-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EhGGP+8A9H00nBZ3ea+E54tERlzW6GUVIyFyygTTG5kJytB7UQBoMFnyQRVodWja HH8FxZd88jKbDQJbwyVKhw== 0000745538-97-000002.txt : 19970318 0000745538-97-000002.hdr.sgml : 19970318 ACCESSION NUMBER: 0000745538-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970317 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROWTH HOTEL INVESTORS CENTRAL INDEX KEY: 0000769129 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942964750 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15347 FILM NUMBER: 97557508 BUSINESS ADDRESS: STREET 1: 1 INSIGNIA FINANCIAL PLAZA PO BOX 1089 STREET 2: C/O INSIGNIA FINANCIAL GROUP INC CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: 1 INSIGNIA FINANCIAL PLAZA PO BOX 1089 STREET 2: C/O INSIGNIA FINANCIAL GROUP INC CITY: GREENVILLE STATE: SC ZIP: 29602 FORMER COMPANY: FORMER CONFORMED NAME: MRI BUSINESS HOTEL INVESTORS 85 DATE OF NAME CHANGE: 19850819 10-K 1 FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (As last amended in Rel. No. 34-31905, eff 10/26/93.) 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 [NO FEE REQUIRED] For the fiscal year ended December 31, 1996, or ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from.............to............. Commission file number 0-15347 GROWTH HOTEL INVESTORS (Exact name of Registrant as specified in its charter) CALIFORNIA 94-2964750 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (864) 239-1000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units (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 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 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 ] No established trading market for the Limited Partnership Units exists and therefore a current market value for such Units cannot be readily determined. DOCUMENTS INCORPORATED HEREIN BY REFERENCE: (1) Prospectus of the Registrant dated August 14, 1985, and thereafter supplemented, incorporated in Parts I and IV. (2) Items 2-4 and 8 of the Schedule 14D-9 of the Registrant, as filed with the Securities and Exchange Commission on February 29, 1996, as amended by Amendment No. 1 thereto filed with the Securities and Exchange Commission on March 7, 1996 and as further amended by Amendment No. 2 thereto filed with the Securities and Exchange Commission on March 14, 1996 incorporated in Parts I and II. GROWTH HOTEL INVESTORS a California Limited Partnership PART I Item 1. Business Growth Hotel Investors, a California Limited Partnership (the "Registrant" or the "Partnership"), was organized in 1984 under the California Uniform Limited Partnership Act. The managing general partner of the Registrant is Montgomery Realty Company-85 ("MRC-85" or the "Managing General Partner"), a California general partnership of which NPI Realty Management Corp. ("NPI Realty"), a Florida corporation, is the managing general partner, and Fox Realty Investors ("FRI"), a California general partnership, is the co-general partner. On November 15, 1995, Montgomery Realty Corporation, a California corporation, withdrew as a general partner of MRC-85 and NPI Realty was admitted as a general partner. In February 1996, NPI Realty became the managing general partner of MRC-85. Prior to February 1996, FRI was the managing general partner of MRC-85. NPI Realty and the managing general partner of FRI are wholly-owned subsidiaries of National Property Investors, Inc., a Delaware corporation ("NPI, Inc."). The Registrant's Registration Statement on Form S-11 (No. 2-97836) filed pursuant to the Securities Act of 1933, as amended (the "Act"), was declared effective by the Securities and Exchange Commission (the "Commission") on August 14, 1985. The Registrant marketed its securities pursuant to its Prospectus dated August 14, 1985 and thereafter supplemented (hereinafter the "Prospectus"). The Prospectus was filed with the Commission pursuant to Rule 424(b) of the Act. The principal business of the Registrant is to acquire, primarily through joint ventures, hold for investment, and ultimately sell hotels. The Registrant is a "closed" limited partnership real estate syndicate of the unspecified asset type. For a further description of the Registrant's business, see the sections entitled "Risk Factors" and "Investment Objectives and Policies" in the Prospectus. Beginning in October 1985 through May 15, 1986, the Registrant offered and sold $36,932,000 in Limited Partnership Assignee Units ("Units" or "Limited Partnership Assignee Units"). The net proceeds of this offering were used to purchase initially, through joint ventures, interests in twenty-three hotels, including eighteen acquired through a joint venture, Growth Hotel Investors Combined Fund No. 1, a California Limited Partnership ("Combined Fund"), with Growth Hotel Investors II, a California limited partnership ("GHI II") affiliated with the Registrant's managing general partner. See Item 2 below for a description of the Registrant's properties. The Combined Fund has a controlling interest in the eighteen hotels acquired. The acquisition activities of the Registrant were completed on September 15, 1988, and since that time the principal activity of the Registrant has been managing its portfolio. The Registrant's original property portfolio was geographically diversified with properties located in twelve states. In 1988, Mariner/GHI Associates No. 1, a 50 percent owned joint venture, which joint venture owned the Hampton Inn-Albuquerque North, was terminated and the Registrant was assigned the joint venture partner's interest in the property. In 1990 the Registrant purchased its joint venture partner's 50 percent interest in the Hampton Inn-Brentwood. In 1991, the Registrant converted its joint venture partner's 48 percent general partnership interest in the Hampton Inn Syracuse joint venture into a limited partnership interest. In 1994, the joint venture which owned the Hampton Inn-Elk Grove lost its property through foreclosure. On October 2, 1995, the Registrant was granted the option to acquire its joint venture partner's interest in Aurora/GHI Associates No. 1, the joint venture which owns the Hampton Inn-Aurora for $150,000. The Registrant has not yet acquired such interest. It is expected that such interest will be acquired prior to the sale of the Registrant's properties. The Registrant is involved in only one industry segment, as described above. The Registrant does not engage in any foreign operations or derive revenues from foreign sources. Both the income and the expenses of operating the properties in which the Registrant has an ownership interest are subject to factors outside of the Registrant's control, such as oversupply of similar properties resulting from overbuilding, increases in unemployment or population shifts or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating hotels and other lodging facilities. Owning and operating hotels and other lodging facilities involves a high degree of risk because such properties are management and labor intensive and especially susceptible to the impact of economic and other conditions outside the control of the Registrant. Expenses, such as local real estate taxes and management expenses, are subject to change and cannot always be reflected in room rate increases due to market conditions. The profitability and marketability of developed real property may be adversely affected by changes in general and local economic conditions and in prevailing interest rates, and favorable changes in such factors will not necessarily enhance the profitability or marketability of such property. Even under the most favorable market conditions there is no guarantee that any property owned by the Registrant can be sold or, if sold, that such sale can be made upon favorable terms. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Managing General Partner is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Registrant. The Registrant monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed, which resulted in no material adverse conditions or liabilities. In no case has the Registrant received notice that it is a potentially responsible party with respect to an environmental clean up site. The Registrant and the hotel management companies maintain property and liability insurance on the properties. The Registrant believes such coverage to be adequate. The Registrant is affected by and subject to the general competitive conditions of the lodging industry. In addition, each of the Registrant's properties competes in an area which normally contains numerous other properties. In 1996, markets in many areas remained depressed due in part to overbuilding and a general reduction in travel which continues to depress lodging rental rates. However, the moderately priced, limited service segment of the lodging industry, which the Registrant's properties are part of, has strengthened due to travelers economizing, allowing occupancy and rates, in general, to increase. An over- supply of lodging properties, including those held by banks, savings institutions, the Federal Deposit Insurance Corporation and the Resolution Trust Corporation, may affect the ability of the Registrant to sell its properties and their sales prices. The Partnership has no employees and is dependent on the Managing General Partner and its affiliates administration of all partnership activities. The Partnership Agreement provides for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The Registrant's affairs were managed by Metric Management, Inc. ("MMI") or its predecessor from March 1988 to December 1993. On December 16, 1993, the services agreement with MMI was modified and, as a result thereof, the Registrant's general partner assumed responsibility for the cash management of the Registrant as of December 23, 1993, and for investor relations services as of April 1, 1994. On December 6, 1993, NPI Equity Investments II, Inc., a Florida corporation ("NPI Equity II"), became the managing partner of FRI. NPI Equity II is a wholly-owned subsidiary of NPI, Inc. The individuals who had served previously as partners of FRI contributed their general partnership interests in FRI to a newly formed limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in exchange for limited partnership interests in PRA. In the foregoing capacity, such partners continue to hold indirectly certain economic interests in the Registrant and such other investment partnerships, but ceased to be responsible for the operation and management of the Registrant and such other partnerships. On October 12, 1994, NPI, Inc. sold one-third of the stock of NPI, Inc. to an affiliate of Apollo Real Estate Advisors, L.P. ("Apollo"). On August 17, 1995, the stockholders of NPI, Inc. entered into an agreement to sell all of the issued and outstanding common stock of NPI, Inc. to IFGP Corporation, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The transaction was consummated on January 19, 1996. All of the funds used by Insignia and its affiliates in consummating such transaction were drawn under a revolving