SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-67848
ESSEX HOSPITALITY ASSOCIATES III L.P.
(Exact name of registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
16-1422266
(I.R.S. Employer Identification No.)
100 CORPORATE WOODS
ROCHESTER, NEW YORK 14623
(Address of principal executive office)
Registrant's telephone number, including area code: (716) 272-2300
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------- -------
As of May 11, 1998 of 4,000 Limited Partnership Units were outstanding.
<PAGE>
PART 1
------
FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Essex Hospitality Associates III L.P.
Balance Sheets
March 31, 1998 and 1997
Assets 1998 1997
------ ---- ----
Investments in real estate, at cost
Land 1,546,151 1,546,151
Land improvements 438,234 438,234
Buildings 7,239,290 7,247,114
Furniture, fixtures and equipment 1,998,308 1,946,757
---------- ----------
11,221,983 11,178,256
Less:accumulated depreciation (1,193,289) (779,881)
---------- ----------
Net investments in real estate 10,028,694 10,398,375
Cash and cash equivalents 10,486 48,069
Deferred costs:
Debt issuance costs 1,085,289 1,060,289
Franchise fees 85,500 85,500
Other deferred costs 70,846 70,846
---------- ----------
Total deferred costs 1,241,635 1,216,635
Less: accumulated amortization (943,799) (684,884)
---------- ----------
297,836 531,751
Other assets 171,476 161,804
---------- ----------
Total assets 10,508,492 11,139,999
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Accounts payable and accrued expenses 155,232 217,299
Accounts payable - construction -- 17,500
Due to affiliate 245,000 45,000
Mortgage notes payable (note 5 and 7) 10,000,000 10,000,000
- - ---------- ----------
Total liabilities 10,400,232 10,279,799
---------- ----------
Commitments (note 5)
Partners' capital 114,550 869,520
Less notes receivable from partners (6,290) (9,320)
---------- ----------
Total partners' capital 108,260 860,200
---------- ----------
Total liabilities and partners' capital 10,508,492 11,139,999
=========== ===========
<PAGE>
Essex Hospitality Associates III L.P.
Statements of Operations
For the Quarters Ended March 31, 1998 and 1997
1998 1997
---- ----
INCOME
Rooms 765,605 801,776
Other income 41,214 43,704
---------- ----------
Total income 806,819 845,480
EXPENSES
Rooms 215,664 223,562
Commissions expenses 32,288 30,127
Advertising and promotion 47,417 36,093
Repairs and maintenance 38,910 35,316
Utilities 54,363 62,269
Administrative and general 82,030 77,494
Property taxes 57,667 70,870
Insurance 7,027 6,134
Franchises fees 23,199 23,805
Property management fees 35,245 31,980
Miscellaneous 20,453 18,446
Depreciation and amortization 104,231 103,411
---------- ----------
Total expenses 718,494 719,507
---------- ----------
Operating income 88,325 125,973
Interest:
Income 746 235
Expense (250,000) (250,000)
Amortization (59,487) (59,487)
---------- ----------
(308,741) (309,252)
---------- ----------
NET LOSS (220,416) (183,279)
======== ========
Net loss allocated to:
General partners (2,204) (1,833)
Limited partners (218,212) (181,446)
---------- ----------
(220,416) (183,279)
========= ==========
Net loss per limited partner unit (55) (46)
========= ==========
<PAGE>
Essex Hospitality Associates III L.P.
Statements of Cash Flows
For the Quarters Ended March 31, 1998 and 1997
1998 1997
---- ----
Cash flows from operating activities
Cash received from customers 792,635 817,369
Cash paid to suppliers (614,612) (642,773)
Interest received 746 235
Interest paid (250,000) (250,000)
-------- --------
Net cash from operating activities (71,231) (75,169)
------- -------
Cash flows from investing activities
Payments for fixed asset additions (1,383) (5,436)
Cash received from land sale -- 83,788
-------- --------
Net cash used in investing activities (1,383) 78,352
-------- --------
Cash flows from financing activities
Payments for debt acquisition costs (25,000) --
Advances from affiliates 95,000 --
-------- --------
Net cash from financing activities 70,000 --
-------- --------
Net increase (decrease) in cash and cash equivalents (2,614) 3,183
Cash and cash equivalents - beginning of period 13,100 44,886
-------- --------
Cash and cash equivalents - end of period 10,486 48,069
======== ========
Reconciliation of net income to net cash flows
- ----------------------------------------------
from operating activities:
--------------------------
Net income (220,416) (183,279)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 163,718 162,898
Changes in:
Accounts payable and accrued expenses 18,055 2,440
Shortterm assets (32,588) (57,228)
-------- --------
(71,231) (75,169)
======== ========
<PAGE>
ESSEX HOSPITALITY ASSOCIATES III L.P.
