11.51%
Comfort Inn - North & South Romulus MI 10-94 1986 $4,200,000 254 $16,535 nav
Hampton Inn Albany NY 9-94 1990 $8,829,834 126 $70,078 nav
Comfort Inn University Durham NC 9-94 1987 $8,270,000 138 $59,928 9.80%
Country Inn Burnsville MN 8-94 1987 $2,300,000 88 $26,136 nav
Fairfield Inn James City VA 8-94 1980 $2,500,000 129 $19,380 12.60%
Fairfield Inn West Columbus OH 8-94 1989 $3,870,767 105 $36,864 9.80%
Comfort Inn Raleigh NC 8-94 1984 $4,600,000 149 $30,872 12.00%
Knights Inn Akron South Akron OH 7-94 1977 $1,400,000 110 $12,727 14.30%
Hampton Inn Charlotte NC 6-94 1990 $4,543,000 125 $36,344 12.00%
Mendota Motel Mendota MN 5-94 1953 $ 320,000 24 $13,333 nav
Hampton Inn Southfield MI 5-94 1986 $3,325,000 153 $21,732 13.35%
Comfort Inn Enterprise AL 5-94 1987 $3,000,000 78 $38,462 13.08%
Quality Inn Nashville TN 4-94 1974 $2,500,000 103 $24,272 nav
Comfort Inn Alexandria VA 4-94 1973 $2,400,000 92 $26,087 15.53%
Comfort Inn North Charleston SC 4-94 1986 $2,900,000 122 $23,770 14.21%
Comfort Inn Fort Mill SC 4-94 1986 $7,400,000 155 $47,742 12.00%
Drury Inn Joplin MO 4-94 nav $2,000,000 110 $18,182 17.33%
Hampton Inn Westlake OH 4-94 1990 $5,435,875 123 $44,194 10.20%
Comfort Inn Clemson SC 4-94 1987 $5,150,000 122 $42,213 11.00%
Hampton Inn - Victors Way Ann Harbor MI 4-94 1986 $5,300,000 153 $34,641 11.90%
Hampton Inn Durham NC 3-94 1987 $6,000,000 135 $44,444 11.20%
Comfort Inn Lynchburg VA 3-94 1974 $2,650,000 120 $22,083 12.42%
Hampton Inn Little Rock AK 3-94 1985 $3,500,000 122 $28,689 13.43%
Howard Johnson's Joplin MO 2-94 1963 $1,950,000 106 $18,396 18.82%
Hampton Inn Crestwood IL 1-94 1990 $3,575,000 123 $29,065 nav
Signature Inn Plymouth Twn MI 1-94 1989 $4,200,000 123 $34,146 10.95%
Springhouse Inn Porter IN 1-94 1989 $1,750,000 50 $35,000 nav
Comfort Inn Motel Rolling Meadows IL 12-93 1984 $1,683,000 103 $16,340 10.44%
Knights Inn Indianapolis IN 12-93 1983 $1,260,000 109 $11,560 13.30%
Comfort Inn Marietta GA 12-93 1989 $6,750,000 188 $36,290 11.02%
Hampton Inn Florence SC 12-93 1989 $4,791,234 122 $39,272 13.00%
Hampton Inn Matteson IL 12-93 1988 $4,950,000 127 $38,976 13.70%
Shoney's Inn Columbia SC 10-93 1987 $1,950,000 122 $15,984 11.90%
Signature Inn Middleburg Height OH 10-93 1989 $4,800,000 136 $35,294 12.50%
Signature Inn Canton OH 10-93 1989 $3,000,000 124 $24,194 12.00%
Econo Lodge Motel Indianapolis IN 10-93 nav $1,100,000 106 $10,377 17.80%
Comfort Inn Conyers GA 8-93 1989 $3,350,000 83 $40,361 14.04%
Hampton Inn Greenville NC 7-93 1986 $3,482,000 121 $28,777 12.24%
Signature Inn Kalamazoo MI 5-93 1989 $3,500,000 125 $28,000 13.90%
Hampton Inn - Green Rd. Ann Arbor MI 5-93 1988 $4,250,000 130 $32,692 nav
Knights Inn Canton OH 5-93 1983 $1,650,000 101 $16,337 15.50%
Days Inn Madisonville KY 2-93 1969 $2,450,000 141 $17,376 14.10%
Ramada Inn Jacksonville FL 2-93 1971 $1,700,000 150 $11,333 13.20%
Signature Inn Warren MI 1-93 1986 $2,500,000 128 $19,531 11.70%
Save Inn/Days Inn Broadview Heights OH 1-93 1980 $1,600,000 109 $14,679 14.10%
</TABLE>
<TABLE>
<CAPTION>
Gross Room Income
Property Name Occupancy ADR Revenue REVPAR Per Room ERRM
------------- --------- --- ---------- ------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
Comfort Inn 80.0% $46.00 $1,638,704 $36.80 $4,204 2.50
Hampton Inn 73.9% $45.84 $1,533,217 $33.88 $3,260 2.80
Days Inn nav nav $ 900,000 $26.80 $3,228 3.00
Days Inn 90.0% $52.00 $2,049,840 $46.80 $5,320 2.45
Days Inn 51.0% $44.00 $ 491,436 $22.44 $3,016 3.25
Wentworth Inn nav nav $ 820,000 $23.65 $3,191 3.81
Best Western 83.1% $47.26 $1,089,435 $39.27 $6,249 2.78
Hampton Inn 75.0% $56.00 $1,425,690 $42.00 $4,604 2.78
Hampton Inn 75.0% $55.00 $1,957,313 $41.25 $6,309 3.49
Shoney's Inn 65.0% $55.00 $1,800,728 $35.75 $4,058 2.80
Ramada Limited 41.0% $33.50 $ 606,806 $13.73 nav 3.13
Hampton Inn 83.0% $52.00 $1,717,121 $43.16 $7,164 4.02
Knights Inn 51.6% $36.20 $ 674,973 $18.68 $1,636 2.00
Hampton Inn 66.0% $45.00 $ 845,559 $29.70 $4,112 3.55
Knights Inn North 55.9% $28.00 $ 656,993 $15.85 $2,000 3.04
Comfort Inn 71.9% $43.00 $ 902,778 $30.92 $3,738 2.88
Shoney's Inn 59.0% $33.50 $ 880,135 $19.77 $1,902 2.22
Hampton Inn 78.7% $44.53 $1,598,933 $35.05 $3,913 2.66
Comfort Inn - North & South 76.0% $31.44 $2,215,250 $23.89 nav 1.90
Hampton Inn 71.6% $63.03 $2,075,505 $45.13 nav 4.25
Comfort Inn University 83.1% $48.17 $2,016,274 $40.03 $5,873 4.10
Country Inn 67.0% $50.14 $1,079,033 $33.59 nav 2.13
Fairfield Inn 53.5% $43.13 $1,086,465 $23.07 $2,442 2.30
Fairfield Inn West 80.0% $45.85 $1,405,761 $36.68 $3,613 2.75
Comfort Inn nav nav $1,650,000 $30.34 $3,705 2.79
Knights Inn Akron South 47.0% $37.00 $ 698,209 $17.39 $1,820 2.01
Hampton Inn 75.0% $45.00 $1,539,844 $33.75 $4,361 2.91
Mendota Motel 60.0% $14.50 $ 76,212 $ 8.70 nav 4.20
Hampton Inn 59.0% $49.00 $1,614,479 $28.91 $2,901 2.06
Comfort Inn 81.0% $40.76 $ 939,954 $33.02 $5,031 3.19
Quality Inn 63.0% $44.50 $1,053,976 $28.04 nav 2.37
Comfort Inn 75.0% $42.00 $1,057,770 $31.50 $4,051 2.19
Comfort Inn 65.0% $41.00 $1,186,725 $26.85 $3,378 2.44
Comfort Inn 74.3% $50.21 $2,111,441 $37.32 $5,729 3.50
Drury Inn 70.0% $33.31 $ 936,178 $23.32 $3,151 2.14
Hampton Inn 68.0% $51.60 $1,575,276 $35.09 $4,508 3.45
Comfort Inn 72.0% $47.00 $1,506,895 $33.84 $4,643 3.42
Hampton Inn - Victors Way 68.0% $51.34 $1,949,616 $34.91 $4,122 2.72
Hampton Inn 91.1% $43.85 $1,968,406 $39.95 $4,978 3.05
Comfort Inn 60.0% $42.00 $1,103,760 $25.20 $2,743 2.35
Hampton Inn 68.0% $42.78 $1,295,396 $29.09 $3,853 1.84
Howard Johnson's 68.0% $34.12 $ 897,670 $23.20 $3,462 2.17
Hampton Inn 64.0% $58.00 $1,666,502 $37.12 nav 2.15
Signature Inn 59.6% $48.54 $1,298,805 $28.93 $3,739 3.23
Springhouse Inn 63.0% $62.00 $ 712,845 $39.06 nav 2.45
Comfort Inn Motel nav nav $ 975,873 $25.96 $1,706 1.72
Knights Inn 46.3% $37.00 $ 688,298 $17.30 $1,537 1.83
Comfort Inn 70.0% $45.00 $2,138,535 $31.50 $3,999 3.16
Hampton Inn 90.0% $44.00 $1,763,388 $39.60 $5,105 2.72
Hampton Inn 74.0% $56.00 $1,920,951 $41.44 $5,340 2.58
Shoney's Inn 59.0% $33.50 $ 880,135 $19.77 $1,902 2.22
Signature Inn 65.0% $51.00 $1,645,566 $33.15 $4,412 2.92
Signature Inn 60.0% $44.80 $1,216,589 $26.88 $2,903 2.47
Econo Lodge Motel 50.5% $30.79 $ 601,589 $15.55 $1,847 1.83
Comfort Inn 85.0% $47.57 $1,224,963 $40.43 $5,667 2.73
Hampton Inn nav nav $1,302,192 $29.48 $3,522 2.80
Signature Inn 62.5% $49.94 $1,424,070 $31.21 $3,892 2.50
Hampton Inn - Green Rd. 67.5% $52.94 $1,695,602 $35.73 nav 2.51
Knights Inn 70.0% $33.00 $ 851,582 $23.10 $2,532 1.94
Days Inn nav nav $1,254,348 $24.37 $2,450 1.95
Ramada Inn 65.0% $43.00 $1,530,263 $27.95 $1,496 1.10
Signature Inn 49.9% $46.52 $1,084,534 $23.21 $2,285 2.30
Save Inn/Days Inn 62.0% $27.50 $ 678,334 $17.05 $2,070 2.36
</TABLE>
<TABLE>
<CAPTION>
Property Name Comments
------------- --------
<S> <C>
Comfort Inn Purchase price includes $500,000 of renovations.
Hampton Inn East of I-475 near several office properties, restaurants and retail stores.
Days Inn
Days Inn Purchase price includes $406,000 of renovations.
Days Inn
Wentworth Inn
Best Western Located at the southeast quarter of I-95 and Hwy 52.
Hampton Inn
Hampton Inn In heavy office/commercial area, no highway exposure.
Shoney's Inn
Ramada Limited Good exposure from I-75. Originally constructed as full-service.
Hampton Inn Five story, interior corridor.
Knights Inn Far east side of Minneapolis.
Hampton Inn Off U.S. Highway 74, 40 miles west of downtown Charlotte.
Knights Inn North 8 miles north of downtown Columbus. Exit 117 of I-71.
Comfort Inn
Shoney's Inn Was converted to a Hampton Inn.
Hampton Inn
Comfort Inn - North & South 2 properties - Both in vicinity of Detroit Airport.
Hampton Inn Five miles from Albany Airport.
Comfort Inn University Between Chapel Hill and Durham.
Country Inn
Fairfield Inn Average Condition, Occupancy and ADR below Avg at time of sale.
Fairfield Inn West Near intersection of I-270 and I-70.
Comfort Inn Both interior and exterior corridors, renovated in 1993.
Knights Inn Akron South 6 miles south of downtown Akron. Good access and visibility from I-77.
Hampton Inn Near I-85 Interchange and UNC - Charlotte.
Mendota Motel
Hampton Inn Excellent visibility from NW Highway (Lodge Freeway), but confusing access.
Comfort Inn Access from I-84.
Quality Inn Good Interstate access and exposure.
Comfort Inn Two story, interior corridor, average condition.
Comfort Inn Located near the Charleston International Airport.
Comfort Inn Located within a commercial area with good access and visibility.
O[copy illegible] Inn 2 story masonry bldng on 5 acres of land.
Hampton Inn Upper-economy, limited-service property in suburban Cleveland.
Comfort Inn Interior Corridors, near Clemson University.
Hampton Inn - Victors Way North of I-94 at State Street Exit, on south side of Ann Harbor.
Hampton Inn Near Duke Univ. Medical Ctr and I-85.