credit facility established for the benefit of Insignia with First Union National Bank of South Carolina as Administrative Agent and Lehman Commercial Paper, Inc. as Syndication Agent. Upon the Closing, the officers and directors of NPI, Inc., NPI Equity II and NPI Realty resigned and Insignia caused new officers and directors of each of those entities to be elected. See "Item 10, Directors and Executive Officers of the Registrant." Each of NPI Realty and FRI are general partners of MRC-85. Pursuant to a Letter Agreement dated November 15, 1995, NPI Realty was admitted, and Montgomery Realty Corporation withdrew, as a general partner of MRC-85. NPI Realty is a wholly-owned subsidiary of NPI, Inc. Pursuant to the Second Amended and Restated Partnership Agreement of MRC-85, made and entered into effective as of November 15, 1995, FRI, at the time a general partner of MRC-85, was then the managing general partner of MRC-85. Pursuant to the Third Amended and Restated General Partnership Agreement of MRC-85, dated as of February 15, 1996, NPI Realty became the managing general partner of MRC-85, and thereby the indirect managing general partner of the Registrant. On February 15, 1996, Devon Associates, a New York general partnership, commenced a tender offer (the "Offer") for up to 15,000 of the outstanding Units at a purchase price of $705.00 per Unit. Due to the participation in the tender offer by affiliates of NPI Realty, and the Managing General Partner's related, existing and potential conflicts of interest, the Partnership, in its Schedule 14D-9 filed with the Securities and Exchange Commission and sent to limited partners, expressed no opinion and made no recommendation as to whether limited partners should tender their Units pursuant to the Offer. The expiration of the tender offers described above was midnight, New York time, on March 25, 1996. See Items 2-4 of the Schedule 14D-9 of the Partnership, as filed with the Commission on February 29, 1996, as amended by "Amendment No. 1" thereto, as filed with the Commission on March 7, 1996, and as further amended by "Amendment No. 2" thereto, as filed with the Commission on March 14, 1996 (collectively, the "Schedule 14D-9"), for additional information with respect to the Offer and the current and potential conflicts of interest of MRC-85, which Items 2-4 are incorporated herein by reference. Devon Associates acquired 13,396 units with respect to this offer. On March 13, 1996, the Partnership received a letter advising that the Partnership's and GHI II's joint venture partner in certain of the hotel properties was offering $147,000,000 in cash for all 28 hotel properties directly or indirectly owned by the Partnership and GHI II. See "Amendment No. 2" to the Partnership's Statement on Schedule 14D-9, as filed with the Commission on March 14, 1996, for a more complete description of this offer, which "Amendment No. 2" is hereby incorporated by reference herein. By the terms of the offer, the offer expired on March 31, 1996. The Managing General Partner determined that before the offer could be recommended, if at all, to the Partnership's limited partners, further analysis of the hotel properties and their value was needed. As required by the settlement of the class action brought in connection with the tender offer made by Devon Associates discussed above, the Partnership and GHI II, the Partnership's joint venture partner in the Combined Fund properties, marketed all of their properties for sale. In this regard, the Partnership and GHI II retained Bear, Stearns & Co. Inc. to assist in the marketing of such properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint ventures in which the Partnership has a controlling interest, GHI II, and the joint ventures in which GHI II has a controlling interest, and Equity Inns Partnership, L.P. (the "Buyer") entered into certain purchase and sale agreements pursuant to which the Buyer agreed to purchase from these entities the twenty-two hotels described herein as well as six additional hotels owned directly or indirectly by GHI II for an aggregate purchase price of $182 million, subject to adjustment. The closing of these sales, which is anticipated to occur during the second quarter of 1997, is subject to many conditions including, favorable completion by the Buyer of its due diligence review and the Partnership and GHI II receiving consent to the sale from their respective limited partners holding a majority of the outstanding limited partnership interests in the Partnership and GHI II. Accordingly, there can be no assurance that the sale will be consummated with the Buyer or any other potential buyer. Item 2. Properties The following table sets forth the Partnership's investments in properties:
Date of Property Purchase Use Growth Hotel Investors Hampton Inn-Syracuse (1) (2) 12/85 Hotel / 117 rooms East Syracuse, New York Hampton Inn - Brentwood (3) 12/85 Hotel / 114 rooms Nashville, Tennessee Hampton Inn - Aurora (1) 12/86 Hotel / 132 rooms Aurora, Colorado Hampton Inn - Albuquerque North (4) 04/87 Hotel / 125 rooms Albuquerque, New Mexico Growth Hotel Investors Combined Fund No. 1 (5) Hampton Inn-Memphis-I-40 East(6) 12/86 Hotel / 117 rooms Memphis, Tennessee Hampton Inn-Columbia-West 12/86 Hotel / 121 rooms West Columbia, South Carolina Hampton Inn-Spartanburg 12/86 Hotel / 112 rooms Spartanburg, South Carolina Hampton Inn-Little Rock-North 12/86 Hotel / 123 rooms North Little Rock, Arkansas Hampton Inn-Amarillo 12/86 Hotel / 116 rooms Amarillo, Texas Hampton Inn-Greenville 12/86 Hotel / 123 rooms Greenville, South Carolina Hampton Inn-Charleston-Airport 12/86 Hotel / 125 rooms North Charleston, South Carolina Hampton Inn-Memphis-Poplar 12/86 Hotel / 126 rooms Memphis, Tennessee Hampton Inn-Greensboro 12/86 Hotel / 121 rooms Greensboro, North Carolina
Date of Property Purchase Use Growth Hotel Investors Combined Fund No. 1(5) (continued) Hampton Inn-Birmingham 12/86 Hotel / 123 rooms Birmingham, Alabama Hampton Inn-Atlanta-Roswell 03/87 Hotel / 129 rooms Roswell, Georgia Hampton Inn-Chapel Hill 03/87 Hotel / 122 rooms Chapel Hill, North Carolina Hampton Inn-Dallas-Richardson 03/87 Hotel / 130 rooms Richardson, Texas Hampton Inn-Nashville -Briley Parkway(6) 03/87 Hotel / 120 rooms Nashville, Tennessee Hampton Inn-San Antonio-Northwest 06/87 Hotel / 123 rooms San Antonio, Texas Hampton Inn-Madison Heights 12/87 Hotel / 126 rooms Madison Heights, Michigan Hampton Inn-Mountain Brook(6) 12/87 Hotel / 131 rooms Birmingham, Alabama Hampton Inn-Northlake(6) 09/88 Hotel / 130 rooms Atlanta, Georgia (1) Property is owned by a joint venture in which the Registrant has a controlling interest. (2) In January 1991, the Registrant allowed its joint venture partner to convert its 48 percent general partnership interest into a limited partnership interest. (3) In July 1990, the Registrant purchased its joint venture partner's 50 percent interest in the joint venture. (4) In July 1988, the joint venture which owned this property was terminated and the Registrant was assigned the joint venture partner's interest in the property. (5) The Registrant and an affiliated partnership have invested in a joint venture, Growth Hotel Investors Combined Fund No. 1 ("Combined Fund"), which has the majority interest in the properties listed. The affiliated partnership has the majority interest in the Combined Fund. (6 )The property is subject to a land lease extending as follows:
Year Option Lease Period Property Expires (Years) Hampton Inn - Memphis-I-40 East 2004 20 Hampton Inn - Nashville-Briley Parkway 2006 20 Hampton Inn - Mountain Brook 2007 50 Hampton Inn - Northlake 2008 40 Schedule of Properties: (dollar amounts in thousands) Growth Hotel Investors:
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis Hampton Inn - Syracuse $ 5,307 $ 2,127 5-39 yrs S/L $ 2,173 Hampton Inn - Brentwood 5,879 2,270 5-39 yrs S/L 3,177 Hampton Inn - Aurora 7,458 3,237 5-39 yrs S/L 3,052 Hampton Inn - Albuquerque North 5,933 2,041 5-39 yrs S/L 4,024 Total $24,577 $ 9,675 $12,426
Growth Hotel Investors Combined Fund No. 1: Hampton Inn - Memphis-I-40 East $ 4,379 $ 1,769 5-30 yrs S/L $ 2,130 Hampton Inn - Columbia-West 4,807 1,845 5-30 yrs S/L 2,377 Hampton Inn - Spartanburg 4,177 1,616 5-39 yrs S/L 2,058 Hampton Inn - Little Rock-North 4,701 1,600 5-39 yrs S/L 2,496 Hampton Inn - Amarillo 2,707 919 5-39 yrs S/L 1,388 Hampton Inn - Greenville 4,587 1,608 5-30 yrs S/L 2,401 Hampton Inn - Charleston-Airport 5,023 1,808 5-39 yrs S/L 2,577 Hampton Inn - Memphis-Poplar 6,300 2,006 5-30 yrs S/L 3,643 Hampton Inn - Greensboro 4,559 1,600 5-39 yrs S/L 2,422 Hampton Inn - Birmingham 5,269 1,757 5-30 yrs S/L 2,835 Hampton Inn - Atlanta-Roswell 5,734 1,621 5-30 yrs S/L 4,097 Hampton Inn - Chapel Hill 4,851 1,445 5-30 yrs S/L 3,433 Hampton Inn - Dallas-Richardson 5,826 1,542 5-30 yrs S/L 4,264 Hampton Inn - Nashville-Briley Parkway 4,773 1,728 5-30 yrs S/L 2,982 Hampton Inn - San Antonio-Northwest 5,198 1,523 5-30 yrs S/L 3,594 Hampton Inn - Madison Heights 6,939 2,454 5-30 yrs S/L 4,421 Hampton Inn - Mountain Brook 5,481 2,380 5-30 yrs S/L 3,051 Hampton Inn - Northlake 4,949 2,179 5-30 yrs S/L 2,835 Total $90,260 $31,400 $53,004 See "Note A" of the financial statements included in "Item 8." for a description of the Partnership's depreciation policy.
Schedule of Mortgages: (dollar amounts in thousands)
Growth Hotel Investors: Principal Balance at Principal December 31, Interest Period Maturity Balance Due Property 1996 Rate Amortized Date At Maturity Hampton Inn - Syracuse $ -- N/A N/A N/A $ -- Hampton Inn - Brentwood -- N/A N/A N/A -- Hampton Inn - Aurora 3,037 10.5% 30 yrs 1/98 3,037 Hampton Inn - Albuquerque North 2,375 10% None 8/97 2,375 Total $ 5,412 $ 5,412
Growth Hotel Investors Combined Fund No. 1 Hampton Inn - Memphis-I-40 East (1) $ 1,771 10.00% 30 yrs 7/97 $ 1,757 Hampton Inn - Columbia-West (1) 2,062 10.00% 30 yrs 7/97 2,045 Hampton Inn - Spartanburg (1) 1,767 10.00% 30 yrs 7/97 1,753 Hampton Inn - Little Rock-North (1) 2,015 10.00% 30 yrs 7/97 1,999 Hampton Inn - Amarillo (1) 1,120 10.00% 30 yrs 7/97 1,112 Hampton Inn - Greenville (1) 2,054 10.00% 30 yrs 7/97 2,037 Hampton Inn - Charleston-Airport (1) 2,144 10.00% 30 yrs 7/97 2,127 Hampton Inn - Memphis-Poplar (1) 2,798 10.00% 30 yrs 7/97 2,775 Hampton Inn - Greensboro (1) 1,982 10.00% 30 yrs 7/97 1,966 Hampton Inn - Birmingham (1) 2,426 10.00% 30 yrs 7/97 2,406 Hampton Inn - Atlanta-Roswell (1) 2,643 10.00% 30 yrs 7/97 2,622 Hampton Inn - Chapel Hill (1) 2,257 10.00% 30 yrs 7/97 2,238 Hampton Inn - Dallas-Richardson (1) 2,769 10.00% 30 yrs 7/97 2,746 Hampton Inn - Nashville-Briley Parkway (1) 2,183 10.00% 30 yrs 7/97 2,165 Hampton Inn - San Antonio-Northwest (1) 2,451 10.00% 30 yrs 7/97 2,432 Hampton Inn - Madison Heights (1) 2,834 10.00% 30 yrs 7/97 2,811 Hampton Inn - Mountain Brook 2,543 7.63% 30 yrs 8/97 2,516 Hampton Inn - Northlake 2,366 7.63% 30 yrs 8/97 2,340 Total $40,185 $39,847 (1) The Partnership mortgages encumbering these hotels are cross collateralized. The principal balance due at maturity is approximately $34,991,000.