(A Delaware Limited Partnership)
Notes to Financial Statements
March 31, 1998 and 1997
(1) ORGANIZATION
Essex Hospitality Associates III L.P. (the Partnership) is a Delaware
limited partnership formed in August 1993 for the purpose of purchasing,
leasing or subleasing undeveloped land and constructing, owning and
operating up to four new Hampton Inn, Homewood Suites or Microtel hotels
under franchises or licenses to be obtained from these national lodging
chains. The Partnership financed its activities through a public
offering of notes and limited partnership units. Microtel hotels were
constructed in Birmingham, Alabama and Chattanooga, Tennessee and began
operations in September 1994 and September 1995, respectively. In April
1995, construction of a Hampton Inn hotel in Rochester, New York was
completed and the hotel began operations. The Partnership does not
anticipate raising additional capital and, therefore, no additional
hotels are expected to be developed.
The Partnership's general partners are Essex Partners Inc. (Essex
Partners), a subsidiary of Essex Investment Group, Inc. (Essex), and
John E. Mooney, President of Essex Partners and Essex. Management of the
Partnership and the hotels is the sole responsibility of Essex Partners.
The following is a general description of the allocation of income and
loss. For a more comprehensive description see the Partnership
Agreement.
Income from operations will be allocated 99% to the limited partners
and 1% to the general partners until the amount allocated to the
limited partners equals the cumulative annual return of 8% of their
contribution. Any remaining income from operations is allocated 80%
to the limited partners and 20% to the general partners. Income on
the sale of any or all of the hotels is allocated 99% to the limited
partners until each limited partner has been allocated income in an
amount equal to his or her pro rata share of the nondeductible
syndication expenses and sale commissions and 1% to the general
partners. Thereafter, income on the sale of any or all the hotels is
allocated in the same manner as income from operations.
Losses from operations will be allocated 80% to the limited partners
and 20% to the general partners in the amounts sufficient to offset
all income, if any, which was allocated 80% to the limited partners.
Thereafter, operating losses are allocated 99% to the limited
partners and 1% to the general partners. Loss on the sale of any or
all of the hotels will be first allocated in the same manner as
losses from operations, except that the allocation of such loss
would be made prior to allocations of income from operations. All
other losses are allocated 99% to the limited partners and 1% to the
general partners.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES III L.P.
( A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997
PAGE 2
(1) ORGANIZATION (CONTINUED)
In 1997 and 1996, losses from operations were allocated 99% to the
limited partners and 1% to the general partners.
Under the Partnership agreement, cash distributions will initially be
made 99% to the limited partners and 1% to the general partners. After
the limited partners have received a minimum cumulative annual return of
8% of their contribution, additional distributions may then be made 80%
to the limited partners and 20% to the general partners. The limited
partners have not received the minimum cumulative return of 8% due as of
March 31, 1998.
Under the Partnership's initial offering from 1993 to 1995, limited
partnership capital of $3,986,320 was raised, less syndication fees
including selling commissions and legal, accounting, printing and other
filing costs of $491,473. Cumulative distributions to limited partners
through March 31, 1998 were $1,076,718.
Essex Partners and its affiliates received substantial fees in
connection with the offering of notes and limited partnership units and
the acquisition and development of hotels. Management and other fees
related to the operation of the hotels and the Partnership are due
annually to Essex Partners (see note 6).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
-------------------
The financial statements of the Partnership were prepared on the accrual
basis of accounting in conformity with generally accepted accounting
principles.
Investment in Real Estate
-------------------------
Investments in real estate are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful
lives of the assets. The cost of property and equipment retired or
otherwise disposed of and the related accumulated depreciation are
removed from the accounts.
Deferred Costs
--------------
Costs of issuing mortgage notes payable are amortized on a straight-line
basis over the term of the notes.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES III L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997
PAGE 3
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Franchise fees paid for the right to own and operate the hotels are
amortized on a straight-line basis over the term of the franchise
agreement, beginning when the hotel is placed in service.