Comfort Inn Near Blue Ridge Parkway.
Hampton Inn
Howard Johnson's Renovation in 1986.
Hampton Inn On primary commercial street in SW suburb of Crestwood.
Signature Inn Good visibility from I-275. Converted to Quality Inn in 1994.
Springhouse Inn South of I-94 in NW IN, poor visibility.
Comfort Inn Motel
Knights Inn
Comfort Inn Located in NW metro Atlanta, near Dobbins AFB & I-75/Cumberland Mall.
Hampton Inn Good access from I-95 and U.S. Highway 52.
Hampton Inn Upper-economy, limited-service property in suburban Chicago.
Shoney's Inn
Signature Inn Upper-economy, limited-service property in suburban Cleveland.
Signature Inn Upper-economy, limited-service property in suburban Canton.
Econo Lodge Motel East of I-465 on east side of Minneapolis.
Comfort Inn Located in Atlanta suburb.
Hampton Inn
Signature Inn Mid-size city; near interstates, employers, and retail.
Hampton Inn - Green Rd. Near cluster of lodging properties, west of hwy 23, north of I-94.
Knights Inn Near Belden Village Mall off I-77.
Days Inn Two story brick veneer.
Ramada Inn Property in Below Average Condition at Time of Sale.
Signature Inn Suburban Detroit property near employers; distressed mkt.
Save Inn/Days Inn Located off I-77 at exit 149B for State Route 82.
</TABLE>
Ro = Overall Rate REVPAR = Revenue Per Available Room
ADR = Average Daily Rate ERRM = Effective Rooms Revenue Multiplier
<PAGE> 57
SALES COMPARISON APPROACH VII-3
CRITERIA FOR COMPARABLE SELECTION
As indicated on the preceding summary charts, a total of 63 hotel sales were
utilized as comparable data. Physical factors such as location, sale date,
year of construction and size were considered. However, our analysis makes
comparisons of the transactions primarily along economic lines. In our
opinion, a buyer's criteria for the purchase of a hotel property is predicated
primarily on the property's income characteristics.
STATISTICAL MEASURES
Various statistical measures of the data are calculated and presented in the
following table. These basic descriptive statistics are measures of central
tendency and measures of variation or scatter.
Table VII-2
Statistical Measures
<TABLE>
<CAPTION>
MEASUREMENT TYPES ADR REVPAR INCOME/ROOM ERRM Ro (%)
----------------- ------- ---------- ------------- ------ -------
<S> <C> <C> <C> <C> <C>
Sample Size: 57 63 54 63 54
Measures of Central Tendency
Mean $44.20 $29.95 $3,679 2.68 12.54
Median 45.00 30.34 3,721 2.66 12.50
Measures of Variation
Highest Value $63.03 $46.80 $7,164 4.25 18.82
Lowest Value 14.50 8.70 1,496 1.10 9.40
Data Range 48.53 38.10 5,668 3.15 9.42
Standard Deviation 8.98 8.46 1,362 0.65 1.97
Coefficient of Variability 20.3% 28.3% 37.0% 24.1% 15.7%
</TABLE>
The mean and median are both measures of central tendency. The mean is the
mathematical average of the numerical data. The median of a set of values is a
number such that half of the values are less than that number, and half of the
values are greater than that number.
In studying the measures of central tendency, consideration is given to the
advantages and disadvantages of each, as they relate to the data analyzed. One
of the major considerations is how symmetrical the distribution of the data is.
If the data is highly symmetrical, the distribution will be in the form of a
bell-shaped curve, with the mean and median coinciding. However, as the data
becomes more and more skewed or lopsided, the differences in these
<PAGE> 58
VII-4 SALES COMPARISON APPROACH
measures will become greater. In such a case, the median, by excluding the
extremes, may become a more meaningful measure of central tendency.
The measures of central tendency tell nothing about the variation or scatter
among the observed values. In any set of statistical data, the individual
numerical values will be dispersed to a greater or lesser degree around the
center. Obviously, the less the dispersion, the tighter the data clusters
around the center, and the more meaningful the measures of central tendency
become. One method of measuring dispersion is by calculating the average
distance the data points are from the mean. Since the individual deviations
from the mean can be positive or negative, depending on whether the data point
is above or below the mean, and adding these distances would always equal zero,
it is necessary to square the deviations before adding them. The square root
of the sum of these squared deviations, known as the standard deviation, is one
of the most popular measures of data dispersion. An equally important
descriptive statistic presented on the summary chart is the coefficient of
variability. This is calculated by dividing the standard deviation by the
mean. Since the standard deviation measures data dispersion, the lower the
ratio of the standard deviation (dispersion) to the mean, the more tightly the
data clusters around the mean. Generally speaking, coefficients below 12%
indicate that the data points are found close to the mean, and that the mean is
therefore a fairly good indicator of the tendency of the data. On the
preceding summary chart, the coefficients ranged between 15.7% and 37.0%,
indicating significant data dispersion.
LINEAR REGRESSION ANALYSIS
A strong indication of how sale prices are influenced by revenue is found by
studying the relationship between the two. To illustrate, we have performed
two regression analyses. The first analysis graphs the data points relating to
the REVPAR and sale price per room for each of the sales. This "scatter plot"
is presented on the following page, and shows the positive linear trend in the
data. An analysis plotting income per room versus sale price per room
follows.
In the graph, the direct relationship is clearly evident. Hotels that generate
greater revenue per room sell for more, regardless of age, location, size,
appearance, or any other physical factors. This is not to say that those
physical and cosmetic factors do not influence price, but they do so only
insofar as they influence room rates, occupancy, operating expenses, and
ultimately net operating income.
<PAGE> 59
SALES COMPARISON APPROACH VII-5
[GRAPH]
Sales Regression Analysis
Sale Price/Room vs. REVPAR
Mathematically, the relative strength of the relationship between net income
and price per room can be found by submitting the two variables to a
correlation analysis. A perfect linear relationship would be indicated by a
correlation coefficient of 1 (positive relationship) or -1 (negative
relationship). Since very few markets are perfect, the correlation coefficient
will generally fall between -1.0 and 1.0. Correlation coefficients above .75
(or below -.75) generally reflect a good linear relationship, meaning that one
variable (price per room) can be predicted if given the second variable
(REVPAR).
When the REVPAR and price per room variables on the 63 sale properties were
submitted to a correlation analysis, the correlation coefficient (R squared)
was found to be 0.752, indicating that much of the variation in the dependent
variable (sale price per room) is explained by the independent variable
(REVPAR). This technique works best for limited service hotels since rooms
revenue is the only major source of income. The regression output is detailed
on the following chart.
<PAGE> 60
VII-6 SALES COMPARISON APPROACH
TABLE VII-3
REGRESSION OUTPUT
COMPARABLE SALE DATA SAMPLE
<TABLE>
<S> <C>
Constant: ($10,101)
Standard Error of Y Estimate: 6,657
R Squared: 0.752
X Coefficient: 1,333
Standard Error of X Coefficient: 99.65
</TABLE>
The constant is the Y-axis intercept and is the value of the dependent variable
(sales price per room) when the independent variable (REVPAR) is zero (0). The
X Coefficient is the slope of the regression line. The X Coefficient measures
the amount of change in the dependent variable for every change in the
independent variable. Given the value of the independent variable (REVPAR), we
can estimate the value of the dependent variable (sale price per room) by using
the X Coefficient and constant.
Based on this information, REVPAR is a significant variable driving the value
of hotels. Although differences in physical characteristics exist, they only
affect value to the extent that they affect room rates and revenue. The
regression formula for the subject can be presented as follows:
Sale Price/Room = (X Coefficient X Subject REVPAR) + Constant
= (1,333 X $30.80) + -$10,101
Sale Price/Room = $30,955
REVPAR for the subject was estimated in the Income Capitalization Approach.
Solving the regression equation yields a predicted price for the subject,
providing a total value estimate as follows:
$30,955 per room X 130 Rooms = $4,024,202
Rounded = $4,000,000
The first analysis graphed the data points relating to the REVPAR and sale
price per room for each of the sales, while this second analysis considers net
income per room as the independent variable. The following "scatter plot"
shows the positive linear trend in the income per room versus sale price per
room.
<PAGE> 61
SALES COMPARISON APPROACH VII-7
In the graph, the direct relationship is clearly evident. Hotels that generate
greater net income per room sell for more, regardless of age, location, size,
appearance, or any other physical factors.
[GRAPH]
Sales Regression Analysis
Sale Price/Room vs. Net Income/Room
When the net income per room and price per room variables on 54 sale properties
were submitted to a correlation analysis, the correlation coefficient (R
squared) was found to be 0.874, indicating that much of the variation in the
dependent variable (sale price per room) is explained by the independent
variable (income per room). This R squared, or correlation, is higher than
that of the REVPAR regression. The regression output is detailed on the
following chart.
<PAGE> 62
VII-8 SALES COMPARISON APPROACH
TABLE VII-4
REGRESSION OUTPUT
COMPARABLE SALE DATA SAMPLE
<TABLE>
<S> <C>
Constant: ($919)
Standard Error of Y Estimate: 4,457
R Squared: 0.874
X Coefficient: 8.462
Standard Error of X Coefficient: 0.445
</TABLE>
Based on this information, net income per room is also a significant variable
driving the value of hotels. Although differences in physical characteristics
exist, they only affect value to the extent that they affect room rates,
revenue, and expenses. The regression formula for the subject can be presented
as follows:
Sale Price/Room = (X Coefficient X Subject Inc./Rm.) + Constant
= (8.462 X $3,146) + -$919
Sale Price/Room = $25,702
Net income per room for the subject was estimated in the Income Capitalization
Approach. Solving the regression equation yields a predicted price for the
subject, providing a total value estimate as follows:
$25,702 per room X 130 Rooms = $3,341,219
Rounded = $3,300,000
EFFECTIVE ROOMS REVENUE
We also employed an effective rooms revenue multiplier (ERRM) analysis. This
method is generally used as a check of reasonableness for the linear regression
method.
The ERRM is a factor derived by dividing the sales price of the comparable sale
by the rooms revenue (number of guest rooms available annually multiplied by
the average daily room rate times the occupancy factor). As with the above
approach, room revenue projections for the first full year after purchase were
utilized to reflect the buyer's anticipation of rooms revenues at the time of
purchase. The principal advantage of using economic units of comparison is
that rental income is directly reflected. Therefore, differences between
properties which could involve adjustments, based on subjective judgment
estimates, have been resolved by the free action of the market place. If the
comparable properties have some advantage over the subject in terms of age,
condition accessibility, location or physical characteristics, the difference
in actual revenues presumably
<PAGE> 63
SALES COMPARISON APPROACH VII-9
reflects the extent of this advantage. The primary disadvantage of a straight
ERRM multiple is that is does not take into consideration variations in food
and beverage revenues and potential profits. However, rooms revenue profit
margins are typically significantly higher than that of food and beverage,
making this disadvantage somewhat less relevant. The fact that the subject is
a limited service hotel and most of the comparables except are limited service
properties, also mitigates this disadvantage.
The following table summarizes the Effective Rooms Revenue Multipliers for the
comparable sales.
TABLE VII-5
EFFECTIVE ROOMS REVENUE MULTIPLIERS
<TABLE>
<S> <C>
Median 2.66
Mean 2.68
Highest 4.25
Lowest 1.10
Data Range 3.15
Number in Sample 63
</TABLE>
The mean of the comparable sales' ERRM is 2.68, while they ranged between 1.10
and 4.15. To supplement this information, we analyzed USRC's internal study
that was performed in the Spring of 1995. This investor survey indicated ERRMs
ranging from 1 to 5, with an average of 2.7. The average of this survey
generally supports the average of the reported sales.
Based on the foregoing analysis, and in consideration of the stability and
income potential of the subject, we estimated an ERRM of 2.5 to be most
appropriate for the subject. Applying this to the effective room revenue
estimate for our stabilized year yields the following:
$1,461,000 rooms revenue X 2.5 ERRM = $3,652,500
Rounded to $3,700,000
<PAGE> 64
VII-10 SALES COMPARISON APPROACH
CORRELATION OF SALES COMPARISON APPROACH
The preceding value indications derived in the Sales Comparison Approach
reflect an overall value range of $3,300,000 to $4,000,000 for the fee simple
estate. The basis of value was 63 limited service hotel sales located
throughout the United States. The large range in value derived through our
Sales Comparison Approach is a result of using top line revenue (REVPAR Method)
to generate an indication of value verses utilizing net operating income or
bottom line income. The subject property has historically brought around 24%
to the bottom line while the portfolio average is 30.6% which suggests the
subject has higher operating expenses. Therefore, to estimate the value of the
subject without considering the effect of expenses on the overall revenue may
be misleading.
