UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-17274
MANHATTAN BEACH HOTEL PARTNERS, L.P.
Exact name of registrant as specified in its charter
Delaware 95-4201183
State or other jurisdiction of
incorporation or organization I.R.S. Employer Identification No.
ATTN: Andre Anderson
3 World Financial Center, 29th Floor,
New York, New York 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526- 3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (x)
Aggregate market value of the voting stock held by non-affiliates of the
registrant: Not applicable.
Documents Incorporated by Reference:
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31, 1996,
filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business.
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Manhattan Beach Hotel Partners, L.P., formerly Shearson California Radisson
Plaza Partners, L.P. (see Item 10. "Certain Matters Involving Affiliates of
Manhattan Beach Commercial Properties III Inc."), a Delaware limited
partnership (the "Registrant" or the "Partnership"), was formed on September 8,
1987. The Partnership will continue until December 31, 2037 in accordance with
the terms of its Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement"), unless terminated earlier pursuant thereto. The
affairs of the Partnership are conducted by its general partner, Manhattan
Beach Commercial Properties III Inc., formerly Shearson Lehman Commercial
Properties III, Inc. (see Item 10. "Certain Matters Involving Affiliates of
Manhattan Beach Commercial Properties III Inc."), a Delaware corporation (the
"General Partner"), and an affiliate of Lehman Brothers Inc.
Manhattan Beach Commercial Properties III Depositary, Inc. (the "Assignor
Limited Partner"), formerly Shearson Lehman Commercial Properties III
Depositary, Inc. (see Item 10. "Certain Matters Involving Affiliates of
Manhattan Beach Commercial Properties III Inc."), is the record owner of the
limited partnership interests, but the Unitholders are entitled to all the
economic and other substantive rights and interests of the underlying limited
partnership interests and are entitled to direct any voting of such limited
partnership interests. A Unitholder, subject to certain conditions, may
convert his Units into limited partnership interests.
The Property.
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The Partnership was formed to acquire, own, lease and ultimately
sell a leasehold interest in the land underlying and a fee estate in the
improvements constituting the Radisson Plaza Hotel and Golf Course (the
"Property" or the "Hotel"), a 384-room, 287,965 square foot commercial hotel
and nine-hole executive golf course located on a 26.3 acre site in the City of
Manhattan Beach, Los Angeles County, California (the "City"). The Property was
acquired for a purchase price of $56,500,000 on December 1, 1987 from Manhattan
Beach Hotel Properties, Ltd., a California limited partnership (the "Seller"),
which developed the Property and opened it for occupancy in January 1987. The
General Partner began marketing the Hotel for sale during the fourth quarter of
1996. For further information concerning the marketing of the Hotel, please
refer to Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained herein, and to the section entitled
Message to Investors contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, filed as an exhibit under
Item 14. On March 20, 1997, the Partnership executed a Letter of Intent ( the
"Letter of Intent") to sell the Property to a joint venture comprised of Host
Marriott Corporation and Interstate Hotels Corporation (the "Buyer") for a cash
purchase price of $38,250,000 (the "Marriott/Interstate Sale"). A subsidiary
of Interstate Hotels Corporation ("Interstate") currently manages the Property
and has done so for more than five years. The Buyer has 30 days in which to
complete its due diligence investigation of the Property, during which time the
parties will attempt to negotiate and execute a formal Purchase and Sale
Contract (the "Contract"). It is currently anticipated that the closing of the
sale would be within 10 business days following the end of the due diligence
period. Certain of the conditions and terms in the Letter of Intent are not
legally binding and are subject to the execution of the Contract. No assurance
can be given that the Contract will be executed or that the Hotel will be sold
on the terms contemplated by the Letter of Intent or at all. Please refer to
Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained herein for information regarding the
liquidation of the Partnership following the sale of the Hotel.
Ground Lease.
- ------------
Information regarding the Ground Lease is incorporated by reference to
Note 5 "Real Estate Investments" of the Notes to the Financial Statements
contained in the Partnership's Annual Report to Unitholders for the
year ended December 31, 1996, filed as an exhibit under Item 14.
The Management Agreement and Hotel Leases.
- -----------------------------------------
Information regarding the Management Agreement and Hotel Leases is
incorporated by reference to Note 6 "Hotel Management Agreement" of the Notes
to the Financial Statements contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, filed as an exhibit under
Item 14.
The Hotel is operated under a license agreement with Radisson Hotels
International, Inc. ("Radisson"), which the Buyer has agreed to assume.
Information regarding Radisson is incorporated by reference to Note 5 "Real
Estate Investments" of the Notes to the Financial Statements contained in the
Partnership's Annual Report to Unitholders for the year ended December 31,
1996, filed as an exhibit under Item 14. The Hotel is operated under a
management agreement (the "Management Agreement") with Manhattan Beach
Management Company, an affiliate of Interstate. Details regarding the
Management Agreement are incorporated by reference to Note 6 "Hotel Management
Agreement" of the Notes to the Financial Statements contained in the
Partnership's Annual Report to Unitholders for the year ended December 31,
1996, filed as an exhibit under Item 14. The golf course is operated under an
operating agreement with Radisson Golf Course Company, Inc., a party not
affiliated with either Radisson or the Partnership.
(b) Financial Information About Industry Segments.
---------------------------------------------
The Partnership's sole business is to own and operate the Property. All of the
Partnership's revenues, operating profit or loss and assets relate solely to
such industry segment.
(c) Narrative Description of Business.
---------------------------------
The Partnership's principal objectives have been to (i) provide quarterly cash
distributions, a portion of which are anticipated to be non-taxable due to
depreciation deductions, (ii) preserve and protect capital and (iii) achieve
long-term appreciation in the value of the Property for distribution upon sale.
In view of the recently improved operating results of the Hotel and the
strengthening hotel market, the General Partner began marketing the Hotel for
sale. If the Hotel is sold, the Partnership will be liquidated.
Competition
- -----------
Information with respect to market conditions in the area where the Property is
located is incorporated by reference to the section entitled Message to
Investors of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1996, filed as an exhibit under Item 14.
Employees
- ---------
The Partnership's business is managed by the General Partner and the Partnership
has no employees. The current hotel staff and other personnel are employees of
Interstate. Information regarding Interstate is incorporated by reference to
Note 6 "Hotel Management Agreement" of the Notes to Financial Statements
contained in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1996, filed as an exhibit under Item 14.
Item 2. The Property
Incorporated by reference to Note 5 "Real Estate Investments" of the Notes to
the Financial Statements contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, filed as an exhibit under
Item 14.
Item 3. Legal Proceedings
Incorporated by reference to Note 8 "Litigation" of the Notes to the Financial
Statements contained in the Partnership's Annual Report to Unitholders for the
year ended December 31, 1996, filed as an exhibit under Item 14.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Unitholders at a meeting or
otherwise during the fourth quarter of the fiscal year for which this report
has been filed.
PART II
Item 5. Market for the Partnership's Limited Partnership interests and
Security Holder Matters
(a) Market Information.
------------------
There is no established public market in which the Units are currently traded.
(b) Holders.
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The number of Unitholders of record as of December 31, 1996 was 5,492.
(c) Dividends.
---------
A distribution in the amount of $1,395,000 or $0.20 per Unit was
paid to limited partners on February 1, 1996. This distribution represented a
one-time distribution of 1995 annual cash flow and surplus Partnership
reserves, and did not indicate the reinstatement of regular cash distributions.
The General Partner received a cash distribution of $14,091, representing its
1% share of the distribution paid February 1, 1996. No distributions were paid
to Unitholders during the years ended December 31, 1995 and 1994. Cumulative
distributions paid to Unitholders since the Partnership's inception total $2.24
per Unit. This amount includes $0.57 per Unit paid to class member Unitholders
(the "Settlement Class") pursuant to the settlement of class actions brought
against Shearson Lehman Hutton Inc., the Partnership and other affiliated
defendants (the "Settlement"). Such distributions were drawn from the
settlement fund (the "Settlement Fund") established to pay such distributions
to the Settlement Class. The Settlement Fund was exhausted with the payment of
the fourth quarter 1992 distribution. Unless the Hotel is sold, the ability of
the Partnership to make future distributions will be dependent upon the cash
flow generated from Hotel operations and the adequacy of cash reserves. There
can be no assurance that future cash flow will be sufficient to fund any such
additional distributions.
Item 6. Selected Financial Data
Incorporated by reference to the section entitled Financial Results Comparison
of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1996, filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Hotel's operations improved during 1996 principally as a result of
strengthening conditions in the Los Angeles Airport hotel market and
management's efforts to diversify the Hotel's customer base. The Hotel is
dependent primarily on business, group, contract and leisure travel for its
revenues. The improved profitability of the Hotel during the year is largely
attributable to the 7.7% increase in the average room rate and the 3.6%
increase in the Hotel's average occupancy level, which were achieved as a
result of management's efforts to reduce the volume of airline contracts and
increase the number of business and group guests at higher rates.
At December 31, 1996, the Partnership had cash and cash equivalents of
$2,100,400, including cash held at the Hotel for working capital, compared to
$4,414,032 at December 31, 1995. The decrease is primarily due to the
distribution paid to limited partners on February 1, 1996 and the payment
during the fourth quarter of 1996 of management oversight fees accrued from
1989 through the third quarter of 1996 and the payment of other reimbursable
expenses to the General Partner. Such remaining cash balances are expected to
be sufficient to meet the anticipated cash requirements for operations of the
Partnership. Restricted cash increased to $413,229 at December 31, 1996,
compared to $187,464 at December 31, 1995. The increase is due to
contributions to the account for furniture, fixtures and equipment ("FF&E
reserve account") exceeding expenditures. Pursuant to the Management
Agreement, contributions to the FF&E reserve account will be made over time to
protect and maintain the value of the Hotel.