Syndication Costs
-----------------
The Partnership incurred legal fees and other costs related to the
syndication which were treated as a reduction to Partners' capital.
These costs will be included in the Partners' basis upon termination of
the Partnership
Advertising Costs
-----------------
Advertising costs of the Partnership are expensed as incurred.
Advertising expense for the quarters ended March 31, 1998 and 1997 was
$47,417 and $36,093, respectively.
Income Taxes
------------
No provision for income taxes has been provided since any liability is
the individual responsibility of the Partners.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the managing general partner to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassification
----------------
Certain amounts in the prior year's financial statements were
reclassified to conform with the current year's presentation.
(3) SALE OF LAND
In 1996, the Partnership sold land adjacent to the hotel in Chattanooga
with final settlement in January 1997 of $86,782. A loss of $67,218 was
recognized on the transaction.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES III L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997
PAGE 4
(4) MORTGAGE NOTES PAYABLE
Mortgage Notes payable bear interest at a rate of 10% per annum and
mature December 31, 1998, unless extended by the Partnership to December
31, 1999 upon payment of an extension fee equal to .5% of the principal
amount outstanding, or December 31, 2000 upon payment of an extension
fee equal to 1% of the principal amount outstanding. The notes are
secured by a first mortgage on the hotels and underlying land.
(5) FRANCHISE, ROYALTY AND MARKETING FEES
The Partnership entered into franchise agreements with Microtel
Franchise and Development Corporation (MFDC) for the Birmingham, Alabama
and Chattanooga, Tennessee sites. Total initial franchise fees paid were
$50,500. In addition to the initial fee, the Partnership is required to
pay a monthly royalty fee of 2.5% of gross room revenues. The monthly
royalty fee increases to 3% of gross room revenues in the event between
50 and 100 Microtel Inn hotels are opened for business by franchisees
and up to 3.5% in the event 100 or more Microtel Inn hotels are opened.
The monthly royalty fee increased to 3% in 1997. In 1996, the Franchisor
established a system of advertising, thus requiring the Partnership to
contribute an additional 1% of gross room revenues to pay for the cost
of such a system.
The franchise agreement also requires the Partnership to maintain
certain insurance coverage, to meet certain standards with respect to
furniture, fixtures, maintenance and repair, and to refurbish and
upgrade the hotel not more than once every 5 years to conform to the
Microtel Inn hotel's then-current public image. The term of the
agreement is 10 years, with an option to renew for an additional 10
years, subject to compliance with certain conditions. Microtel royalty
fees totaled $9,386 in the first quarter of 1998 and $8,922 in the first
quarter of 1997 and advertising fees were $3,128 in the first quarter of
1998 and $3,569 in the first quarter of 1997.
The Partnership has also entered into a license agreement with Promus
Corporation (Promus) to operate a Hampton Inn hotel for the Rochester,
New York site. An initial franchise fee of $35,000 was paid. In addition
to the initial fee, the Partnership is required to pay Promus a monthly
royalty fee of 4% of gross room revenues, a monthly
marketing/reservation fee of 4% of gross room revenue and a monthly
amount equal to any sales tax or similar tax imposed on Hampton Inn on
payments received under the license agreement. The Partnership incurred
royalty fees of $13,813 in the first quarter of 1998 and $14,883 in the
first quarter of 1997. Marketing/reservations fees included in
advertising and promotion expenses totaled $13,813 in the first quarter
of 1998 and $14,883 in the first quarter of 1997.
Promus requires the Partnership to establish a capital reserve escrow
account based on a percentage of gross revenues generated by the Hampton
Inn hotel which will be used for
<PAGE>
ESSEX HOSPITALITY ASSOCIATES III L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997
PAGE 5
product quality requirements of the hotel. Cumulative funding of the
reserve for the first five years of operation increases from 1% to 5% of
gross revenues and stabilizes at 5% for the term of the agreement. The
capital reserve cash escrow account at March 31, 1998 and 1997 was
$52,932 and $17,230, respectively.
The franchise agreement impose certain restrictions on the transfer of
limited partnership units. MFDC and Promus restrict the sale, pledge or
transfer of units in excess of 10% and 25%, respectively, without their
consent.