Furthermore, typical investors' will consider both approaches in their decision
making process but most often rely more heavily upon the value based on net
income. This statement is generally supported by our net income model's
correlation coeffecient (0.874) being higher than that indicated through the
REVPAR method (0.752). Therefore, in our opinion, the net income model
provides the better indicator of value at $3,300,000.
The ERRM analysis is based upon more subjectivity, and provided a value
indication of $3,700,000, which generally supports the conclusion via the net
operating income model.
Accordingly, it is our opinion that the market value of the going concern of
the fee simple estate, as indicated by the Sales Comparison Approach, in the
subject (including the contributory value of the furniture, fixtures, and
equipment), as of February 29, 1996 is:
THREE MILLION THREE HUNDRED THOUSAND DOLLARS
$3,300,000
<PAGE> 65
RECONCILIATION VIII - 1
RECONCILIATION
Two of the traditional approaches to value -- Income Capitalization Approach
and the Sales Comparison Approach -- were used to estimate the market value of
the subject property. The indications of value as of February 29, 1996, are as
follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH $3,300,000
SALES COMPARISON APPROACH $3,300,000
- -------------------------------------------------------------------------------
</TABLE>
These two approaches represent alternative ways of viewing market phenomena. A
final estimate of value is selected as the dominant tendency or most probable
outcome from a range of possible outcomes.
Within the Income Capitalization Approach, direct capitalization was used to
provide an indication of value. An analysis of the subject's occupancy and
average daily rate was made. Both income and expense estimates were based
primarily upon an analysis of historic data provided from the subject hotel in
addition to data from comparable hotels operating at comparable levels.
Current investment parameters and market conditions were also considered. The
capitalization rate was within the range of the investment criteria of
investors as well as comparable sales.
The Sales Comparison Approach reflects the value of the subject property based
upon an analysis of recent sales of similarly improved properties and reflects
the actions of buyers and sellers of comparable properties in the market. Both
the physical and economic units of comparison were included within the
analysis. The sales indicated a range of price per room which provided an
indication of value for the subject. Less weight was placed on the Sales
Comparison Approach due to the lack of recent truly comparable sales in the
market. However, the conclusion via this approach supported our conclusion via
the Income Capitalization Approach.
MARKET VALUE
Because the subject property represents an investment capable of attracting
investor capital, we have utilized the value estimate produced by the Income
Capitalization Approach. The Sales Comparison Approach provides additional
support for the conclusion. Subject to all conditions and explanations
contained in this report, and based upon our analyses of the subject property
and the market, together with our experience and knowledge acquired in
appraising similar properties, it is our opinion that the market value of the
fee simple interest of the going concern in the 130-room subject (including the
contributory value of the
<PAGE> 66
VIII - 2 RECONCILIATION
existing furniture, fixtures, and equipment), expressed in terms of financial
arrangements equivalent to cash, as of February 29, 1996, is:
THREE MILLION THREE HUNDRED THOUSAND DOLLARS
$3,300,000
CONTRIBUTORY VALUE OF THE FURNITURE, FIXTURES, AND EQUIPMENT
The final estimate of value stated above includes the estimated value of the
furniture, fixtures, and equipment (FF&E) for the hotel. Based on a report
published by Hospitality Valuation Services, Inc., the cost of new FF&E in a
standard limited-service hotel such as the subject property is typically in the
range of $5,100 to $9,500 per available room in 1994 dollars. We consider the
FF&E cost of $7,000 per unit, or $910,000 to be reasonable for the subject
property.
We have estimated the effective age of the FF&E to be approximately five years
old which takes into account the older case goods, as well as the more recently
replaced soft goods. Based on an expected economic life of ten years, the
amount of total depreciation attributable to the FF&E is $455,000. The
contributory value of the FF&E, based upon this analysis, included in the
estimated value of the property, is $455,000, or rounded to $460,000.
Therefore, it is our opinion that the contributory value of the furniture,
fixtures and equipment, as of February 29, 1996, is:
FOUR HUNDRED SIXTY THOUSAND DOLLARS
$460,000
<PAGE> 67
CERTIFICATION IX - 1
We certify to the best of our knowledge and belief
o The statements of fact contained in this report are true and correct.
o The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our
personal, unbiased professional analyses, opinions, and conclusions.
o We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
o This appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
o Our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of a subsequent event.
o Our analyses, opinions, and conclusions were developed, and this
report has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
o We certify that, to the best of our knowledge and belief, the reported
analyses, opinions and conclusions were developed, and this report has
been prepared in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
o We certify that the use of this report is subject to the requirements
of the Appraisal Institute relating to review by its duly authorized
representatives.
o As of the date of this report, James A. Powers, MAI, CRE has completed
the requirements of the continuing education program of the Appraisal
Institute
o Travis D. Ray has made a personal inspection of the property that is
the subject of this report. James A. Powers and Jeffrey H. Walker
have not inspected the property.
o No one other than the undersigned provided significant professional
assistance to the person(s) signing this report.
------------------------------- ------------------------------
James A. Powers, MAI, CRE Jeffrey H. Walker, CHSE
Ohio General Appraiser #381516
-------------------------------
Travis D. Ray
<PAGE> 68
ADDENDUM I
<PAGE> 69
[MAP]
Ciney North (2)
DESCRIPTION FOR: Signature Inn
LOCATION: Chester Road & Clinton Avenue
3.494 acres.
Situate in Section 36, Town 4. Entire Range 1, Sycamore Township, City of
Sharonville, Hamilton County, Ohio and being part of lots 34 & 35 of Hickman &
Williams. Addition to Glendale as recorded in Plat Book 3, Page 8 of the
Hamilton County Recorders office and being more particularly described as
follows:
Beginning at a point in the centerline of Chester Road, Said point also being
the Southeast corner of the aforesaid lot 35;
thence with the southerly line of said lot 35, South 89 degrees 01' 30" West,
457.76 feet to a point;
thence North 0 degrees 50' 30" West, 264.00 feet to a point in the northerly
line of said lot 35;
thence with said northerly line North 89 degrees 01' 30" East, 67.59 feet to a
point;
thence North 1 degree 07' 00" West, 18.00 feet to a point;
thence North 89 degrees 01' 30" East, 73.00 feet to a point;
thence North 1 degree 07' 00" West, 109.00 feet to a point;
thence South 89 degrees 01' 30" West, 28.00 feet to a point;
thence North 1 degree 07' 00" West, 137.00 feet to a point in the centerline of
Clinton Avenue;
thence with said centerline, North 89 degrees 01' 30" East, 115.00 feet to a
point;
thence South 1 degree 07' 00" East, 249.00 feet to a point;
thence North 89 degrees 01' 30" East, 228.91 feet to point in the aforesaid
centerline of Chester Road.
thence with said centerline South 1 degree 07' 00" East, 279.00 feet to the
point of beginning.
Containing 3.494 acres of land of which 0.271 acres lies within the right of
way of Chester Road and Clinton Avenue leaving a net area of 3.223 acres.
Subject to all legal highways and easements of record.
Prepared by: McGill, Smith, Punshon
Date: July 10, 1986
<PAGE> 70
ADDENDUM II
<PAGE> 71
VIEW OF FRONT DESK
VIEW OF DOUBLE/DOUBLE
<PAGE> 72
VIEW OF SIGNATURE QUEEN
VIEW OF EXERCISE ROOM
<PAGE> 73
VIEW OF MEETING ROOM
VIEW OF LOBBY AREA
<PAGE> 74
ADDENDUM III
<PAGE> 75
COMPANY PROFILE
- -------------------------------------------------------------------------------
<PAGE> 76
U S REALTY CONSULTANTS, INC. (USRC) was originally formed in January of 1983 as
a Columbus-based firm specializing in commercial real estate appraisal and
market analysis. With regional offices located in Atlanta, Georgia and
Chicago, Illinois, USRC has now grown to be one of the premier real estate
appraisal and consulting practices in the United States.
As we continue our phenomenal growth, our professionals continue to be involved
in literally hundreds of assignments annually, involving millions of dollars of
real estate. Our practice now includes three major areas of services to the
real estate industry: Hospitality & Resort Industry Services, Golf and Country
Club Services, and Real Estate Appraisal Services.
* Hospitality & Resort Industry Services - Evolving from a diversified
background of hospitality and resort market analysts, appraisers, and
operational specialists, USRC has established a hospitality & resort
consulting practice second to none. Our professionally-trained
hoteliers, resort, and golf course specialists, all having achieved
outstanding academic credentials, have over forty combined years of
industry experience. However, our constant involvement in the
consulting and appraising of hotels, motels, restaurants, resorts, and
golf courses have enabled us to be current with, as well as adaptive to,
the ever-changing dynamics of the industry. As a result, our
professionals combine current and in-depth industry experience results
tailored to the specific engagement, thus providing our clients the best
in hospitality & resort consulting services.
* Real Estate Appraisal Services - USRC is unique in that it was part of a
movement to pioneer the development of a national real estate appraisal
practice. We specialize in the valuation of real estate portfolios,
which are disbursed both geographically and by property type. Our
valuation expertise is in commercial real estate with emphasis on
office, industrial, retail, mixed-use, hotel, resort, golf course, other
special-use, and multifamily projects. These characteristics qualify us
as one of the leading appraisal organizations in the nation.
* Golf and Country Club Services - USRC has recently developed a
burgeoning practice devoted to golf-related and recreational facilities.
The services offered under this practice include valuation and
consultation for private country clubs, daily-fee golf courses,
surrounding residential development, and resort destinations.
The rapid expansion of USRC's experience and capabilities closely parallels the
growth and ever-changing requirements of the clients we serve. The Firm's
emphasis on programs of professional learning ensure that industry requirements
are being met by our people. Clients become the beneficiaries of this
continually expanding knowledge. Many USRC individuals also serve on senior
committees of national and state professional societies and associations,
enabling them to stay current with developing trends in the profession and to
participate in framing new rules and standards.
<PAGE> 77
USRC's clients benefit from the advantage of working with a local firm, yet
have access to the experience and much of the resources of a national firm.
With 20 professional staff members - five holding the coveted designation,
Member of the Appraisal Institute (MAI) - and five specifically trained in the
analysis of hotels, restaurants, resorts, and golf courses - and growing, we
are determined to provide the "quality client service" that our customers
expect.
U S REALTY CONSULTANTS, INC., with over 55 combined years of real estate
valuation experience, serves many of the nation's most prominent pension funds,
investment managers and advisors, life insurance companies, financial
institutions, and governmental agencies providing quality appraisal and
litigation support services in relation to their real estate needs.
Some of the more significant marketplaces in which USRC holds experience and
important local market knowledge include:
* Albuquerque * Fort Worth * Portland, OR
* Aspen * Houston * Providence
* Atlanta * Indianapolis * Raleigh
* Austin * Kansas City * Sacramento
* Birmingham * Los Angeles * San Diego
* Boston * Louisville * San Francisco
* Charlotte * Minneapolis * San Jose
* Chicago * Milwaukee * Seattle
* Cincinnati * Nashville * St. Louis
* Cleveland * New Orleans * Tampa
* Colorado Springs * Oakland * Toledo
* Columbus * Orlando * Toronto, Ontario
* Dallas * Philadelphia * Washington, D.C.
* Dayton * Phoenix * West Palm Beach
* Denver * Pittsburgh * Wilmington
* Des Moines * Portland, ME * Caribbean
* Detroit
<PAGE> 78
PROFESSIONAL
STAFF
QUALIFICATIONS
- --------------------------------------------------------------------------------
<PAGE> 79
James Powers is the founder and President of U S REALTY
CONSULTANTS, INC., overseeing the company from its inception in
1983. Mr. Powers is now actively involved in the valuation of
JAMES A. all income-producing property types, including multi-property
POWERS, MAI, portfolio appraisal. In addition, he is called upon to provide
CRE expert witness testimony in courts throughout the country. Mr.
Powers is a specialist in the securitization of real estate
PRESIDENT through Real Estate Investment Trusts.
Mr. Powers received his MAI designation from the Appraisal
Institute in 1974, and is a Certified General Appraiser in the
State of Ohio.
EDUCATION
Bachelor of Science (Major: Engineering), United States Military
Academy, West Point, New York, 1960
Instructor, Lecturer, Real Estate Appraisal and Investment Topic
Chairman, Education Committee, Columbus Board of Realtors,
1971-1972
PROFESSIONAL AFFILIATIONS
Member, Counselors of Real Estate
Appraisal Institute
Director, Ohio Chapter 1988
Society of Real Estate Appraisers:
Past President, Columbus Chapter 1978-1979
American Society of Appraisers:
Past President, Columbus Chapter 1974-1975
National Association Review Appraisers
National Association of Real Estate Boards
Ohio Association of Real Estate Boards
Columbus Board of Realtors
Real Estate Securities and Syndications Institute
National Association Corporate Real Estate Executives
Past Chairman, St. Ann's Hospital Board of Trustees, during the
Concept and Implementation Phase of the Hospital's relocation
and redevelopment.