Accounts receivable increased to $1,386,303 at December 31, 1996, compared to
$992,941 at December 31, 1995. Accounts payable and accrued liabilities
increased to $1,549,286 at December 31, 1996, compared to $1,371,160 at
December 31, 1995. The changes in both accounts receivable and accounts
payable and accrued liabilities are due primarily to differences in the timing
of payments. Prepaid and other assets was $382,225 at December 31, 1996,
largely unchanged from $374,304 at December 31, 1995. Due to affiliates
decreased to $63,495 at December 31, 1996 from $2,338,650 at December 31, 1995,
primarily due to the payment in the fourth quarter of 1996 of management
oversight fees accrued from 1989 through the third quarter of 1996 and the
payment of other reimbursable expenses to the General Partner.
In view of the recently improved operating results of the Hotel and the
strengthening hotel market, the General Partner began marketing the Hotel for
sale during the fourth quarter of 1996. The General Partner subsequently
retained the services of Eastdil Realty Company ("Eastdil"), a
nationally-recognized real estate firm, to market the Hotel for sale, with the
goal of maximizing the selling price of the Hotel and ultimately distributing
the net sales proceeds to partners. On March 20, 1997, the Partnership executed
a Letter of Intent ( the "Letter of Intent") to sell the Property to a joint
venture of Host Marriott Corporation and Interstate Hotels Corporation (the
"Buyer") for a cash purchase price of $38,250,000 (the "Marriott/Interstate
Sale"). The Buyer has 30 days in which to complete its due diligence
investigation of the Property, during which time the parties will attempt to
negotiate and execute a formal Purchase and Sale Contract (the "Contract"). It
is currently anticipated that the closing of the sale would be within 10
business days following the end of the due diligence period. Certain of the
conditions and terms in the Letter of Intent are not legally binding and are
subject to the execution of the Contract. If the Marriott/Interstate Sale is
consummated on the terms contemplated by the Letter of Intent, the resulting
distribution to limited partners is estimated to be in excess of $5.00 per
Unit. However, the precise amount will be dependent on the results of Hotel and
Partnership operations until closing, the specific terms of the Contract which
remain to be negotiated, estimated expenses and other factors. While the
General Partner believes that the Hotel is likely to be sold in 1997, there can
be no assurance, however, that the Marriott/Interstate Sale or any other sale
of the Hotel will be consummated, or that a sale, if completed, will result in
any particular level of net sales proceeds.
During 1996, the Partnership wrote down the net book value of the Hotel by
$4,797,429 to its estimated fair market value less costs to sell. The
determination of the estimated fair market value of the property was based upon
the Letter of Intent executed by the Partnership.
In view of the anticipated sale of the Hotel in 1997, the Partnership's real
estate at cost, less accumulated depreciation and amortization at December 31,
1996, has been recorded on the Partnership's Balance Sheet as "Property held
for disposition." Property held for disposition at December 31, 1996 was
$36,800,000.
A distribution in the amount of $1,395,000 or $0.20 per Unit was paid to
limited partners on February 1, 1996. This distribution represented a onetime
distribution of 1995 annual cash flow and surplus Partnership reserves, and did
not indicate the reinstatement of regular cash distributions. Unless the Hotel
is sold, the ability of the Partnership to make future distributions is
dependent upon various factors, including the cash flow generated from Hotel
operations, the adequacy of cash reserves, and the outcome of the Partnership's
marketing efforts. There can be no assurance that future cash flow will be
sufficient to fund any such additional distributions.
On February 13, 1996, based upon, among other things, the advice of legal
counsel, Skadden, Arps, Slate, Meagher & Flom LLP, the General Partner adopted
a resolution that states, among other things, if a Change of Control (as
defined below) occurs, the General Partner may distribute the Partnership's
cash balances not required for its ordinary course day-to-day operations.
"Change of Control" means any purchase or offer to purchase more than 10% of
the Units that is not approved in advance by the General Partner. In
determining the amount of the distribution, the General Partner may take into
account all material factors. In addition, the Partnership will not be
obligated to make any distribution to any partner, and no partner will be
entitled to receive any distribution, until the General Partner has declared
the distribution and established a record date and distribution date for the
distribution.
Results of Operations
- ---------------------
1996 versus 1995
For the year ended December 31, 1996, the Partnership had a net loss of
$4,306,925, compared with net income of $232,226 for the year ended
December 31, 1995. The change is primarily due to the loss on the
Partnership's write down in 1996 of the net book value of the Hotel by
$4,797,429. Excluding the loss on the write-down of real estate, the
Partnership had net income of $490,504 for the year ended December 31, 1996,
compared with net income of $232,226 for the year ended December 31, 1995. The
improvement in 1996 is due primarily to an increase in Hotel revenues,
comprised of rooms, food and beverage, telephone and other departmental income,
which was partially offset by an increase in unallocated Hotel operating
expenses, primarily consisting of administrative and general expenses, and also
including depreciation and amortization.
For the year ended December 31, 1996, the Hotel generated departmental income
of $8,544,477, compared to $7,618,135 for the year ended December 31, 1995.
The increase in departmental income in 1996 is due to an increase in total
Hotel Revenues as a result of higher occupancy levels and room rates, and
higher food and beverage, telephone and other revenues, which was offset by an
increase in departmental expenses.
For the year ended December 31, 1996, unallocated Partnership and Hotel
operating expenses, including depreciation, were $12,999,678, compared to
$7,564,513 for the year ended December 31, 1995. The increase is primarily
due to the $4,797,429 loss on the write down of the net book value of the Hotel.
Also contributing to the increase were higher Hotel general and administrative
expenses, and to a lesser extent, higher ground rent, management fees,
advertising and sales expense and depreciation and amortization. Ground rent,
which is based on total revenues, increased due to higher total revenues for
the period. Management fees increased due to higher gross sales on which
Interstate receives a base percentage fee and higher profits on which
Interstate's incentive management fee is based. Depreciation increased due to
additions to furniture, fixtures and equipment. These increases were partially
offset by decreases in Partnership general and administrative expenses and
operating leases.
For the year ended December 31, 1996, the Partnership generated total other
income of $148,276, compared to $178,604 for the year ended December 31, 1995.
The decrease is due primarily to a decrease in interest income as a result of
lower cash balances being maintained by the Partnership during 1996.
The following summarizes the Hotel's performance for the twelve months ended
December 31 of the indicated years:
1996 1995 % Change
Average Occupancy 85.3% 82.3% 3.6%
Average Room Rate $ 83.59 $ 77.58 7.7%
Hotel Sales $ 15,594,871 $ 13,835,896 12.7%
Hotel House Profit $ 4,477,825 $ 4,013,122 11.6%
1995 versus 1994
For the year ended December 31, 1995, the Partnership had net income
of $232,226, compared to a net loss of $245,012 for the year ended
December 31, 1994. The improvement in 1995 primarily was due to an increase
in Hotel Revenues, comprised of rooms, food and beverage, telephone and other
departmental income and Partnership interest income which was partially offset
by an increase in unallocated Hotel and Partnership operating expenses
including depreciation.
For the year ended December 31, 1995, the Hotel generated departmental income
of $7,618,135 compared to $6,985,451 for the year ended December 31, 1994. The
9.1% increase in departmental income in 1995 was due to a increase in total
Hotel revenues as a result of higher room rates, higher food and beverage and
telephone revenues, which was partially offset by a slight increase in
departmental expenses.
For the year ended December 31, 1995, unallocated Hotel and Partnership
operating expenses, including depreciation, were $7,564,513 compared to
$7,287,878 for the corresponding period in 1994. The increase primarily was
due to an increase in Hotel general and administrative expenses, which was
largely attributable to higher property insurance premiums at the Hotel in 1995
relative to 1994. Also contributing to the increase were higher management
fees, Partnership general and administrative expenses and depreciation and
amortization costs. Management fees increased due to higher gross sales on
which management receives a base percentage fee and higher incentive management
fees associated with Hotel performance. Partnership general and administrative
expenses increased due to increased legal expenses regarding the settlement of
the lawsuit with Satellite Programming Services. Depreciation increased due to
an increase in capitalized personal property.
Total other income for the year ended December 31, 1995 increased to $178,604
from $57,415 for the year ended December 31, 1994, primarily due to higher
interest income attributable to higher cash balances and higher interest rates
earned during the year.
The following summarizes the Hotel's performance for the twelve months ended
December 31 of the indicated years:
1995 1994 % Change
Average Occupancy 82.3% 85.5% (3.7%)
Average Room Rate $ 77.58 $ 70.02 10.8%
Hotel Sales $ 13,835,896 $ 13,186,812 4.9%
Hotel House Profit $ 4,013,122 $ 3,386,612 18.5%
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to Schedule III and the Partnership's Annual Report
to Unitholders for the year ended December 31, 1996, filed as an exhibit under
Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no directors or executive officers. The affairs of the
Partnership are conducted through the General Partner. The names and ages of,
as well as the positions held by, the principal directors and officers of the
General Partner are set forth below. All directors of the General Partner will
serve until the next meeting of the stockholders of the General Partner. There
are no family relationships between any officers or directors.
Certain officers of the General Partner are now serving (or in the past have
served) as officers or directors of entities which act as general partners of a
number of real estate limited partnerships which have sought protection under
the provisions of the federal bankruptcy code. The partnerships which have
filed bankruptcy petitions own real estate which has been adversely affected by
the economic conditions in the markets in which that real estate is located
and, consequently, the partnerships sought the protection of the bankruptcy
laws to protect the partnerships' assets from loss through foreclosure.
The officers and/or directors of the General Partner are as follows:
Name Office
---- ------
Jeffrey C. Carter President, Director and Chief
Financial Officer
Rocco F. Andriola Director and Vice President
Regina Hertl Vice President
Michael Marron Vice President
Jeffrey C. Carter, 51, is a Senior Vice President of Lehman Brothers in the
Diversified Asset Group. Mr. Carter joined Lehman Brothers in September 1988.
