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: 0-16991
HOTEL PROPERTIES L.P.
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Exact name of registrant as specified in its charter
Delaware 13-3430078
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State or other jurisdiction I.R.S. Employer Identification No.
of incorporation or organization
ATTN: Andre Anderson
3 World Financial Center,
29th Floor, New York, New York 10285
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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
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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
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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)
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.
Hotel Properties L.P. (the "Partnership"), formerly EQ/Shearson Hotel
Properties L.P. (see Item 10. "Certain Matters Involving Affiliates of
EHP/GP Inc."), is a Delaware limited partnership formed on
September 24, 1987 for the purpose of acquiring four hotel properties: the
Los Angeles Airport Marriott Hotel, the St. Louis Airport Marriott Hotel,
the Nashville Airport Marriott Hotel and Marriott's Tan-Tar-A Resort Hotel
(collectively, the "Properties" or "Hotels"). The Partnership purchased
the Properties on June 3, 1988 from The Equitable Life Assurance Society of
the United States ("Equitable") for a total cost of $104,238,200. Each
Property is subject to a separate operating lease with Marriott Hotel
Services, Inc. (the "Hotel Manager"), a wholly-owned subsidiary of Marriott
International Inc. EHP/GP Inc., formerly Shearson EHP/GP Inc. (See Item
10. "Certain Matters Involving Affiliates of EHP/GP Inc."), a Delaware
corporation, is the general partner of the Partnership (the "General
Partner") and is an affiliate of Lehman Brothers Inc. ("Lehman"), formerly
Shearson Lehman Brothers Inc. (See Item 10. "Certain Matters Involving
Affiliates of EHP/GP Inc."). E.H.P. Depositary Corp. (the "Depositary") is
the sole limited partner of the Partnership.
Additional information relating to the Partnership's general development of
business is incorporated by reference to Note 1 "Organization" 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.
(b) Financial Information about Industry Segments - The Partnership's sole
business is the ownership of the Properties. All of the Partnership's
revenues relate solely to one industry segment.
(c) Narrative Description of Business. - Incorporated by reference to Note 1
"Organization," Note 2 "Significant Accounting Policies" and Note 3 "Real
Estate" 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.
Employees - The Partnership has no employees. The affairs of the Partnership
are conducted by the General Partner.
Competition - Incorporated by reference to the section entitled Property Update
in the Partnership's Annual Report to Unitholders for the year ended December
31, 1996, filed as an exhibit under Item 14.
Item 2. Properties
A description of the Properties is incorporated by reference to the
Property Update section and Note 3 "Real Estate" 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, and in Schedule III contained herein.
The Properties are subject to mortgage financing in the original principal
amount of $80,438,000. On June 28, 1995, the Partnership refinanced and
amended the $80,438,000 in mortgage loans and $2,531,417 revolving credit
loans payable. Details of the refinancing are incorporated by reference to
Note 4 "Mortgage Loans Payable" 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.
On June 28, 1995, the Partnership terminated its June 3, 1988 Asset
Management Agreement with Equitable Real Estate Investment Management, Inc.
("EREIM"). Details of the termination are incorporated by reference to
Note 8 "Asset 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 a exhibit under Item 14.
Item 3. Legal Proceedings
There are no pending material legal proceedings to which the Partnership is
a party or to which any of its assets are subject.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the holders of Units (the "Unitholders")
for a vote during the fourth quarter of the Partnership's past fiscal year.
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Stockholder Matters
(a) Market Information - There is no established trading market for the
Units.
(b) Number of Unitholders - The number of Unitholders as of
December 31, 1996 was 2,379.
(c) Dividends - No distributions of Net Cash Flow (as defined in the
Partnership Agreement) to Unitholders were paid by the Partnership during
the years ended December 31, 1996 and 1995. A cash distribution in the
amount of $0.40 per Unit was paid on February 14, 1997 from the
Partnership's operations during the past year. The distribution was paid
to Unitholders of record as of each month-end in 1996. It represents a
one-time distribution of 1996 annual cash flow and does not indicate the
reinstatement of regular cash distributions. The ability of the
Partnership to make future distributions will be dependent upon the cash
flow generated from Hotel operations in excess of debt service and the
adequacy of cash reserves which, going forward, will be evaluated on an
annual basis.
Item 6. Selected Financial Data
Incorporated by reference to the section entitled "Financial Highlights" in
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
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On June 28, 1995 (the "Effective Date"), the Partnership refinanced and
amended its $80,438,000 mortgage loans payable and the $2,531,417 revolving
credit loans payable (collectively, the "Loan") with The Equitable Life
Assurance Society of the United States ("Equitable"), and terminated its
Asset Management Agreement with Equitable Real Estate Investment
Management, Inc. ("EREIM"). The Loan, which matured on June 2, 1995, was
extended under the existing terms to the Effective Date. At closing, the
Partnership made a $500,000 principal payment, and the Loan was
consolidated into a new mortgage loan with Equitable totaling $82,469,417
(the "New Mortgage"). The New Mortgage is collateralized by four separate
deeds of trust with respect to the Hotels and has a term of five years.
Under the terms of the New Mortgage, the Partnership is required to make
monthly payments of principal and interest in the amount of $741,999 at a
fixed rate of 9% per annum based on a 20-year amortization term. Payments
commenced on August 1, 1995 and continue until maturity on June 2, 2000, at
which time the entire outstanding principal balance is due. The New
Mortgage may be prepaid in whole or in part at any time prior to
June 2, 1998 in connection with a sale or refinancing of one or more of the
Hotels without paying a prepayment premium. Subsequent to June 2, 1998,
prepayment of the New Mortgage will be subject to a prepayment premium as
set forth in the New Mortgage agreement.
As a condition of the New Mortgage, the Partnership entered into an escrow
agreement with Equitable requiring the Partnership to provide additional
collateral for the New Mortgage (the "Loan Reserve"). As of
December 31, 1996, the Loan Reserve balance was maintained at $2.5 million,
and there were no defaults on the New Mortgage. The Loan Reserve may be
used by the Partnership to meet Marriott's request for additional funds for
furniture, fixtures and equipment ("FF&E") or building additions or
expansions in excess of those available in the Hotels' reserve accounts.
In each case, Marriott is obligated to contribute a portion of such funds.
At December 31, 1996, the Partnership's real estate, at cost, was
$144,106,502, compared to $138,969,183 at December 31, 1995. The increase
is due to improvements completed at all of the Hotels, including room
renovations at the Tan-Tar-A, St. Louis and Los Angeles Hotels.
The Partnership's cash balance is invested in an interest-bearing account
and is used as a working capital reserve for operating expenses, debt
service and Partnership liabilities. At December 31, 1996, the Partnership
had cash and cash equivalents of $3,590,188, compared to $1,004,565 at
December 31, 1995. The increase is primarily due to net cash provided by
operating activities exceeding cash used for financing activities, largely
due to the timing of debt service payments.
A reserve account for each of the Hotels has been established to cover
certain costs of improvements, replacements, refurbishments and renewals,
as well as FF&E upgrades. For the Los Angeles, St. Louis and Tan-Tar-A
Hotels, the reserve is maintained on behalf of the Partnership at each
Hotel and is classified as "Replacement reserve receivable" on the
Partnership's balance sheet. Replacement reserve receivable decreased from
$3,478,655 at December 31, 1995 to $3,426,722 at December 31, 1996 due to
expenditures exceeding contributions to the reserve. For the Nashville
Hotel, the reserve is held by the Partnership and is classified as
"Restricted cash" on the Partnership's balance sheet. Restricted cash
increased to $1,297,810 at December 31, 1996, compared to $825,437 at
December 31, 1995 as a result of contributions to the reserve exceeding
expenditures. Rent receivable decreased from $684,266 at December 31, 1995
to $488,415 at December 31, 1996 due to the timing of payments. Accounts
payable and accrued expenses increased from $66,045 at December 31, 1995 to
$85,067 at December 31, 1996 due to the timing of payment of legal fees.
On October 18, 1996, the Partnership entered into a loan agreement and
executed a promissory note in an amount up to $1,100,000 (the "Note") with
Marriott International Capital Corporation (the "Lender"). The purpose of
such financing was to provide the Partnership with the required capital to
implement certain upgrades to furniture, fixtures and equipment and to make
certain non-structural repairs and renovations (collectively, the
"Renovations") at the St. Louis Hotel. The Lender will fund to the
Partnership from time-to-time amounts necessary (up to the maximum amount
of the Note) to complete the Renovations at the St. Louis Hotel. The Note
is unsecured and non-recourse to the Partnership. There were no borrowings
during 1996.
The Partnership has directed the Hotel Manager, the St. Louis Hotel's
tenant, to make payments on behalf of the Partnership solely from the St.
Louis Hotel's FF&E Replacement Reserve account in an amount equal to
$61,986 per period commencing with the second accounting period in fiscal
1997 until the maturity of the Note. The Note bears interest at a rate of
9% per annum on all outstanding amounts and can be prepaid by the
Partnership without premium or penalty. The Hotel Manager will fund all
interest payments into the FF&E Replacement Reserve account from the Hotel
Manager's own funds prior to making any interest payments to the Lender.