<PAGE> 80
Jeffrey Walker joined the firm in 1992, serving as Director of
Hospitality Development. Mr. Walker's previous experience
includes various hotel and restaurant positions. Most recently
JEFFREY H. he served as Director of Sales and Marketing with Hyatt Hotels
WALKER, CHSE, Corporation, where he received the "Hyatt Director of Sales of
the Year" award in 1991.
DIRECTOR
HOSPITALITY Mr. Walter is now involved in consulting work for lenders,
DEVELOPMENT owners, developers and operators. His areas of specialization
include hotel marketing consulting, operational review, market
study and analysis, yield management, and advertising and public
relations support for hotels.
EDUCATION
Bachelor of Science, James Madison University, 1985
Completed credit reqquirements for the following AI courses:
1A1 Real Estate Appraisal Principles
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Ohio Hotel and Motel Association
The Ohio Restaurant Association
PROFESSIONAL AFFILIATIONS
Ohio Hotel and Motel Association, Allied Board of Directors
Columbus Hotel and Motel Association, member
Hotel Sales and Marketing Association, International, member
Greater Washington (D.C.) Society of Association Executives,
1988-92
<PAGE> 81
Travis Ray currently serves as an associate with the firm. He
joined USRC in the Summer of 1994 after receiving his Bachelor
of Science degree from the School of Hotel Administration at
TRAVIS D. Cornell University. His concentration was in Real Estate and
RAY Development. Although Mr. Ray's emphasis is in hospitality
related properties, he has been actively involved in the
ASSOCIATE valuation of other income-producing property types. Among the
other property types he has been involved with include regional
malls, nursing homes, offices, and apartments.
EDUCATION
Bachelor of Science, (Major: Hotel Administration), Cornell
University, 1994
PROFESSIONAL AFFILIATIONS
Columbus Hotel/Motel Association
Cornell Society of Hotelmen
<PAGE>
______________________________________________________________________________
______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 33-14003
SIGNATURE X LTD. LIMITED PARTNERSHIP
(Exact name of small business issuer in its charter)
Indiana 35-1687036
------- ----------
(State or other jurisdiction I.R.S. Employer Identification No.)
of incorporation or organization)
250 East 96th Street, Suite 450, Indianapolis, Indiana 46240
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (317) 581-1111
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the Registrant (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.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form. No disclosure will be contained, to
the best of Registrant's knowledge, in any definitive proxy or information
statements incorporated by reference herein. [ X ]
Issuer's revenues for the most recent fiscal year $3,117,727 Aggregate Market
Value of Units Held by Non-Affiliates: Unknown
(See Item 5)
Documents Incorporated By Reference: None
Transitional Small Business Disclosure Format (check one):
Yes ; No X
----- -----
______________________________________________________________________________
______________________________________________________________________________
-1-
<PAGE>
PART I
------
Item 1. Business of Signature X Ltd. Limited Partnership.
------------------------------------------------
A. Organization.
------------
Signature X Ltd. Limited Partnership (hereinafter sometimes referred to
as the "Issuer," the "Partnership" or the "Registrant") was originally
organized pursuant to a Certificate and Agreement of Limited Partnership dated
September 19, 1986, which was filed for record with the Marion County,
Indiana, Recorder on September 19, 1986, in accordance with the Indiana
Uniform Limited Partnership Act (I.C. Section 23-4-2-1 et seq.) ("ULPA"). On
July 1, 1988, the Partnership filed a Certificate of Limited Partnership under
the Revised Uniform Limited Partnership Act ("INRULPA"), thereby electing to
be governed under the provisions of INRULPA. As a result, effective on July
1, 1988, the Partnership became a partnership governed by INRULPA rather than
by the ULPA.
Subsequent to its organization, the Partnership commenced an SEC
registered, public offering of Units of limited partnership interest (the
"Units") at $10,000 per Unit, with a minimum subscription of one-half Unit
pursuant to a Registration Statement which originally became effective on May
29, 1987. The offering was concluded in October, 1988. A total of 364 Units,
aggregating $3,640,000, was sold in the offering to 386 purchasers who became
limited partners of the Partnership.
Signature Inns, Inc. (hereinafter sometimes referred to as the "General
Partner"), in its capacity as General Partner, contributed $404,445 as its
capital contribution to the Partnership. In addition to its capital
contribution in its capacity as a General Partner, Signature Inns, Inc.
acquired 10 Units in the offering at the same price and on the same terms as
paid by all other investors in the offering, which Units the General Partner
is required to hold indefinitely.
B. The General Partner.
-------------------
The General Partner of the Partnership is Signature Inns, Inc. ("General
Partner"), an Indiana corporation, which was incorporated on March 31, 1978.
C. The General Partner's Affiliated Partnerships and Joint Ventures.
----------------------------------------------------------------
The General Partner, directly or through a wholly-owned subsidiary, is the
general partner of a total of 21 Indiana limited partnerships and joint venture
partnerships. The partnerships own an aggregate of 23 Signature Inn hotels
totaling 2,748 rooms. Each of those 23 operating hotels and one additional
eighty-one room hotel currently under construction are operated under
long-term management and franchise agreements with the General Partner, from
which the General Partner derives substantial fee revenue.
-2-
<PAGE>
D. The General Partner's Subsidiaries.
----------------------------------
The General Partner has four, wholly-owned subsidiary corporations.
Signature Securities Corporation ("SSC"), is an SEC/NASD registered "limited"
broker-dealer which previously was engaged in the offer and sale of direct
participation programs (e.g., limited partnership real estate offerings) of
partnerships affiliated with Signature Inns, Inc. SSC has marketed thirteen
limited partnership programs. However, SSC has not offered limited partnership
interests since 1989.
The Signature Franchise Corporation ("SFC") subsidiary was organized in
connection with the 1992 Debt Restructuring. SFC never engaged in any
business operations.
The P & N Corporation ("P & N") subsidiary was organized in late 1993 and
acts as the general partner of the Peoria/Normal Signature Limited
Partnership, which owns and operates the Normal and Peoria, Illinois,
Signature Inn hotel properties , the Knoxville Signature Limited Partnership
which owns and operates the Knoxville, Tennessee, Signature Inn hotel property
and Meridian Signature Limited Partnership which owns land and a hotel under
construction in Indianapolis, Indiana. Those properties are managed and
franchised under management and franchise agreements between the partnerships
and the General Partner.
The S.I.E. Corporation subsidiary was organized in December 1995 and acts
as general partner for Signature Northwestern Ltd. - I.
E. Location of Signature Inn Hotels.
--------------------------------
The General Partner's ownership interest in the following affiliated
hotel partnerships ranges between 5% and 50%, depending upon the capital
contributions made to the particular partnership and other factors relating to
the structuring of the partnership. All mortgage loans on partnership
properties are non-recourse to the General Partner.
-3-
<PAGE>
<TABLE>
<CAPTION>
GENERAL PARTNER'S AFFILIATED SIGNATURE INN HOTEL
PARTNERSHIPS AND JOINT VENTURES
Partnership Date Organized Location of Hotel(s)
- ----------- -------------- --------------------
<S> <C> <C>
Signature I Ltd. 01/16/81 Fort Wayne, IN
Signature II Ltd. 11/12/81 Indianapolis, IN
Signature III Ltd. 02/04/82 Lafayette, IN
Signature IV Ltd. 08/27/82 Muncie, IN
Signature V Ltd. 03/09/84 Cincinnati, OH
Signature Southport 04/23/84 Indianapolis, IN
Joint Venture
Signature Northwestern 12/31/84 Indianapolis, IN
Ltd. - I
Signature VI Ltd. 01/16/85 Indianapolis, IN
Signature VII Ltd. 04/24/85 Columbus, OH,
and Kokomo, IN
Signature VIII Ltd. 11/05/85 Evansville, IN
Signature IX Ltd. 07/01/86 Terre Haute, IN
Signature Elkhart Ltd. 07/02/86 Elkhart, IN
Signature X Ltd. 09/19/86 Florence, KY,
and Sharonville, OH
Signature XI Ltd. 09/26/86 Miamisburg
(i.e., Dayton), OH
Signature XII Ltd. 10/03/86 South Bend, IN
Signature XIV Ltd. 12/12/86 Louisville, KY
Signature XVII Ltd. 09/20/88 Indianapolis (North), IN
Signature XXI Ltd. 06/12/89 Bettendorf, IA
Peoria/Normal Signature 12/16/93 Normal, IL
Limited Partnership and Peoria, IL
Knoxville Signature 05/04/94 Knoxville, TN
Limited Partnership
Meridian Signature July 96 Carmel, IN
Limited Partnership Planned opening
</TABLE>
-4-
F. The Signature Inn Hotel Concept.
-------------------------------
The Signature Inn concept has been continuously improved since 1981 and
has been favorably received by the traveling public. The Signature Inn
concept is predicated upon a simple principle of providing first-class service
to its hotel Guests on a consistent basis in all hotels. In order to
accomplish this type of service, Signature has developed a guest services
program entitled "Legendary Service," which involves the employment of
individuals who are goal and team oriented, possess a positive mental
attitude, a good work ethic, have a sincere desire to serve our Guests and
portray the clean-cut "Signature Look." Those employees are then trained
under the Legendary Service program to provide efficient, friendly and
courteous service. The Legendary Service program also requires that, in the
event a problem cannot be resolved to the satisfaction of a guest, the guest
will receive a money-back guarantee.
In addition to the Legendary Service provided by the employees to hotel
Guests, the Signature concept is also identified by the physical features and
specialized services offered to Guests. Signature Inn hotels have large,
spacious, well furnished and attractively decorated lobby-registration areas.
The guest rooms are attractively decorated and designed to have a high
aesthetic appeal and to provide convenience and comfort. Signature rooms
feature a queen or king-sized bed and a recliner chair. Special services and
amenities offered by Signature Inn hotels include:
Newspaper delivered to room HBO, cable and in-room movies
Fax Machines Meeting rooms
Large desk in all rooms Interview centers
Free local calls Guest storage facilities
Free Breakfast Express Business center facilities
Professional conference center No-Smoking rooms
Outdoor or indoor swimming pool Guest spa rooms
Guest voice mail
Other than the professional conference center, meeting rooms, in-room movies
and long distance charges for fax machines, all items on the foregoing list
are furnished to the guest on a complimentary basis.
Although each Signature Inn hotel offers high quality lodging
accommodations and services to the public, Signature Inn hotels do not offer
restaurant, bar or lounge facilities. As with many other economy/limited
service hotels, the General Partner eliminated what it considered to be the
lower profit margin departments of "food and beverage" and the unproductive
and costly, large public areas associated with full service hotels. However,
the Signature Inn hotels are generally located adjacent to or near quality
restaurants for the convenience of their Guests. Because Signature Inns do
not have restaurants inside the hotels, Signature Inn hotels, like other
economy/limited service hotels, generally have a significantly lower
break-even threshold and are not as labor and management intensive as
All-Suite or Full Service hotels.
G. Hotel Industry Overview and Partnership Hotel Results.
-----------------------------------------------------
Signature Inn hotels operate in the "upper economy/limited service"
segment of the hotel industry. The following table illustrates average
occupancy and average daily room rates ("ADR") for the years indicated of the
Partnership hotels and the Signature Inn chain (23 hotels) compared to "upper
economy chains" and the industry:
<TABLE>
<CAPTION>
Occupancy ADR
--------------------- ----------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Florence 67.3% 66.2% 63.5% $51.74 $48.94 $46.87
Sharonville 55.6% 56.8% 53.5% $54.59 $53.40 $50.43
Signature Inn Chain 67.2% 67.9% 66.2% $55.81 $53.45 $50.48
Upper Economy Chains* 64.4% 65.4% 64.4% $47.39 $46.08 $44.31
Hotel Industry* 65.5% 65.1% 63.1% $67.34 $63.64 $61.31
</TABLE>
*Source: Smith Travel Research.
---------------------
-5-
The General Partner believes an important indicator of hotel performance
within a segment of the industry is "revenue per available room" (REV PAR),
which combines both the occupancy and the average daily room rate achieved.
REV PAR for the years indicated for the Signature Inn chain and the "upper
economy chains" is as follows:
<TABLE>
<CAPTION>
REV PAR
------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Signature Inn Chain $37.50 $36.29 $33.42
Upper Economy Chains $30.52 $28.87 $27.38
The upper economy/limited service hotels have performed better than all
other segmentsin the industry during the past several years. It is
management's belief that the economy/limited service hotel segment will
continue to be the fastest growing segment in the U.S. hotel industry.