From 1972 to 1988, Mr. Carter held various positions with Helmsley-Spear
Hospitality Services, Inc. and Stephen W. Brener Associates, Inc. including
Director of Consulting Services at both firms. From 1982 through 1987, Mr.
Carter was President of Keystone Hospitality Services, an independent hotel
consulting and brokerage company. Mr. Carter received his B.S. degree in Hotel
Administration from Cornell University and an M.B.A. degree from Columbia
University.
Rocco F. Andriola, 38, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996.. Since
joining Lehman Brothers in 1986, Mr. Andriola has been involved in a wide range
of restructuring and asset management activities involving real estate and
other direct investment transactions. From June 1991 through September 1996,
Mr. Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position
of First Vice President in Lehman's Capital Preservation and Restructuring
Group. From 1986-89, Mr. Andriola served as a Vice President in the
Corporate Transactions Group of Shearson Lehman Brothers' office of the general
counsel. Prior to joining Lehman Brothers, Mr. Andriola practiced corporate
and securities law at Donovan Leisure Newton & Irvine in New York. Mr.
Andriola received a B.A. from Fordham University, a J.D. from New York
University School of Law, and an LL.M in Corporate Law from New York
University's Graduate School of Law.
Regina M. Hertl, 38, is a First Vice President of Lehman Brothers in its
Diversified Asset Group and is responsible for the investment management of
commercial and residential real estate, and a venture capital portfolio. From
January 1988 through December 1988, Ms. Hertl was Vice President of the Real
Estate Accounting Group within the Controller's Department of Shearson Lehman
Brothers. From September 1986 through December 1987, she was an Assistant Vice
President responsible for real estate accounting analysis within the
Controller's Department at Shearson. From September 1981 to September 1986,
Ms. Hertl was employed by the accounting firm of Coopers & Lybrand. Ms. Hertl,
who is a Certified Public Accountant, graduated from Manhattan College in 1981
with a B.S. degree in Accounting.
Michael Marron, 33, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively managed
and restructured a diverse portfolio of syndicated limited partnerships. Prior
to joining Lehman Brothers, Mr. Marron was associated with Peat Marwick
Mitchell & Co. serving in both its audit and tax divisions from 1985 to 1989.
Mr. Marron received a B.S. degree from the State University of New York at
Albany in 1985 and is a Certified Public Accountant.
Certain Matters Involving Affiliates of Manhattan Beach
Commercial Properties III Inc.
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold
certain of its domestic retail brokerage and asset management businesses to
Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to
this sale, Shearson changed its name to Lehman Brothers Inc. The transaction
did not affect the ownership of the General Partner. However, the assets
acquired by Smith Barney included the name "Shearson." Consequently, the
Shearson Lehman Commercial Properties III, Inc. general partner changed its
name to Manhattan Beach Commercial Properties III Inc.; Shearson Lehman
Commercial Properties III Depositary, Inc., the Assignor Limited Partner,
changed its name to Manhattan Beach Commercial Properties III Depositary, Inc.;
and the name of the Partnership was changed to Manhattan Beach Hotel Partners,
L.P. to delete any reference to "Shearson."
Item 11. Executive Compensation
All of the directors and executive officers of the General Partner are
employees of Lehman. They do not receive any salaries or other compensation
from the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners. To the knowledge of the
General Partner, no person owns more than 5% of the outstanding Units.
(b) Security ownership of management. No director or executive officer of the
General Partner owns any of the outstanding Units.
(c) Changes in control. No changes of control of the Partnership occurred
in 1996.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to Note 3 "Partnership Agreement," and Note 4
"Transactions with Related Parties" of the Notes to Financial Statements
contained in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1996, filed as an exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
Report of Independent Accountants (1)
Balance Sheets - At December 31, 1996 and 1995 (1)
Statements of Operations - For the years ended
December 31, 1996, 1995 and 1994 (1)
Statements of Partners' Capital (Deficit) - For the years ended
December 31, 1996, 1995 and 1994 (1)
Statements of Cash Flows - For the years ended
December 31, 1996, 1995 and 1994 (1)
Notes to the Financial Statements (1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, which is filed as an
exhibit under Item 14.
(a)(2) Financial Statement Schedules: Independent Accountant's Report
on Schedule III - Real Estate and Accumulated Depreciation.
(a)(3) Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K: No reports on Form 8-K were filed in the fourth
quarter of the calendar year 1996.
(c) Exhibit Index
Exhibit Number
3.1 Amended and Restated Agreement of Limited Partnership of the
Registrant, as amended (included as, and incorporated herein by
reference to, Exhibit 3.1 of the Registrant's 1988 Annual Report
on Form 10-K filed on May 17, 1989).**
10.1 Depositary Agreement between the Registrant and Shearson Lehman
Commercial Properties Depositary III Inc., as Assignor Limited
Partner (included as, and incorporated herein by reference to
Exhibit 10.3 to the Registration Statement*).**
10.2 Purchase Agreement, as amended, relating to the acquisition of the
Registrant's hotel property (included as, and incorporated herein
by reference to Exhibit 10.4 to the Registration Statement*).**
10.3 Hotel Sublease, as amended (included as, and incorporated herein
by reference to Exhibit 10.3 of the Registrant's 1988 Annual Report
on Form 10-K filed on May 17, 1989).**
10.4 Hotel Ground Lease and Related Amendments (included as, and
incorporated herein by reference to Exhibit 10.6 to the
Registration Statement*).**
10.5 Radisson License (included as, and incorporated herein by reference
to Exhibit 10.7 to the Registration Statement*).**
10.6 License Agreement between Radisson Hotel Corporation and the
Registrant (included as, and incorporated herein by reference to
Exhibit 10.8 to the Registration Statement*).**
10.7 Guaranty of the Sublease (included as, and incorporated herein by
reference to Exhibit 10.9 of the Registration Statement*).**
10.8 Accounting Services Agreement between the Registrant and Boston
Safe Deposit and Trust Company (included as and incorporated
herein by reference to Exhibit 10.8 of the Registrant's 1988
Annual Report on Form 10-K filed May 17, 1989).**
10.9 Investor Services Agreement between the Registrant and Boston
Safe Deposit and Trust Company (included as, and incorporated
herein by reference to the Registrant's 1988 Annual Report on
Form 10-K filed May 17, 1989).**
10.10 Sublease Agreement, dated October 2, 1989, between Manhattan Beach
Hotel Properties, Ltd., U.S. Hotel Properties Corporation, and
Horst Osterkamp, (collectively, the "Sublessor"), and Kentucky
Hospitality Employer, Inc., (the "Sublessee") (included as, and
incorporated herein by reference to the Registrant's 1989 Annual
Report on Form 10-K filed March 14, 1990.**
10.11 Credit Agreement, dated September 1989, between the Registrant and
Carlson Hospitality Group, Inc. (included as, and incorporated
herein by reference to the Registrant's 1989 Annual Report on
Form 10-K filed March 14, 1990.**
10.12 Management Agreement, dated January 3, 1991, between the Registrant
and Interstate Hotels Corporation incorporated herein by reference
to Exhibit 10.12 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990.**
10.13 Form of the Settlement Agreement dated August 27, 1990 between the
Partnership and class members incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.**
10.14 Management Agreement, dated January 3, 1992, between the Registrant
and Interstate Hotels Corporation incorporated herein by reference
to Exhibit 10.14 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991.**
10.15 Management Agreement Extension, dated March 20, 1997, between the
Registrant and Manhattan Beach Management Company.
10.16 Letter of Intent, dated March 20, 1997, between the Registrant and
a joint venture of Host Marriott Corporation and Interstate Hotels
Corporation.
13.1 Annual Report to the Unitholders for the year ended
December 31, 1996.
27.1 Financial Data Schedule
------------------------------
* References to the "Registration Statement" are to the Registrant's
Registration Statement on Form S-11 (File No. 33-17274).
** Previously filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MANHATTAN BEACH HOTEL PARTNERS, L.P.
BY: Manhattan Beach Commercial Properties III Inc.
General Partner
Date: March 28, 1997
BY: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter
Title: President, Director and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MANHATTAN BEACH COMMERCIAL PROPERTIES III INC.
General Partner
Date: March 28, 1997
BY: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter
Title: President, Director and
Chief Financial Officer
Date: March 28, 1997
BY: s/Rocco F. Andriola/
Name: Rocco F. Andriola
Title: Director and Vice President
Date: March 28, 1997
BY: s/Regina Hertl/
Name: Regina Hertl
Title: Vice President
Date: March 28, 1997
BY: s/Michael Marron/
Name: Michael Marron
Title: Vice President
EXHIBIT 13.1
MANHATTAN BEACH HOTEL PARTNERS, L.P.
1996 ANNUAL REPORT
Manhattan Beach Hotel Partners, L.P.
In December 1987, Manhattan Beach Hotel Partners, L.P. acquired the Radisson
Plaza Hotel and Golf Course (the "Hotel"), a 384-room hotel located at 1400
Parkview Avenue in the City of Manhattan Beach, Los Angeles County, California,
three miles south of the Los Angeles International Airport. The Hotel and
adjoining nine-hole executive golf course are situated on a 26.3 acre site
leased from the City of Manhattan Beach. The Hotel, which is managed by a
subsidiary of Interstate Hotels Corporation, features a unique array of
amenities to appeal to both business and leisure travelers including 17,200
square feet of conference and banquet facilities, two restaurants, a lobby
lounge and sports bar, a health club, a swimming pool, and shuttle service to
the airport and Manhattan Beach. The resort-like atmosphere at the Hotel
combined with its location near the airport and several large office complexes
has made the Hotel a popular destination for business and leisure travelers.
The Partnership's operations are managed by its General Partner, Manhattan
Beach Commercial Properties III Inc.