Consequently, the payment from the tenant will offset the interest as if
this were an interest-free loan to the Partnership.
At December 31, 1996, mortgage loans interest payable was $601,796,
compared to $0 at December 31, 1995. The increase is due to a difference
in the timing of interest payments.
Prior to 1994, cash distributions were paid on a quarterly basis from net
cash flow provided by operating activities to Unitholders based on the
seasonal performance of the Hotels. The General Partner suspended the
payment of cash distributions in the fourth quarter of 1994. This action
was taken in order to increase Partnership cash reserves to provide for the
various costs of securing replacement financing related to the maturity of
the Partnership's outstanding indebtedness in June 1995. Distributions
remained suspended through 1996 in order for the Partnership to meet
certain requirements under the terms of the New Mortgage. Due to the
satisfaction of such requirements, and improved operations during 1996 at
both the Partnership and Hotel levels, a cash distribution in the amount of
$0.40 per Unit was paid to Limited Partners on February 14, 1997 from the
Partnership's operations during the past year. The distribution was paid
to Limited Partners of record as of each month-end in 1996. This
represents a one-time distribution of 1996 annual cash flow and does not
indicate the reinstatement of regular cash distributions. Future
distributions will be evaluated on an annual basis and will be dependent
upon the cash flow generated from Hotel operations in excess of debt
service and the adequacy of cash reserves. There can be no assurance that
future cash flow will be sufficient to fund additional distributions.
The primary source of ongoing cash and liquidity is from rental revenue
under the operating leases and the Partnership's cash reserves. The
Partnership knows of no trends, demands, commitments, events or
uncertainties, other than the Partnership's cash requirements pursuant to
the terms of the New Mortgage, that will result in or that are reasonably
likely to result in the Partnership's liquidity increasing or decreasing in
any material way, other than the normal seasonal fluctuation in hotel
operations which, in turn, causes fluctuations in rental income throughout
the year.
On February 13, 1996, based upon, among other things, the advice of legal
counsel, Skadden, Arps, Slate, Meagher & Flom, 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
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1996 versus 1995
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For the year ended December 31, 1996, net cash provided by operating
activities was $4,056,348, compared with $2,603,536 for the year ended
December 31, 1995. The increase is primarily due to the increase in net
income in 1996. The Partnership generated net income of $1,922,133 for the
year ended December 31, 1996, compared with net income of $274,859 for the
year ended December 31, 1995. The increase is due to an increase in rental
operating profit, replacement escrow and interest income, as well as a
decrease in total expenses. After adding back the non-cash items of
depreciation and amortization and subtracting the amount of rental income
from the FF&E replacement escrow, the Partnership had adjusted net
operating income of $3,283,994 for the year ended December 31, 1996,
compared with $2,052,968 for the year ended December 31, 1995.
Total income for the year ended December 31, 1996 was $16,324,943, compared
with $15,740,651 for the year ended December 31, 1995. The increase is due
to higher rents from operating profit earned at the St. Louis and Los
Angeles Hotels, higher rent from replacement escrow and, to a lesser
extent, higher interest income. Rent from replacement escrow, which is
calculated as a percentage of the Hotels' gross revenues, increased to
$5,557,759 for the year ended December 31, 1996, compared to $5,219,071 for
the year ended December 31, 1995. The increase is due to higher gross
revenues at the St. Louis and Los Angeles Hotels. Interest income totaled
$416,202 for the year ended December 31, 1996, compared to $365,855 for the
year ended December 31, 1995. The increase is primarily attributable to
higher loan reserve and restricted cash balances in 1996.
Total expenses for the year ended December 31, 1996 were $14,402,810,
compared to $15,465,792 for the year ended December 31, 1995. The decline
is due primarily to decreases in interest expense, depreciation and
amortization, general and administrative expenses, and asset management
fees, which were partially offset by an increase in professional fees.
Asset management fees were eliminated as a result of the termination of the
Asset Management Agreement upon refinancing. Interest expense decreased to
$7,288,757 for the year ended December 31, 1996, compared to $7,975,815 for
the year ended December 31, 1995. The decrease is due to the terms of the
New Mortgage which require principal amortization and a lower interest rate
than the original mortgage loan. The decrease also is due to the
consolidation of the previous revolving credit loans into the New Mortgage
and termination of interest accruals on the unpaid fees due under the Asset
Management Agreement. General and administrative expenses totaled $122,397
for the year ended December 31, 1996, compared with $148,466 for the year
ended December 31, 1995. The decrease is due primarily to the 1995 payment
of the Los Angeles Commercial Rent Tax, which was partially offset by
higher Partnership accounting and administrative expenses being recognized
in 1996. Professional fees totaled $72,036 for the year ended
December 31, 1996, compared to $55,803 for the year ended
December 31, 1995. The increase is due primarily to engineering consulting
services associated with the room renovations at the St. Louis Hotel.
The following table summarizes the Hotels' performance for the period from
January 1 to December 31 of the indicated years:
1996 1995 % Change
Weighted Average Occupancy 78.3% 76.7% 2.1%
Weighted Average Room Rate $87.99 $85.19 3.3
Total Hotel Sales $118,131,587 $110,709,040 6.7
Hotel Operating Profit $18,785,538 $17,144,830 9.6
Rent Earned by the Partnership $10,350,982 $10,155,725 1.9
1995 versus 1994
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For the year ended December 31, 1995, net cash generated by operating
activities was $2,603,536, compared with $2,349,437 for the year ended
December 31, 1994. This change was due to an increase in net income earned
by the Partnership in 1995. The Partnership generated net income of
$274,859 for the year ended December 31, 1995, compared to a net loss of
$1,099,424 for the year ended December 31, 1994. The change from net loss
to net income was due to an increase in rental income from improved Hotel
operations and interest income, as well as a decrease in interest expense,
depreciation and amortization, and asset management fees. After adding
back the non-cash items of depreciation and amortization and subtracting
the amount of rental income from FF&E replacement escrow, the Partnership
had an adjusted net operating income of $2,052,968 for the year ended
December 31, 1995 compared to $907,492 for the year ended December 31,
1994.
Total Partnership income was $15,740,651 for the year ended December 31,
1995 compared to $15,110,158 for the year ended December 31, 1994. The
increase was due primarily to higher rents from operating profit earned at
the Nashville Hotel. Rent from replacement escrow, which is calculated as
a percentage of the Hotels' gross revenues, increased to $5,219,071 for the
year ended December 31, 1995 from $5,021,649 for the year ended December
31, 1994. The increase was due to an increase in gross revenues at the
Hotels. Interest income totaled $365,855 for the year ended
December 31, 1995 compared to $227,886 for the year ended December 31,
1994. The increase was attributable to higher average operating cash and
restricted cash balances in 1995, and an increase in interest rates during
1994 and 1995.
Total Partnership expenses for the year ended December 31, 1995 were
$15,465,792 compared to $16,209,582 for the year ended December 31, 1994.
The decrease was due primarily to lower interest expense, lower
depreciation and amortization, and lower asset management fees as a result
of the termination of the Asset Management Agreement, which were partially
offset by higher general and administrative expenses. Interest expense
decreased to $7,975,815 for the year ended December 31, 1995, from
$8,403,606 for the year ended December 31, 1994 as a result of the New
Mortgage which bears a lower interest rate than the original mortgage loan,
as well as the payment of the revolving credit loan and termination of the
Asset Management Agreement pursuant to the refinancing. The asset
management fee declined to $288,528 for the year ended December 31, 1995,
from $640,941 for the year ended December 31, 1994, due to the termination
of the Asset Management Agreement. General and administrative expenses
totaled $148,466 for the year ended December 31, 1995, compared with
$79,812 for the year ended December 31, 1994. The increase was due
primarily to the payment during 1995 of the Los Angeles Commercial Rent
Tax.
The following summarizes the Hotels' performance for the period from
January 1 to December 31 of the indicated years:
1995 1994 % Change
Weighted Average Occupancy 76.7% 73.5% 4.4%
Weighted Average Room Rate $85.19 $83.71 1.8
Total Hotel Sales $110,709,040 $106,341,336 4.1
Hotel Operating Profit $17,144,830 $14,385,434 19.2
Rent Earned by the Partnership $10,155,725 $ 9,860,623 3.0
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Financial Information section of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1996, filed as an exhibit under Item 14, and Schedule III.
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 officers or directors. The General Partner manages
and controls substantially all of the Partnership's affairs and has general
responsibility and ultimate authority in all matters affecting the
Partnership's business.
Certain officers and directors 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 directors and principal executive officers of the General Partner of
the Partnership as of December 31, 1996 were 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
There is no family relationship among any of the foregoing directors or
officers. The business experience of each of the directors and officers of
the General Partner is as follows:
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 EHP/GP 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. ("Lehman").
The transaction did not affect the ownership of the Partnership's General
Partner. However, the assets acquired by Smith Barney included the name
"Shearson." Consequently, the name of the Partnership was changed to Hotel
Properties L.P., and the Shearson EHP/GP Inc. general partner changed its
name to EHP/GP Inc. to delete any reference to "Shearson."