(6) RELATED PARTY TRANSACTIONS
A summary of the fees earned by Essex Partners in the first quarter of
1998 and 1997 under the terms of the Partnership and management
agreements is as follows:
Type of Fee Amount of Fee 1998 1997
- ----------- ------------- ---- ----
Property Management 4.5% of gross operating revenues $35,245 $33,759
Fee from the hotels
Partnership 1.25% of gross operating revenues 9,789 10,010
Management Fee from the hotels
Accounting Fee $2,025 per month 6,075 6,075
$51,109 $49,844
======= =======
The accounting fees for the quarters ended March 31, 1998 and 1997 has
been included in the administrative expenses.
In addition, Essex Partners will received refinancing fees equal to 1% of
the gross proceeds from any refinancing of the hotels and a sale fee of
up to 3% of the gross price if the hotel is sold.
<PAGE>
ESSEX HOSPITALITY ASSOCIATES III L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997
PAGE 6
(7) SUBSEQUENT EVENT
On May 11, 1998, the Partnership obtained first mortgage financing from a
bank for $7,560,000. The term of the loan is 10 years. Interest accrues
at the rate of 7.86% per annum. Principal and interest payments are
due monthly based on a 25-year amortization. The Partnership is also
required to contribute 4% of gross revenues to a replacement reserve on a
monthly basis. The loan is collateralized by the Partnership's real and
personal property and certain other assets. Mortgage notes in the
principal amount of $8,707,000 were repaid from the proceeds of the new
first mortgage financing and a bridge loan of $1,461,000 from Essex
Partners. The remaining $1,293,000 of mortgage notes were exchanged for
subordinated notes. The Partnership is offering up to $3,500,000 of
subordinated notes in a private offering. The offering provided mortgage
note holders the option to exchange their mortgage notes for subordinated
notes. The proceeds from the offering will be used to pay the costs of
the offering, repay the bridge loan from Essex Partners, repay up to
$150,000 in advances from affiliate and provide up to $460,000 in working
capital and reserves for the Partnership.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------- ---------------------------------------------------------
The Partnership was formed on August 2, 1993. In 1995, it completed its public
offering of first mortgage notes and limited partnership units, raising
$13,986,320. The first Partnership property, a 102-room Microtel hotel in
Birmingham, Alabama, opened in September, 1994. The two remaining Partnership
properties opened in 1995, a 118- room Hampton Inn in Rochester, New York in
April and a 100-room Microtel in Chattanooga in September.
The major revenue source for the Partnership's properties is room revenues,
which generated 95% of the operating revenues for the Partnership in the first
quarter, 1998. Room revenues generated are dependent on a property's average
occupancy and average daily rate. Room revenues for the first quarter 1998 were
5% lower than the first quarter, 1997. Room revenues at the Birmingham Microtel
Inn and Chattanooga Microtel Inn properties decreased compared to 1997.
The Birmingham Microtel Inn achieved an average occupancy of 62% for the quarter
with an average daily rate of $36.49, as compared with an average occupancy of
74% in the first quarter, 1997, and an average daily rate of $33.11. The
decrease in occupancy produced a $16,000 decrease in room revenues. A new
manager was hired in the spring of 1996, who made several improvements, which
started to have an impact on revenues by the end of the summer of 1996. The
property had a very strong winter and spring, with occupancy of 75% through June
1997, compared to 65% during the same period in 1996. Revenues for the first six
months of 1997 exceeded the first six months of 1996 by $61,000. Unfortunately,
that manager left the property in the spring of 1997. The manager returned to
the property in March 1998. During the manager's absence, the performance of the
hotel began to deteriote. The revenues for the last six months were the same as
the last six months of 1996. Although revenues were the same in the last six of
1997 as the same period in 1996, operating income declined in the last six
months of 1997 compared to the same period in 1996 due to ineffective cost
controls. With the return of the hotel manager in 1998, the Managing General
Partner expects that costs will be better controlled. The Managing General
Partner expects the property's performance to improve by the summer of 1998. The
Birmingham Microtel generated approximately 27% of the Partnership's room
revenues for the quarter, compared to 28% in the first quarter, 1997.
The Hampton Inn achieved an average occupancy of 63% for the quarter, with an
average daily rate of $61.20, compared with an average occupancy of 60% for the
first quarter 1997 and an average daily rate of $61.59. The increase in
occupancy and average daily rate caused room revenues to increase by $20,100.