Property Highlights
Average Average
Occupancy Room Rate
--------- ---------
1995 82.3% $77.58
1996 85.3% $83.59
% Change 3.6% 7.7%
Contents
1 Message to Investors
3 Financial Results Comparison
4 Financial Statements
7 Notes to the Financial Statements
14 Report of Independent Accountants
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
This 1996 Annual Report for Manhattan Beach Hotel Partners, L.P. (the
"Partnership") includes an update on the operations of the Radisson Plaza Hotel
and Golf Course (the "Hotel"), including the status of efforts to sell the
Hotel, a discussion of the hospitality industry environment, and the
Partnership's audited financial statements for the year ended
December 31, 1996.
Marketing of Hotel
- ------------------
As discussed in previous correspondence, the General Partner commenced
marketing the Hotel for sale in late 1996 and retained the services
of Eastdil Realty Company ("Eastdil"), a nationally- recognized real estate
firm, to assist with these efforts. We are pleased to report that on March 20,
1997, the Partnership executed a Letter of Intent (the "Letter of Intent") to
sell the Property to a joint venture comprised of Host Marriott Corporation and
Interstate Hotels Corporation (the "Buyer") for a cash purchase price of
$38,250,000 (the "Marriott/Interstate Sale"). A subsidiary of Interstate
Hotels Corporation currently manages the Hotel and has done so for more than
five years. The Buyer has 30 days in which to complete its due diligence
investigation of the Property, during which time the parties will attempt to
negotiate and execute a formal Purchase and Sale Contract (the "Contract"). It
is currently anticipated that the closing of the sale would be within 10
business days following the end of the due diligence period. Certain of the
conditions and terms in the Letter of Intent are not legally binding and are
subject to the execution of the Contract.
The decision to begin the marketing process was based on a number of factors,
including an improving hospitality industry nationwide, the significant
improvement in the Hotel's performance and recent unsolicited offers from
prospective buyers. Our objective is to maximize the selling price of the
Hotel and distribute the net sales proceeds to limited partners. While we
believe that the Hotel is likely to be sold in 1997, there can be no assurance
that the Marriott/Interstate Sale or any other sale of the Hotel will be
consummated, or that a sale, if completed, will result in any particular level
of distributable cash.
BAR GRAPH: Comparing United States, Los Angeles Airport Market and Radisson
(the Property) average occupancy rates in 1996 and 1995. All average
occupancy rates disclosed in text.
BAR GRAPH: Comparing United States, Los Angeles Airport Market and Radisson
(the Property) average room rates in 1996 and 1995. All average room rates
disclosed in text.
Market Update
- -------------
Operating conditions for hotels nationwide continued to improve throughout
1996, as the hospitality industry experienced overall increased profitability
during the year. For the year ended December 31, 1996, market analysts Smith
Travel Research reported that average occupancy and daily room rates for U.S.
hotels increased to 65.7% and $71.66, respectively, compared with 65.1% and
$67.17, respectively, for 1995.
Conditions for hotels in the Los Angeles Airport submarket also improved during
1996. This is due in large part to the fact that southern California, which
lagged the rest of the nation in its recovery, has been experiencing an
economic recovery stimulated by growth in the high-tech and entertainment
industries. This growth has positively impacted most businesses, including the
local hospitality market. According to Smith Travel Research, for the year
ended December 31, 1996, average occupancy and room rates for hotels in the Los
Angeles Airport submarket increased to 74.9% and $61.62, compared to 69.2% and
$58.14, respectively, for 1995.
Although the supply of rooms has remained relatively constant in recent years,
the Hotel faces considerable competition from existing hotels in the Los
Angeles Airport submarket. The General Partner has identified 11 hotels
totaling 6,755 rooms that currently compete to varying degrees with the Hotel.
Among these is the Los Angeles Airport Marriott, which is owned by a limited
partnership that was sponsored by an affiliate of the General Partner.
Although there are numerous additional hotels that exist in the market area,
the General Partner does not consider them to be directly competitive with the
Hotel due to disparities in markets served, quality of facilities, rate
structure, location and/or lack of affiliation with a major hotel chain.
Property Update
- ---------------
Operating results at the Hotel continued to improve in 1996, reflecting the
strengthening conditions discussed above. For the year ended
December 31, 1996, the average occupancy and room rate increased to 85.3% and
$83.59, compared with 82.3% and $77.58, respectively, for 1995. The
improvement in the Hotel's average occupancy and daily room rate led to a 12.7%
increase in total Hotel sales. This increase, coupled with efforts to contain
expenses, resulted in an 11.6% improvement in the Hotel's house profit.
As required by Financial Accounting Standards Statement No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", the Partnership wrote-down the net book value of the Hotel as of
December 31, 1996 to its estimated fair market value less costs to sell.
The determination of the estimated fair market value of the Hotel was based
upon the Letter of Intent executed by the Partnership to sell the Hotel. As
a result, the Partnership reported a net loss for 1996 compared with net
income in 1995. Excluding such loss, the Partnership reported an increase in
net income for 1996 over the previous year.
Unless the Hotel is sold, the ability of the Partnership to make future
distributions is dependent upon various factors, including cash flow
generated from Hotel operations, the adequacy of cash reserves and the outcome
of the Partnership's marketing efforts. There can be no assurance that future
cash flow will be sufficient to fund any such additional distributions. If
the Marriott/Interstate Sale occurs, we estimate that liquidating distributions
may exceed $5.00 per Unit. The amount is dependent on Hotel and Partnership
operations until closing, the timing of the closing and other factors, all of
which are uncertain at this time.
General Information
- -------------------
As you are probably aware, several third parties have commenced partial
tender offers to purchase units of the Partnership at what the General
Partner has advised are grossly inadequate prices which are substantially
below the Partnership's Net Asset Value. In response, we have recommended
that limited partners reject these offers because they do not reflect the
underlying value of the Partnership's assets. To date, holders of fewer
than 5% of the outstanding units have tendered.
Summary
- -------
The General Partner has continually monitored the operations of the
Hotel, the status of the hospitality industry and other factors to determine
the optimum time to sell the Hotel to maximize value. Given the improved
performance of the Hotel, the hospitality industry and the increased demand by
potential buyers, the General Partner believes it is in the best interest of
the Partnership to attempt to sell the Hotel at this time. In the interim, we
will continue to pursue methods for improving efficiency in operations in order
to achieve optimum profitability. We will keep you informed of our progress in
future investor reports.
Very truly yours,
Manhattan Beach Commercial Properties III Inc.
The General Partner
s/Jeffrey C. Carter/
Jeffrey C. Carter
President
March 28, 1997
Financial Results Comparison
- ----------------------------
The following chart summarizes the financial results of the Hotel and
Partnership for the indicated years.
As reported in the
As reported by Partnership's
Interstate Financial Statements
Total Total
Hotel House Partnership Partnership
Sales Profit(1) Income(2) Net Income
----- ------ --------- ----------
1995 $ 13,835,896 $ 4,013,122 $ 14,014,500 $ 232,226
1996 $ 15,594,871 $ 4,477,825 $ 15,743,147 $ 490,504 (3)
% Change 12.7% 11.6% 12.3% 111.2%
(1) House profit is the Hotel's operating profit prior to the payment of
certain other items including property taxes, insurance, ground rent,
equipment leases, Partnership general and administrative expenses,
and funding of the reserve account established for furniture, fixtures
and equipment.
(2) Total Partnership income includes Hotel revenues, interest income and
other income.
(3) Excluding the $4,797,429 loss on the write-down of the net book value of
the Hotel.
The Partnership's results of operations, excluding the write-down of the net
book value of the Hotel, improved substantially in 1996 relative to 1995,
primarily as a result of an increase in total revenues and the containment of
departmental expenses. Please refer to the accompanying financial statements
for more detail concerning the Partnership's financial results.
Selected Financial Data
- -----------------------
Selected Partnership financial data for the five years ended December 31
is shown below. This data should be read in conjunction with the Partnership's
financial statements included in this report.
For the periods ended
December 31, 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
Total Partnership
income (1) $15,743,147 $14,014,500 $13,244,227 $13,070,254 $13,582,978
Partnership net
income (loss) 490,504(2) 232,226 (245,012) (767,542) (2,956,338)
Net loss per Limited
Partnership unit(3) (.61) 0 (.03) (.09) (.36)
Cash distributions
declared per unit(4) 0 .20 0 0 .14
Total Assets at
December 31 41,082,157 48,895,202 48,366,331 48,680,580 49,853,208
(1) Total Partnership income includes Hotel revenues, interest income and
other income.
(2) Excluding the $4,797,429 loss on the write-down of the net book value
of the Hotel.
(3) There are 6,975,000 units outstanding.
(4) A one-time distribution in the amount of $1,395,000 or $0.20 per Unit
from 1995 annual cash flow and surplus Partnership reserves was paid to
limited partners on February 1, 1996. All cash distributions for 1992
were paid from the Settlement Fund.