Item 11. Executive Compensation
The Partnership has no directors or officers. Its affairs are managed by
EHP/GP Inc., its General Partner.
The General Partner is entitled to receive a share of income, profits or
losses, sale proceeds and cash distributions generated by the Partnership,
as described in Note 7 "Partnership 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 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners. The Partnership knows
of no person who beneficially owns more than 5% of the Units.
(b) Security ownership of management. Under the terms of the limited
partnership agreement, the Partnership's affairs are managed by the
General Partner. The General Partner owns the equivalent of 100 Units.
None of the General Partner's officers own Units in the Partnership.
(c) Changes in control. None
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others. Incorporated by reference to
Notes 4, 5, 6, 7 and 8 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.
(b) Certain Business Relationships. There have been no business transactions
between any of the Directors and the Partnership.
(c) Indebtedness of Management. No management person is indebted in any amount
to the Partnership.
(d) Transactions with Promoters. Certain officers and directors of the General
Partner are employees of Lehman Brothers Inc. As described in Note 6 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, Lehman Brothers Inc. and its affiliates earned
and/or were reimbursed a total of $6,094,751 during 1988 in connection with
the syndication, acquisition and administration of the Partnership.
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 - 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.
3.1 Form of Agreement of Limited Partnership of the Registrant (filed as
Exhibit A to Prospectus) - incorporated by reference to Exhibit 3.2 to
Registration Statement No. 33-17557.*
4.1 Prospectus dated November 12, 1987, contained in Amendment No. 1 to
Registration Statement No. 33-17557.*
10.1 Form of Depositary Agreement between the Registrant and E.H.P. Depositary
Corp., as Depositary - incorporated by reference to Exhibit 10.3 to
Registration Statement No. 33-17557.*
10.2 Form of Purchase Agreement concerning the acquisition of the Properties -
incorporated by reference to Exhibit 10.4 to Registration Statement No.
33-17557.*
10.3 Form of Deed of Trust, Security Agreement and Fixture Financing Statement
(filed as Exhibit C-2 to Exhibit 10.2 above) - incorporated by reference
to Exhibit 10.5 to Registration Statement No. 33-17557.*
10.4 Form of Loan Agreement (filed as Exhibit U-2 to Exhibit 10.2 above) -
incorporated by reference to Exhibit 10.6 to Registration Statement No.
33-17557.*
10.5 Form of EREIM Agreement between Registrant and Equitable Real Estate
Investment Management, Inc. (filed as Exhibit T to Exhibit 10.2 above) -
incorporated by reference to Exhibit 10.7 to Registration Statement No.
33-17557.*
10.6 Indemnification Agreement - incorporated by reference to Exhibit 10.9 to
Registration Statement No. 33-17557.*
10.7 Form of Purchase Money Promissory Note (filed as Exhibit C-1 to Exhibit
10.2 above) - incorporated by reference to Exhibit 10.11 to Registration
Statement No. 33-17557.*
10.8 Leases between The Equitable Life Assurance Society of the United States
(the "Equitable") and The Marriott Corporation (filed as Exhibit E to
Exhibit 10.2 above) - incorporated by reference to Exhibit 10.12 to
Registration Statement No. 33-17557.*
10.9 Form of Assignment and Assumption of Leases (filed as Exhibit Q to
Exhibit 10.2 above) - incorporated by reference to Exhibit 10.14 to
Registration Statement No. 33-17557.*
10.10 Form of Lease between Equitable and Registrant with respect to the Los
Angeles Airport Marriott Hotel (filed as Exhibit R to Exhibit 10.2 above)
- incorporated by reference to Exhibit 10.15 to Registration Statement
No. 33-17557.*
10.11 Form of Lease between Equitable and Registrant with respect to the St.
Louis Airport Marriott Hotel (filed as Exhibit S to Exhibit 10.2 above) -
incorporated by reference to Exhibit 10.16 to Registration Statement No.
33-17557.*
10.12 Form of Revolving Credit Note (filed as Exhibit U-1 to Exhibit 10.2
above) - incorporated by reference to Exhibit 10.17 to Registration
Statement No. 33-17557.*
10.13 Mortgage Loan Refinancing Agreements - incorporated by reference to
Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 1995.*
13.1 Annual Report to Unitholders for the year ended December 31, 1996.
27 Financial Data Schedule
________________________
* Previously filed
b. Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of the calendar year
1996.
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.
HOTEL PROPERTIES L.P.
BY: EHP/GP Inc.
General Partner
Date: March 27, 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.
EHP/GP Inc.
General Partner
Date: March 27, 1997
BY: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter
Title: President, Director and
Chief Financial Officer
Date: March 27, 1997
BY: s/Rocco F. Andriola/
Name: Rocco F. Andriola
Title: Director and Vice President
Date: March 27, 1997
BY: s/Regina Hertl/
Name: Regina Hertl
Title: Vice President
Date: March 27, 1997
BY: s/Michael Marron/
Name: Michael Marron
Title: Vice President
EXHIBIT 13.1
HOTEL PROPERTIES L.P.
1996 ANNUAL REPORT TO UNITHOLDERS
Hotel Properties L.P.
Hotel Properties L.P. was established in 1987 to
acquire four hotel properties: the Los Angeles Airport
Marriott Hotel; the St. Louis Airport Marriott Hotel;
the Nashville Airport Marriott Hotel; and Marriott's
Tan-Tar-A Resort Hotel, located on Lake of the Ozarks
in Osage Beach, Missouri (the "Hotels"). The
Partnership's overall operations are managed by its
General Partner, EHP/GP Inc. The Hotels are leased to
and managed by Marriott Hotel Services, Inc., a
wholly-owned subsidiary of Marriott International Inc.
The weighted average occupancy and room rate for the
Partnership's four Hotels for the years ended
December 31, 1996 and 1995 were as follows:
1996 1995 % Change
Average Occupancy 78.3% 76.7% 2.1%
Average Room Rate $87.99 $85.19 3.3%
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
Presented for your review is the 1996 Annual Report for Hotel
Properties L.P. (the "Partnership"). This report includes an
overview of the hospitality industry, an update on operations at
the Partnership's four Marriott Hotels, and the Partnership's
audited financial statements for the year ended
December 31, 1996.
Cash Distributions
- ------------------
As previously reported, a cash distribution in the amount of
$0.40 per Unit was paid on February 14, 1997 from the
Partnership's operations during the past year. The ability of
the Partnership to pay this distribution was based on several
factors, including improved operations during 1996 at both the
Partnership and Hotel levels, and the satisfaction of certain
debt service requirements associated with the June 1995
refinancing. Please note that this represents a one-time
distribution of 1996 annual cash flow and does not indicate the
reinstatement of regular cash distributions. The ability of the
Partnership to make future distributions will be evaluated on an
annual basis and will be dependent upon the cash flow generated
from the Hotels' operations in excess of debt service and the
adequacy of cash reserves.
Property Update
- ---------------
Combined operating results at the Partnership's hotels improved
significantly during 1996. Although the Hotels are affected by
factors specific to the locale in which each operates, all four
continued to outperform their respective markets. The St. Louis
Hotel posted improved results, benefiting from a steadily
strengthening local economy. Additionally, southern California
is undergoing a long-awaited economic recovery, and as a result,
operations at the Los Angeles Hotel also improved notably. With
respect to the Nashville Hotel, while the local market remains
strong, a significant number of new hotel rooms were added to the
existing supply in 1996 and, correspondingly, 1996 operations at
the Hotel mirrored the prior year. The performance of the
Tan-Tar-A Resort was flat compared with 1995, largely as a result
of increased local rooms supply.
Please refer to the Property Update section beginning on
page 3 of this report for a discussion of the Hotels' 1996
performance.
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.
General Information
- -------------------
As you are probably aware, two unrelated third-parties have
commenced partial tender offers to purchase units of the
Partnership at 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 over 97% of the outstanding units
have agreed that these offers were inadequate, rejected the offer
and did not tender their units. Please be assured that if any
additional tender offers are made for your units, we will attempt
to provide you with our position regarding such offer on a timely
basis.
Summary
- -------
The General Partner is encouraged by the improvement in
operations at both the Partnership and Hotel levels, and is
hopeful that this positive trend will continue throughout 1997.
Looking forward, we will continue to work closely with Marriott
management to improve revenues, streamline expenses and increase
market share. Our objective is to enhance the ultimate value of
your investment. To achieve this, the General Partner is
continually monitoring the operations of the Partnership's four
Hotels, the status of the hospitality industry and other factors
to determine the optimum time to sell the Hotels in order to
maximize the return to investors. We will inform you of our
progress in future reports.
Very truly yours,
EHP/GP Inc.
The General Partner
s/Jeffrey C. Carter/
Jeffrey C. Carter
President
March 27, 1997
Property Update
Marriott's Tan-Tar-A Resort
- ---------------------------
Marriott's Tan-Tar-A Hotel is a full-service resort consisting of
26 buildings located on Lake of the Ozarks in Osage Beach,
Missouri. It is situated on two parcels of land extending over a
total of 150 acres with approximately 5,000 feet of shoreline.