Accordingly, management believes that the Signature Inn chain of hotels
are competitively positioned within thedomestic lodging industry. The hotel
industry experienced declines in average occupancy rates for several years
prior to 1991 brought on by room supply growth exceeding room demand, and
annual average daily rate increases less than inflation due to significant
discounting of room rates. In 1992, the industry began to improve with
increasing average occupancy and larger average daily rate gains. Through
1995, this favorable trend has continued. However, continuation of this
positive trend in the hotel industry is dependent in large part on demand
growth in relation to supply growth over the next several years.
Room demand growth continues to increase faster than supply growth,
although recently the supply growth appears to be accelerating.
H. Trademarks.
----------
The mark "Signature Inn" with related logo was registered by the General
Partner with the Indiana Secretary of State effective on October 8, 1980. In
addition, on October 4, 1982, the mark "Signature Inn" (with logo) was
registered on the principal register of the United States Patent and Trademark
Office. On September 18, 1984, the mark "Signature Inn", only, and the
stylized "S" logo, only, were registered on the principal register of the
United States Patent and Trademark Office. On February 14, 1990, the
declarations of five years use for each of the marks was accepted by the
United States Patent and Trademark Office. These registrations are now in
effect until a renewal date of September 18, 2004. Another mark, "We Help You
Get Down to Business," which is used by Signature Inns in its hotel
operations, was registered with the United States Patent and Trademark Office
on October 12, 1982. An additional mark, "Sincerely Yours," was registered in
1990 with the United States Patent and Trademark Office. The mark "Breakfast
Express" was registered with the U.S. Patent and Trademark Office on November
3, 1992. The Mark "There's Something Personal About a Signature" was
registered with the U.S. Patent and Trademark Office on April 30, 1991.
On June 1, 1989, Signature Inns, Inc. entered into an agreement with a
Canadian group which had owned the Canadian trademark registration of
"Signature Inn." Under the agreement, the Canadian registration of the mark
"Signature Inn" became the property of Signature Inns, Inc.
-6-
<PAGE>
I. The General Partner's Corporate Account Sales and Marketing.
-----------------------------------------------------------
The General Partner systematically develops regional and national
accounts consisting of corporations and travel agency consortiums which use one
or more Signature Inn hotels in the chain on a regular basis. Many of
these publish their own corporate travel directories, stipulating hotel
locations which have been approved for lodging accommodations. Signature
Inns appears in numerous corporate and travel consortium directories,
including the following: Maritz, Carlson/Wagonlite, BTI Americas, ABC Corporate
Services, Rosenbluth Travel, General Motors, Ameritech, and Navistar.
In addition, a National Sales Director and Director of Hotel Sales work
with and assist hotel employees responsible for local sales efforts
in Signature Inn markets. This corporate marketing program gives Signature
Inn hotels excellent visibility to business customers who are likely to
utilize Signature Inns on a systematic and chain-wide basis.
J. The General Partner's Centralized Reservation System.
----------------------------------------------------
Signature Inn hotels utilize Teleservice Resources, a subsidiary of AMR
Company based in Dallas/Fort Worth, Texas, to provide central reservation
services. The 800 number utilized by Signature as its central reservation
number allows the public in the United States and Canada to make toll-free
reservations by telephone, and travel agents can make electronic reservations
by using one of several electronic airline reservation systems.
K. The General Partner's Hotel Advertising.
---------------------------------------
The General Partner utilizes the services of Lord, Sullivan & Yoder, Inc.
Advertising of Columbus, Ohio, to provide full-service advertising for the
Signature Inn chain and to direct the chain's advertising program. Lord,
Sullivan & Yoder, Inc. assists in the formulation of the Signature Inn chain
and individual hotel advertising programs and budgets. The General Partner
also utilizes Montgomery Zukerman Davis, Inc., a full-service advertising firm
located in Indianapolis, Indiana, for public relations activities.
L. The General Partner's Employees.
-------------------------------
Including its five executive officers, the General Partner employs
twenty-five full-time employees at its corporate office. In addition, the
general and assistant general manager at each of the 23 operating Signature
Inns are employees of the General Partner. The General Partner also employs
approximately seventy-five full-time employees at three of the hotels managed
by the General Partner. The General Partner believes it has an excellent
relationship with its employees.
-7-
<PAGE>
M. Seasonality.
-----------
Demand for hotel accommodations varies seasonally in the General
Partner's current market areas. Typically, demand for hotel accommodations
and, correspondingly, occupancy rates for each of the Signature Inn hotels
within the Signature chain will be higher during the period from March through
October and lower during the period from November through February.
N. Competition.
-----------
The operation of hotels is an extremely competitive business. The General
Partner as a management General Partner and its affiliated hotel partnerships
as owners of hotels are each in competition with numerous management companies
and hotel chains in their respective areas of operation of varying quality and
size, including national and regional chains, and hotels which have available
to them greater name recognition and financial resources than the General
Partner. The General Partner believes its management possesses adequate
experience and that the Signature Inn concept is sufficiently recognized to
enable the chain to compete successfully against its competitors.
O. Refurbishing.
------------
To meet competition in the industry and to maintain economic values,
continuing expenditures must be made for modernizing, refurbishing and
maintaining existing facilities prior to the expiration of their anticipated
useful lives. If such expenditures are not made, the value and profitability
of the property may be diminished. Each affiliated hotel limited partnership
establishes reserve funds in connection with the operation of its hotel for
refurbishing which are based upon specified percentages of hotel revenues.
P. Energy and Environmental Factors.
--------------------------------
Present and future regulations issued to meet federal or local
antipollution standards, limitations on or rationing of gasoline usage,
gasoline shortages, or other effects of any future energy crisis or shortage
of natural resources may affect adversely utilization of one or more of the
Signature Inn hotel properties by travelers or increase the cost of operating
such properties and thus adversely affect the General Partner's operations.
Further, environmental studies required to be performed by the General Partner
and its affiliated partnerships in connection with the acquisition of
properties in order to avoid potential liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Super Fund Amendments and Reauthorization Act of 1986, add to the costs
and risks of acquisition of real estate sites generally.
Q. Americans With Disabilities Act.
-------------------------------
The General Partner believes that all Signature Inn hotels within the
Signature Inn chain currently are in compliance with the Americans With
Disabilities Act and does not anticipate that future compliance with this
regulation will require substantial cash resources.
-8-
<PAGE>
R. Miscellaneous.
-------------
Neither the General Partner nor any of its affiliated limited
partnerships are dependent upon a single customer or a very few customers, the
loss of any one of which would not have a material adverse effect on the
General Partner. All raw materials utilized by the General Partner and its
affiliated limited partnerships in the construction or refurbishing of their
respective hotels are believed to be readily available at competitive prices.
The General Partner is not engaged in any material research or development
activities.
S. The Partnership's Hotels.
------------------------
The business of the Partnership consists exclusively of the ownership and
operation of two Signature Inn hotels located in Florence, Kentucky, and
Sharonville, Ohio. A listing of these hotels, location, the number of rooms,
and opening dates is as follows:
</TABLE>
<TABLE>
<CAPTION>
Location of Hotel Number of Rooms Opening Date
----------------- --------------- ------------
<S> <C> <C>
I-75/71 & Turfway Road 125 07/14/87
Florence, Kentucky
I-75 & Sharonville Road 130 09/08/87
Sharonville, Ohio
</TABLE>
Each of the foregoing properties is operated as a franchisee of the
General Partner. The Partnership has entered into a Signature Inn Individual
Hotel License Agreement with respect to each of the hotels. By the terms of
those agreements, the Partnership was to pay to Signature Inns, Inc. monthly
franchise fees (i.e., royalties) equal to 4% of the gross receipts of each of
the hotels and, in addition, contribute an additional 3.5% of gross receipts
to advertising and reservation funds administered by Signature Inns, Inc. to
finance advertising programs and a reservation system. The initial term of
each of the agreements is 10 years, and the Partnership has an option to renew
each of those agreements for an additional term of 5 years. Under the terms
of the agreements, the Partnership is authorized to use the name "Signature
Inn," as well as other trademarks and logos associated with the Signature
system, and the General Partner provides various services in relation to that
system.
Each of the Partnership's hotels is managed by the General Partner
pursuant to a Management Agreement entered into between the Partnership and
the General Partner. Under the Management Agreements, the General Partner
establishes policies for the Partnership's employees having direct
responsibility for the hotel's operation. In addition, the General Partner
establishes room rates, directs the promotional activity of the Partnership's
employees, supervises the purchase and replacement of equipment and supplies,
supervises maintenance activities and selects vendors, suppliers and
independent contractors. In addition, the General Partner performs all
-9-
<PAGE>
bookkeeping and administrative duties in connection with each of the hotels
and administers payments and reports to the Limited Partners. The Partnership
is required to pay to the General Partner as compensation for its management
and accounting services an amount equal to 5% of gross receipts per month for
each of the hotels. This compensation is in addition to the cost of
compensating the Partnership's own employees and the costs of goods and
services acquired by the Partnership from independent contractors. However,
the management fee covers all of the General Partner's overhead for which
there is no separate charge.
A mortgage loan of $2,730,000 at December 31, 1995, relating to
industrial revenue bonds issued by the City of Florence, Kentucky, is secured
by the Florence hotel and includes various principal amounts which bear
interest at an effective rate of 9.76% and mature serially to 2016. The bond
indenture requires the maintenance of a debt service fund of $225,000 before
distributions can be made to the partners. Withdrawals from the fund are
permitted for working capital and other operating needs.
A mortgage loan of $2,504,869 at December 31, 1995, is secured by the
Sharonville hotel and is payable in monthly installments of $23,502, including
interest at 10.0%. The interest rate and monthly installments are adjustable
at three-year intervals to 3.75% above the three-year U.S. Treasury Constant
Maturity rate, based on maturity in 2018. The interest rate is not to exceed
15% through maturity in 1998, or be less than 10%.
In 1994, the General Partner restructured the note payable to General
Partner, which had a balance of $3,038,045, and reduced the balance to
$2,377,361 resulting in an extraordinary gain from the restructuring of
$660,684. The restructured note is non-interest bearing and repayments are
dependent on future annual cash flows of the Partnership. The note matures in
2004 and requires annual principal payments equal to 50% of defined available
cash flow but not in excess of $237,736.
In the opinion of Partnership management, both hotel properties are
adequately insured.
Sharonville Office Building. In 1994, the Partnership demolished an
office building at a cost of $7,500, and the City of Sharonville added
additional parking on the former building site which is adjacent to the new
Sharonville Convention Center. The Partnership entered into a twenty-year
cost-sharing agreement with the City for the maintenance of this parking lot
which provides for annual payments to the Partnership of $2,400, increasing 4%
each year. The agreement allows the City to utilize the new parking area for
a period of twenty years. The Partnership has the right to terminate the
agreement at any time prior to the end of the twenty year period, with a
payment to the City of $6,000 for each of the remaining years of the contract.
-10-
<PAGE>
T. Reserves.
--------
Although the Partnership attempts to maintain adequate working capital
reserves, the Partnership's working capital reserves historically have been
inadequate. In the past, the General Partner periodically has advanced funds
to the Partnership. The General Partner may be unable or unwilling to make
future advances to the Partnership.
As a result of the Partnership's recurring losses from operations and
decreases in cash flows, the Partnership's audited financial statements
include Note 1 which states that failure to reach the anticipated increased
revenues could jeopardize the Partnership's ability to meet its obligations.
U. Employees.
---------
As of December 31, 1995, the Partnership employed approximately 50
employees, approximately ten (10) of whom were employed on a part-time basis.
V. Summary of Partnership Agreement.
--------------------------------
The following is a brief summary of certain provisions of the Partnership
Agreement.
(1) Powers of the General Partner. Signature Inns, Inc. (the "General
Partner") has full, exclusive, and complete authority and discretion in the
management and control of the business of the Partnership. (Sections 9.01 and
9.02.) Limited Partners have no right or power to take part in the management
of, or to bind, the Partnership. (Section 14.01.)
(2) Liabilities of the Limited Partners. The Partnership Agreement
provides that no Limited Partner shall be liable for any debts or obligations
of the Partnership in excess of the amount of his/her Capital Contribution
which has not been previously returned to him/her (Section 14.03), except
that, under applicable law, the Limited Partners may be required to return
(with interest) amounts distributed to them as a return of their Capital
Contributions if the Partnership is unable to pay creditors who extended
credit to the Partnership prior to the date of any such return of capital.
(Section 6.03.) In addition, all undistributed Cash Available for
Distribution and proceeds of the sale or financing of Partnership Properties
which would otherwise be distributed to the Partners are available, along with
all Partnership assets, to creditors to satisfy the debts and obligations of
the Partnership until actually distributed. (Section 14.03.) Upon
payment in full of the subscription price, Units acquired by Limited Partners
pursuant to the Partnership Agreement become fully paid and nonassessable.
(Section 6.06.) No Limited Partner has the right to withdraw all or any
portion of his Capital Contribution until the full and complete winding up and
liquidation of the business of the Partnership, except as otherwise provided
by law. (Section 6.03.)