Balance Sheets At December 31, At December 31,
1996 1995
Assets
Property held for disposition (note 2) $ 36,800,000 $ 0
Real estate, at cost (note 2):
Building 0 47,975,974
Furniture, fixtures and equipment 0 2,623,827
Leasehold improvements 0 3,333,141
------------ ------------
0 53,932,942
Less accumulated depreciation
and amortization 0 (11,006,481)
------------ ------------
0 42,926,461
Cash and cash equivalents 2,100,400 4,414,032
Restricted cash 413,229 187,464
Accounts receivable 1,386,303 992,941
Prepaid and other assets 382,225 374,304
------------ ------------
Total Assets $ 41,082,157 $ 48,895,202
============ ============
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued liabilities $ 1,549,286 $ 1,371,160
Due to affiliates (note 4) 63,495 2,338,650
Distribution payable 0 1,409,091
------------ ------------
Total Liabilities 1,612,781 5,118,901
------------ ------------
Partners' Capital (Deficit):
General Partner (1,634,727) (1,591,658)
Limited Partners (6,975,000
limited partnership units authorized,
issued and outstanding) 41,104,103 45,367,959
------------ ------------
Total Partners' Capital 39,469,376 43,776,301
------------ ------------
Total Liabilities and Partners' Capital $ 41,082,157 $ 48,895,202
============ ============
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
Balance at December 31, 1993 $ (1,773,041) $ 46,971,219 $ 45,198,178
Net loss (36,752) (208,260) (245,012)
------------ ------------ ------------
Balance at December 31, 1994 (1,809,793) 46,762,959 44,953,166
Net income 232,226 0 232,226
Distributions (14,091) (1,395,000) (1,409,091)
------------ ------------ ------------
Balance at December 31, 1995 (1,591,658) 45,367,959 43,776,301
Net loss (43,069) (4,263,856) (4,306,925)
------------ ------------ ------------
Balance at December 31, 1996 $ (1,634,727) $ 41,104,103 $ 39,469,376
============ ============ ============
Statements of Operations
For the years ended December 31, 1996 1995 1994
Hotel Revenues
Rooms $ 9,920,606 $ 8,860,793 $ 8,301,912
Food and beverage 4,811,899 4,256,995 4,250,324
Telephone 644,751 599,598 485,629
Other 217,615 118,510 148,947
------------ ------------ ------------
Total Revenues 15,594,871 13,835,896 13,186,812
------------ ------------ ------------
Departmental Expenses
Rooms 2,764,245 2,399,499 2,356,431
Food and beverage 3,889,952 3,458,417 3,494,320
Telephone 348,964 319,083 314,893
Other 47,233 40,762 35,717
------------ ------------ ------------
Total Expenses 7,050,394 6,217,761 6,201,361
------------ ------------ ------------
Departmental Income 8,544,477 7,618,135 6,985,451
------------ ------------ ------------
Unallocated Partnership and Hotel Operating Expenses
Advertising and sales 614,194 549,649 596,360
General and administrative:
Hotel and other 2,393,998 2,034,318 1,875,222
Partnership 477,745 504,314 455,690
Utilities and maintenance 1,161,191 1,151,196 1,184,477
Ground rent (note 5) 735,756 655,948 623,457
Management fees (note 6) 501,197 424,773 304,261
Property taxes 396,729 393,194 417,494
Operating leases 84,879 115,380 150,645
Depreciation and amortization 1,836,560 1,735,741 1,680,272
Loss on write-down of real estate 4,797,429 0 0
------------ ------------ ------------
12,999,678 7,564,513 7,287,878
------------ ------------ ------------
Operating Income (Loss) (4,455,201) 53,622 (302,427)
------------ ------------ ------------
Other Income
Interest income 141,461 173,031 54,435
Other income, net 6,815 5,573 2,980
------------ ------------ ------------
148,276 178,604 57,415
------------ ------------ ------------
Net Income (Loss) $ (4,306,925) $ 232,226 $ (245,012)
============ ============ ============
Net Income (Loss) Allocated:
To the General Partner $ (43,069) $ 232,226 $ (36,752)
To the Limited Partners (4,263,856) 0 (208,260)
------------ ------------ ------------
$ (4,306,925) $ 232,226 $ (245,012)
============ ============ ============
Net Income (Loss)
Per limited partnership unit
(6,975,000 outstanding) $ (.61) $ 0 $ (.03)
------ --- ------
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net income (loss) $ (4,306,925) $ 232,226 $ (245,012)
Adjustments to reconcile net
income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 1,836,560 1,735,741 1,680,272
Loss on write-down of real estate 4,797,429 0 0
Increase (decrease) in cash
arising from changes in operating
assets and liabilities:
Fundings of restricted cash (733,293) (568,309) (547,865)
Accounts receivable (393,362) (86,220) (340,776)
Prepaid and other assets (7,921) 6,771 (39,332)
Accounts payable and
accrued liabilities 178,126 46,778 (319,191)
Due to affiliates (2,275,155) 249,867 249,954
------------ ------------ ------------
Net cash provided by (used for)
operating activities (904,541) 1,616,854 438,050
------------ ------------ ------------
Cash Flows From Investing Activities:
Proceeds from restricted cash 507,528 651,334 277,376
Additions to real estate (507,528) (651,334) (101,658)
------------ ------------ ------------
Net cash provided by investing activities 0 0 175,718
------------ ------------ ------------
Cash Flows From Financing Activities:
Distributions (1,409,091) 0 0
------------ ------------ ------------
Net cash used for financing
activities (1,409,091) 0 0
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents (2,313,632) 1,616,854 613,768
Cash and cash equivalents,
beginning of period 4,414,032 2,797,178 2,183,410
------------ ------------ ------------
Cash and cash equivalents,
end of period $ 2,100,400 $ 4,414,032 $ 2,797,178
============ ============ ============
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Manhattan Beach Hotel Partners, L.P. (the "Partnership"), formerly Shearson
California Radisson Plaza Partners, L.P. (see below), a Delaware limited
partnership, was organized on September 8, 1987 under the laws of the State
of Delaware for the purpose of acquiring, owning, leasing or operating,
and eventually selling the Radisson Plaza Hotel and Golf Course (the
"Property" or the "Hotel"). The Partnership purchased the Property on
December 1, 1987 for $56,500,000. The Partnership will terminate on
December 31, 2037, or earlier, in accordance with the terms of the Partnership
Agreement.
The general partner of the Partnership is Manhattan Beach Commercial Properties
III, Inc., (the "General Partner"), formerly Shearson Lehman Commercial
Properties III, Inc. (see below), a Delaware corporation and a wholly-owned
subsidiary of DA Group Holdings, Inc. (the "Group"), formerly Shearson Lehman
Brothers Group Inc. The original limited partner of the Partnership was
Shearson Lehman Commercial Properties Depositary III, Inc. (the "Assignor
Limited Partner"), a Delaware corporation and a wholly-owned subsidiary of the
Group.
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale,
Shearson changed its name to Lehman Brothers Inc. ("Lehman"). The transaction
did not affect the ownership of the General Partner. However, the assets
acquired by Smith Barney included the name "Shearson." Consequently, effective
October 21, 1993, the Shearson Lehman Commercial Properties III, Inc. General
Partner changed its name to Manhattan Beach Commercial Properties III, Inc.,
and effective December 2, 1993, the Partnership changed its name to Manhattan
Beach Hotel Partners, L.P.
Prior to the admission of public investors as Limited Partners, the
Partnership's losses were allocated 99% to the Assignor Limited Partner and 1%
to the General Partner. Upon admission of public investors, the Assignor
Limited Partner assigned its rights of ownership to the purchasers of Limited
Partnership interests.
During the year ended December 31, 1988, the Partnership, on behalf of the
Assignor Limited Partner, sold 6,975,000 depositary units representing gross
capital contributions of $69,750,000. Net proceeds to the Partnership amounted
to approximately $62,937,000 after deduction of offering costs and selling
commissions. The proceeds of the public offering were utilized to pay off the
promissory note secured by an all inclusive deed of trust.
On February 13, 1996, based upon, among other things, the advice of legal
counsel, Skadden, Arps, Slate, Meagher & Flom LLP, the General Partner adopted
a resolution that states, among other things, if a Change of Control (as
defined below) occurs, the General Partner may distribute the Partnership's
cash balances not required for its ordinary course day-to-day operations.
"Change of Control" means any purchase or offer to purchase more than 10% of
the Units that is not approved in advance by the General Partner. In
determining the amount of the distribution, the General Partner may take into
account all material factors. In addition, the Partnership will not be
obligated to make any distribution to any partner, and no partner will be
entitled to receive any distribution, until the General Partner has declared
the distribution and established a record date and distribution date for the
distribution.
2. Significant Accounting Policies
Property Held for Disposition
Property held for disposition is carried at the lower of carrying value or
fair market value less costs to sell. Effective December 31, 1996, real estate
assets were reclassified as "Property held for disposition" and will no longer
be depreciated. As further discussed in Note 5, the Partnership wrote down
the net book value of the Hotel by $ 4,797,429 to its estimated fair market
value less costs to sell.
Real Estate Investments
At December 31, 1995, real estate investments, which consisted of the Hotel
building, furniture, fixtures and equipment, and leasehold estate, were
recorded at cost less accumulated depreciation. Cost included the initial
purchase price of the property plus closing costs, acquisition and legal fees
and capital improvements. Depreciation of the real property was computed
using the straight-line method based on the estimated useful life of 40 years.
Depreciation of the personal property was computed using the straight-line
method over an estimated useful life of five years. Improvements were
amortized over the remaining life of the ground lease using the straight-line
method.
When building and personal property are sold or otherwise disposed of, when
required, the asset account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.
Accounting for Impairment
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long- lived assets
that are expected to be disposed of. The Partnership adopted FAS 121 in the
fourth quarter of 1995.
Income Taxes
No income tax provision (benefit) has been recorded on the books
of the Partnership, as the respective shares of taxable income (loss) are
reportable by the partners on their individual tax returns.
For income tax purposes, the admission of Public Limited Partners on May 26,
1988 to the Partnership was treated as a deemed sale of the Assignor Limited
Partner's interest in accordance with the provision of Section 708(b)(1)(B) of
the Internal Revenue Code. The carrying values of the assets and related
capital accounts have been increased by the Limited Partners' interest for tax
purposes. There has been no readjustment of the carrying values of the assets
for financial reporting purposes.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid short-term investments
with maturities of three months or less from the date of issuance. The
carrying amount approximates fair value because of the short maturity of these
instruments.
Restricted Cash
Restricted cash consists of funds escrowed by the Partnership for future
hotel repairs and improvements.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to a
concentration of credit risk principally consist of cash in excess of the
financial institutions' insurance limits. The Partnership invests available
cash with high credit quality financial institutions.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified in order to conform to the
current year's presentation.