The major issues facing the Hampton Inn for 1998 are increasing supply in its
market and travel reductions by its largest customer. In 1998, a Courtyard by
Marriott and Residence Inn will be opening within a mile of the Hampton Inn. The
Courtyard is expected to be directly competitive with the Hampton Inn. The
Hampton Inn expects it may lose some customers to the Courtyard, but is planning
to replace the lost revenue by more aggressively marketing the property and
raising rates from 2%-3%. Although the rates for the Courtyard and Residence Inn
have not yet been announced, the typical Courtyard and Residence Inn offer rooms
at rates higher than those charged at the Hampton Inn. Therefore, the Hampton
Inn believes a slight increase in rates will not be detrimental. In addition,
the Hampton Inn is planning to add additional signage to better direct customers
to the hotel. The Hampton Inn's
<PAGE>
largest customer is the Eastman Kodak Company. In the fourth quarter 1997,
Eastman Kodak announced a goal to reduce corporate travel by 20%. The Hampton
Inn felt some of the effects of this through reduced occupancy in December 1997
and January 1998 compared to the same period in the prior year. The Eastman
Kodak travel increased in February to close to the levels of prior years. With
the uncertainty of the Eastman Kodak travel, the staff at the Hampton Inn have
increased their marketing efforts and are also securing new business. The
Hampton Inn generated around 54% of the Partnership's room revenues for the
quarter, compared to 49% for the first quarter, 1997.
The average occupancy for the Chattanooga Microtel Inn for the quarter was 41%
with an average daily rate of $39.72, compared to the first quarter 1997 when
occupancy was 58% with an average daily rate of $36.18. The supply of
hotel rooms in the Chattanooga area has increased, which is contributing to the
reduction in occupancy at the Microtel Inn. In response to the increased supply,
the Chattanooga Microtel Inn is planning to obtain additional signage to
increase awareness of and to direct customers to the hotel, and will be leasing
a van. There are several local companies that have expressed an interest in
using the Microtel Inn if a means of transportation is provided. Extensive
marketing efforts will also be continued in 1998. The Chattanooga Microtel Inn
generated around 19% of the Partnership's room revenues for the quarter,
compared to 23% for the first quarter, 1997.
Operating income for the first quarter decreased $37,600 over the first quarter
1997, to $88,300 due to the reduction in revenues. Interest expense remained at
$250,000, since the partnership's mortgages require payments of interest only at
a fixed rate of 10%. The Partnership's net loss for the quarter was $220,400,
$37,100 less than the net loss of $183,300 in the first quarter, 1997. The
Partnership used cash of $71,000 in operations, compared to $75,000 in the first
quarter, 1997. Investing activities required cash of $1,000 in the first quarter
1998, for asset replacements. In 1996, investing activities provided cash of
$78,000 in the first quarter, primarily from the receipt of the proceeds from
the sale of land in Chattanooga. Financing activities provided $70,000 in cash
in the first quarter, 1998. Significant financing activities for the first
quarter 1998 included the payment of $25,000 for debt acquisition costs and the
receipt of advances of $95,000 from the Managing General Partner. There were no
financing activities in the first quarter 1997. The Partnership's cash and cash
equivalents decreased $3,000 in the first quarter, 1998, compared to an increase
of $48,000 in 1997.