The following chart sets forth the occupancy rate at the Registrant's properties for years ended December 31, 1996, 1995 and 1994: Average Occupancy Rate (%) for the Year Ended December 31, 1996 1995 1994 Property: Growth Hotel Investors: Hampton Inn-Syracuse 57% 60% 71% Hampton Inn-Brentwood 78% 82% 86% Hampton Inn-Aurora 71% 79% 78% Hampton Inn-Albuquerque North 73% 80% 85% Growth Hotel Investors Combined Fund No. 1: Hampton Inn-Memphis-I-40 East 77% 80% 82% Hampton Inn-Columbia-West 76% 81% 84% Hampton Inn-Spartanburg 63% 69% 70% Hampton Inn Little Rock-North 78% 79% 78% Hampton Inn-Amarillo 66% 75% 77% Hampton Inn-Greenville 77% 81% 80% Hampton Inn-Charleston-Airport 75% 76% 80% Hampton Inn-Memphis-Poplar 83% 84% 87% Hampton Inn-Greensboro 80% 86% 87% Hampton Inn-Birmingham 76% 82% 83% Hampton Inn-Atlanta-Roswell 73% 82% 82% Hampton Inn-Chapel Hill 85% 87% 82% Hampton Inn-Dallas-Richardson 76% 78% 76% Hampton Inn-Nashville-Briley Parkway 81% 87% 88% Hampton Inn-San Antonio-Northwest 63% 62% 72% Hampton Inn-Madison Heights 73% 71% 72% Hampton Inn-Mountain Brook 78% 79% 80% Hampton Inn-Northlake 74% 81% 76% The following chart sets forth the average daily room rates at the Registrant's properties for the years ended December 31, 1996, 1995 and 1994: Average Daily Room Rates (%) for the Year Ended December 31, 1996 1995 1994 Property: Growth Hotel Investors: Hampton Inn-Syracuse $59.99 $54.76 $50.61 Hampton Inn-Brentwood 69.09 62.26 54.42 Hampton Inn-Aurora 59.24 56.04 52.00 Hampton Inn-Albuquerque North 57.26 54.97 52.37 Growth Hotel Investors Combined Fund No. 1: Hampton Inn-Memphis-I-40 East $54.40 $53.49 $50.32 Hampton Inn-Columbia-West 59.13 54.42 51.17 Hampton Inn-Spartanburg 54.15 47.83 42.89 Hampton Inn Little Rock-North 52.59 48.79 45.52 Hampton Inn-Amarillo 53.39 50.55 47.12 Hampton Inn-Greenville 59.19 52.30 47.62 Hampton Inn-Charleston-Airport 56.14 53.48 50.16 Hampton Inn-Memphis-Poplar 67.46 64.64 60.18 Hampton Inn-Greensboro 64.12 57.99 51.50 Hampton Inn-Birmingham 61.12 58.65 55.01 Hampton Inn-Atlanta-Roswell 66.70 58.54 54.17 Hampton Inn-Chapel Hill 62.30 56.14 50.95 Hampton Inn-Dallas-Richardson 57.15 50.82 46.63 Hampton Inn-Nashville-Briley Parkway 67.33 62.03 56.98 Hampton Inn-San Antonio-Northwest 57.87 57.67 57.19 Hampton Inn-Madison Heights 59.58 54.04 51.21 Hampton Inn-Mountain Brook 63.02 58.17 54.92 Hampton Inn-Northlake 61.84 54.86 52.33 Real estate taxes and rates in 1996 for each property were: 1996 1996 Billing Rate Growth Hotel Investors : Hampton Inn-Syracuse $144,463 23.39% Hampton Inn-Brentwood 46,048 4.50% Hampton Inn-Aurora 80,767 9.79% Hampton Inn-Albuquerque North 37,755 4.24% Growth Hotel Investors Combined Fund No. 1: Hampton Inn-Memphis-I-40 East $ 92,604 3.18% Hampton Inn-Columbia-West 32,373 26.85% Hampton Inn-Spartanburg 29,274 26.83% Hampton Inn Little Rock-North 22,600 5.95% Hampton Inn-Amarillo 68,224 2.16% Hampton Inn-Greenville 75,943 29.67% Hampton Inn-Charleston-Airport 55,684 22.66% Hampton Inn-Memphis-Poplar 125,349 3.18% Hampton Inn-Greensboro 39,791 1.24% Hampton Inn-Birmingham 64,361 9.26% Hampton Inn-Atlanta-Roswell 60,950 3.55% Hampton Inn-Chapel Hill 76,512 1.78% Hampton Inn-Dallas-Richardson 98,719 1.57% Hampton Inn-Nashville-Briley Parkway 55,433 4.50% Hampton Inn-San Antonio-Northwest 74,163 2.15% Hampton Inn-Madison Heights 83,993 2.65% Hampton Inn-Mountain Brook 71,562 9.90% Hampton Inn-Northlake 52,909 4.15% Item 3. Legal Proceedings William Wallace, Mildred Wallace, Edith G. Martin, Paul Allemang and Gwen Allemang, on behalf of themselves and all others similarly situated, and derivatively on behalf of Growth Hotel Investors, a California limited partnership and Growth Hotel Investors II, a California limited partnership ("GHI II"), Plaintiff v. Devon Associates, Montgomery Realty-85, GHI Associates, Cayuga Associates L.P., Cayuga Capital Corp., Insignia Financial Group, Inc., L.P., and Fleetwood Corp., Defendants and Growth Hotel Investors, a California limited partnership, and Growth Hotel Investors II, a California limited partnership, Nominal Defendant, Supreme Court of the State of New York, County of New York, Case No. 9600866. On February 21, 1996, William and Mildred Wallace, holders of Units of the Registrant and Edith G. Martin and Paul and Gwen Allemang, holders of Units of GHI II, commenced an action on behalf of themselves and others similarly situated, and derivatively on behalf of the Registrant and GHI II, in the Supreme Court of the Sate of New York, County of New York, against, among others, MRC-85 and certain of its affiliates pertaining to the tender offer for up to 15,000 partnership Units of the Registrant and up to 21,000 partnership Units of GHI II which commenced February 15, 1996. The action alleged, among other things, that the tender offers constitute (a) a breach of fiduciary duty owed to limited partners of the partnerships, and (b) a breach of the provisions of the partnership agreements of such partnerships. The action, which sought to be brought as a class action on behalf of all limited partners, sought to enjoin the tender offers as well as monetary damages in an unspecified amount. In connection with the settlement discussed below, this action has been discontinued. R&S Asset Partners, a Florida general partnership, and Jessie B. Small, on their own behalves, on behalf of all others similarly situated, and derivatively on behalf of the Nominal Defendants, Plaintiffs, v. Devon Associates, Cayuga Associates, L.P., Cayuga Capital Corp., Fleetwood Corp., Carl C. Icahn, Michael L. Ashner, Martin Lifton, Arthur N. Queler, Insignia Financial Group, Inc., IFGP, Corp., National Properties Investors, Inc., NPI Equity Investments II, Inc., Fox Realty Investors, Portfolio Realty Associates, L.P., Emmet J. Cashin, Jr., Jarold A. Evans, W. Patrick McDowell, Apollo Real Estate Advisors, L.P., and Montgomery Realty Company-85, Defendants, and Growth Hotel Investors, a California Limited Partnership, and Growth Hotel Investors II, a California Limited Partnership, Nominal Defendants, Superior Court of the State of California, County of Los Angeles, Case No. BC145220. On February 28, 1996, R&S Asset Partners, holders of Units of the Registrant, and Jesse B. Small, holder of Units of GHI II, commenced an action on behalf of themselves and others similarly situated, and derivatively on behalf of the Registrant and GHI II, in the Superior Court of the State of California, County of Los Angeles, against, among others, MRC-85 and certain of its affiliates pertaining to the tender offer for up to 15,000 partnership Units of the Registrant and up to 21,000 partnership Units of GHI II which commenced February 15, 1996. The action alleges, among other things, that the tender offers constitute (a) a breach of fiduciary duty owed to limited partners of the partnerships, (b) negligent misrepresentation pertaining to the disclosure set forth in the offer to purchase, (c) common law fraud, and (d) a breach of the provisions of the partnership agreements of such partnerships. The action, which is sought to brought as a class action on behalf of all limited partners, seeks to enjoin the tender offers as well as monetary damages in an unspecified amount. On March 15, 1996, counsel for the plaintiffs and defendants in the Wallace and the R&S Partners Actions agreed in principle to settle these actions, which settlement has subsequently received final court approval. In connection with the settlement MRC-85 agreed to take such actions as are reasonably necessary and consistent with its fiduciary duties to procure offers for the purchase of the Partnership's and GHI II's assets which maximize the value of the limited partner assignee units. MRC-85 further agreed to deal fairly and in good faith with persons expressing an interest in making a bona fide offer to purchase such assets and, subject to its fiduciary duty, provide such bona fide offers with access to the Partnership's and GHI II's books and records for due diligence purposes. MRC-85 also agreed that if it determined that an offer to purchase its assets is acceptable, MRC-85 will prepare a plan of liquidation and submit such plan to the Partnership's partners for approval. Also in connection with the settlement, the plaintiffs will release all claims they may have arising out of the tender offers. As required by the settlement, the Partnership and GHI II are coordinating with class counsel with respect to the sale of such assets and consent of limited partners. See "Item 1, Business" for information relating to the terms of the proposed sale of the Partnership and GHI II's assets. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of unit holders during the period covered by this Report. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Limited Partnership Assignee Unit holders are entitled to certain distributions as provided in the Partnership Agreement. No established trading market for Limited Partnership Assignee Units exists, nor is any expected to develop. During the years ended December 31, 1996 and 1995, the Registrant has made the following cash distributions with respect to the Units to holders thereof as of the dates set forth below in the amounts set forth opposite such dates: Distribution with Amount of Distribution Respect to Quarter Ended Per Unit (*) 1996 1995 March 31 $ 0 $ 0 June 30 $ 20 $ 20 September 30 $ 0 $ 0 December 31 $ 20 $ 20 (*) The amounts listed represent distributions of cash from operations and cash from sales. (See "Item 7, Management's Discussion and Analysis or Plan of Operation", for information relating to the Partnership's future distributions.) As of December 31, 1996, there were 1,918 holders of record owning an aggregate of 36,932 Units. Item 6. Selected Financial Data The following represents selected financial data for the Registrant for the years ended December 31, 1996, 1995, 1994, 1993, and 1992. The data should be read in conjunction with "Item 8, Consolidated Financial Statements." This data is not covered by the independent auditors' report.