3. Partnership Agreement
Upon the admission of the Limited Partners, the following provisions
of the Partnership Agreement became effective.
Under the terms of the Partnership Agreement, the Partnership's net cash flow
from operations, as defined, will be distributed 99% to the Limited Partners
and 1% to the General Partner until the sum of the amounts distributed equals
the preferred return. The preferred return is a cumulative 12% return per annum
of the Limited Partners' adjusted capital contribution, as defined, accruing on
a cumulative but noncompounding basis. Thereafter, the Partnership's cash flow
from operations will be distributed 85% to the Limited Partners and 15% to the
General Partner.
In general, the Partnership Agreement provides that all income and gain will be
allocated first to those partners with negative capital accounts, as defined,
until no partner has a negative capital account; then 99% to the Limited
Partners and 1% to the General Partner to the extent the Limited Partners'
adjusted capital contributions exceed their capital accounts; then to the
General Partner to the extent it has received a 15% distribution of net cash
flow; then 99% to the Limited Partners and 1% to the General Partner until the
Limited Partners have been allocated an amount equal to the preferred return,
as defined; and then 85% to the Limited Partners and 15% to the General
Partner. In general, losses will be allocated 85% to the Limited Partners and
15% to the General Partner until the sum of cumulative losses equals the sum of
cumulative distributions, and then 99% to the Limited Partners and 1% to the
General Partner.
Net proceeds from a sale or refinancing of the Partnership's assets will be
distributed 99% to the Limited Partners and 1% to the General Partner until
each Limited Partner has received an amount equal to any unpaid cumulative
return and their unrecovered capital, as defined. Thereafter, such net
proceeds will be distributed 99% to the Limited Partners and 1% to the General
Partner until each Limited Partner's adjusted capital contribution equals zero.
Any remaining net proceeds will be allocated and distributed 95% to the Limited
Partners and 5% to the General Partner.
4. Transactions with Related Parties
Under the Partnership Agreement, the General Partner is entitled to receive
a management oversight fee of $250,000 per year to cover costs incurred and
time expended by the General Partner in overseeing the operator of the
Property to ensure that operations and management are being conducted in the
best interests of the Partnership and in accordance with the ground lease and
management contract. For the years ended December 31, 1996, 1995 and 1994,
the General Partner earned oversight management fees in the amount of $250,000
per year. At December 31, 1996 and 1995, $62,500 and $1,750,000,
respectively, were due to the General Partner for the performance of these
services.
During 1989, certain legal and accounting fees were paid by the
General Partner in connection with the restructuring of the lease (see Note 6).
The costs have been deemed to be reimbursable by the Partnership. The total
amount owed to the General Partner at December 31, 1996 and 1995 was $ 0 and
$587,804, respectively.
Under the terms of the Partnership Agreement, the General Partner and its
affiliates are entitled to be reimbursed for out-of-pocket expenses.
Out-of-pocket expenses were $5,705, $7,455 and $7,373 for the years ended
December 31, 1996, 1995 and 1994, respectively. As of December 31, 1996 and
1995, $995 and $846, respectively, remained unpaid.
Upon sale of the Property, the General Partner may receive a brokerage
commission equal to 3% of the sales price less any amounts payable as
commissions to unaffiliated third parties. However, any commission to the
General Partner is subordinate to the Limited Partners' recovering 100% of
their original investment.
Cash and Cash Equivalents
Certain cash and cash equivalents were on deposit with an affiliate of the
General Partner during a portion of 1996 and all of 1995. As of
December 31, 1996, no cash and cash equivalents were on deposit with an
affiliate of the General Partner or the Partnership.
5. Real Estate Investments
On December 1, 1987, the Partnership acquired the Property, a seven-story,
384-room, 287,965 square foot commercial hotel and nine-hole executive golf
course located on a 26.3 acre site in the City of Manhattan Beach, Los Angeles
County, California (the "City"). A 166,382 square foot, 600-space parking
garage is also part of the Property. Construction of the Property was
substantially completed in January 1987, and its final certificate of
occupancy was issued on March 17, 1987. The land upon which the Property
is situated was leased to the seller by the City pursuant to a ground lease
(the "Ground Lease") entered into on March 1, 1983 for an initial term of
50 years. The term is renewable for successive periods of 25
and 24 years.
Minimum ground lease payments for each of the next five years ending
December 31, and thereafter, are as follows:
1997 $400,000
1998 400,000
1999 400,000
2000 400,000
2001 400,000
Thereafter (cumulative) 12,466,667
-------------------------------------
Total $14,466,667
In addition to the minimum ground lease payments, the lease provides for
additional rents based upon percentages, ranging from 2.5% to 6.25%, as applied
to the Hotel's various revenue. Percentage rent is only applicable to the
extent that the total of such percentages exceeds the minimum annual rent. Such
excess lease payments amounted to $335,756, $255,948 and $223,457 in 1996, 1995
and 1994, respectively.
The golf course is operated by a third party in accordance with an operating
lease agreement entered into on December 12, 1986 which the Partnership assumed
upon its purchase of the Hotel. The agreement has a term of 10 years and
provides for rents payable to the Partnership ranging from 2% to 5% of gross
revenues during the term of the agreement. The operating agreement provided
for one five-year renewal option which the operator exercised in December 1996.
Further, the operator has a right of first refusal to extend the operating
lease another five years.
Effective December 31, 1996, the Partnership reclassified its real estate
assets to "Property held for disposition" and wrote down the net book value of
the Hotel by $4,797,429 to its estimated fair market value less costs to sell.
The determination of the estimated fair market value of the Hotel was based
upon the execution of a letter of intent by the Partnership to sell the Hotel.
On March 20, 1997, the Partnership executed a letter of intent to sell the
Hotel to a joint venture of Host Marriott Corporation and Interstate Hotels
Corporation (the "Buyer") for a cash purchase price of $38,250,000. The Buyer
has 30 days in which to complete its due diligence investigation of the Hotel,
during which time the parties will attempt to negotiate and execute a formal
purchase and sale contract (the "Contract"). The closing of the sale would be
within 10 business days following the end of the due diligence period. Certain
of the conditions and terms in the letter of intent are not legally binding
and are subject to the execution of the Contract.
6. Hotel Management Agreement
The Partnership entered into a management agreement with Manhattan Beach
Management Company (the "Management Company"), an affiliate of Interstate
Hotels Corporation, to manage and operate the Hotel. The term of the agreement
commenced on January 3, 1991 and continued through January 3, 1997. The
agreement provides for management fees of 1.75% of gross revenues with an
incentive fee calculated based upon a percentage, ranging from 10% to 17.5%,
of operating profits in excess of $1,500,000. The Partnership is responsible
for operating deficits and has committed to advance funds to the Hotel so as
to maintain a cash level of $300,000. In March 1997, the Partnership and the
Management Company extended the management agreement to January 2, 1998 on
the existing terms.
7. Reconciliation of Financial Statement Net Income (Loss) and Partners'
Capital to Federal Income Tax Basis Net Income (Loss) and Partners' Capital
1996 1995 1994
Financial statement net income (loss) $(4,306,925) $ 232,226 $ (245,012)
Tax basis depreciation over financial
statement depreciation (397,277) (760,812) (1,158,551)
Financial statement loss on write-down
of real estate 4,797,429 0 0
Other 166,811 (48,337) (99,769)
Federal income tax basis
net income (loss) $ 260,038 $ (576,923) $(1,503,332)
Financial statement partners' capital $39,469,376 $43,776,301 $44,953,166
Current year financial statement net
income (loss) (over) under federal
income tax basis net income (loss) 4,566,963 (809,149) (1,258,320)
Cumulative financial statement net
income (loss) over federal income
tax basis net income (loss) 4,527,225 5,336,374 6,594,694
Federal income tax basis
partners' capital $48,563,564 $48,303,526 $50,289,540
Because many types of transactions are susceptible to varying interpretations
under Federal and State income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
8. Litigation
As a result of the removal of the original tenants as operators of the Property
and the termination of a number of equipment leasing arrangements previously
entered into by the original tenants, a lawsuit related to the replacement of
the telephone system washas been filed naming the Partnership, among others,
as a defendant. The suit, entitled Communication Facility Management
Corporation ("CFMC") vs. Manhattan Beach Hotel Partners, L.P., et al, was
filed in June 1990 in Los Angeles Superior Court (the "Court"). On
November 7, 1994, the Court executed a formal dismissal order. CFMC
subsequently filed a motion to vacate the dismissal which was denied by the
Court on February 28, 1995. On February 16, 1996, CFMC filed an application
with the Court for an extension to file an appellant's opening brief. The
Court granted the extension and CFMC had until April 10, 1996 to file an
opening brief to appeal the suit. This matter has been successfully concluded
since CFMC permitted the time period for the filing of the opening brief to
expire.
Report of Independent Accountants
To the Partners of
Manhattan Beach Hotel Partners, L.P.:
We have audited the accompanying balance sheets of Manhattan Beach Hotel
Partners, L.P. (formerly Shearson California Radisson Plaza Partners, L.P.),
a Delaware limited partnership, as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital (deficit) and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Manhattan Beach Hotel
Partners, L.P. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 14, 1997
Schedule III - Property Held for Disposition
December 31, 1996
Commercial Property: Hotel Complex Total
Location Manhattan Beach, CA na
Construction date 1987 na
Acquisition date 12-01-87 na
Life on which depreciation
in latest income statements
is computed (3) na
Encumbrances $ 0 $ 0
Initial cost to Partnership:
Land $ 0 $ 0
Building and
improvements $56,500,000 $56,500,000
Costs capitalized
subsequent to acquisition:
Building and improvements $ 8,080,555 $ 8,080,555
Write-off (4) $10,140,085 $10,140,085
Write-down adjustment $17,640,470 $17,640,470
Gross amount at which
carried at close of period: (2)
Land $ 0 $ 0
Building and improvements 36,800,000 36,800,000
$36,800,000 $36,800,000
Accumulated depreciation (1) $ 0 $ 0
(1) For Federal income tax purposes, the amount of accumulated depreciation
is $25,620,766.