In addition to Tan-Tar-A's 365 operating guest rooms, Marriott
also manages approximately 610 private estates under agreements
with the individual owners, bringing the total number of
available guest units to 975. Tan-Tar-A features extensive
recreational amenities which include a health club, tennis
courts, swimming pools, comprehensive water sports facilities and
27 holes of golf. Additionally, the resort offers a wide array
of food and beverage options, including Burger King, Sbarro's,
four TCBY outlets and a main restaurant which features
indoor/outdoor dining and a hunting lodge atmosphere. There are
also eight lounges, a number of banquet areas and ballrooms, and
several retail and gift shops. During the first quarter of 1996,
renovations were completed on 143 of Tan-Tar-A's guest rooms.
Balcony and roof replacements on a number of buildings were also
completed during 1996, and substantial repairs to the parking
garage adjacent to the main lobby were completed in January 1997.
With the exception of the garage repairs, all of these upgrades
were funded entirely out of Tan-Tar-A's furniture, fixtures and
equipment ("FF&E") reserve. The total cost of the garage repairs
will approximate $650,000, and will be funded outside of the FF&E
reserve by Marriott and the Partnership. Approximately $406,000
will be paid from the Partnership's working capital, and Marriott
will contribute approximately $244,000. As a result, the
Partnership's first priority rent will increase by 10% of the
amount actually contributed by the Partnership.
The performance of the resort was relatively flat in 1996
compared with the prior year. A slight decline in the average
occupancy and room rate was offset by increases in food and
beverage revenues, resulting in a moderate increase in the
Hotel's total sales. This improvement, coupled with efforts to
contain expenses, led to a 4% increase in Hotel operating profit.
Historically, the resort has enjoyed a dominant position in its
market due to limited competition; there is only one other
full-service resort hotel in the vicinity and the General Partner
believes that Tan-Tar-A offers a higher quality product. While
there are several additional hotels and motels located in the
area, in the past they have not been perceived as being directly
competitive with Tan-Tar-A due to disparities in markets served,
quality of facilities, rate structure, location and/or lack of
affiliation with a major hotel chain. During 1996, however,
certain new and expanded limited service hotels began to gain
market share, which created a downward pressure on room rates and
occupancy throughout the resort market. We are currently
implementing various marketing initiatives to regain market
share. Additionally, we anticipate that the renovations
discussed above will enhance Tan-Tar-A's appeal and lessen the
impact of the increased competition.
The Nashville Airport Marriott Hotel
- ------------------------------------
The Nashville Marriott Hotel is located approximately
two-and-one-half miles north of the Nashville Airport. The Hotel
has 399 rooms and features extensive amenities, including a
health club, tennis courts, a game room and an indoor/outdoor
swimming pool with a poolside entertainment area and barbecue
pit. The Hotel's food and beverage facilities consist of a full-
service restaurant and lounge, and the banquet facilities include
two ballrooms and several meeting rooms which can accommodate up
to 1,500 people. Renovations on the Hotel's main ballroom, the
Capital Ballroom, will commence during 1997. The renovations
will include the installation of new lighting and "air walls"
which control the noise level between rooms. These upgrades will
be funded out of the Hotel's FF&E reserve.
The Nashville hospitality market remained healthy during 1996.
However, the sustained strength of the local market has
encouraged significant development, and over the last three
years, the number of hotel rooms in Nashville has increased by
approximately 25%. Most of these new hotels are in the limited
service category and do not compete directly with the Nashville
Hotel. While demand continues to be strong, it has not quite
kept pace with the increased supply. For the year ended December
31, 1996, Smith Travel Research reported that the average occupancy for the
city's hotels declined slightly to 67.1%, compared with 69.8% for
the year ended December 31, 1995, and average room rates for 1996
increased to $70.12, compared with $65.32 for 1995. Operations
at the Partnership's Hotel remained stable for the year, as the
average room rate increased and average occupancy decreased
slightly. The General Partner will continue to work closely with
Marriott to pursue new methods for improving operations and
controlling costs, while maintaining the level of quality service
to our guests.
The Partnership has identified nine hotels which compete to
varying degrees with the Nashville Hotel. Although the Opryland
Hotel is among these, it is not considered to be a primary
competitor as it caters to a different clientele than the
Nashville Hotel. We believe the increased supply of rooms in the
Nashville market will continue to have only a moderate adverse
impact on the Partnership's Hotel, due to the disparities in
markets served, quality of facilities, rate structure, location
and/or lack of affiliation with a major hotel chain.
The St. Louis Airport Marriott
- ------------------------------
The St. Louis Marriott Hotel is a 602-room hotel located on Pear
Tree Lane directly across from the Lambert International Airport
in St. Louis, Missouri. The Hotel originally opened in 1972 with
a total of 423 rooms, and in 1981, added 179 rooms with the
completion of the east tower. Guests at the Hotel enjoy
extensive amenities, including indoor and outdoor swimming pools,
two lighted tennis courts and a health facility with a whirlpool
and sauna. Food and beverage facilities include a rooftop JW's
Steakhouse, a full-service restaurant and two lounges.
Additionally, there are two major ballrooms which can accommodate
up to 2,100 people.
A continued strengthening of the St. Louis economy in 1996
carried over to the local hospitality industry. Improved
operations at major area businesses such as TWA and McDonnell
Douglas has particularly impacted local airport hotels, which
traditionally depend on individual business travelers and groups.
Smith Travel Research reported that for the year ended
December 31, 1996, the average occupancy and room rates for the
city's hotels were 65.9% and $66.12, respectively, compared with
66.8% and $62.05, respectively, in 1995. Similarly, the
performance of the St. Louis Hotel also strengthened in 1996, as
a stable average occupancy level and higher average room rate led
to a 12% improvement in total hotel sales and a 14% increase in
rent from operating profit.
The improved performance of the Hotel is attributable in part to
our continued efforts to maintain and enhance the Hotel's appeal.
To this end, approximately 160 rooms in the Hotel's west tower
underwent a soft-goods renovation during the first half of 1996,
which was funded out of the Hotel's FF&E reserve. Additionally,
during the fourth quarter of 1996, renovations commenced on all
remaining rooms at the Hotel that had not been recently
refurbished. These improvements will be funded from a line of
credit evidenced by a promissory note which was executed on
October 18, 1996 by the Partnership and Marriott International
Capital Corporation (the "Note"). The Note, which is in an
amount of up to $1.1 million, will be repaid solely from the
Hotel's FF&E reserve. The Note is unsecured and non-recourse.
Although the Note bears interest at a rate of 9% on all
outstanding amounts, Marriott, the operator of the Hotel,
effectively will pay all interest costs through additional
deposits into the FF&E reserve from Marriott's own funds.
There are currently six hotels in the St. Louis Airport market
which compete directly with the St. Louis Airport Marriott. Two
other Marriott hotels are also located in the greater St. Louis
area, which, due to their affiliation with Marriott, compete to a
certain degree with the Partnership's Hotel. Despite limited new
development over the last few years, the recently expanded
convention center may create demand for additional rooms in the
next one to two years. Additionally, a new 400-room hotel and
casino is expected to open in April 1997. Although this hotel
will not be considered a primary competitor, it will likely have
some impact on weekend business at the Partnership's Hotel.
While there are numerous additional hotels in the St. Louis
market, due to disparities in markets served, quality of
facilities, rate structure, location and/or lack of affiliation
with a major hotel chain, they are not considered to be directly
competitive with the Partnership's Hotel.
The Los Angeles Airport Marriott
- --------------------------------
The Los Angeles Airport Marriott is a 1,012-room convention-type
hotel that opened in 1973. The Hotel is situated on Century
Boulevard, just one-half mile east of the entrance to the Los
Angeles International Airport. Amenities offered at the Hotel
include a health club with a sauna and a game room, an outdoor
swimming pool and a hydrotherapy pool. The Hotel also features
two full-service restaurants, a sports bar/lounge, a gourmet
coffee shop and a lobby and pool lounge. Banquet and meeting
facilities can accommodate more than 2,000 people.
The installation of a new computerized reservations system was
initiated at the Los Angeles Hotel during the second quarter of
1996. This work will be funded out of the Hotel's FF&E reserve.
Additionally, soft-goods renovation of all guest rooms will
commence during the second quarter of 1997. These upgrades will
include a replacement of carpeting, draperies, bedspreads and
other soft-goods, and will be funded out of the Hotel's FF&E
reserve.
Conditions for hotels in the Los Angeles Airport submarket
improved markedly during 1996. This is due in large part to the
fact that southern California, which has lagged the rest of the
nation in its recovery, is now experiencing an economic
resurgence 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. Operations
at the Partnership's Hotel reflected this improvement, as the
Hotel posted increases in both average occupancy and room rates.
As a result, total hotel sales increased 9%. Notwithstanding
this improvement, it is important to note that the rent paid to
the Partnership was unchanged due to the nature of the leases
with Marriott. In the near-term, it is anticipated that the Los
Angeles Airport hotel market will continue to benefit from the
region's overall economic growth.