For the Year Ended December 31, 1996 1995 1994 1993 1992 (Amounts in thousands except per unit data) Total Revenues $ 9,831 $10,341 $10,049 $10,895 $ 8,798 Income (Loss) Before Minority Interest in Joint Ventures' Operations and Extraordinary Item $ 2,558 $ 3,556 $ 2,920 $ 2,716 $ (1,893) Minority Interest In Joint Ventures' Operations 35 (28) (36) (36) 34 Extraordinary Item - Gain On Extinguishment Of Debt -- -- 606 -- -- Net Income (Loss) $ 2,593 $ 3,528 $ 3,490 $ 2,680 $ (1,859) Net Income (Loss) Per Limited Partnership Assignee Unit (1): Income (Loss) Before Extraordinary Item $ 65 $ 89 $ 73 $ 68 (44) Extraordinary Item - Gain On Extinguishment of Debt -- -- 15 -- -- Net Income (Loss) $ 65 $ 89 $ 88 $ 68 $ 44 Total Assets $28,422 $27,510 $27,898 $ 31,672 $ 29,908 Notes Payable $ 5,412 $ 5,433 $ 7,655 $ 12,488 $ 12,518 Cash Distributions Per Limited Partnership Assignee Unit (actual amount based on admission to partnership) $ 40 $ 40 $ 40 $ 35 $ 20 (1) $1,000 original contribution per unit, based on weighted average limited partnership assignee units outstanding during the period after allocation to the general partner.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. Liquidity and Capital Resources All of the Registrant's properties are hotels. The Registrant receives hotel operating revenues and is responsible for operating expenses, administrative expenses, capital improvements and debt service payments. The Registrant uses working capital reserves provided from any undistributed cash flow from operations as its primary source of liquidity. During 1996, the Registrant distributed $39.99 per unit to the holders of limited partnership units ($1,477,000 in total) and $110,000 to the general partner. At December 31, 1996, the Partnership held unrestricted cash of approximately $4,644,000 compared to approximately $3,600,000 at December 31, 1995. Net cash provided by operating activities increased due to the payment of $775,000 during the first quarter of 1995 relating to a buyout agreement with the supervisory managing agent. Partially offsetting the increase in operating activities was the decrease in net income as discussed below. Net cash provided by investing activities decreased due to an increase in restricted cash. Net cash used in financing activities decreased due to the satisfaction of the note payable encumbering the Partnership's Hampton Inn-Brentwood property in 1995. On December 1, 1995, the Registrant satisfied the first mortgage encumbering its Hampton Inn-Brentwood property in the amount of $2,186,000. The Note was due to mature in January 1996. The mortgage on Partnership's Hampton Inn-Aurora property matured in January 1997. The Managing General Partner has obtained a one year extension. The mortgage on the Partnership's Hampton Inn-Albuquerque property matures in May 1997. The Managing General Partner will try to sell the property or refinance the debt of the property if the property is not sold. As required by the settlement of the class action brought in connection with the tender offer made by Devon Associates discussed below, the Partnership and GHI II, the Partnership's joint venture partner in the Combined Fund properties, marketed all of their properties for sale. In this regard, the Partnership and GHI II retained Bear, Stearns & Co. Inc. to assist in the marketing of such properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint ventures in which the Partnership has a controlling interest, GHI II, and the joint ventures in which GHI II has a controlling interest, and Equity Inns Partnership, L.P. (the "Buyer") entered into certain purchase and sale agreements pursuant to the Buyer agreed to purchase from these entities the twenty-two hotels described herein as well as six additional hotels owned directly or indirectly by GHI II for an aggregate purchase price of $182 million, subject to adjustment. The closing of these sales, which is anticipated to occur during the second quarter of 1997, is subject to many conditions including, favorable completion by the Buyer of its due diligence review and the Partnership and GHI II receiving consent to the sale from their respective limited partners holding a majority of the outstanding limited partnership interest in the Partnership and GHI II. Accordingly, there can be no assurance that the sale will be consummated with the Buyer or any other potential buyer. The Managing General Partner plans to liquidate the partnership upon the sale of the investment properties, which include payment of debt. If the sale does not consummate as planned, the Managing General Partner plans to negotiate extensions for those encumbrances which will mature in 1997. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership. The mortgage indebtedness of approximately $5,412,000 includes mortgages with maturity dates in 1997. The Partnership's Hampton Inn-Albuquerque has a balloon payment due in August 1997, in the amount of approximately $2,375,000. The mortgages encumbering the Partnership's unconsolidated joint venture, total approximately $40,185,000 at December 31, 1996. Two of the mortgages, Hampton Inn-Mountain Brook and Hampton Inn-Northlake, matured on August 1, 1996. The Managing General Partner has been successful in extending these mortgages to August 1, 1997. The unconsolidated joint venture's remaining mortgages of approximately $35,276,000 matured on December 1, 1996. The Managing General Partner has been successful in extending these loans until July 1, 1997. Cash distributions were made in the second and fourth quarters of 1996 and 1995 totaling $1,587,000, of which $1,477,000 was distributed to the limited partners and $110,000 was distributed to the general partner. Future cash distributions will depend on the levels of cash generated from operations, property sales and the availability of cash reserves. The Partnership is currently working on a product improvement plan (PIP) which is being coordinated with Hampton Inns, Inc. Under this plan capital expenditures and maintenance expenses may result in a material capital program during 1997, but no amount is available at this time. There are also certain routine capital expenditures and maintenance expenses which have been budgeted. These capital expenditures and maintenance expenses will be incurred with cash available from operations or from the capital reserve account. On February 15, 1996, Devon Associates, a New York general partnership, commenced a tender offer (the "Offer") for up to 15,000 of the outstanding Units at a purchase price of $705.00 per Unit. Devon Associates acquired 13,396 units with respect to this offer. On March 13, 1996, the Partnership received a letter advising that the Partnership's and Growth Hotel Investors II ("GHI II") joint venture partner in certain of the hotel properties was offering $147,000,000 in cash for all 28 hotel properties directly or indirectly owned by the Partnership and GHI II. See "Amendment No. 2" to the Partnership's Statement on Schedule 14D-9, as filed with the Commission on March 14, 1996, for a more complete description of this offer, which "Amendment No. 2" is hereby incorporated by reference herein. By the terms of the offer, the offer expired on March 31, 1996. The Managing General Partner determined that before the offer could be recommended, if at all, to the Partnership's limited partners, further analysis of the hotel properties and their value was needed. Results of Operations 1996 Compared to 1995 The Partnership's net income as reported in the financial statements for the year ended December 31, 1996, was approximately $2,593,000 compared to net income of approximately $3,528,000 for the corresponding period of 1995 (see "Note I" of the financial statements for a reconciliation of these amounts to the Partnership's federal taxable income). The decrease in net income is attributable to a decrease in hotel operating revenue, equity from unconsolidated joint ventures and interest revenue and an increase in hotel operations expenses, general and administrative expenses and depreciation expense. The decrease in hotel operations revenue is due to decreases in occupancy at the Partnership's Aurora and Albuquerque properties. The decrease in occupancy at the properties was partially offset by increases in average daily room rates. The decrease in occupancy at Aurora was due to rooms being out of service for renovations. The decrease in occupancy at the Albuquerque property is related to the construction of new hotels in the area. The decrease in interest revenue is due to a decrease in the average working capital available for investment. The increase in general and administrative expenses is due to an increase in professional fees, cost reimbursements and additional administrative costs associated with the potential sale of the properties and the liquidation of the Partnership. The increase in expense reimbursements during the year ended December 31, 1996, is directly attributable to the combined transition efforts of the Greenville, South Carolina, and Atlanta, Georgia administrative offices during the year-end close, preparation of the 1995 10-K and tax return (including the limited partners K-1's), filing of the first two quarterly reports and transition of asset management responsibilities to the new administration. The increase in depreciation expense in 1996 is due to additions to property and improvements during the third and fourth quarters of 1995, as well as the purchase of assets in 1996 related to renovations at the Partnership's properties. Offsetting the items noted above is a decrease in interest expense due to the repayment of the mortgage encumbering the Hampton Inn-Brentwood property on December 1, 1995. 1995 Compared to 1994 Operating results, before minority interest in joint ventures and the extraordinary item, improved by $636,000 for the year ended December 31, 1995, as compared to 1994, due to an increase in revenues of $292,000 and a decrease in expenses of $344,000. Operating results improved at all of the Registrant's properties except for the Hampton Inn - Syracuse. In addition, the Registrant's Hampton Inn - Elk Grove property, which had been generating losses, was lost to foreclosure during the 1994 period. With respect to the remaining properties, operating results, before minority interest in joint ventures, improved by $289,000 due to an increase in revenues of $446,000, and an increase in expenses of $157,000. With respect to the remaining properties, revenues from hotel operations increased by $446,000, for the year ended December 31, 1995, as compared to 1994, due to increased average daily room rates at all of the Registrant's hotels, which were partially offset by decreased occupancy at the Registrant's Hampton Inn - Syracuse, Albuquerque and Brentwood properties. Occupancy at the Registrant's Hampton Inn - Aurora property remained relatively constant. Equity in unconsolidated joint venture operations improved by $51,000 during the year ended December 31, 1995, as compared to 1994, due to improved hotel operating revenues at all the joint venture properties, except the San Antonio property, which was partially offset by joint venture income being allocated in different proportions (under the terms of the joint venture agreement). Interest and other revenues remained relatively constant. Expenses declined by $344,000 for the year ended December 31, 1995, as compared to 1994, due to the disposition of the Registrant's Hampton Inn - Elk Grove property during 1994. With respect to the remaining properties, expenses increased by $157,000, due to increases in hotel operating expenses of $157,000 and depreciation expense of $113,000, which was partially offset by a decrease in interest expense of $113,000. In addition, general and administrative expenses declined by $207,000. Hotel operating expenses increased primarily due to increased room expenses at all of the Registrant's properties, repairs and maintenance at the Registrant's Hampton Inn - Brentwood property and a slight increase in marketing expenses at the Registrant's Hampton Inn - Aurora property. Depreciation expense increased due to fixed asset additions. Interest expense declined due to the satisfaction of the notes encumbering the Registrant's Syracuse property in May 1994, Brentwood property in December 1995 and amortization of mortgage principal balances. General and administrative expenses declined due to a decrease in asset management costs associated with the amendment of the Registrant's services agreement in January 1995 and a decrease in reimbursed expenses, which were partially offset by amortization of the cost of the buy-out of the services agreement. Unconsolidated Joint Venture Operations (Growth Hotel Investors Combined Fund No. 1) 1996 Compared to 1995 Operating results, prior to minority interest in joint venture operations, declined by approximately $977,000 for the year ended December 31, 1996, as compared to 1995, due to an increase in expenses of approximately $2,148,000 which was partially offset by an increase in revenues of approximately $1,171,000. Expenses increased at all of the joint venture properties except for the Hampton Inn-Atlanta Roswell property, primarily due to higher maintenance expense at all of the properties. The maintenance expense increase is largely due to exterior painting projects at the Hampton Inn-Sycamore, Chapel Hill, Charleston, Birmingham, Nashville and Memphis properties. The increase in revenues is due to higher average daily room rates at all of the joint venture properties which was partially offset by a decline in occupancy. 