(2) For Federal income tax purposes, the basis of land, building and personal
property is $65,443,014.
(3) Building and improvements - 40 years; personal property - 5 years.
(4) Fully depreciated furniture, fixtures and equipment of $ 10,140,085 were
written off in 1994.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $ 53,932,942 $ 53,281,608 $ 63,320,035
Additions 507,528 651,334 101,658
Write-down (17,640,470) 0 0
Write-off 0 0 (10,140,085)
End of year $ 36,800,000 $ 53,932,942 $ 53,281,608
Accumulated depreciation:
Beginning of year $ 11,006,481 $ 9,270,740 $ 17,730,553
Depreciation expense 1,836,560 1,735,741 1,680,272
Write-down (12,843,041) 0 0
Write-off 0 0 (10,140,085)
End of year $ 0 $ 11,006,481 $ 9,270,740
Report of Independent Accountants On Schedule
To Financial Statements
To the Partners of
Manhattan Beach Hotel Partners, L.P.:
Our report on the financial statements of Manhattan Beach Hotel Partners, L.P.
(formerly Shearson California Radisson Plaza Partners, L.P.), a Delaware
limited partnership, has been incorporated by reference in this Form 10-K from
the Annual Report to Unitholders of Manhattan Beach Hotel Partners, L.P. for
the year ended December 31, 1996. In connection with our audit of such
financial statements, we have also audited the related financial statement
schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 14, 1997
Second Amendment to Management Agreement
THIS SECOND AMENDMENT TO MANAGEMENT AGREEMENT (this "Amendment") dated as
of March 20, 1997, is made by and between MANHATTAN BEACH HOTEL PARTNERS, L.P.,
formerly known as Shearson California Radisson Plaza Partners, L.P., a Delaware
limited partnership (the "Owner") and MANHATTAN BEACH MANAGEMENT COMPANY, a
Delaware Corporation (the "Management Company").
RECITALS
A. The Owner and the Management Company previously entered into that
certain Management Agreement dated January 3, 1992, as amended by Amendment
to Management Agreement dated as of April 21, 1994 (together, the "Management
Agreement"), providing for the management and operation of the Radisson Plaza
Hotel and Golf Course located in the City of Manhattan Beach, County of Los
Angeles, State of California (the "Hotel").
B. Pursuant to Article 4, Section 4.01 of the Management Agreement, the
term of the Management Agreement expired on January 2, 1997, but the Management
Company has continued since such time with the Owner's consent to manage and
operate the Hotel as if the Management Agreement were in full force and effect.
C. The Owner and the Management Company desire to memorialize and
continue the Management Company's operation and management of the Hotel, and to
ratify the Management Company's prior operation and management of the Hotel as
if the Management Agreement were in full force and effect, and therefore have
agreed to amend Article 4, Section 4.01 of the Management Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Owner and the Management
Company agree as follows:
1. Amendment. The first sentence of Article 4, Section 4.01 of the
Management Agreement is hereby deleted in its entirety and the following
inserted in lieu thereof: The term ("Term") of this Agreement shall commence on
the Effective Date and, unless sooner terminated as herein provided, shall
continue for a period of six (6) years.
2. Ratification. The Owner and the Management Company hereby agree that
the Management Agreement shall be deemed to have been in full force and effect
from the time of its expiration on January 2, 1997, until the time this
Amendment is effective, and that both parties shall be fully liable for the
performance of their respective duties and obligations thereunder during such
time period.
3. Miscellaneous. Each of the persons who has executed this
Amendment represents and warrants that such person has been authorized to do so
by all necessary and appropriate action by the party on whose behalf such
person has executed this Amendment. This Amendment sets forth the entire
agreement of the parties hereto with respect to the subject matter contained
herein, and shall supersede any prior agreement, whether oral or written,
express or implied, of the parties hereto with respect to the subject matter
contained herein. Except as amended hereby, the terms of the Management
Agreement shall remain unchanged and be in full force and effect.
IN WITNESS WHEREOF, the Owner and the Management Company have executed this
Amendment as of the date first set forth above.
OWNER:
MANHATTAN BEACH HOTEL PARTNERS, L.P., a
Delaware limited partnership
By: MANHATTAN BEACH COMMERCIAL
PROPERTIES III INC., a
Delaware corporation
Its: General Partner
By: ______________________________
Name:_____________________________
Its:______________________________
MANAGEMENT COMPANY:
MANHATTAN BEACH MANAGEMENT COMPANY, a Delaware
limited partnership
By: ______________________________
Name:_____________________________
Its:______________________________
GUARANTEE
Interstate Hotels Corporation unconditionally guarantees the performance
of the Management Company's past, present, and future obligations and duties
under the Management Agreement as amended hereby, and represents and warrants
to the Owner that it is authorized to give such guarantee.
INTERSTATE HOTELS CORPORATION
By: _________________________
Name:________________________
Its:_________________________
HOST MARRIOTT CORPORATION INTERSTATE HOTELS CORPORATION
March 18, 1997
VIA FACSIMILE NO. (212) 315-3602
Manhattan Beach Hotel Partners, L.P.
c/o Eastdil Realty Company, L.L.C.
40 West 57th Street
New York, New York 10019
ATTN: Lawrence B. Wolfe
Managing Director
RE: Radisson Plaza Hotel, Manhattan Beach, California
Dear Larry:
This letter (the "Letter") will serve to set forth the basic terms and
conditions upon which a joint venture of Host Marriott Corporation and
Interstate Hotels Corporation ("Purchaser") is interested in purchasing the
Radisson Plaza Hotel located in Manhattan Beach, California (the "Hotel").
Purchaser is interested in purchasing from the owner of the Hotel, Manhattan
Beach Hotel Properties, L.P. ("Seller"), all of Seller's right, title, and
interest in and to the Hotel and adjacent golf course, the leasehold interest
in the land related thereto, and the improvements thereon (the "Real
Property"), together with all of Seller's right, title, and interest in and to
any and all furnishing, fixtures, and equipment (in amounts and at levels
consistent with past practices and whether in current use or stored for future
use), books, records, work papers, and other historical tax, accounting, and
other information, plans and specifications, permits and licenses, contract
and reservation rights, leases and agreements, vehicles and parking, and
intangible and appurtenant rights pertaining to the Real Property (collectively,
the "Personal Property," and together with the Real Property, the "Primary
Property").
The terms and conditions of our offer to purchase are as follows:
1. Purchase Price. The Purchase Price for the Primary property shall be
Thirty-Eight Million Two Hundred Fifty Thousand Dollars ($38,250,000.00). In
addition, at the Closing (as such term is hereinafter defined) Purchaser shall
purchase the following from Seller: (I) all unopened and unspoiled food and
beverage inventory, liquor, supplies held for resale, and merchandise held for
resale (collectively, the "Inventory"), at their original cost; and (ii) all
accounts receivable at the Hotel which are aged as of the Closing not more than
ninety (90) days, on a dollarfor-dollar basis (the "Current Receivables"), and
Seller shall retain, and Purchaser shall use its best efforts to collect on
behalf of Seller, all other accounts receivable at the Hotel (the "Non-Current
Receivables"). The total purchase price for the inventory and the Current
Receivables is hereinafter referred to as the "Property." The Purchase Price
and the Inventory and Receivables Price shall be payable at Closing. Purchaser
and Seller shall meet ninety (90) calendar days thereafter to review the status
of accounts receivable at the Hotel, and to make cash adjustments for Current
Receivables that Purchaser was unable to collect using its good faith
commercially reasonably efforts, and for Non- Current Receivables that
Purchaser was able to collect on Seller's behalf.
2. Accounts Payable: Liabilities. Purchaser will assume and be responsible
for all accounts payable incurred prior to the date of Closing, and Purchaser
will receive a credit against the Purchase Price for the actual amount of all
such accounts payable. Except as specifically assumed by Purchaser herein,
Seller will be responsible for all other liabilities incurred prior to the date
of Closing. Purchaser will also be responsible for all accounts payable and all
other liabilities incurred on or after the date of Closing. Purchaser will
assume all leases, licenses, and other agreements at the Closing.
3. Purchase Contract. Promptly after the date Purchaser receives a fully
executed copy of this Letter (such date being the "Acceptance Date"), Purchaser
and Seller shall endeavor to negotiate in good faith and execute a formal,
definitive contract of sale (the "Contract") in form and substance agreeable to
Purchaser and Seller and their respective counsel, evidencing the transaction
described in this Letter. The parties shall endeavor to execute the contract on
or before the expiration of the Due Diligence Period (as such term is
hereinafter defined).
4. Earnest Money Deposit. Simultaneously with the parties' execution of the
Contract, Purchaser will place the sum of One Million Five Hundred Thousand
Dollars ($1,500,000) as an earnest money deposit (the "Deposit") in escrow
with a First American Title Insurance Company office in the State of
California (the "Escrow Agent"). The Deposit will be in the form of cash and
shall be invested by the Escrow Agent in an interest-bearing account
reasonably acceptable to Purchaser and Seller. At Closing, the Deposit (and
all interest accrued thereon) will be credited against the Purchase Price.
UPON A PURCHASER DEFAULT AFTER THE CONTRACT HAS BEEN FULLY EXECUTED, SELLER'S
SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE THE CONTRACT AND RETAIN THE
DEPOSIT (AND ALL INTEREST ACCRUED THEREON) AS LIQUIDATED DAMAGES.