The General Partner has identified seven hotels in the Los
Angeles Airport submarket which compete to varying degrees with
the Partnership's Hotel, including a 750-room Westin Hotel at the
Airport which was formerly known as a Doubletree. One
competitor, located three miles south of the airport in Manhattan
Beach, is the Radisson Plaza Hotel, which is currently owned by a
limited partnership that was sponsored by an affiliate of the
General Partner. Although there are several additional hotels in
the market area, they are not considered to be directly
competitive with the Partnership's Hotel due to disparities in
markets served, quality of facilities, rate structure, location
and/or lack of affiliation with a major hotel chain.
Financial Highlights
- --------------------
The following chart summarizes the financial results of the
Hotels and the Partnership for the periods ended December 31 of
the indicated years:
1996 1995 % Change
Total Hotel sales $118,131,587 $110,709,040 6.7%
Total Hotel operating profit 18,785,538 17,144,830 9.6%
Partnership rental income from operations 10,350,982 10,155,725 1.9%
Net income 1,922,133 274,859 599.3%
Adjusted net income 3,283,994 2,052,968 60.0%
Total Hotel sales increased 6.7% in 1996 over 1995, primarily as
a result of the Hotels' higher weighted average occupancy and
room rates. This increase, combined with management's efforts to
contain operating expenses, led to a 9.6% increase total Hotel
operating profit and a 1.9% increase in rental income earned by
the Partnership in 1996 compared with 1995. The higher rental
income, coupled with a decrease in interest expense, general and
administrative expenses and certain other expenses, led to a
substantial increase in the Partnership's net income for 1996
compared with 1995. After adding back the non-cash expense of
depreciation, the Partnership's adjusted net income (excluding
rent from the replacement escrow which is restricted for making
improvements to the Hotels) increased 60% in 1996 over the prior
year.
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
Rental income
from operations $10,350,982 $10,155,725 $9,860,623 $9,652,455 $9,791,980
Replacement escrow 5,557,759 5,219,071 5,021,649 4,898,950 4,721,699
Interest 416,202 365,855 227,886 144,584 143,258
Total Income 16,324,943 15,740,651 15,110,158 14,695,989 14,656,937
Partnership net
income (loss)(1) 1,922,133 274,859 (1,099,424) (1,215,178) (1,706,360)
Total Assets
at December 31 109,954,205 108,887,742 108,853,719 109,693,913 110,227,618
Mortgage loans
payable
at December 31 80,239,491 81,714,517 80,438,000 80,438,000 80,438,000
Revolving credit
loans payable
at December 31 -- -- 2,531,417 2,531,417 1,291,417
Net income (loss) 1,922,133 274,859 (1,099,424) (1,215,178) (1,706,360)
Net income (loss)
per unit(2) .55 .05 (.31) (.35) (.49)
Cash distributions declared
per unit(2) .40 -- .19 .45 .45
(1) Includes non-cash items such as depreciation, amortization, deferred asset
management fees and a one-time write off of undepreciated personal property
of $357,819 and $1,181,132 in 1993 and 1992, respectively, replaced during
renovations.
(2) There are 3,464,700 units outstanding.
Balance Sheets At December 31, At December 31,
1996 1995
Assets
Real estate, at cost: (Notes 3 and 4)
Land $ 22,569,415 $ 22,569,415
Buildings 72,645,014 72,561,033
Furniture, fixtures and equipment 48,892,073 43,838,735
144,106,502 138,969,183
Less accumulated depreciation (47,206,347) (40,612,178)
96,900,155 98,357,005
Cash and cash equivalents (Note 5) 3,590,188 1,004,565
Restricted cash (Note 3) 1,297,810 825,437
Restricted cash - loan reserve (Note 4) 2,534,317 2,538,618
Due from hotel managers, net (Note 3) 577,522 534,669
Replacement reserve receivable (Note 3) 3,426,722 3,478,655
Rent receivable (Note 3) 488,415 684,266
Deferred charges - refinancing costs,
net of accumulated amortization
of $488,176 in 1996 and $162,725 in 1995 1,139,076 1,464,527
Total Assets $109,954,205 $108,887,742
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 85,067 $ 66,045
Due to affiliates (Note 6) 1,000 2,462
Mortgage loans payable (Note 4) 80,239,491 81,714,517
Mortgage loans interest payable 601,796 --
Refinancing fee payable (Note 8) 412,500 412,500
Distributions payable (Note 10) 1,399,879 --
Deferred management fees payable (Note 8) 4,187,505 4,187,505
Deferred interest payable (Note 8) 1,849,185 1,849,185
Total Liabilities 88,776,423 88,232,214
Partners' Capital:
General Partner -- --
Limited Partners (3,464,700 limited
partnership units authorized,
issued and outstanding) 21,177,782 20,655,528
Total Partners' Capital 21,177,782 20,655,528
Total Liabilities and Partners' Capital $109,954,205 $108,887,742
Statement of Partners' Capital
For the years ended December 31, 1996, 1995 and 1994
Limited General
Partners Partner Total
Balance at December 31, 1993 $22,204,560 $(68,274) $22,136,286
Net Loss (1,088,430) (10,994) (1,099,424)
Distributions (649,632) (6,561) (656,193)
Balance at December 31, 1994 $20,466,498 $(85,829) $20,380,669
Net Income 189,030 85,829 274,859
Balance at December 31, 1995 $20,655,528 $ -- $20,655,528
Net Income 1,908,134 13,999 1,922,133
Distributions (1,385,880) (13,999) (1,399,879)
Balance at December 31, 1996 $21,177,782 $ _ $21,177,782
Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rent: (Note 3)
Operating profit $10,350,982 $10,155,725 $ 9,860,623
Replacement escrow 5,557,759 5,219,071 5,021,649
Interest 416,202 365,855 227,886
Total Income 16,324,943 15,740,651 15,110,158
Expenses
Interest (Note 4) 7,288,757 7,975,815 8,403,606
Depreciation and amortization 6,919,620 6,997,180 7,028,565
Asset management fee (Note 8) -- 288,528 640,941
General and administrative (Note 5) 122,397 148,466 79,812
Professional fees 72,036 55,803 56,658
Total Expenses 14,402,810 15,465,792 16,209,582
Net Income (Loss) $ 1,922,133 $ 274,859 $(1,099,424)
Net Income (Loss) Allocated:
To the General Partner $ 13,999 $ 85,829 $ (10,994)
To the Limited Partners 1,908,134 189,030 (1,088,430)
$ 1,922,133 $ 274,859 $(1,099,424)
Per limited partnership unit
(3,464,700 outstanding) $.55 $.05 $(.31)
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net Income (Loss) $1,922,133 $ 274,859 $(1,099,424)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Rental income from replacement escrow (5,557,759) (5,219,071) (5,021,649)
Depreciation and amortization 6,919,620 6,997,180 7,028,565
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Due from hotel managers, net (42,853) (45,278) (49,994)
Rent receivable 195,851 (5,718) 314,039
Accounts payable and accrued expenses 19,022 (20,152) 12,938
Due to affiliates (1,462) 311 1,692
Mortgage loans interest payable 601,796 -- (8,153)
Deferred management fees -- 288,528 640,941
Deferred interest payable -- 332,877 530,482
Net cash provided by operating activities 4,056,348 2,603,536 2,349,437
Cash Flows From Investing Activities:
Proceeds from restricted cash 488,335 530,525 2,378,903
Proceeds from replacement reserve receivable 4,648,984 4,360,894 3,789,774
Additions to real estate, net of disposals (5,137,319) (4,891,419) (6,168,677)
Net cash used for investing activities -- -- --
Cash Flows From Financing Activities:
Principal payments on mortgage
loans payable (1,475,026) (1,254,900) --
Net increase in restricted cash
- loan reserve 4,301 -- --
Deferred charges - refinancing costs -- (1,214,752) --
Funding of loan reserve -- (2,538,618) --
Cash distributions paid -- -- (918,670)
Net cash used for financing activities (1,470,725) (5,008,270) (918,670)
Net increase (decrease) in cash
and cash equivalents 2,585,623 (2,404,734) 1,430,767
Cash and cash equivalents,
beginning of period 1,004,565 3,409,299 1,978,532
Cash and cash equivalents, end of period $3,590,188 $1,004,565 $3,409,299
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $6,686,961 $7,642,938 $7,881,277
Supplemental Disclosure of Noncash Financing Activities:
Loan refinancing costs of $641,870 were funded through accounts
payable and refinancing fees payable in 1995.
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Hotel Properties L.P. (the "Partnership") was formed on
September 24, 1987 for the purpose of acquiring four hotel
properties: the Los Angeles Airport Marriott Hotel, the St.
Louis Airport Marriott Hotel, the Nashville Airport Marriott
Hotel and Marriott's Tan-Tar-A Resort Hotel (the "Properties").
Initial capital of $1,000 was contributed by EHP/GP Inc. (the
General Partner), a Delaware corporation and wholly-owned
subsidiary of Lehman Brothers Inc., formerly Shearson Lehman
Hutton Inc. The Partnership commenced operations on June 3, 1988
with the issuance of a maximum 3,464,700 depository units (the
"Units") which represent limited partnership interests (the
"Limited Partners").