1995 Compared to 1994 Operating results, prior to minority interests in joint venture operations, improved by $886,000 for the year ended December 31, 1995, as compared to 1994, due to an increase in revenues of $2,290,000 which was partially offset by an increase in expenses of $1,404,000. Revenues increased at all of the joint venture properties, except for the Hampton Inn - San Antonio property, due to higher average daily room rates. Occupancy remained relatively stable on an overall basis throughout the portfolio. The largest increases in revenues were at the Registrant's Hampton Inn - Chapel Hill, North-Lake, Greensboro, Greenville and Atlanta Roswell properties. Under the terms of the joint venture agreement, the income from the Combined Fund was allocated in different proportions during the year ended December 31, 1995, as compared to 1994. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the hotel market environment of its investment properties to assess the feasibility of increasing rates, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rates and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of room rate reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Item 8. Consolidated Financial Statements GROWTH HOTEL INVESTORS List of Financial Statements Independent Auditors' Report Consolidated Balance Sheets - December 31, 1996 and 1995 Consolidated Statements of Operations-Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Partners' Capital (Deficit)-Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows-Years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements To the Partners Growth Hotel Investors, a California Limited Partnership Greenville, South Carolina Independent Auditors' Report We have audited the accompanying consolidated balance sheets of Growth Hotel Investors, a California Limited Partnership, (the "Partnership") as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' equity 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 consolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 consolidated financial position of Growth Hotel Investors, a California Limited Partnership, 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. /s/ Imowitz Koenig & Co., LLP Certified Public Accountants New York, N.Y. February 28, 1997 except for Note N, which is dated March 14, 1997. GROWTH HOTEL INVESTORS CONSOLIDATED BALANCE SHEETS (in thousands) December 31, 1996 1995 Assets Cash and cash equivalents $ 4,644 $ 3,600 Restricted cash 268 189 Deferred costs 652 739 Accounts receivables and other assets 189 231 Investment in unconsolidated joint venture 7,767 8,153 Investment properties: Land 3,098 3,098 Buildings and related personal property 21,479 20,234 24,577 23,332 Less accumulated depreciation (9,675) (8,734) 14,902 14,598 Total assets $ 28,422 $ 27,510 Liabilities and Partners' Equity Liabilities Accounts payable and other liabilities $ 523 $ 562 Notes payable 5,412 5,433 Minority interest in joint ventures 42 76 Partners' Equity (Deficit): General partner (965) (1,034) Limited partners' (36,932 units outstanding at December 31, 1996 and 1995) 23,410 22,473 Total partners' equity 22,445 21,439 Total liabilities and partners' equity $ 28,422 $ 27,510 See Notes to Consolidated Financial Statements GROWTH HOTEL INVESTORS CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 1996 1995 1994 Revenues: Hotel operations $7,830 $ 8,091 $ 7,868 Equity in unconsolidated joint venture operations 1,851 2,021 1,970 Interest revenue 150 229 211 Total revenues 9,831 10,341 10,049 Expenses (including $201, $140, and $171 paid to the general partner and affiliates in 1996, 1995 and 1994): Hotel operations 5,107 4,839 4,930 Interest 594 798 960 Depreciation 941 750 634 General and administrative 631 398 605 Total expenses 7,273 6,785 7,129 Net income before minority interest in joint ventures' operations and extraordinary item 2,558 3,556 2,920 Minority interest in joint ventures' operations 35 (28) (36) Income before extraordinary item 2,593 3,528 2,884 Extraordinary item: Gain on extinguishment of debt -- -- 606 Net income $2,593 $ 3,528 $ 3,490 Net income allocated to general partners $ 179 $ 247 $ 241 Net income allocated to limited partners 2,414 3,281 3,249 Net income $2,593 $ 3,528 $ 3,490 Net income per limited partnership unit: Income before extraordinary item $65.36 $ 88.84 $ 72.70 Extraordinary item - gain on extinguishment of debt -- -- 15.27 Net income per limited partnership unit $65.36 $ 88.84 $ 87.97 Cash distributions per limited partnership unit $39.99 $ 39.99 $ 39.99 See Notes to Consolidated Financial Statements GROWTH HOTEL INVESTORS CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (in thousands, except unit data) Limited General Limited Partnership Partners' Partners' Total Units Deficit Equity Equity Original capital contributions 36,932 $ -- $36,932 $36,932 Partners' (deficit) capital at December 31, 1993 36,932 $(1,302) $18,897 $17,595 Net income for the year ended December 31, 1994 241 3,249 3,490 Distributions (110) (1,477) (1,587) Partners' (deficit) capital at December 31, 1994 36,932 (1,171) 20,669 19,498 Net income for the year ended December 31, 1995 247 3,281 3,528 Distributions (110) (1,477) (1,587) Partners' (deficit) capital December 31, 1995 36,932 (1,034) 22,473 21,439 Net income for the year ended December 31, 1996 179 2,414 2,593 Distributions (110) (1,477) (1,587) Partners' (deficit) capital at December 31, 1996 36,932 $ (965) $23,410 $22,445 See Notes to Consolidated Financial Statements GROWTH HOTEL INVESTORS CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 1996 1995 1994 Cash Flows From Operating Activities: Net income $ 2,593 $ 3,528 $ 3,490 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,028 838 651 Equity in unconsolidated joint venture operations (1,851) (2,021) (1,970) Minority interest in joint ventures' operations (35) 28 36 Deferred income -- (40) (55) Deferred costs paid -- (775) -- Extraordinary gain on extinguishment of debt -- -- (606) Change in accounts: Accounts receivable and other assets 43 (26) (6) Accounts payable and other liabilities (39) (95) (65) Net cash provided by operating activities 1,739 1,437 1,475 Cash Flows From Investing Activities: Cash surrendered upon foreclosure of Elk Grove -- -- (33) Property improvements and replacements (1,245) (1,428) (411) Unconsolidated joint venture distributions 2,237 2,355 2,182 Restricted cash (increase) decrease (79) 146 43 Proceeds from maturity of cash investments -- -- 3,169 Net cash provided by investing activities 913 1,073 4,950 Cash Flows From Financing Activities: Cash distributions to partners (1,587) (1,587) (1,587) Notes payable principal payments (21) (36) (31) Satisfaction of note payable -- (2,186) (2,030) Net cash used in financing activities (1,608) (3,809) (3,648) Increase (Decrease) in Cash and Cash Equivalents 1,044 (1,299) 2,777 Cash and Cash Equivalents at Beginning of Year 3,600 4,899 2,122 Cash and Cash Equivalents at End of Year $ 4,644 $ 3,600 $ 4,899 Supplemental disclosure of cash flow information: Interest paid in cash during the year $ 556 $ 813 $ 997 Supplemental Disclosure of Non-Cash Investing and Financing Activities: Gain on Extinguishment of Debt in 1994 - Note G. See Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - Organization and Significant Accounting Policies Organization Growth Hotel Investors, (the "Partnership" or the "Registrant"), is a limited partnership organized in 1984 under the laws of the State of California to acquire, primarily through joint ventures, hold for investment, and ultimately sell limited service hotels which are franchised by Hampton Inns, Inc. ("Hampton"), a wholly owned subsidiary of the Promus Companies, Inc. ("Promus"). The Partnership owns properties in Albuquerque, New Mexico, and Nashville, Tennessee, and has 50 percent joint venture interests in two partnerships which own properties in Syracuse, New York, and Aurora, Colorado, respectively. The Partnership also has an investment in another joint venture in which the Partnership does not have a controlling interest. The properties owned by this joint venture are located in Alabama, Arkansas, Georgia, Michigan, North Carolina, South Carolina, Tennessee and Texas. The general partner is Montgomery Realty Company-85 ("MRC-85"), a California general partnership. The general partners of MRC-85 are Fox Realty Investors ("FRI"), a California general partnership, and NPI Realty Management Corp. ("NPI Realty"), a Florida corporation. On February 13, 1996 NPI Realty, which acquired its interest in MRC-85 from Montgomery Realty Corporation on November 15, 1995 became the managing general partner of MRC-85. Capital contributions of $36,932,000 ($1,000 per unit) were made by the limited partners. On December 6, 1993, NPI Equity Investments II, Inc. ("NPI Equity" or the "Managing General Partner") became the managing partner of FRI and assumed operational control over Fox Capital Management Corporation ("FCMC"), an affiliate of FRI. As a result, NPI Equity became responsible for the operation and management of the business and affairs of the Partnership and the other investment partnerships sponsored by FRI and/or FCMC. The individuals who had served previously as partners of FRI and as officers and directors of FCMC contributed their general partnership interest in FRI to a newly formed limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in exchange for limited partnership interests in PRA. In the foregoing capacity, such partners continue to hold indirectly certain economic interest in the Partnership and such other investment partnerships, but ceased to be responsible for the operation and management of the Partnership and such other partnerships. NPI Equity and NPI Realty are wholly-owned subsidiaries of National Property Investors, Inc. ("NPI or NPI Inc."). On January 19, 1996, the stockholders of NPI, Inc., the sole shareholder of NPI Equity, sold all of the issued and outstanding stock of NPI, Inc. to an affiliate of Insignia Financial Group Inc. ("Insignia"). On February 15, 1996, Devon Associates, a New York general partnership, commenced a tender offer (the "Offer") for up to 15,000 of the outstanding Units at a purchase price of $705.00 per Unit. An affiliate of the Managing General Partner has an interest in Devon Associates. Devon Associates acquired 13,395 Units with respect to this offer. Principles of Consolidation The consolidated financial statements include the Partnership and the three joint ventures in which the Partnership has or has had a controlling interest. In April 1994, the Hampton Inn - Elk Grove Village was disposed of through foreclosure, see "Note G." All significant intercompany transactions and balances have been eliminated. The investment in another joint venture in which the Partnership does not have a controlling interest is accounted for under the equity method of accounting (see "Note H"). 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $400,000 and $530,000 for the years ended December 31, 1996 and 1995, respectively. Fair Value In 1995, the Partnership implemented "Statement of Financial Accounting Standards No. 107, Disclosure about Fair Value of Financial Instruments," as amended by "SFAS No. 119, Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate fair value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgage by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. Investment Properties In 1995 the Partnership adopted "FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," 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. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption had no effect on the Partnerships financial statements. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity, when purchased, of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Depreciation Depreciation is computed using the straight-line method based on estimated useful lives ranging from 5 to 39 years. Deferred Costs Deferred costs represent the buyout of a services agreement, deferred financing costs and deferred franchise fees. The buyout of the services agreement is being amortized over the remaining term of the services agreement which is 8 years. Financing costs are deferred and amortized, as interest expense, over the lives of the related loans, or expensed, if financing is not obtained. Franchise fees paid in connection with the acquisition of the hotels are deferred and are amortized over the lives of the franchise agreements, which range from ten to twenty years. Land lease costs paid in connection with acquisition of certain hotels are deferred and amortized over the lives of the lease agreements. Net Income (Loss) Per Limited Partnership Assignee Unit Net income (loss) per limited partnership assignee unit is computed by dividing net income (loss) allocated to the limited partners by 36,932 assignee units outstanding. Income Taxes Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Reclassification Certain reclassifications have been made to the 1995 and 1994 balances to conform to the 1996 presentation. Note B - Transactions With The General Partner and Affiliates The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the administration of all partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with affiliates of the Managing General Partner were charged to expense in 1996, 1995, and 1994: 1996 1995 1994 (in thousands) Reimbursement for services of affiliates (primarily included in general and administrative expenses) $ 201 $ 140 $ 166 Reimbursed expenses are primarily included in general and administrative expenses. In addition, an affiliate of Managing General Partner was paid $5,000 relating to a successful real estate tax appeal on a Partnership property during 1994. In accordance with the partnership agreement, the general partner receives cash distributions as follows: (a) a partnership management incentive not to exceed ten percent, determined on a cumulative, noncompounded basis, of cash from operations available for distribution (as defined in the partnership agreement) distributed to partners, and (b) a continuing interest representing a two percent share of cash distributions, after allocation of the partnership management incentive. A portion of the partnership management incentive is subordinated to certain cash distributions to the limited partners. Cash distributions to the general partner for the years ended December 31, 1996, 1995 and 1994 are as follows: 1996 1995 1994 (in thousands) Partnership management incentive $ 79 $ 79 $ 79 Continuing interest 31 31 31 Total $110 $110 $110 In accordance with the partnership agreement, the general partner received an allocation of net income and taxable income of seven percent and net losses of twelve percent. Note C - Related Party Transactions In addition to the fees paid to the general partner and affiliates as set forth above, the Partnership has agreements with affiliates of its joint venture partners, which provide for the management and operations of the joint venture properties and services provided under each property's franchise agreement. Fees paid pursuant to these agreements are generally based on a percentage of gross revenues from operations of the property and for the years ended December 31, 1996, 1995 and 1994 were approximately $40,000, $76,000 and $75,000, respectively. Note D - Restricted Cash Restricted cash at December 31, 1996, represents funds provided for and maintained by certain properties, pursuant to the related notes payable agreements, to meet future capital requirements and debt service payments. Note E - Deferred Costs The Partnership paid $775,000 in January 1995 to Metric Management, Inc. ("MMI") amending their services agreement to provide for a reduction in the monthly asset management fee from $29,750 to $5,500. This amendment eliminated fees payable to MMI for its assistance in refinancings and sales of properties owned by the Partnership and provides the Partnership with the ability to terminate MMI's services at will. The cost of the amendment is being amortized over the remaining term of the service agreement of 8 years. For the year ended December 31, 1996 and 1995, approximately $78,000 and $77,000, respectively, has been amortized and is included in general and administrative expenses. At December 31, 1996 and 1995, accumulated amortization of the service agreement's deferred costs totaled approximately $155,000 and $77,000, respectively. At December 31, 1996 and 1995, accumulated amortization of the franchise fees deferred costs totaled approximately $30,000 and $74,000, respectively. The fully amortized cost have been written off during 1996. Note F - Notes Payable Two of the Partnership's properties are pledged as collateral for related notes payable. The notes bear interest at 10 and 10.50 percent. The note encumbering the Partnership's consolidated Hampton Inn - Syracuse (50% owned joint venture) property was satisfied on May 31, 1994, with the proceeds of a $2,048,000 loan from the Partnership. The loan's interest rate was at prime plus 2% and was due on demand. Approximately $2,352,000 and $2,048,000 at December 31, 1996 and 1995, respectively, of loan and accrued interest were eliminated in consolidation. On December 1, 1995, the Partnership satisfied the first mortgage encumbering its Hampton Inn-Brentwood property in the amount of $2,186,000. The note was due to mature in January 1996. At December 31, 1996 and 1995, accumulated amortization of deferred financing costs totaled approximately $49,000 and $59,000, respectively. The fully amortized cost have been written off during 1996. The estimated fair values of the Partnership's aggregate debt is approximately $5,412,000. This estimate is not necessarily indicative of the amounts the Partnership may pay in actual market transactions. Scheduled principal payments subsequent to December 31, 1996, are as follows (in thousands): 1997 $2,401 1998 3,011 Total $5,412 The mortgage on Partnership's Hampton Inn-Aurora property matured in January 1997. The Managing General Partner has obtained a one year extension. The mortgage on the Partnership's Hampton Inn-Albuquerque property matures in May 1997. The Managing General Partnership will try to sell the property or refinance the debt of the property if the property is not sold. Note G - Extraordinary Item - Gain On Extinguishment of Debt On April 4, 1994, the Hampton Inn - Elk Grove Village was disposed of through foreclosure for $3,550,000 to the holder of the deed of trust on the property. The disposition value is comprised of the note payable of $2,772,000, plus $778,000 of net liabilities, consisting of $260,000 of accrued interest, $444,000 of accrued property taxes and $74,000 of other liabilities. As a result of the disposition of this property through foreclosure, the Partnership recognized an extraordinary gain on extinguishment of debt of $606,000 in the second quarter of 1994. The results of operations for Elk Grove included in the financial statements are through February 4, 1994. Note H - Investment in Unconsolidated Joint Venture On December 9, 1986, the Partnership acquired an ownership interest in Growth Hotel Investors Combined Fund No. 1, a California Limited Partnership, ("Combined Fund"), a joint venture with Growth Hotel Investors II, a California Limited Partnership, ("GHI II") affiliated with the Partnership's general partner. The Partnership's ownership interest in the Combined Fund is approximately 32 percent. The Combined Fund acquired an 80% interest in a separate joint venture, Hampton/GHI Associates No. 1, which was formed to acquire and has acquired eighteen Hampton Inn hotels. Hampton Inns owns a 20% subordinated interest. The Partnership's interest in the Combined Fund is reported under the equity method of accounting. Summary financial information for Growth Hotel Investors Combined Fund No. 1 Joint Venture is as follows (in thousands): December 31, 1996 1995 Total assets $ 62,199 $ 65,414 Total liabilities (37,081) (39,107) Total ventures' equity $ 25,118 $ 26,307 December 31, 1996 1995 Total revenues $ 38,327 $ 37,156 Total expenses (32,858) (30,710) Minority interest 393 (76) Net income $ 5,862 $ 6,370 Allocation of income: GHI $ 1,851 $ 2,021 GHI II 4,011 4,349 Net income $ 5,862 $ 6,370 In 1996 and 1995 the Partnership received distributions of approximately $2,237,000 and $2,355,000, respectively, from the Joint Venture. Note I - Reconciliation To Income Tax Method of Accounting The differences between the method of accounting for income tax reporting and the accrual method of accounting used in the consolidated financial statements are as follows:
1996 1995 1994 (in thousands, except unit data) Net income - financial statements $ 2,593 $ 3,528 $ 3,490 Differences resulted from: Deferred costs -- (775) -- Depreciation and amortization (120) (141) (266) Equity in unconsolidated joint venture operations (180) (200) (178) Minority interest 21 8 (130) Other 15 30 (36) Loss of property disposition -- -- (1,216) Net income - income tax method $ 2,329 $ 2,450 $ 1,664 Taxable income per limited partnership assignee unit after giving effect to the allocation to the general partner $ 59 $ 62 $ 42 Partner's equity-financial statements $22,445 $21,439 19,498 Differences resulted from: Deferred sales commissions and organization costs 4,946 4,946 4,946 Commission reduction reimbursed to investors 43 43 43 Depreciation and amortization (1,744) (1,624) (1,483) Deferred costs (775) (775) -- Equity in unconsolidated joint venture operations (1,019) (839) (639) Minority interest 1,455 1,434 1,426 Other (295) (310) (340) Partners' equity-income tax method $25,056 $24,314 $23,451
Note J - Commitment and Contingencies William Wallace, Mildred Wallace, Edith G. Martin, Paul Allemang and Gwen Allemang, on behalf of themselves and all others similarly situated, and derivatively on behalf of Growth Hotel Investors, a California limited partnership and Growth Hotel Investors II, a California limited partnership ("GHI II"), Plaintiff v. Devon Associates, Montgomery Realty-85, GHI Associates, Cayuga Associates L.P., Cayuga Capital Corp., Insignia Financial Group, Inc., L.P., and Fleetwood Corp., Defendants and Growth Hotel Investors, a California limited partnership, and Growth Hotel Investors II, a California limited partnership, Nominal Defendant, Supreme Court of the State of New York, County of New York, Case No. 9600866. On February 21, 1996, William and Mildred Wallace, holders of Units of the Registrant and Edith G. Martin and Paul and Gwen Allemang, holders of Units of GHI II, commenced an action on behalf of themselves and others similarly situated, and derivatively on behalf of the Partnership and GHI II, in the Supreme Court of the State of New York, County of New York, against, among others, MRC-85 and certain of its affiliates pertaining to the tender offer for up to 15,000 partnership Units of the Partnership and up to 21,000 partnership Units of GHI II which commenced February 15, 1996. The action alleged, among other things, that the tender offers constitute (a) a breach of fiduciary duty owed to limited partners of the partnerships, and (b) a breach of the provisions of the partnership agreements of such partnerships. The action, which sought to be brought as a class action on behalf of all limited partners, sought to enjoin the tender offers as well as monetary damages in an unspecified amount. In connection with the settlement discussed below, this action has been discontinued. R&S Asset Partners, a Florida general partnership, and Jessie B. Small, on their own behalves, on behalf of all others similarly situated, and derivatively on behalf of the Nominal Defendants, Plaintiffs, v. Devon Associates, Cayuga Associates, L.P., Cayuga Capital Corp., Fleetwood Corp., Carl C. Icahn, Michael L. Ashner, Martin Lifton, Arthur N. Queler, Insignia Financial Group, Inc., IFGP, Corp., National Properties Investors, Inc., NPI Equity Investments II, Inc., Fox Realty Investors, Portfolio Realty Associates, L.P., Emmet J. Cashin, Jr., Jarold A. Evans, W. Patrick McDowell, Apollo Real Estate Advisors, L.P., and Montgomery Realty Company-85, Defendants, and Growth Hotel Investors, a California Limited Partnership, and Growth Hotel Investors II, a California Limited Partnership, Nominal Defendants, Superior Court of the State of California, County of Los Angeles, Case No. BC145220. On February 28, 1996, R&S Asset Partners, holders of Units of the Partnership, and Jesse B. Small, holder of Units of GHI II, commenced an action on behalf of themselves and others similarly situated, and derivatively on behalf of the Partnership and GHI II, in the Superior Court of the State of California, County of Los Angeles, against, among others, MRC-85 and certain of its affiliates pertaining to the tender offer for up to 15,000 partnership Units of the Partnership and up to 21,000 partnership Units of GHI II which commenced February 15, 1996. The action alleges, among other things, that the tender offers constitute (a) a breach of fiduciary duty owed to limited partners of the partnerships, (b) negligent misrepresentation pertaining to the disclosure set forth in the offer to purchase, (c) common law fraud, and (d) a breach of the provisions of the partnership agreements of such partnerships. The action, which is sought to brought as a class action on behalf of all limited partners, seeks to enjoin the tender offers as well as monetary damages in an unspecified amount. On March 15, 1996, counsel for the plaintiffs and defendants in the Wallace and the R&S Partners Actions agreed in principle to settle these actions, which settlement has subsequently received final court approval. In connection with the settlement MRC-85 agreed to take such actions as are reasonably necessary and consistent with its fiduciary duties to procure offers for the purchase of the Partnership's and GHI II's assets which maximize the value of the limited partner assignee units. MRC-85 further agreed to deal fairly and in good faith with persons expressing an interest in making a bona fide offer to purchase such assets and, subject to its fiduciary duty, provide such bona fide offers with access to the Partnership's and GHI II's books and records for due diligence purposes. MRC-85 also agreed that if it determined that an offer to purchase its assets is acceptable, MRC-85 will prepare a plan of liquidation and submit such plan to the Partnership's partners for approval. Also in connection with the settlement, the plaintiffs will release all claims they may have arising out of the tender offers. As required by the settlement, the Partnership and GHI II are coordinating with class counsel with respect to the sale of such assets and consent of limited partners. Note K - Investment Properties and Accumulated Depreciation