-11-
<PAGE>
(3) Meetings and Voting Rights of the Limited Partners. Meetings of the
Limited Partners may be called at any time by the General Partner or by one or
more Limited Partners holding more than 25% of the Units. Limited Partners
can vote at any meeting and the Limited Partners can act without a meeting by
written consent, provided that written consents are delivered to the General
Partner. Limited Partners are entitled to one vote for each Unit held.
(Section 14.04.)
Limited Partners may, with the affirmative vote of those holding more
than 50% of the Units, take action on the following matters: (a) the approval
or disapproval of the sale or exchange of all or substantially all of the
Partnership's properties; (b) dissolution of the Partnership; (c) removal of a
General Partner or any successor General Partner; (d) election of new General
Partner upon the removal, retirement, bankruptcy, insolvency or death of a
General Partner or any successor General Partner; and, (e) amendment of the
Partnership Agreement (Section 14.01.).
The right of the Limited Partners to amend the Partnership Agreement,
however, is limited with respect to amendments affecting limited liability of
the Limited Partners and the rights and interests of the General Partner.
(Section 14.02.) Amendments receiving the requisite vote will be executed by
the General Partner on behalf of all Limited Partners acting pursuant to the
power of attorney contained in the Partnership Agreement. (Section 17.01.)
(4) Reserves. The General Partner shall make an initial provision for
adequate reserves (by retention of proceeds from the sale of Units and Cash
Flow from operations) for working capital in an amount equal to approximately
5% of the "Project Cost" of each hotel and for replacements of furniture,
fixtures, and equipment in the amount set forth under Section 9.02(1).
(5) Books and Records. The General Partner is required to maintain at
the Partnership's principal office full and accurate records for the
Partnership, and all Limited Partners shall have the right to inspect and
examine such books and records at all reasonable times and upon reasonable
notice. (Section 13.01.) Annual audits of the Partnership's affairs will be
conducted by such firm of independent certified public accountants as may from
time to time be engaged by the Partnership. (Section 13.02.)
(6) Limited Transferability of Units. There are a number of
restrictions on the transferability of Units, including, among others, the
following: Units may not be subdivided after purchase; and investors
transferring less than all of their Units must transfer a number of Units such
that, after the transfer, both the transferor and the transferee shall own not
less than one Unit. A transfer fee in an amount sufficient to cover transfer
costs will be established by the General Partner, and payment thereof shall be
a condition to effectiveness of a transfer. All transfers of Units must be
pursuant to assignment documentation satisfactory in form and substance to the
General Partner. No Unit may be sold, assigned or exchanged if the sale of
such Unit, when added to the total of all other Units sold or exchanged within
the period of 12 consecutive months prior to the proposed date of sale or
exchange, would, in the opinion of counsel for the Partnership, result in the
termination of the Partnership under Section 708 of the Internal Revenue Code
(dealing with transfers of 50% or more of the outstanding interests of a
-12-
<PAGE>
partnership) unless the Partnership and the transferring holder shall have
received a ruling by the Internal Revenue Service that the proposed sale or
exchange will not cause such termination. (Section 15.03.)
An Assignee of Units shall not become a substituted Limited Partner in
place of his/her assignor unless there is compliance with, among others, the
following additional conditions: (i) the written consent of the General
Partner to such substitution shall have been obtained, which consent in the
General Partner's absolute discretion may be withheld and (ii) the Assignee
shall have expressly agreed to become a party to the Partnership Agreement.
(Section 15.04.)
(7) Assignability of General Partner's Interest. With the consent of
the General Partner and Limited Partners holding more than 50% of the Units,
the General Partner may designate a successor or additional General Partners,
in each case with such participation in such General Partner's interest as
such General Partner and such successor or additional General Partners may
agree upon, provided that the interests of the Limited Partners are not
affected thereby.
A General Partner may withdraw from the Partnership at any time upon 60
days prior written notice to the Limited Partners and any other General
Partner or may transfer his interest to an entity controlling, controlled by,
or under common control with it; provided, however, that in either such event,
if it is determined that the Partnership business is to be continued rather
than dissolved and liquidated upon the happening thereof, the withdrawal or
transfer shall be effective only after receipt by the Partnership of an
opinion of legal counsel to the effect that such withdrawal or transfer will
not cause the Partnership to be classified as an association taxable as a
corporation rather than as a partnership for federal income tax purposes.
(Section 15.01.)
(8) Dissolution and Termination. The Partnership is to continue until
April 22, 2035, but may be dissolved earlier as provided in the Partnership
Agreement or by law. (Article V.) The Partnership Agreement provides that
the withdrawal, bankruptcy, insolvency, death, or removal by the Limited
Partners of the General Partner will dissolve the Partnership unless the
General Partner, or, if there is no remaining General Partner, the Limited
Partners, by a majority vote in interest, elect to continue the business of
the Partnership. (Section 18.01.) The Limited Partners also can dissolve the
Partnership by a vote of a majority in interest without removing the General
Partner. (Section 18.01.) In the event the Partnership is dissolved, the
assets of the Partnership shall be liquidated as promptly as is consistent
with obtaining the fair market value thereof; the proceeds therefrom, together
with assets distributed in kind, shall be distributed first to creditors to
satisfy debts and liabilities of the Partnership other than loans or advances
made by Partners to the Partnership, then to the establishment of reserves
deemed reasonably necessary to satisfy contingent or unforeseen liabilities or
obligations of the Partnership or of the General Partner arising out of or in
connection with the Partnership, then to the repayment of loans or advances
made by any of the Partners to the Partnership, with the balance, if any, to
be distributed among the Partners as provided in the Partnership Agreement
(Section 19.01. and "Distribution Policies") and upon completion of the
foregoing the Partnership shall be terminated.
-13-
<PAGE>
(9) Distribution Policies.
---------------------
(a) Time of Distributions and Allocation Among Limited Partners.
The Partnership makes annual distributions of all Cash Available for
Distribution, if any. Net proceeds of sale of Partnership Properties (and of
refinancing thereof, where the proceeds of such refinancing are not to be
reinvested in the acquisition of additional Properties) will be distributed as
soon as possible following their receipt.
The record date for determining the Limited Partners entitled to
participate in a distribution shall be the last day of the calendar month
preceding the date of distributions.
Each distribution will be allocated to the Limited Partners in the
ratio which the number of Units owned by each of them bears to the total
number of Units outstanding, subject to adjustment with respect to Units
issued by the Partnership during the fiscal year.
(b) Allocations and Distributions to the General Partner and
Limited Partners.
Allocation of Income and Loss and Distributions of Cash. The
following table sets forth (1) the allocation of Partnership income, gains,
losses, deductions, and credits between the General Partner and the Limited
Partners (as a group) and (2) the entitlements of the General Partner and the
Limited Partners (as a group) to cash distributions. The information set
forth with respect to each category, both before and after "Reallocation
Date."
With respect to distributions of Cash Available for Distribution
under Section 8.01 of the Agreement, "Reallocation Date" refers to the date on
which the Limited Partners have received an amount equal to 150% of their
Capital Contributions as a result of the distribution to them of Cash
Available for Distribution under Section 8.01 of the Agreement. With respect
to distribution of Net Proceeds under Section 8.02, "Reallocation Date" refers
to the date on which the Limited Partners have received an amount equal to
100% of their Capital Contributions as a result of the distribution to them of
Net Proceeds under Section 8.02 of the Agreement.
<TABLE>
<CAPTION>
General Limited General Limited
Partner % Partner % Partner % Partner %
Before Before After After Item
Reallocation Reallocation Reallocation Reallocation
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income, Gains, 25% 75% 50% 50% Losses,
Deduc-
tions and Credits
Cash Available 25% 75% 50% 50% for
Distribution
(From Operations)
Net Proceeds From 25% 75% 50% 50% Sales,
Financing
and Refinancing
of Properties
</TABLE>
-14-
<PAGE>
(c) Allocation of Net Income and Net Losses Among the Limited
Partners. Net income and net loss shall be allocated among the Limited
Partners in proportion to the number of Units owned by each of them as of the
last day of the year, subject to adjustment with respect to Units issued by
the Partnership or transferred by Partners during the year.
(10) Reports to Limited Partners.
---------------------------
Within 75 days after the end of the fiscal year (December 31) of the
Partnership, the General Partner will deliver to each Limited Partner such
information as is necessary for the preparation by each Limited Partner of
his/her federal income tax return and state income or other tax returns with
regard to jurisdictions in which properties are located.
Within 90 days after the end of each Partnership fiscal year, the
General Partner will deliver to each Limited Partner an annual report which
will include audited financial statements of the Partnership prepared in
accordance with generally accepted accounting principles. Such financial
statements will include a profit and loss statement, a balance sheet, a
statement of cash flows, and a statement of changes in Partners' capital. The
annual report for each year will report on the Partnership's activities for
that year, set forth the compensation paid to the General Partner and its
Affiliates with a statement of the services performed in consideration
therefor, and contain such other information as is deemed reasonably necessary
by the General Partner to advise the Limited Partners of the affairs of the
Partnership.
Each Limited Partner will be furnished within 60 days after the end
of the first six-month period of each Partnership year, an unaudited
semi-annual financial report for that period including a profit and loss
statement, a balance sheet, and a statement of cash flows. The foregoing
reports for any period in which fees are paid to the General Partner or its
Affiliates for services shall set forth the fees paid and the services
rendered.
W. The General Partner's Past Financial Difficulties, Restructurings,
Refinancings and Capital Appreciation Fee.
-----------------------------------------------------------------
In October, 1989, the General Partner's primary development lender and
lead bank on its line of credit refused to renew on normal terms the General
Partner's line of credit, which had previously been routinely renewed on an
annual basis. In March 1990, the bank refused to further renew the line of
credit at all. The Bank's refusal to renew the line of credit caused the
General Partner to terminate two on-going public offerings of affiliated
limited partnership interests and prevented the General Partner from
structuring and syndicating any such offerings after 1989. As a result, nine
hotels in their "start-up" phase were not adequately financed and their
-15-
<PAGE>
operation caused the General Partner to exhaust substantially all of its cash
resources and historically adequate working capital reserves. In order to
protect the General Partner's assets from threatened action by the lenders,
and to provide sufficient time to structure alternative financing
arrangements, the General Partner initiated a Chapter 11 bankruptcy proceeding
in April, 1990. As the debtor-in-possession, the General Partner continued in
possession and control of its nine hotel properties and other assets.
In March 1991, a Court order and judgment were entered confirming the General
Partner's Plan of Reorganization ("Confirmed Plan"). The General Partner made
the required payments under the Confirmed Plan throughout the balance of 1991.
During the latter part of 1991, occupancy and average daily room rate levels
for the nine General Partner-owned hotels, as a group, were substantially
lower than the levels which had been projected as a basis of the General
Partner's Confirmed Plan. As a result, the General Partner's operating
results were significantly adversely affected. The cash flow from the General
Partner's operations, together with the cash balances on hand at the
confirmation of the Confirmed Plan, were not sufficient to allow the General
Partner to continue to service its indebtedness under the terms of the
Confirmed Plan. In January 1992, the General Partner suspended debt service
payments to four banks, resulting in material defaults under the Confirmed
Plan.
During 1992 and 1993, the General Partner transferred ownership of a
total of six General Partner-owned hotels to construction mortgage lenders in
lieu of foreclosure and in full release and discharge of the mortgage
indebtedness owing by the General Partner on those hotels. In addition, three
previously affiliate-owned hotels were also reconveyed to the respective
mortgage lenders. As a result, during those two years, the number of
Signature Inn hotels operating in the Signature Inn chain decreased from 32
hotels to 23 hotels.
In December 1992, the General Partner and its lead bank entered into
a comprehensive Restructure Agreement, pursuant to which indebtedness owing by
the General Partner in the aggregate principal amount of $35,242,000 was
significantly modified and restructured and warrants for preferred stock were
issued to the bank (the "Restructuring"). In November 1993, the General
Partner entered into an Addendum to Restructure Agreement (the "Addendum").
Under the terms of the Addendum, the General Partner's primary bank granted to
the General Partner the right and option, exercisable not later than December
31, 1993, to pay $6,000,000 in cash in full settlement, satisfaction, release
and discharge of all indebtedness and other obligations owing by the General
Partner under the Restructure Agreement, including the warrant obligations
under the Restructuring. As a condition to the option, the General Partner
was required to convey to a to-be-formed affiliated limited partnership (the
"Partnership") the General Partner's Normal and Peoria hotels, thereby
eliminating the mortgage indebtedness owing on those hotels. In
December 1993, the General Partner, with Banc One Capital Corporation of
Columbus, Ohio ("BOCC"), acting as financial advisor, completed the
settlement, satisfaction, release and discharge of all obligations under the
Restructuring (the "Refinancing"). The necessary funds required by the
Refinancing were provided by the following sources:
-16-
<PAGE>
(a) Bank One, Indianapolis, N.A. ("Bank One") provided a
"senior" credit facility in the principal amount of $2,500,000, with an
initial maturity date of December 31, 1995, renewable annually thereafter on
May 31 of each year for a two-year term.