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 Brothers"). 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 22, 1993, the
General Partner, Shearson EHP/GP Inc., changed its name to EHP/GP
Inc. and effective January 5, 1994, EQ/Shearson Hotel Properties
L.P. changed its name to Hotel Properties L.P.
On February 13, 1996, based upon, among other things, the advice
of legal counsel, Skadden, Arps, Slate, Meagher & Flom, 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
Basis of Accounting - The accompanying financial statements of the
Partnership have been prepared on the accrual basis of
accounting.
Depreciation - Real estate investments, which consist of land,
building and personal property, are recorded at cost less
accumulated depreciation. Cost includes the initial purchase
price of the property plus closing costs, acquisition and legal
fees, and capital improvements. Depreciation of the real
property is computed using the straight-line method based on the
estimated useful life of 40 years. Depreciation of the personal
property is computed under the straight-line method over an
estimated useful life of 7 years.
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.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial
Instruments" ("FAS 107"), requires that the Partnership disclose the
estimated fair values of its financial instruments. Fair values
generally represent estimates of amounts at which a financial
instrument could be exchanged between willing parties in a current
transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number
of significant assumptions based on management's judgment
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. In addition, FAS 107 allows a
wide range of valuation techniques, therefore, comparisons
between entities, however similar, may be difficult.
Deferred Charges - Refinancing Costs - Deferred charges - refinancing costs are
amortized on a straight-line basis over the five year term of the mortgage
loans payable.
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.
Offering Costs - Offering costs are nonamortizable and have been deducted from
the Limited Partners' capital.
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.
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 affect 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 to
conform to the current year's presentation.
3. Real Estate
The Partnership's real estate, which was purchased on June 3, 1988, consists of
the following four hotel properties:
Los Angeles Airport Marriott Hotel - The Los Angeles Airport Marriott Hotel
(the "Los Angeles Hotel") is a 1012-room hotel located on Century Boulevard,
near the Los Angeles International Airport in Los Angeles, California.
The Los Angeles Hotel was purchased subject to an operating lease with Marriott
Hotel Services, Inc. (the "Hotel Manager"), formerly The Marriott Corporation
(see below), which was restated on June 2, 1988, and provides for a term
expiring on July 25, 2003 and five 10-year renewal options by the Hotel
Manager.
Rent payable under the lease equals the greater of (i) 50% of Operating Profit
(as defined in the lease) up to a maximum of $3,626,183 plus an amount equal to
a 10% return on all of the Landlord's Additional Contributions and Additional
Building Contributions (as defined in the lease), provided if, in any year, 50%
of the Operating Profit exceeds $3,626,183 plus such 10% return, then the Hotel
Manager must pay additional rent equal to one-half of the excess, or (ii) if
50% of the Operating Profit is insufficient to pay the sum of $3,626,183, plus
a 9% return on all of the Landlord's Additional Contributions and Additional
Building Contributions, then the Hotel Manager must pay up to $3,626,183, plus
an amount equal to a 9% return on all of the Landlord's Additional
Contributions and Additional Building Contributions to the extent of up to 100%
of Operating Profit.
St. Louis Airport Marriott Hotel - The St. Louis Airport Marriott Hotel (the
"St. Louis Hotel") is a 602-room hotel located directly across from the St.
Louis Airport in St. Louis, Missouri.
The St. Louis Hotel was purchased subject to an operating lease with the Hotel
Manager, formerly The Marriott Corporation (see below), which was restated on
June 2, 1988, and provides for a term expiring on July 25, 2003 and five
10-year renewal options by the Hotel Manager.
Rent payable under the lease equals the greater of (i) 50% of the Operating
Profit (as defined in the lease) up to a maximum of $1,352,500 plus an amount
equal to a 10% return on all of the Landlord's Additional Contributions and
Additional Building Contributions (as defined in the lease) provided if, in any
year, 50% of the Operating Profit exceeds $1,352,500 plus such 10% return, then
the Hotel Manager must pay additional rent equal to one-half of the excess, or
(ii) if 50% of the Operating Profit is insufficient to pay the sum of
$1,217,250 plus a 9% return on all of the Landlord's Additional Contributions
and Additional Building Contributions, then the Hotel Manager must pay up to
$1,217,250, plus an amount equal to a 9% return on all of the Landlord's
Additional Contributions and Additional Building Contributions to the extent of
up to 100% of Operating Profit.
Nashville Airport Marriott Hotel - The Nashville Airport Marriott Hotel (the
"Nashville Hotel") is a 399-room hotel located in Nashville, Tennessee.
The Nashville Airport Hotel was purchased subject to an operating lease with
the Hotel Manager, formerly The Marriott Corporation (see below), which was
assumed by the Partnership. The Nashville Hotel's lease had a remaining term
of 18 years on June 3, 1988, expires December 29, 2006 and contains five
10-year renewal options by the Hotel Manager.
Rent payable under the lease equals 60% of the Operating Profit (as defined in
the lease), provided if (i) 60% of the Operating Profit is less than the
Landlord's First Priority (as defined in the lease), rent shall be increased by
the difference, from up to 80% of the Operating Profit, or (ii) if 60% of the
Operating Profit is greater than the Landlord's Second Priority (as defined in
the lease), rent shall be reduced by 25% of such excess, but rent shall not be
less than 50% of the Operating Profit.
Marriott's Tan-Tar-A Resort Hotel - Marriott's Tan-Tar-A Resort ("Tan-Tar-A"),
located in Lake of the Ozarks, Missouri, encompasses 26 buildings on two
parcels of land; overall, there are 365 guest rooms. Tan-Tar-A also has
available for rental private homes (Estates), bringing the total number of
available rooms to 975.
Tan-Tar-A was purchased subject to an operating lease with the Hotel Manager,
formerly The Marriott Corporation (see below), which was assumed by the
Partnership. The lease, which had a remaining term of 17 years as of June 3,
1988, expires December 30, 2005 and contains five 10-year renewal options by
the Hotel Manager.
Rent payable under the lease equals 60% of the Operating Profit (as defined in
the lease), provided if (i) 60% of the Operating Profit is less than the
Landlord's First Priority (as defined in the lease), rent shall be increased by
the difference, from up to 80% of the Operating Profit, or (ii) if 60% of the
Operating Profit is greater than the Landlord's Second Priority (as defined in
the lease), rent shall be reduced by 25% of such excess, but rent shall not be
less than 50% of the Operating Profit.
Reserve Funds for Replacement - Pursuant to the terms of the operating leases,
the Hotel Manager is required on behalf of the Partnership to maintain reserve
funds for replacement of furnishings and equipment on the Properties from the
Operating Profit of the Properties, ranging from 4.5% to 5%. The reserve funds
for the Los Angeles, St. Louis and Tan-Tar-A Hotels are maintained on behalf of
the Partnership at those properties by the Hotel Manager, while the Nashville
Hotel fund is held by the Partnership. At December 31, 1996, the Partnership
had $1,297,810 of the Nashville Hotel fund invested in an interest-bearing
account (included in Restricted cash in the accompanying financial statements).
Additionally, at December 31, 1996, $3,426,722 of reserve funds for the three
remaining Hotels were held at the Hotels on behalf of the Partnership (included
in Replacement reserve receivable in the accompanying financial statements).
During the year ended December 31, 1996, the Partnership earned replacement
escrow rental income of $5,557,759 which either remained in the reserve
accounts or was used to fund fixed asset additions.
The St. Louis and Los Angeles Hotel Operating Leases require the Hotel Manager
to maintain sufficient funds necessary to provide the respective Properties
with adequate levels of working capital. In addition, under the leases, the
Hotel Manager will retain ownership of the working capital throughout the lease
term and upon termination thereof. Equitable Real Estate Investment
Management, Inc. (the "Seller" or "EREIM") advanced the Hotel Manager $850,000
of working capital for Tan-Tar-A and $480,000 of working capital for Nashville.
These noninterest-bearing working capital advances shall be paid to the
Partnership by the Hotel Manager after termination of the respective Operating
Lease. As the advances do not provide for interest, they have been discounted
using the effective borrowing rate of 9.5% associated with the mortgage loans
payable and have been included under due from hotel managers at the discounted
value of $520,010. Included in due from hotel managers is interest income for
the periods ended December 31, 1996, 1995 and 1994 in the amount of $49,400,
$45,117, and $41,201, respectively.