Initial Cost To Partners Cost Buildings And (Removed Related Subsequent To Description Encumbrances Land Property Acquisition (Amounts in thousands) Growth Hotel Investors: Hampton Inn - Albuquerque North Albuquerque, New Mexico $ 2,375 $ 824 $ 4,140 $ 969 Hampton Inn - Brentwood Nashville, Tennessee -- 514 4,236 1,129 Hampton Inn - Syracuse East Syracuse, New York -- 388 3,723 1,196 Hampton Inn - Aurora Aurora, Colorado 3,037 1,392 5,053 1,013 Total $ 5,412 $ 3,118 $17,152 $4,307 Growth Hotel Investors Combined Fund No. 1: Hampton Inn - Memphis I40 East Memphis, Tennessee $ 1,771 $ -- $ 3,838 $ 541 Hampton Inn - Columbia-West West Columbia, South Carolina 2,062 350 4,133 324 Hampton Inn - Spartanburg Spartanburg, South Carolina 1,767 275 3,545 357 Hampton Inn - Little Rock-North North Little Rock, Arkansas 2,015 524 3,862 315 Hampton Inn - Amarillo Amarillo, Texas 1,120 501 1,810 396 Hampton Inn - Greenville Greenville, South Carolina 2,054 539 3,942 106 Hampton Inn - Charleston Airport North Charleston, South Carolina 2,144 495 4,205 323 Hampton Inn - Memphis-Poplar Memphis, Tennessee 2,798 1,236 4,993 71 Hampton Inn - Greensboro Greensboro, North Carolina 1,982 439 3,866 254 Hampton Inn - Birmingham Birmingham, Alabama 2,426 758 4,447 64 Hampton Inn - Atlanta-Roswell Roswell, Georgia 2,643 1,207 4,668 (141) Hampton Inn - Chapel Hill Chapel Hill, North Carolina 2,257 930 3,926 (5) Hampton Inn - Dallas-Richardson Richardson, Texas 2,769 1,371 4,766 (311) Hampton Inn - Nashville-Briley Parkway Nashville, Tennessee 2,183 -- 4,796 (23) Hampton Inn - San Antonio-Northwest San Antonio, Texas 2,451 781 4,475 (58) Hampton Inn - Madison Heights Madison Heights, Michigan 2,834 963 5,323 653 Hampton Inn - Mountain Brook Birmingham, Alabama 2,543 -- 4,782 699 Hampton Inn - Northlake Atlanta, Georgia 2,366 -- 4,439 510 TOTAL $40,185 $10,369 $75,816 $4,075
Gross Amount At Which Carried at December 31, 1996 Building And Accumulated Year of Date of Depreciable Description Land Improvements Total Depreciation Construction Acquisition Life-Years (Amounts in thousands) Growth Hotel Investors: Hampton Inn - Albuquerque North Albuquerque, New Mexico $ 824 $ 5,109 $ 5,933 $ 2,041 1987 04/24/87 5-39 Yrs Hampton Inn - Brentwood Nashville, Tennessee 514 5,365 5,879 2,270 1985 12/23/85 5-39 Yrs Hampton Inn - Syracuse East Syracuse, New York 368 4,939 5,307 2,127 1985 12/20/85 5-39 Yrs Hampton Inn - Aurora Aurora, Colorado 1,392 6,066 7,458 3,237 1985 12/11/86 5-39 Yrs Total $ 3,098 $21,479 $24,577 $ 9,675 Growth Hotel Investors Combined Fund No. 1: Hampton Inn - Memphis I40 East Memphis, Tennessee $ -- $ 4,379 $ 4,379 $ 1,769 1984 12/19/86 5-30 Yrs Hampton Inn - Columbia-West West Columbia, South Carolina 350 4,457 4,807 1,845 1985 12/19/86 5-30 Yrs Hampton Inn - Spartanburg Spartanburg, South Carolina 275 3,902 4,177 1,616 1984 12/19/86 5-39 Yrs Hampton Inn - Little Rock-North North Little Rock, Arkansas 524 4,177 4,701 1,600 1985 12/19/86 5-39 Yrs Hampton Inn - Amarillo Amarillo, Texas 501 2,206 2,707 919 1985 12/19/86 5-39 Yrs Hampton Inn - Greenville Greenville, South Carolina 539 4,048 4,587 1,608 1985 12/19/86 5-30 Yrs Hampton Inn - Charleston Airport North Charleston, South Carolina 495 4,528 5,023 1,808 1985 12/19/86 5-39 Yrs Hampton Inn - Memphis-Poplar Memphis, Tennessee 1,236 5,064 6,300 2,006 1985 12/19/86 5-30 Yrs Hampton Inn - Greensboro Greensboro, North Carolina 439 4,120 4,559 1,600 1986 12/19/86 5-39 Yrs Hampton Inn - Birmingham Birmingham, Alabama 758 4,511 5,269 1,757 1987 12/19/86 5-30 Yrs Hampton Inn - Atlanta-Roswell Roswell, Georgia 1,207 4,527 5,734 1,621 1987 03/04/87 5-30 Yrs Hampton Inn - Chapel Hill Chapel Hill, North Carolina 930 3,921 4,851 1,445 1987 03/04/87 5-30 Yrs Hampton Inn - Dallas-Richardson Richardson, Texas 1,371 4,455 5,826 1,542 1987 03/04/87 5-30 Yrs Hampton Inn - Nashville Briley Parkway Nashville, Tennessee -- 4,773 4,773 1,728 1987 03/04/87 5-30 Yrs Hampton Inn - San Antonio-Northwest San Antonio, Texas 781 4,417 5,198 1,523 1987 06/23/87 5-30 Yrs Hampton Inn - Madison Heights Madison Heights, Michigan 963 5,976 6,939 2,454 1987 12/29/87 5-30 Yrs Hampton Inn - Mountain Brook Birmingham, Alabama -- 5,481 5,481 2,380 1988 12/19/87 5-30 Yrs Hampton Inn - Northlake Atlanta, Georgia -- 4,949 4,949 2,179 1988 09/15/88 5-30 Yrs $10,369 $79,891 $90,260 $31,400
Reconciliation of Investment Properties and Accumulated Depreciation: Years Ended December 31, 1996 1995 1994 (in thousands) Balance at beginning of year $23,332 $ 21,904 $ 27,471 Property improvements 1,245 1,428 411 Retirement of assets -- -- (5,978) Balance at end of year $24,577 $ 23,332 $ 21,904 Accumulated Depreciation Balance at beginning of year $ 8,734 $ 7,984 $ 10,498 Additions charged to expense 941 750 634 Retirement of assets -- -- (3,148) $ 9,675 $ 8,734 $ 7,984 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1996, 1995 and 1994 respectively is approximately $23,742,000, $22,482,000 and approximately $21,809,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996, 1995, and 1994, respectively is approximately $11,316,000, $10,165,000 and $9,187,000. Note L - Option to Acquire Joint Venture Partner's Interest On October 2, 1995, the Registrant was granted the option to acquire its joint venture partner's interest in Aurora/GHI Associates No. 1, the joint venture which owns the Hampton Inn-Aurora for $150,000. The Registrant has not yet acquired such interest. It is expected that such interest will be acquired prior to the sale of the Registrant's properties. Note M - Tender Offers On February 15, 1996, Devon Associates ("Devon") offered to purchase up to 21,000 and 15,000 limited partnership outstanding units (the "Units") of GHI II, and the Partnership, respectively. Devon Associates acquired 17,287 and 13,396 units, with respect to these offers, respectively. The offer for the Partnerships Units was at a purchase price of $750 and $705, respectively, per unit, net to the seller in cash, without interest, upon the terms and conditions set forth in the offer to purchase. Certain beneficial owners of Devon are affiliated with the general partners of GHI II and the Partnership. In addition, an affiliate of Insignia is both a shareholder in the general partner of Cayuga Associates, LP, the controlling general partner in Devon, and a limited partner in Devon. Note N - Subsequent Event As required by the settlement of the class action brought in connection with the tender offer made by Devon Associates discussed in "Note M", the Partnership and GHI II, the Partnership's joint venture partner in the Combined Fund properties, marketed all of their properties for sale. In this regard, the Partnership and GHI II retained Bear, Stearns & Co. Inc. to assist in the marketing of such properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint ventures in which the Partnership has a controlling interest, GHI II, and the joint ventures in which GHI II has a controlling interest, and Equity Inns Partnership, L.P. (the "Buyer") entered into certain purchase and sale agreements pursuant to which the Buyer agreed to purchase from these entities the twenty-two hotels described herein as well as six additional hotels owned directly or indirectly by GHI II for an aggregate purchase price of $182 million, subject to adjustment. The closing of these sales, which is anticipated to occur during the second quarter of 1997, is subject to many conditions including, favorable completion by the Buyer of its due diligence review and the Partnership and GHI II receiving consent to the sale from their respective limited partners holding a majority of the outstanding limited partnership interests in the Partnership and GHI II. Accordingly, there can be no assurance that the sale will be consummated with the Buyer or any other potential buyer. Item 9. Changes in and Disagreements with Accountant on Accounting and Financial Disclosures None PART III Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Neither the Registrant nor Montgomery Realty Company-85 ("MRC"), the general partner of the Registrant has any officers or directors. NPI Realty Management Corp. ("NPI Realty"), the managing general partner of MRC, manages and controls substantially all of the Registrant's affairs and has general responsibility and ultimate authority in all matters affecting its business. NPI Realty is a wholly owned subsidiary of National Property Investors, Inc. ("NPI, Inc."), which in turn is wholly owned by Insignia. As of March 1, 1997, the names and positions held by the officers and directors of NPI Realty are as follows: Name Age Position William H. Jarrard, Jr. 50 President and Director Ronald Uretta 40 Vice President and Treasurer John K. Lines, Esq. 37 Vice President and Secretary Kelley M. Buechler 39 Assistant Secretary William H. Jarrard, Jr. has been Managing Director - Partnership Administration of Insignia since January 1991. Mr. Jarrard served as Managing Director - Partnership Administration & Asset Management from July 1994 until January 1996. Ronald Uretta has been Insignia's Treasurer since January 1992. Since August 1996, he has also served as Chief Operating Officer. He also served as Secretary from January 1992 to June 1994 and as Chief Financial Officer from January 1992 to August 1996. Since September 1990, Mr. Uretta has also served as the Chief Financial officer and controller of MAG. John K. Lines, Esq. has been Vice President and Secretary of the Managing General Partner since January 1996, Insignia's General Counsel since June 1994, and General Counsel and Secretary since July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen Financial Corporation, West Palm Beach, Florida. From October 1991 until May 1993, Mr. Lines was a Senior Attorney with Banc One Corporation, Columbus, Ohio. From May 1984 until October 1992, Mr. Lines was an attorney with Squire Sanders & Dempsey, Columbus, Ohio. Kelley M. Buechler has been Assistant Secretary of the Managing General Partner and Assistant Secretary of Insignia since 1991. During the five years prior to joining Insignia in 1991, she served in similar capacities with U. S Shelter. Item 11. Executive Compensation: The Registrant is not required to and did not pay any compensation to the officers or directors of NPI Realty or NPI Equity Investments II, Inc., the managing general partner of Fox Realty Investors, a general partner of MRC. NPI Realty does not presently pay any compensation to any of its officers or directors. (See Item 13, "Certain Relationships and Related Transactions"). Item 12. Security Ownership of Certain Beneficial Owners and Management: The following table sets forth certain information regarding limited partnership units of the Registrant owned by each person who is known by the Registrant to own beneficially or exercise voting or dispositive control over more than 5% of the Registrant's limited partnership units, by each of the directors and by all directors and executive officers of the Managing General Partner as a group as of March 1, 1997. Name and address of Amount and nature of Beneficial Owner Beneficial Owner % of Class