(b) Banc One Capital Partners II Limited Partnership ("BOCP
II") provided a variable rate subordinated loan in the principal amount of
$1,800,000, with a final maturity date of December 16, 1998 ("the
"Subordinated Loan").
(c) The General Partner provided approximately $1,200,000,
which represented the amount which the General Partner, as seller, realized
upon the sale of its Normal and Peoria Hotel Properties to Peoria/Normal
Signature Limited Partnership.
(d) The General Partner also provided approximately $1,000,000
from its general, unrestricted corporate cash balances.
The gain to the General Partner from debt extinguishment in
connection with the Refinancing eliminated entirely the General Partner's
shareholders' deficit and restored a positive shareholders' equity.
In connection with the Subordinated Loan, the General Partner agreed to pay to
BOCP II a "Capital Appreciation Fee" equal to 25% of the value of the General
Partner, measured according to three alternative calculations, not earlier
than 36 months nor later than 72 months after December 16, 1993. In August,
1995, the General Partner entered into a Repayment Agreement with BOCP II
pursuant to which (a) the unpaid principal balance of the Subordinated Loan
was repaid in full, together with all accrued interest thereon, and (b) the
General Partner paid, and BOCP II accepted, a payment of $900,000 in full
satisfaction of the General Partner's Capital Appreciation Fee obligation,
subject to adjustment to the original terms of the Capital Appreciation Fee in
the event of a Private Sale of the General Partner, as defined in the original
fee agreement, on or before December 16, 1996.
In connection with the BOCP II subordinated debt financing, BOCP II
required the General Partner's officers to commit to invest at least $500,000
in the General Partner's Common Stock. In order to facilitate such
investment, allow the other shareholders an opportunity to avoid possible
dilution of their interests in the General Partner and to raise additional
equity for the General Partner, the General Partner filed a Registration
Statement with the Securities and Exchange Commission on April 12, 1994,
pursuant to which the General Partner's existing shareholders were issued
non-transferrable rights to purchase an additional five (5) shares of the
General Partner's Common Stock for each one (1) share currently held at a
purchase price of twenty cents ($.20) per share. In addition to the
investment by Management, a total of 1,808,520 shares of Common Stock were
issued, for an aggregate purchase price of $361,704, pursuant to the rights
offering.
-17-
<PAGE>
X. Certain Affiliated Partnerships' Operating Losses.
-------------------------------------------------
A number of the General Partner's affiliated partnerships have
experienced financial difficulties in varying degrees, in most cases
principally resulting from operating losses and cash flow deficits experienced
by certain hotels owned by such partnerships.
Signature XVI Ltd., the owner of a Signature Inn hotel in Lexington,
Kentucky, filed a voluntary petition under Chapter 11 of the Bankruptcy Code
on September 26, 1991. Because Signature XVI Ltd. was not able to secure
replacement financing, the mortgage lender on the Lexington property obtained
title to the Lexington hotel in July, 1992. The Signature XVI Ltd.
partnership was thereafter terminated and dissolved.
Signature XXI Ltd., which owned Signature Inn hotels in Bettendorf,
Iowa, and Auburn Hills, Michigan, filed a voluntary petition under Chapter 11
of the Bankruptcy Code on July 26, 1991. A foreclosure and sale of the Auburn
Hills property took place in February 1992, with the mortgage holder taking
title to the Auburn Hills property. The Signature XXI Ltd. Plan of
Reorganization was confirmed by the Bankruptcy Court on November 2, 1992 and
provided for the continuation of the Partnership and its operation of the
Bettendorf hotel. The Bettendorf mortgage loan was restructured, retroactive
to January 1, 1992, into three non-recourse replacement notes maturing
December, 1995, with an option to extend the maturity to December, 1997.
Defaults have also existed with respect to hotel financings involving
Signature XI Ltd.'s Dayton, Ohio, hotel project and Signature XVII Ltd.'s
Indianapolis, Indiana, hotel project. The defaults with respect to those
hotels were cured under restructured financing arrangements with the
Partnership's lenders completed in 1994.
Item 2. Description of Properties. A description of the location
and general character of the Partnership's hotels and related facilities and
other property is set forth under Item 1.
Item 3. Legal Proceedings. With the exception of the prior Chapter
11 bankruptcy proceedings of Signature Inns, Inc. and the prior Chapter 11
bankruptcy proceedings of Signature XVI Ltd. and Signature XXI Ltd.,
affiliates of the Registrant, described earlier, all of which matters have
been resolved, neither the Registrant nor any of its subsidiaries nor any of
its affiliates, is or was a party to, nor is their property the subject of,
any material pending legal, administrative, judicial, or similar proceeding.
The Registrant and certain of its affiliated limited partnerships are
involved, from time to time, in routine litigation incidental to their
businesses. There are no proceedings to which any director, officer, nominee
or affiliate of the Registrant or its subsidiaries or affiliates is a party
adverse to the Registrant or its subsidiaries or affiliates or has a material
adverse interest to the Registrant or its subsidiaries or affiliates.
Item 4. Submission of Matters to a Vote of Security Holders. No matter was
submitted to a vote of the security holders of the Registrant during the
fourth quarter of the fiscal year covered by this Form 10-KSB Report.
-18-
<PAGE>
PART II
-------
Item 5. Market for the Registrant's Equity and Related Equity Holder
Matters. The Registrant's common equity consists of Units of limited
partnership interest in the Partnership. There is only one class of Units,
and all Units have the same rights and the same interests in income, loss,
distributions and capital of the Partnership. Each Unit represents a total
required capital contribution of $10,000. Units are not subject to assessment
for additional contributions. Holders of the Units possess certain limited
voting rights (with respect to those matters which are submitted to a vote of
the Limited Partners) and rights to certain distributions. Such voting and
distribution rights will be based upon the number of Units owned by each
Limited Partner. The Partnership Agreement contains a number of restrictions
on the transferability of the Units. The General Partner does not have the
right and is not obligated to redeem or repurchase the Units, and the
Partnership Agreement prohibits the holders of the Units from withdrawing
their respective capital contributions.
The Registrant's Units are not listed on any securities exchange and
are not subject to any quotations under the "NASDAQ" system. The Units are
not actively traded in any established public trading market. Units are
expected to be transferable, if at all, only in privately negotiated
transactions. Accordingly, the Registrant is unable to furnish any
information with respect to ranges of high and low bid quotations for the
Units during the past two years.
The following table sets forth the number of Units outstanding and
the approximate number of holders or record of the Units as of the date of
this report:
<TABLE>
<CAPTION>
Number of Number of
Outstanding Units Holders of Record
----------------- -----------------
<S> <C>
364 412
</TABLE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain combined operating data for the years ended December 31, 1995, 1994
and 1993 is as follows for the two Partnership owned hotels - Sharonville (130
rooms) and Florence (125 rooms):
<TABLE>
<CAPTION>
Occupancy Average Daily Rate
--------- ------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Combined 61.4% 61.4% 58.4% $53.19 $51.21 $46.68
</TABLE>
Results of Operations
- ---------------------
1995 compared to 1994
-19-
<PAGE>
Room and other hotel revenues increased $90,276 or 3.0% over 1994, due
primarily to the increase in room revenues. The average occupancy of the two
hotels remained constant at 61.4% due to a demand in both of the hotel's
market areas. The average daily rate inceased $1.98, or 3.9% due to
chain-wide rate policy changes. Revenue per available room (REVPAR), which is
the combination of occupancy and the average daily rate, increased to $32.66,
or 3.9% over 1994. Interest income increased $5,634 over 1994 due to higher
yields on greater investable cash balances.
Hotel operations and payroll costs totaling $1,778,524 represented an increase
of $87,204 or 5.2% from 1994 due to the increase in maintenance costs and
general increased costs of operating the hotels associated with inflation.
Management and franchise fees, along with advertising and reservation
contributions, are calculated as a percentage of revenues, as defined, and
accordingly, fluctuate directly with hotel revenues. These costs, totaling
$386,139, increased $11,801 or 3.2% from 1994.
Interest expense decreased $2,258 or .4% from 1994. This slight decrease is
due to the scheduled amortization reduction of the mortgage notes.
Depreciation and amortization of $304,398 represented a decrease of $70,595
compared to 1994. Depreciation expense decreased as certain depreciable
assets became fully depreciated during 1995 and 1994.
1994 compared to 1993
Room and other hotel revenues increased $281,468 or 10.3% over 1993, due
primarily to the increase in room revenues. The average occupancy increased
3.0 percentage points, or 5.1% due to some improvement in both of the hotel's
market areas. The average daily rate increased $4.53, or 9.7% due to
chain-wide policy rate changes. Revenue per available room (REVPAR) increased
to $31.44, or 15.3% over 1993. Interest income increased $7,236 over 1993 due
to higher yields on greater investable cash balances.
Hotel operations and payroll costs of $1,691,320 represented an increase of
$92,858 or 5.8% from 1993 due to the increase in the occupancy of the hotels
of 5.1% along with increased costs of operating the hotels associated with
inflation. Management and franchise fees, along with advertising and
reservation contributions, totaling $374,338, increased $35,521 or 10.5% from
1993.
Interest expense decreased $206,858 or 26.9% from 1993. The decrease is
attributable mainly to the restructuring of the general partner note effective
January 1, 1994. During 1993, no debt service payments were made on the note.
Effective January 1, 1994, the note was restructured to be non-interest
bearing, with annual principal payments equal to 50% of defined available cash
flow (but not in excess of $237,736) and a maturity in 2004. During 1993,
interest of $166,715 accrued on the note at the rate of prime plus 1%.
Depreciation and amortization of $374,993 represented a decrease of $48,747
compared to 1993. Depreciation expense decreased as certain depreciable
assets became fully depreciated during 1994 and 1993.
-20-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The offering of partnership units was completed during 1988. A total of
$3,640,000 was raised from limited partner capital contributions at $10,000
per unit and $404,445 was contributed by the general partner. During the year
ended December 31, 1995 and 1994, the Partnership's capital needs were met
primarily through operating cash flows. In addition, a $18,943 installment
loan secured by a vehicle was obtained in 1995. In the early years of the
Partnership, significant borrowings and cash advances were obtained from the
general partner.
At December 31, 1995, the Partnership had two variable rate mortgage loans
totaling approximately $5.3 million outstanding with maturities in 1998 and
2016. The $2,377,361 note payable due the general partner has a 2004
maturity. At maturity, the Partnership plans to obtain extensions or
replacement first mortgage financing to retire the outstanding indebtedness.
At December 31, 1995, the Partnership had $309,867 of cash and cash
equivalents, compared to $212,006 at December 31, 1994. In addition, the
Partnership set aside 4% of monthly revenues, as defined, for future
refurbishing needs of the hotels. At December 31, 1995, the reserve funds
amounted to $87,841 compared to $90,524 at December 31, 1994. It is expected
that future refurbishing needs of the Partnership will be funded through the
furniture and equipment reserves, and operating cash flows as necessary. The
mortgage securing the Florence property requires a debt service fund be
maintained of $225,000 prior to any partners distributions. No distributions
to partners have been made as the debt service fund level has not been
maintained due to the lack of operating cash flows.
Cash provided by operating activities from the two hotels was $430,753 in 1995
compared to $353,269 in 1994. This increase is due primarily to the increase
in the financial performance of the hotels for 1995.
During 1995, the Partnership used $203,263 in investing activities compared to
$126,007 in 1994. Additions to the furniture and equipment reserve fund were
$149,998 in 1995 (including an additional $25,000 contribution from operating
cash) compared to $118,875 in 1994. The remaining increase is due to capital
additions funded from operating cash flows in 1995.
Net cash used in financing activities was $129,629 in 1995 compared to
$120,290 in 1994. In 1995, the primary factors were proceeds of the new
mortgage loan, principal repayments of $89,507 and repayments of general
partner advances of $59,065.
The general partner believes that cash generated from the operation of the two
hotels, along with existing cash balances, will provide adequate liquidity for
the Partnership to meet its operating needs during the next twelve months.
-21-
<PAGE>
Seasonality
- -----------
Demand for hotel accommodations varies seasonally in the two hotels' market
areas. Typically, demand for hotel accommodations and correspondingly,
occupancy rates for the hotels will be higher during the period from March
through October and lower during the period from November through February.
Inflation
- ---------
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the Partnership's financial condition
or results of operations for the periods presented.
Item 7. Financial Statements. The balance sheets of the Registrant as
of December 31, 1995 and 1994, and the related statements of operations,
partners' equity and statement of cash flows for the years ended December 31,
1995 and 1994, together with the independent auditors' report thereon, which
statements meet the requirements of Regulation S-B, are attached as an exhibit
to this report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. None.