Hotel Operations - The following presents summarized information with respect
to the operations of the Properties as provided by the Hotel Manager for the
periods ended December 31, 1996, 1995 and 1994:
Los Angeles St. Louis Nashville Tan-Tar-A
Hotel Hotel Hotel Hotel Total
1996:
Hotel Revenues $46,243,470 $23,419,438 $18,363,779 $30,104,900 $118,131,587
Hotel Expenses 38,407,331 19,398,340 14,022,954 27,517,424 99,346,049
Operating Profit 7,836,139 4,021,098 4,340,825 2,587,476 18,785,538
Rental income
to owner 4,173,258 1,965,901 2,604,495 1,607,328 10,350,982
Add - Real estate additions
and reserve funds for
replacement owned by the
Partnership, included in
hotel expenses 2,080,956 1,053,370 918,188 1,505,245 5,557,759
Total Rental Income $6,254,214 $3,019,271 $3,522,683 $3,112,573 $15,908,741
1995:
Hotel Revenues $42,447,026 $20,829,490 $18,040,956 $29,391,568 $110,709,040
Hotel Expenses 35,639,057 17,397,505 13,630,938 26,896,710 93,564,210
Operating Profit 6,807,969 3,431,985 4,410,018 2,494,858 17,144,830
Rental income
to owner 4,173,258 1,729,128 2,646,011 1,607,328 10,155,725
Add - Real estate additions
and reserve funds for
replacement owned by the
Partnership, included in
hotel expenses 1,910,117 937,328 902,048 1,469,578 5,219,071
Total Rental Income $6,083,375 $2,666,456 $3,548,059 $3,076,906 $15,374,796
1994:
Hotel Revenues $39,399,903 $19,683,799 $17,094,396 $30,163,238 $106,341,336
Hotel Expenses 34,534,061 16,711,523 13,209,765 27,500,553 91,955,902
Operating Profit 4,865,842 2,972,276 3,884,631 2,662,685 14,385,434
Rental income
to owner 4,173,258 1,729,128 2,350,909 1,607,328 9,860,623
Add - Real estate additions
and reserve funds for
replacement owned by the
Partnership, included in
hotel expenses 1,772,996 885,771 854,720 1,508,162 5,021,649
Total Rental Income $5,946,254 $2,614,899 $3,205,629 $3,115,490 $14,882,272
On June 19, 1993, The Marriott Corporation assigned its interests in the
Amended and Restated Leases for the four hotel properties owned by the
Partnership to the Hotel Manager, a wholly-owned subsidiary of Marriott
International. The assignment has no effect on the Partnership's operations.
4. Mortgage Loans Payable
The mortgage loans payable were made by The Equitable Life
Assurance Society of the United States ("Equitable"), the Seller,
in the amount of $80,438,000 on June 3, 1988. A separate
mortgage loan was issued with respect to each property, each
collateralized by a property. An event of default under each
mortgage loan constituted an event of default under the other
mortgage loans. The loans bore interest at a rate of 9.5% per
annum. The loans provided for monthly payments of interest only
until maturity on June 2, 1995, at which time the entire
principal balances were due.
Equitable had committed to loan to the Partnership such funds, as
necessary, to meet the Hotel Manager request for additional
funding. In connection therewith, Equitable made lines of credit
aggregating $27,162,000 available to the Partnership. Funds
drawn on the lines of credit, totaling $2,531,417, bore interest
at 2% over prime with principal due June 2, 1995.
On June 28, 1995 (the "Effective Date"), the Partnership
refinanced and amended the $80,438,000 in mortgage loans and the
$2,531,417 revolving credit loans payable (collectively, the
"Loan"). The Loan, which originally matured on June 2, 1995, was
extended under the existing terms to the Effective Date. At
closing, the Partnership made a $500,000 principal payment and
the Loan was consolidated into a new mortgage loan with Equitable
totaling $82,469,417 (the "New Mortgage"). The New Mortgage is
collateralized by four separate deeds of trust with respect to
the Los Angeles, St. Louis, Nashville, and Tan-Tar-A Marriott
Hotels (collectively, the "Hotels") of which the Hotel Manager is
the lessee and operator.
Under the terms of the New Mortgage with Equitable, the
Partnership is required to make monthly payments of principal and
interest in the amount of $741,999 at a rate of 9% per annum
based on a 20-year amortization term, commencing on August 1,
1995 until maturity on June 2, 2000, at which time the entire
outstanding principal balance is due. The New Mortgage may be
prepaid in whole or in part at anytime prior to June 2, 1998 in
connection with a sale or refinancing of one or more of the
Hotels without paying a prepayment premium. Subsequent to June
2, 1998, prepayment of the New Mortgage will be subject to a
prepayment premium as set forth in the New Mortgage agreement.
Interest expense for each of the years ended December 31, 1996,
1995 and 1994 was $7,288,757, $7,508,219 and $7,641,610,
respectively.
The following is a schedule of principal payments for the next four
years:
Year Amount
1997 $ 1,753,596
1998 1,918,095
1999 2,098,025
2000 74,469,775
Total $80,239,491
As a condition of the New Mortgage, the Partnership entered into
an escrow agreement with Equitable which requires the Partnership
to provide additional collateral for the New Mortgage. The
Partnership agreed to direct the Hotel Manager to forward rent
from operating profit ("Rent") generated by the Hotels,
subsequent to the Effective Date, to an escrow account (the "Loan
Reserve") maintained by Equitable's escrow agent (the "Escrow
Agent"). The Hotel Manager was directed to forward Rent to the
Loan Reserve until a balance of $2.5 million was reached and
maintained. The Escrow Agent used these funds to pay the
Partnership's monthly debt service payments. Until the balance
of $2.5 million was reached, the Escrow Agent forwarded 10% of
the Rent generated by the Hotels to the Partnership, provided
there were no existing defaults on the New Mortgage. As of
December 31, 1995, the Loan Reserve balance was maintained at
$2.5 million and there are currently no existing defaults on the
New Mortgage. Since both of these conditions are satisfied, the
Partnership began receiving 100% of the Rent directly from the
Hotel Manager beginning in the fourth quarter of 1995. As of
December 31, 1996, the Partnership has funded the Loan Reserve in
the amount of $2,534,317, and is included as "Restricted cash -
loan reserve" on the Partnership's balance sheet. The funds in
excess of the $2.5 million requirement represent interest earned
on the Loan Reserve and will be transferred to the Partnership
quarterly.
Total costs incurred by the Partnership related to the
refinancing of the loan and termination of the Asset Management
Agreement were approximately $1.6 million and have been reflected
in "Deferred charges - refinancing costs" on the Partnership's
balance sheet. The refinancing costs consist of a 1% refinancing
fee of $825,000 paid to Equitable, a refinancing fee payable to
EREIM of $412,500 and legal and other refinancing costs of
approximately $362,500. These costs are being amortized on a
straight-line basis over the five-year term of the New Mortgage.
Based on the borrowing rates currently available to the
Partnership for mortgage loans with similar maturities, the fair
value of long-term debt approximates carrying value.
5. Promissory Note
On October 18, 1996, the Partnership entered into a loan
agreement and executed a promissory note in an amount up to
$1,100,000 (the "Note") with Marriott International Capital
Corporation (the "Lender"). The purpose of such financing was to
provide the Partnership with the required capital to implement
certain upgrades to furniture, fixtures and equipment ("FF&E")
and to make certain non-structural repairs and renovations
(collectively, the "Renovations") at the St. Louis Hotel. The
Lender will fund to the Partnership from time-to-time amounts
necessary (up to the maximum amount of the Note) to complete the
Renovations at the St. Louis Hotel. As of December 31, 1996,
there were no borrowings.
The Partnership has directed the Hotel Manager, the St. Louis
Hotel's tenant, to make payments on behalf of the Partnership
solely from the St. Louis Hotel's FF&E Replacement Reserve
account in an amount equal to $61,986 per period commencing with
the second accounting period in fiscal 1997 until the Note is
repaid or the maturity of the Note. The Note bears interest at a
rate of 9% per annum on all outstanding amounts and can be
prepaid by the Partnership without premium or penalty. The Hotel
Manager will fund all interest payments into the FF&E Replacement
Reserve account from its own funds prior to making any payments
to the Lender. Consequently, the increased payment from the
tenant will offset the interest as if the Note had been an
interest-free loan.
6. Transactions with Related Parties
Administration - The General Partner or its affiliates incurred out- of-pocket
expenses in connection with the administration of the Partnership. The
following is a summary of out-of-pocket expenses incurred for the periods ended
December 31, 1996, 1995 and 1994 and the unpaid portions at December 31, 1996
and 1995.
Unpaid at Unpaid at
December 31, December 31,
1996 1995 1996 1995 1994
Out-of-
pocket expenses $1,000 $2,462 $10,081 $13,801 $9,016
Fees and Compensation - The General Partner or its affiliates earned fees and
compensation, and were reimbursed for certain out-of-pocket expenses actually
incurred in connection with the organization, syndication, acquisition and
financing for the Partnership and the Properties in the amount of $6,094,751 in
1988. These amounts are composed of $4,044,982 included in the offering costs,
$302,576 (prior to reimbursement) included in deferred charges, $667,165
included in organization costs and $1,080,028 included in the acquisition cost
of the Properties.
Cash and Cash Equivalents - 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.
7. Partnership Agreement
The Partnership agreement provides for the following allocations:
Income - Income is first allocated to the General Partner and Limited Partners
(the "Partners") in amounts equal to the amounts distributed to such Partners;
then to any Partner with a deficit capital account balance to the extent of
such Partner's deficit capital account balance; then 100% to the Limited
Partners in an amount equal to the unpaid balance of their preferred return, as
defined in the Partnership Agreement.