Total assets decreased $632,000 in the first quarter, 1997 due primarily to the
$672,000 increase in depreciation and amortization. Total liabilities increased
$120,000 from an increase in due to affiliate. Accounts payable and accrued
expenses decreased $80,000. Partners' equity decreased $752,000 from two
factors, the payment of $300,000 in distributions to limited partners and the
net losses of $452,000 generated between April 1, 1997 and March 31, 1998.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership expects to obtain sufficient liquidity from operations to fund
all operating costs. In addition to operations, the Partnership will require
liquidity to provide for repayment of outstanding debt. The Partnership's first
mortgage notes in the principal amount of $10,000,000 mature on December 31,
1998. The Managing General Partner is in the process of replacing the first
mortgage notes with a combination of institutional first mortgage financing and
subordinated
<PAGE>
notes. The institutional financing transaction closed on May 11, 1998, providing
first mortgage financing of $7,560,000. The first mortgage financing is secured
by first mortgage liens on the Partnership's hotel properties. The term of the
first mortgage loan is 10 years. The first mortgage loan will accrue interest at
the rate of 7.86% per annum. Principal and interest payments are due monthly
based on a 25-year amortization. The partnership is also required to contribute
4% of gross revenues to a replacement reserve on a monthly basis. Mortgage notes
in the principal amount of $8,707,000 were repaid with the proceeds from the
institutional first mortgage financing and a bridge loan from the Managing
General Partner in the amount of $1,461,000. The Partnership is in the process
of offering subordinated notes of up $3,500,000 to investors. The offering
provided the option for mortgage note holders to exchange their mortgage notes
for subordinated notes. Mortgage note holders holding $1,293,000 of mortgage
notes exchanged mortgage notes for subordinated notes. The proceeds from the
subordinated note offering will be used to pay the costs of the offering, repay
the bridge loan (with interest at a variable rate equal to Essex Partner's cost
of funds, which is presently the prime rate as quoted by Manufacturers and
Traders Trust Company plus 0.5%), repay $150,000 of advances from Essex Partners
and provide reserves and working capital of up to $460,000 to the Partnership.
The subordinated notes are general unsecured obligations of the Partnership. The
subordinated notes will accrue interest at the rate of 9.75% per annum. Payments
of accrued interest will be made monthly in arrears. The principal balance is
due and payable on April 30, 2004. Payment of principal may be extended for one
year upon payment of a 0.5% extension fee on or before April 30, 2004. The
Partnership may prepay the subordinated notes at any time without premium or
penalty, provided that any such prepayment shall be made to all holders of the
subordinated notes on a pro-rata basis.
The Microtel franchise agreements require the Partnership to refurbish and
upgrade its Microtel Inn hotels not more than once every five years. The upgrade
would include replacing soft goods such as bedspreads and drapes, new carpeting,
equipment such the front desk system, telephone system and the key system. The
Partnership is replacing soft goods as needed and expects it will satisfy the
Microtel franchisor's requirements without any major additional expenditures.
The front desk system, telephone system and key system at the Partnership's
properties were new at the time the properties were constructed and are expected
to meet Franchisor specifications for the next several years. Equipment such as
televisions and heating and cooling units are expected to have a life of between
five and ten years and can replaced as required. Not all units will need to be
replaced in the same year, so that management expects that the expenditures can
be spread over several years.
The Hampton Inn license agreement requires the Partnership to establish a
capital reserve escrow account based on a percentage of gross room revenues
generated by the Hampton Inn hotel. The reserve will be used for product quality
requirements of the hotel. Cumulative funding of the reserve for the first five
years increases from 1% to 5% of gross revenues and stabilizes at 5% for the
term of the agreement. The Partnership expects to fund the reserve from cash
from operations, and the reserve should be sufficient to fund major capital
improvements as required. At March 31, 1998, the capital reserve escrow account
was $53,200. The deposit required for 1998 will be made from proceeds of the
subordinated note offering.
<PAGE>
PART II
-------
OTHER INFORMATION
-----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
- ------- -----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
a. EXHIBITS
--------
None
b. REPORTS ON FORM 8-K
-------------------
There was one report 8-K filed in the first quarter, 1998. The report
was dated February 13, 1998 and described a change in accountants for
the Partnership. There were no financial statements included.
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.
ESSEX HOSPITALITY ASSOCIATES III L.P.
-------------------------------------
Registrant
Dated: May 14, 1998 /S/ LORRIE L. LOFASO
--------------------
Essex Hospitality Associates III L.P.
Essex Partners Inc.
Lorrie L. LoFaso
Vice President and Chief Accounting Officer
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<OTHER-SE> 108
<FN>
<F2> EQUITY IS PARTNERS' CAPITAL
</FN>
<TOTAL-LIABILITY-AND-EQUITY> 10,508
<SALES> 766
<TOTAL-REVENUES> 807
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 718
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250
<INCOME-PRETAX> (220)
<INCOME-TAX> 0
<INCOME-CONTINUING> (220)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220)
<EPS-PRIMARY> ( 55)
<EPS-DILUTED> ( 55)
<FN>
<F3> ENTITY IS A PARTNERSHIP, EPS IS LOSS PER
LIMITED PARTNERSHIP UNIT
</FN>
</TABLE>