5. Due Diligence Period. For a period (the "Due Diligence Period") expiring
thirty (30) days after the Acceptance Date, Purchaser and its consultants shall
have access to and shall review the Property, at Purchaser's sole cost and
expense. Such review shall be conducted at times reasonably acceptable to
Seller and in a non-intrusive manner, so as not to disturb or interfere with
the Property, its tenants, occupants, or guests. On or before the date which
is five (5) business days after the Acceptance Date, Seller shall either: (I)
deliver to Purchaser a copy of all leases, licenses, permits, agreements,
surveys, and environmental, zoning, and structural reports or assessments
pertaining to the property in Seller's possession or control; or (ii) notify
Purchaser in writing that Seller has no such items. In addition, promptly after
the Acceptance Date, Seller shall provide copies of all operational and other
information reasonably requested by Purchaser (including, but not limited to,
certificate(s) of occupancy and liquor license(s) and employee information).
Purchaser shall indemnify, defend, and hold Seller harmless from and against
any and all claims, loss, cost, liability, damage or expense claimed against or
incurred by Seller and arising form or with respect to Purchaser's or its
consultants due diligence activities at the Property.
6. Conditions to Closing. Conditions to Closing shall include:
A. Title and Survey. Purchaser shall be responsible for obtaining a
current ALTA "as built" survey of the Real Property (the "Survey") from a
licensed surveyor, and a current leasehold preliminary title report for
the Real Property without any exception for Seller's authority to sell
without consent of its limited partners, together with all documents
referenced therein (the "Title") from the Escrow Agent (i.e. First
American Title Insurance Company). Promptly upon receipt of the Survey
and the Title, but in any event prior to expiration of the Due Diligence
Period, Purchaser shall notify Seller in writing of any Title or Survey
matters to which Purchaser objects. Seller shall have a period of ten
(10) business days after receipt of any objections in which to notify
Purchaser that Seller will attempt to remedy any or all of the matters to
which Purchaser has objected. Unless Seller has so notified Purchaser
that Seller will attempt to remedy all such objections, Purchaser shall
have five (5) business days in which it shall either: (I) terminate the
Contract in writing and receive a return of the Deposit; or (ii) be deemed
to accept Title and the survey subject to the noted objections, other than
those which Seller has expressly agreed in writing to remedy. The Due
Diligence Period shall be extended only with respect to Title and Survey
matters during the ten (10) business day period objections are reviewed by
Seller and during the five (5) business day period Purchaser reviews
Seller's responses to such objections. It shall be a further condition to
Closing that no material casualty or condemnation has occurred.
B. Structural and Environmental Review. As soon as possible following
the Acceptance Date, Seller shall provide Purchaser with a true and
complete copy of a current phase 1 environmental assessment of the Real
Property prepared by CET Environmental Services, Inc. During the Due
Diligence Period, Purchaser shall also be permitted to obtain and to
approve, at its sole cost and expense, its own environmental assessment,
structural engineering , and zoning reports or assessments. If
Purchaser's environmental consultant recommends testing beyond a phase 1
environmental assessment, Seller will grant Purchaser a thirty (30) day
extension to the Due Diligence Period only with respect to environmental
matters, and if Purchaser does not purchase the Property, then upon
Seller's written request therefor, Purchaser shall provide Seller with
true and complete copies of all environmental assessments performed by
Purchaser or its consultants at the Property.
C. Operational Review. Prior to the end of the Due Diligence Period,
Purchaser shall review the necessity for and validity of all government or
other third party consents or approvals, including, but not limited to,
transfer of (or receipt of new) liquor license(s), ground lease(s), and the
certificate(s) of occupancy.
D. Existing Management and Franchise Agreement. Purchaser shall assume the
current management agreement with a subsidiary of Interstate Hotels Corporation
and the current franchise agreement with Radisson Hotels International, Inc.,
effective at Closing, at no cost or liability to Seller, and Purchaser shall
pay any management or franchise assumption fees and costs. Purchaser (in its
capacity as such) shall have no liability under the current management
agreement or the current franchise agreement for matters which arose or accrued
prior to the Closing date. Seller shall have no liability for any termination
or severance costs of any current employees at the Hotel or of any employees
employed as of the Closing date if such termination or severance was a result
of the transfer of the property to Purchaser and/or the later termination of
the management agreement.
E. Other Approvals. On or before the Closing date, Purchaser, with Seller's
cooperation, shall obtain any required third party approvals, estoppels, or
consents, including but not limited to the consent and approval of the City of
Manhattan Beach as ground lessor. Seller does not intend to solicit the consent
of its limited partners to the transaction proposed herein.
7. Condition of the Property. Purchaser will purchase the Property in its
"AS-IS, WHERE-IS" condition without any representations or warranties, except
that Seller will represent that: (i) it is a limited partnership, qualified to
do business in California; (ii) the execution of the Contract and the
transactions contemplated therein are duly authorized by Seller; (iii) to
Seller's knowledge, it is not in default of any contracts relating to the
property; (iv) to Seller's knowledge, it has received no written notices of
violations of laws or ordinances relating to the property; (v) to Seller's
knowledge, there are no pending or threatened legal proceedings or claims
affecting the property or Seller's interest in the Property that are not, in
Seller's reasonable opinion, covered by insurance; and (vi) to Seller's
knowledge, there is no construction at the Real Property which would give rise
to a mechanics lien. As used herein, the term "Seller's knowledge" shall
mean the actual knowledge of Jeffrey C. Carter, the president of the general
partner of Seller. Seller's representations shall remain effective only for
six (6) months after the date of Closing, and Seller shall have no liability
for any breach of said representations unless the actual, cumulative damages
suffered by Purchaser on account thereof exceeds One Hundred Thousand Dollars
($100,000.00).
8. Closing Date. The closing of the purchase of the Property (the "Closing")
shall occur on a date mutually agreeable to Purchaser and Seller, which date
shall not be later than ten (10) business days after the expiration of the Due
Diligence Period, unless the date of Closing is extended pursuant to this
Letter or the Contract.
9. Closing Costs. The parties shall share equally any escrow fees, standard
coverage (CLTA) title insurance costs, survey costs, and recording fees. Each
party shall pay its own attorneys' and accountants' fees and expenses.
Purchaser shall pay the cost of any extended (ALTA) title coverage and any
title endorsements, city and county transfer taxes, bulk and other sales and
use taxes, any management or franchise assumption or termination fees and
costs, and the City of Manhattan Beach ground lease transfer fee and costs.
10. Brokerage Commissions. The parties have not dealt with any broker other
than Eastdil Realty Company, L.L.C. (the "Broker"). Seller shall pay the
Broker's fees pursuant to separate agreement. Each party agrees to indemnify
the other for any other brokerage commissions, finders or similar fees due, or
alleged to be due, to any other broker, finder, or other party claiming through
the indemnifying party.
11. Confidentiality/Exclusivity. The terms and provisions of this Letter
shall remain confidential and shall not be disclosed to any third party other
than: (i) the partners of Seller; (ii) as may be required by law or regulation
or to comply with the filing requirements of any applicable legislation or
rule; or (iii) any counsel, consultant, or agent assisting Purchaser with its
purchase of the Property or Seller with its sale of the Property. If Purchaser
does not proceed with the purchase of the Property, Purchaser shall return to
Seller all materials and information furnished to it by Seller or Seller's
agents in connection with its review of the Property. Seller shall, and shall
direct its agents, not to solicit, offer, or accept an offer for the purchase
of the Property from any other parties until the earlier to occur of the
termination of this Letter or the Contract; provided, however, that Seller and
Seller's agents shall be permitted to continue a dialogue with other current
bidders until a Contract is executed by both parties hereto.
12. Termination.
If Purchaser and Seller are unable to agree on the terms and conditions of the
Contract, and execute and deliver the same, on or prior to end of the Initial
Due Diligence period (i.e., thirty (30) days after the Acceptance Date), then
this Letter shall automatically terminate and neither party shall have any
further rights, duties, or obligations hereunder, except for such duties and
obligations that expressly survive the termination of this Letter.
13. No Assignment. Purchaser agrees not to assign any right, title, or
interest under this Letter or the Contract without Seller's prior written
consent, except such consent shall not be necessary to assign to a preapproved
assignee, or to a wholly owned subsidiary of Purchaser with Purchaser remaining
liable for such subsidiary's performance hereunder. Seller agrees not to assign
any right, title, or interest under this Letter or the Contract without
Purchaser's prior written consent.
This Letter constitutes only a general statement of the terms of the
proposed transaction. Except with respect to Purchaser's indemnification
obligations set forth in Section 4, Purchaser's and Seller's indemnification
obligations set forth in Section 10, Purchaser's and Seller's obligations to
maintain confidentiality and exclusivity as set forth in Section 11, and
Purchaser's and Seller's obligations to negotiate in good faith as set forth
in Paragraph 3, neither Buyer nor Seller intend to be legally bound to the
other or to create any legal or equitable obligations to the other by their
execution of this Letter and, except as provided in this sentence, neither
party shall have any rights against or obligations to the other in connection
with the transaction described above until such time as the Contract has been
executed and delivered by both parties.
If the terms of this Letter are acceptable to you, please execute and
return to me an executed copy of this Letter by 5:00 p.m. E.S.T. on March 21,
1997.
Very truly yours,
PURCHASER: HOST MARRIOTT CORPORATION
By: _________________________
Name:_________________________
Title:_________________________
INTERSTATE HOTELS CORPORATION
By: _________________________
Name:__________________________
Title: ________________________
ACCEPTED AND AGREED TO this _____ day of March, 1997
SELLER:
MANHATTAN BEACH HOTEL PARTNERS, L.P.
a Delaware limited partnership
By: Manhattan Beach Commercial Properties III Inc.,
a Delaware corporation
Its: General Partner
By: _________________________________
Name: _________________________________
Title: _________________________________
<TABLE> <S> <C>
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