Losses - Losses are generally allocated to the General Partner and Limited
Partners in the amounts equal to the amount distributed to such Partners.
Distributions of Net Cash Flow from Operations - Net cash flow from operations,
as defined, with respect to each fiscal year will generally be distributed 99%
to the Limited Partners and 1% to the General Partner, until such time as each
Limited Partner has received an amount equal to his preferred return, as
defined, plus his unrecovered capital, as defined. Thereafter, net cash flow
from operations will be distributed 94.12% to the Limited Partners and 5.88% to
the General Partner.
Distributions of Net Proceeds from Interim Capital Transactions - Net Proceeds
from interim capital transactions will generally be distributed 99% to the
Limited Partners and 1% to the General Partner until each Limited Partner has
received an amount equal to his unpaid preferred return and unrecovered
capital, as defined. Any remaining net proceeds will be distributed 94.12% to
the Limited Partners and 5.88% to the General Partner.
Distributions of Net Proceeds from Sale Upon Dissolution - It is anticipated
that net proceeds from a sale of the Properties or any final liquidation 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 from these and
other payments an amount equal to any unpaid preferred return and his capital
contribution (less prior distributions with respect thereof from a previous
Interim Capital Transaction). Any remaining net proceeds will generally be
distributed 94.12% to the Limited Partners and 5.88% to the General Partner.
Distributions in dissolution will be made in accordance with capital accounts.
Allocation of Gain or Loss from Sales - Gains on sales of properties will
generally be allocated first to each Limited Partner and the General Partner in
the amount of the proceeds received by such Limited Partner and the General
Partner from the transaction. Then, following certain capital account
adjustments, any remaining income or gain will be allocated 94.12% to the
Limited Partners and 5.88% to the General Partner. Losses from Interim Capital
Transactions will be allocated in accordance with positive capital accounts,
then in accordance with the profit sharing ratios then in effect, subject to
certain adjustments as described in the Partnership agreement.
8. Asset Management Agreement
On June 3, 1988, the Partnership entered into an agreement with EREIM, an
affiliate of the Seller, for the management of the Properties. The agreement
provided for an annual fee of the lesser of 6.5% of the rent received by the
Partnership or 1% of gross revenues of the Properties, subject to an agreement
to defer such fee to the extent that rent received by the Partnership were less
than certain amounts defined in the Asset Management Agreement. Any amount of
such fee that was deferred accrued interest at 12.5%, compounded annually, and
was due and payable on the earlier of 15 years after the purchase of the
Properties or upon sale of the Properties; however, such amount was subordinate
to the Partners receiving a return of their capital and a 6% simple return
thereon.
On June 28, 1995, the Partnership terminated its June 3, 1988 Asset Management
Agreement with EREIM. Pursuant to the termination agreement, EREIM is entitled
to a refinancing fee in the amount of $412,500, which is payable upon the
earlier of a sale or refinancing of one or more of the Hotels or on June 2,
2000. The refinancing fee is included in "Refinancing fee payable" and
"Deferred charges - refinancing costs" on the Partnership's balance sheet and
is being amortized over the term of the New Mortgage. Additionally, all
deferred management fees and deferred interest payable earned as of the
Effective Date in the amounts of $4,187,505 and $1,849,185, respectively, will
remain as liabilities to EREIM but subordinate to a return of investor equity
plus a 6% annual return thereon. No further management fees or interest on
these amounts accrue after the Effective Date.
During 1996, 1995 and 1994, the Partnership recorded $0, $288,528, and
$640,941, respectively, of such asset management fees, of which $4,187,505 have
been cumulatively deferred as of December 31, 1996 and 1995.
It is not practicable for the Partnership to estimate the fair value of this
class of financial instruments as no quoted market price exists and the cost of
obtaining an independent valuation appears excessive to the Partnership.
9. Commitments and Contingencies
The lease agreements provide that the Hotel Manager can request additional
funds for furniture, fixtures and equipment or building additions or
expansions, as required. In each case, the Hotel Manager and the Partnership
would be required to contribute a portion of such funds, as defined in the
operating leases.
Should the Partnership not elect to contribute such additional funds, the Hotel
Manager would have the right to acquire the Properties at purchase prices, as
outlined in the leases. The Hotel Manager may also have certain purchase
rights upon the termination of the leases or lease defaults.
In addition, the Hotel Manager has a right of first refusal to acquire the
Properties based on transactions between the Partnership and third parties.
10. Distributions
In 1996 and 1994, distributions to Limited Partners totaled $1,385,880 ($.40
per limited partnership unit) and $649,632 ($.19 per limited partnership unit),
respectively. Commencing with the fourth quarter 1994 distribution which would
have been paid in February 1995, the General Partner suspended distributions,
in anticipation of future cash requirements regarding the Partnership's June 2,
1995 mortgage loan debt maturity.
11. 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) $1,922,133 $ 274,859 $(1,099,424)
Tax basis depreciation under
(over) financial statement depreciation 95,092 350,546 338,743
Financial statement deferred management
fee and interest expense over
tax basis deferred management fee
and interest expense -- 621,404 1,156,762
Other 84,628 43,952 --
Federal income tax basis net income $2,101,853 $1,290,761 $ 396,081
Financial statement partners' capital $21,177,782 $20,655,528 $20,380,669
Current year financial statement net income
(loss) under federal income tax basis
net income 179,720 1,015,902 1,495,505
Cumulative financial statement
net income (loss) over federal income
tax basis net income (1,412,718) (2,428,620) (3,924,125)
Federal income tax basis
partners' capital $19,944,784 $19,242,810 $17,952,049
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.
Report of Independent Accountants
To the Partners of
Hotel Properties, L.P.:
We have audited the accompanying balance sheets of Hotel
Properties, L.P. (formerly EQ/Shearson Hotel Properties, L.P.), a
Delaware limited partnership, as of December 31, 1996 and 1995,
and the related statements of operations, partners' capital and
cash flows for each of the three years in the period ended
December 31, 1996. These consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Hotel Properties, 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 17, 1997
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Hotel
Properties: Los Angeles Nashville St. Louis Tan-tar-a Total
Location Los Angeles, CA Nashville, TN St. Louis, MO Osage Beach, MO na
Construction
date 1973 1981 1972 1980 na
Acquisition
date 06-03-88 06-03-88 06-03-88 06-03-88 na
Life on which
depreciation in
latest income
statements
is computed 40/7 40/7 40/7 40/7 na
Encumbrances $35,891,125 $18,768,017 $14,491,252 $11,089,097 $80,239,491
Initial cost to Partnership:
Land 12,751,066 3,064,552 4,282,676 2,410,4892 2,508,783
Buildings and
improvements 35,081,383 19,435,904 18,442,592 9,236,4728 2,196,351
Costs capitalized
subsequent to acquisition:
Land, buildings
and
improvements 13,968,547 4,737,398 8,791,402 11,904,021 39,401,368
Gross amount at which
carried at close of period:
Land $12,751,066 $3,040,946 $4,282,676 $2,494,727 $22,569,415
Buildings and
improvements 49,049,930 24,196,908 27,233,994 21,056,255 121,537,087
61,800,996 27,237,854 31,516,670 23,550,982 144,106,502
Accumulated
depreciation(3) 18,114,515 8,061,090 10,889,850 10,140,892 47,206,347
(1) Net of $1,058,976 reduction in purchase price allocated to land, buildings
and personal property.
(2) For Federal income tax purposes, the basis of
land, building, and personal property on a gross basis is $144,181,026.
(3) The amount of accumulated depreciation for Federal income tax
purposes is $54,714,475.
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 $138,969,183 $134,077,764 $127,909,087
Acquisitions -- -- --
Costs capitalized subsequent
to acquisition, net 5,137,319 4,891,419 6,168,677
End of year $144,106,502 $138,969,183 $134,077,764
Accumulated depreciation:
Beginning of year $ 40,612,178 $ 33,777,723 $ 26,749,158
Depreciation expense 6,594,169 6,834,455 7,028,565
Dispositions -- -- --
End of year $ 47,206,347 $ 40,612,178 $ 33,777,723
Report of Independent Accountants On Schedule
To Financial Statements
To the Partners of
Hotel Properties, L.P.:
Our report on the financial statements of Hotel Properties, L.P.
(formerly EQ/Shearson Hotel Properties, L.P.), a Delaware Limited
Partnership, has been incorporated by reference in this Form 10-K
from the Annual Report to Unitholders of Hotel Properties, 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 17, 1997
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<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 7,422,315
<SECURITIES> 0
<RECEIVABLES> 4,492,659
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 144,106,502
<DEPRECIATION> (47,206,347)
<TOTAL-ASSETS> 109,954,205
<CURRENT-LIABILITIES> 2,087,742
<BONDS> 80,239,491
<COMMON> 0
0
0
<OTHER-SE> 21,177,782
<TOTAL-LIABILITY-AND-EQUITY> 109,954,205
<SALES> 0
<TOTAL-REVENUES> 16,324,943
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<OTHER-EXPENSES> 7,114,053
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<NET-INCOME> 1,922,133
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