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control Persons.
The names, ages, positions and backgrounds of each officer, director, promoter
and control persons of Signature Inns, Inc., the General Partner of the
Partnership are as follows:
JOHN D. BONTREGER, 47 President, Chief Executive
Officer and Chairman of the Board
Mr. Bontreger has served as President, Chief Executive Officer and
Chairman of the Board of Signature Inns, Inc. since the General Partner's
inception on March 31, 1978.
DAVID R. MILLER, 54 Secretary, Executive Director of
Sales and Marketing and Director
Mr. Miller has been employed by Signature Inns, Inc. since August 1978
and has served as the Secretary (and Treasurer until May 1986) of the General
Partner since September, 1978. Since June 1984, he has been President of
Signature Securities Corporation. Since 1990, Mr. Miller has been the
Executive Director of Marketing responsible for hotel room sales programs and
the central reservation system.
MARK D. CARNEY, 39 Vice President Finance, Chief
Financial Officer and Director
-22-
<PAGE>
Mr. Carney has been employed by Signature Inns, Inc. since September
1992 as Vice-President Finance and Chief Financial Officer. Mr. Carney was
previously employed with the public accounting firm KPMG Peat Marwick in its
real estate, hospitality and financial institution practices. He received his
CPA certification in 1982.
BO HAGOOD, 46 Vice President Hotel Operations
and Director
Mr. Hagood has been employed by Signature Inns, Inc. since December 1980
starting as General Manager. In January 1984, he was promoted to Director of
Hotel Operations and then to Vice President Hotel Operations in 1987. Mr.
Hagood has been in the hospitality industry for over 20 years. Prior to
Signature Inns, Mr. Hagood managed several hotels for national chains.
MARTIN D. BREW, 35 Treasurer and Controller
Mr. Brew has been employed by Signature Inns, Inc. since April 1986. In
December 1987, Mr. Brew assumed the position of Controller and additionally,
in April 1992, he began serving as Treasurer. Prior to his employment with
Signature Inns, Mr. Brew worked four years with KPMG Peat Marwick. He
received his CPA certification in 1985.
ORUS E. WEAVER, 72 Director
Mr. Weaver has been an independent life insurance broker since 1981 and
previously assisted in the sale of securities of Signature Inns, Inc. in
various capacities. Mr. Weaver has been a member of the National Association
of Life Underwriters for almost twenty years.
GEORGE A. MORTON, 59 Director
Mr. Morton has been part owner of Morton Farms, Inc. since 1962, and
serves as Vice President and Secretary of that Company. From April 1987 to
January 1989, Mr. Morton served as Deputy Commissioner of Agriculture for the
State of Indiana. He served as the Indiana Director of Farmers Home
Administration from 1989 to 1993.
RICHARD E. SHANK, 63 Director
Mr. Shank has been self-employed in the real estate business since 1961.
Mr. Shank was an elected representative in the Indiana General Assembly for 21
years, and was a State Senator from 1976 to 1987. He served as Executive
Director of the Indiana Professional Licensing Agency during 1988.
RICHARD L RUSSELL, 60 Director
Mr. Russell has been the Executive Director, Direct Regions of the
National Retail Hardware Association, and has been involved in the hardware
industry for nearly thirty years. He has also served as President or director
of several community and civic organizations.
STEPHEN M. HUSE, 53 Director
-23-
<PAGE>
Mr. Huse has been President and Chief Executive Officer, Huse Food Group,
Inc., in Bloomington, Indiana, since 1986. Mr. Huse is also a director of
Marsh Supermarkets, Inc., and a member of the Advisory Board of Society
National Bank, Central Indiana District, Indianapolis, Indiana. Item 10.
Executive Compensation. Not applicable. For a description and listing of all
fees and reimbursements paid by the Partnership to its General Partner, see
Note (3) of Notes to the Financial Statements of the Partnership. Item
11. Security Ownership of Certain Beneficial Owners and Management. The
General Partner owns 10 Units of limited partnership interest in the
Partnership. The General Partner's general partnership interest in the
Partnership is described under Item 1.
Item 12. Certain Relationships and Related Transactions. There was no
transaction during the Registrant's last fiscal year of a kind described in
Item 404 of Regulation S-B to which the Registrant was a party or in which the
persons described in Item 404 had a direct or indirect material interest, nor
did any relationship of a kind described in Item 404 exists during the
Registrant's last fiscal year. No loans were made by the Registrant to its
General Partner or any officer, director or affiliate of its General Partner.
-24-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SIGNATURE X LTD. LIMITED
PARTNERSHIP
By /s/
__________________________________________
John D. Bontreger, President,
Chairman of the Board and Chief
Executive Officer of Signature Inns, Inc.,
its General Partner
-25-
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
------- --------------------------------
<TABLE>
<CAPTION>
(a) EXHIBIT INDEX
-------------
Title of Exhibit Reference
- ---------------- ---------
<S> <C>
Plan of Acquisition,
Reorganization, etc. Not applicable
Partnership Agreement and Incorporated by reference to
Certificate S-1 Registration Statement
Instruments Defining Rights Incorporated by reference to
of Security Holders S-1 Registration Statement
Voting Trust Agreement Not applicable
Material Contracts Incorporated by reference to
Registrant's 1993 Form 10-KSB
Statement Regarding Computation
of Earnings Per Share Not applicable
Annual or Quarterly Reports,
Form 10-QSB Not applicable
Letter on Change in Certifying
Accounting Not applicable
Letter on Change in Accounting
Principals Not applicable
Subsidiaries of the Registrant Not applicable
Published Report Regarding
Matters Submitted to Vote Not applicable
Power of Attorney Not applicable
1995 Annual Report of
Signature X Ltd. Limited
Partnership Exhibit A
(b) No reports on Form 8-K were filed by the Registrant during the last
quarter of the period covered by this report.
-26-
</TABLE>
<PAGE>
EXHIBIT 5
---------
<TABLE>
<CAPTION>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Balance Sheets
(Unaudited)
June 30, December 31
1996 1995
-------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and short-term cash
investments $341,488 308,404
Investments held by trustee 22,110 1,463
------- -------
Cash and cash equivalents 363,598 309,867
Accounts receivable 78,143 47,290
Other current assets 85,196 74,028
------- -------
Total current assets 526,937 431,185
------- -------
Property and equipment:
Land 1,693,614 1,693,614
Land improvements 384,347 384,347
Buildings ,846,694 6,846,694
Furniture and equipment 1,952,198 1,875,612
--------- ----------
10,876,853 10,800,267
Less accumulated depreciation 3,191,579 3,050,739
---------- ----------
Net property and equipment 7,685,274 7,749,528
Furniture and equipment reserves 74,493 87,841
Deferred costs, net of accumulated amortization
of $304,743 and $296,889 124,673 122,687
---------- ---------
$8,411,377 8,391,241
---------- ---------
---------- ---------
LIABILITIES AND PARTNERS EQUITY
Current liabilities:
Current portion of long-term debt 101,946 104,573
Accounts payable 71,160 25,090
Accrued payroll and related taxes 41,713 34,290
State and local taxes 78,364 57,582
Accrued interest 20,977 22,454
------- -------
Total current liabilities 314,160 243,989
Long-term debt, less current portion 5,171,421 5,197,742
Note payable to general partner 2,377,361 2,377,361
Advances from general partner 80,000 200,000
--------- ---------
Total liabilities 7,942,942 8,019,092
Partner's equity:
General partner (15% interest) 69,882 55,439
Limited partners (85% interest, 364 units 398,553 316,710
-------- --------
authorized and outstanding) 468,435 372,149
-------- ---------
$8,411,377 8,391,241
--------- ----------
--------- ----------
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
-------------------- ------------------
<S> <C> <C> <C> <C>
Revenue:
Room revenue $927,958 808,694 1,622,169 1,385,723
Other hotel revenue 25,476 22,200 52,388 52,580
Interest 3,051 2,233 5,709 3,886
-------- -------- ---------- ---------
956,485 833,127 1,680,266 1,442,189
-------- -------- ---------- ---------
Cost and expenses:
Hotel operations 244,270 219,280 506,847 452,686
Salaries and benefits 232,849 191,369 437,570 371,601
Management and franchise
fees 85,402 74,504 150,217 128,702
Advertising and
reservations 33,212 28,974 58,418 50,051
Interest 135,383 139,991 271,261 279,240
Depreciation and
amortization 80,163 73,818 160,326 147,637
Gain on disposal of
equipment (659) - (659) -
------- ------- ------- -------
810,620 727,936 1,583,98 1,429,917
------- ------- ------- --------
Net income 145,865 105,191 96,286 12,272
General Partner
(15% interest) 21,880 15,779 14,443 1,841
------- ------- ------- -------
Limited partners
(85% interest) $123,985 89,412 81,843 10,431
------- ------- ------- -------
------- ------- ------- -------
Limited partner's interest
per unit $ 341 246 225 29
-------- ------- ------- -------
-------- ------- ------- -------
Average number of limited partner
units outstanding 364 364 364 364
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Statement of Partner's Equity
Six months ended June 30, 1996
(Unaudited)
General Limited
Partner Partners Total
------- -------- -------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 55,439 316,710 372,149
Net income 14,443 81,843 96,286
------- ------- -------
Balance at June 30, 1996 $ 69,882 398,553 468,435
------- ------- -------
------- ------- -------
Accumulated balances:
Capital contributions 404,445 3,640,000 4,044,445
Offering expenses - (455,000) (455,000)
Net loss (334,563) (2,786,447) (3,121,010)
--------- --------- ---------
Balance at June 30, 1996 69,882 398,553 468,435
--------- --------- ---------
--------- --------- ---------
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
1996 1995
-----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $96,286 12,272
Items which do not use (provide) cash:
Depreciation of property and equipment 152,471 139,782
Amortization of deferred costs 7,854 7,855
Gain on disposal of equipment (659) -
Accrued revenue and other expenses, net 30,777 59,617
------- -------
Net cash provided by operating activities 286,729 219,526
------- -------
Cash from investing activities:
Additions to furniture and
equipment reserves (60,338) (75,577)
Other additions to property and equipment (14,531) (25,730)
Proceeds from sale of property and equipment 659 -
Additions to deferred costs (9,840) -
------- -------
Net cash used in investing activities (84,050) (101,307)
------ -------
Cash flows from financing activities:
Payments on long-term debt (28,948) (24,409)
Repayments of general partner advances (120,000) -
-------- -------
Net cash used in financing activities (148,948) (4,409)
------- -------
Change in cash and cash equivalents 53,731 113,810
Cash and cash equivalents at beginning of period 309,867 212,006
-------- --------
Cash and cash equivalents at end of period $363,598 325,816
------- -------
------- -------
Additional disclosures:
Interest paid $271,445 278,804
-------- -------
-------- -------
Additions to property and equipment from
furniture and equipment reserves $73,686 117,735
-------- -------
-------- --------
</TABLE>
-4-
<PAGE>
Exhibit 6
---------
Signature X Ltd. Limited Partnership:
Schedule 13E-3
Cross-Reference Sheet
Solicitation and Information
Schedule 13E-3 Item: Statement Location:
Item 1.
(a) Section III, pp. 10-11
(b) Not applicable
(c) Section XVII, p. 38
(d) Section XII, p. 31
(e) Not applicable
(f) Not applicable
Item 2. Not applicable
Item 3. Not applicable
Item 4.
(a) Section IV, pp. 13-19
Section V, pp. 20-21
(b) Not applicable
Item 5.
(a) Section II, pp. 2-6
Section IV, pp. 13-19
Section V, pp. 20-21
Section VI, p. 21
(b) Section II, p. 2
Section IV, pp. 13-19
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) Not applicable
(g) Not applicable
Item 6.
(a) Section II, p. 5
(b) Section II, p. 6
Exhibit 6 - Page 1
<PAGE>
(c) Not applicable
(d) Not applicable
Item 7.
(a) Section II, pp. 3-5
(b) Section II, p. 3
(c) Section II, pp. 3-4
(d) Section II, pp. 4-5
Section X, pp. 27-29
Item 8.
(a) Not applicable
(b) Section II, pp. 6-9
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) Not applicable
Item 9. Section XV, pp. 32-36
Item 10.
(a) Not applicable
(b) Not applicable
Item 11. Not applicable
Item 12.
(a) Not applicable
(b) Not applicable
Item 13.
(a) Not applicable
(b) Not applicable
(c) Not applicable
Item 14.
(a) Not applicable
(b) Section VII, p. 23
Section XII, p. 31
Exhibit 6 - Page 2
<PAGE>
Item 15.
(a) Not applicable
(b) Not applicable
Item 16. Not applicable
Item 17. Not applicable
Exhibit 6 - Page 3