Devon Associates (1) (2) 13,396 36.27 All directors and executive officers as a group (four persons) (1) The business address for Devon Associates is 100 Jericho Quadrangle, Suite 214, Jericho, New York 11753. (2) Based upon information supplied to the Registrant by Devon Associates. The Registrant is a limited partnership and has no officers or directors. The managing general partner has discretionary control over most of the decisions made by or for the Registrant in accordance with the terms of the Partnership Agreement. Affiliates of the Registrant's general partner own less than one percent of the Registrant's voting securities. There are no arrangements known to the Registrant, the operation of which may, at a subsequent date, result in a change in control of the Registrant. Item 13. Certain Relationships and Related Transactions: The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the administration of all partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The general partner of the Partnership is MRC-85. The general partners of MRC- 85 are FRI, and NPI Realty. On February 13, 1996, NPI Realty, which acquired its interest in MRC-85 from Montgomery Realty Corporation on November 15, 1995, became the managing general partner of MRC-85. On January 19, 1996, all of the issued and outstanding shares of stock of National Property Investors, Inc. ("NPI"), the sole shareholder of both NPI Equity Investments II, Inc. ("NPI Equity"), the managing general partner of FRI, and NPI Realty was acquired by an affiliate of Insignia Financial Group, Inc. ("Insignia"). In connection with these transactions, affiliates of Insignia appointed new officers and directors of NPI Equity and NPI Realty. The following transactions with affiliates of the Managing General Partner were charged to expense in 1996, 1995, and 1994: 1996 1995 1994 (in thousands) Reimbursement for services of affiliates (included in general and administrative expenses) $ 201 $ 140 $ 166 Reimbursed expenses are primarily included in general and administrative expenses. In addition, an affiliate of Managing General Partner was paid $5,000 relating to a successful real estate tax appeal on a Partnership property during 1994. In accordance with the partnership agreement, the general partner receives cash distributions as follows: (a) a partnership management incentive not to exceed ten percent, determined on a cumulative, noncompounded basis, of cash from operations available for distribution (as defined in the partnership agreement) distributed to partners, and (b) a continuing interest representing a two percent share of cash distributions, after allocation of the partnership management incentive. A portion of the partnership management incentive is subordinated to certain cash distributions to the limited partners. Cash distributions to the general partner for the years ended December 31, 1996, 1995 and 1994 are as follows: 1996 1995 1994 (in thousands) Partnership management incentive $ 79 $ 79 $ 79 Continuing interest 31 31 31 Total $110 $110 $110 In accordance with the partnership agreement, the general partner received an allocation of net income and taxable income of seven percent and net losses of twelve percent. In addition to the fees paid to the general partner and affiliates as set forth above, the Partnership has agreements with affiliates of its joint venture partners, which provide for the management and operations of the joint venture properties and services provided under each property's franchise agreement. Fees paid pursuant to these agreements are generally based on a percentage of gross revenues from operations of the property and for the years ended December 31, 1996, 1995 and 1994 were $40,000, $76,000 and $75,000, respectively. On March 13, 1996, the Partnership received a letter advising that the Partnership's and GHI II's joint venture partner in certain of the hotel properties was offering $147,000,000 in cash for all 28 hotel properties directly or indirectly owned by the Partnership and GHI II. See "Amendment No. 2" to the Partnership's Statement on Schedule 14D-9, as filed with the Commission on March 14, 1996, for a more complete description of this offer, which "Amendment No. 2" is hereby incorporated by reference herein. By the terms of the offer, the offer expired on March 31, 1996. The Managing General Partner determined that before the offer could be recommended, if at all, to the Partnership's limited partners, further analysis of the hotel properties and their value was needed. As required by the settlement of the class action brought in connection with the tender offer made by Devon Associates discussed above, the Partnership and GHI II, the Partnership's joint venture partner in the Combined Fund properties, marketed all of their properties for sale. In this regard, the Partnership and GHI II retained Bear, Stearns & Co. Inc. to assist in the marketing of such properties. As of March 14, 1997, the Partnership, the Combined Fund, the joint ventures in which the Partnership has a controlling interest, GHI II, and the joint ventures in which GHI II has a controlling interest, and Equity Inns Partnership, L.P. (the "Buyer") entered into certain purchase and sale agreements pursuant to the Buyer agreed to purchase from these entities the twenty-two hotels described herein as well as six additional hotels owned directly or indirectly by GHI II for an aggregate purchase price of $182 million, subject to adjustment. The closing of these sales, which is anticipated to occur during the second quarter of 1997, is subject to many conditions including, favorable completion by the Buyer of its due diligence review and the Partnership and GHI II receiving consent to the sale from their respective limited partners holding a majority of the outstanding limited partnership interests in the Partnership and GHI II. Accordingly, there can be no assurance that the sale will be consummated with the Buyer or any other potential buyer. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K: (a) (3) Exhibits (a)(1)(2) Financial Statements and Financial Statement Schedules See Item 8 of this Form 10-K for Consolidated Financial Statements for the Registrant, Notes thereto, and Financial Statement Schedules. (A table of contents to Consolidated Financial Statements and Financial Statement Schedules is included in Item 8 and incorporated herein by reference.) 2. NPI, Inc. Stock Purchase Agreement, dated as of August 17, 1995, incorporated by reference to the Registrant's Current Report on Form 8-K dated August 17, 1995. 3.4. Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Prospectus of the Registrant dated October 10, 1986, and thereafter supplemented, included in the Registrant's Registration Statement on Form S-11 (Reg. No. 33-4566). 16. Letter dated April 27, 1994, from the Registrant's Former Independent Auditors incorporated by reference to the Registrant's Current Report on Form 8-K dated April 22, 1994. 20 Letter, dated February 29, 1996, from the Registrant to its limited partners, incorporated by reference to the Schedule 14D-9 of Registrant filed with the Commission on February 29, 1996. 27 Financial Data Schedule 99(a) Schedule 14D-9 of the Registrant, as filed with the Commission on February 29, 1996. 99(b) Amendment No. 1 to Schedule 14D-9 of Registrant, as filed with the Commission on March 7, 1996. 99(c) Amendment No. 2 to Schedule 14D-9 of Registrant, as filed with the Commission on March 14, 1996. 99(d) Letter Agreement, dated November 15, 1995, between Montgomery Realty Corporation, Fox Realty Investors, NPI Equity Investments II, Inc., and NPI Realty Management Corp. incorporated by reference to the Schedule 14D-9 of Registrant filed with the Commission on February 29, 1996. 99(e) Second Amended and Restated Partnership Agreement of Montgomery Realty Company 85, made and entered into to be effective as of November 15, 1995, by and between NPI Realty Management Corp. and Fox Realty Investors incorporated by reference to the Schedule 14D-9 of Registrant filed with the Commission on February 29, 1996. 99(f) Third Amended and Restated General Partnership Agreement of Montgomery Realty Company-85, effective as of February 13, 1996, by and between NPI Realty Management Corp. and Fox Realty Investors incorporated by reference to the Schedule 14D-9 of Registrant filed with the Commission on February 29, 1996. 99(g) Growth Hotel Investors Combined Fund No. 1, a California Limited Partnership, audited financial statements for the years ended December 31, 1996 and 1995. (b) No reports on Form 8-K were filed during the last quarter covered by this Report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 this 26th of March 1997. GROWTH HOTEL INVESTORS By: MONTGOMERY REALTY COMPANY-85 Its General Partner By: NPI Realty Management Corp., Its Managing General Partner By: /s/ William H. Jarrard, Jr. William H. Jarrard, Jr. President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature/Name Title Date /s/ William H. Jarrard, Jr. President and March 14, 1997 William H. Jarrard, Jr. Director /s/ Ronald Uretta Principal Financial March 14, 1997 Ronald Uretta Officer and Principal Accounting Officer EX-27 2
5 This schedule contains summary financial information extracted from Growth Hotel Investors 1996 Year-End 10-K and is qualified in its entirety by reference to such 10-K filing. 0000769129 GROWTH HOTEL INVESTORS 1,000 12-MOS DEC-31-1996 DEC-31-1996 4,644 0 0 0 0 0 24,577 (9,675) 28,422 0 5,412 0 0 0 22,445 28,422 0 9,831 0 7,273 0 0 594 0 0 0 0 0 0 2,593 65.36 0 Registrant has an unclassified balance sheet. Mutliplier is 1.
EX-99 3 EXHIBIT 99(g) GROWTH HOTEL INVESTORS COMBINED FUND NO 1. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996, 1995 and 1994 December 31, 1996 LIST OF CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Auditors' Report Consolidated Balance Sheets - December 31, 1996 and 1995 Consolidated Statements of Operations - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Partners' Capital (Deficit) - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements To the Partners Growth Hotel Investors Combined Fund No. 1, Greenville, South Carolina Independent Auditors' Report We have audited the accompanying consolidated balance sheets of Growth Hotel Investors Combined Fund No. 1, (the "Partnership"), as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' equity 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 consolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Au audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 consolidated financial position of Growth Hotel Investors Combined Fund No. 1, 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. /s/ Imowitz Koeniz & Co., LLP Certified Public Accountants New York, N.Y. February 28, 1997 except for Note I. which is dated March 14, 1997. CONSOLIDATED BALANCE SHEETS (in thousands) YEARS ENDED DECEMBER 31, 1996 AND 1995 DECEMBER 31, Assets 1996 1995 Cash and cash equivalents $ 2,228 $ 3,657 Restricted cash 3 570 Deferred costs and other assets 1,108 1,100 Investment properties Land 10,369 10,369 Buildings and related personal property 79,891 77,031 90,260 87,400 Less accumulated depreciation (31,400) (27,313) 58,860 60,087 Total assets $ 62,199 $ 65,414 Liabilities and Partners' Equity Accounts payable and other liabilities $ 1,337 $ 1,552 Due to an affiliate of the joint venture partner 827 756 Notes payable 40,185 40,836 Total liabilities 42,349 43,144 Minority interest in consolidated joint venture (5,268) (4,037) Commitments Partners' Equity: GHI 7,767 8,153 GHI II 17,351 18,154 Total partners' equity 25,118 26,307 Total liabilities and partners' equity $ 62,199 $ 65,414 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 Revenues: Hotel operations $ 38,154 $ 36,934 $ 34,583 Interest revenue 173 222 283 Total revenues $ 38,327 $ 37,156 $ 34,866 Expenses (including $5,602, $5,545 and $5,305 paid to an affiliate of the joint venture partner in 1996, 1995, and 1994) Hotel operations 24,274 22,811 21,749 Interest 4,227 4,139 4,169 Depreciation 4,088 3,751 3,376 General and administrative 269 9 12 Total expenses 32,858 30,710 29,306 Income before minority interest in joint venture's operations 5,469 6,446 5,560 Minority interest in joint venture's operations 393 (76) 648 Net income $ 5,862 $ 6,370 $ 6,208 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (in thousands) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Growth Growth Hotel Hotel Investors Investors II Total Balance - December 31, 1993 $ 8,699 $19,329 $28,028 Net income 1,970 4,238 6,208 Cash distributions (2,182) (4,695) (6,877) Balance - December 31, 1994 8,487 18,872 27,359 Net income 2,021 4,349 6,370 Cash distributions (2,355) (5,067) (7,422) Balance - December 31, 1995 8,153 18,154 26,307 Net income 1,851 4,011 5,862 Cash distributions (2,237) (4,814) (7,051) Balance - December 31, 1996 $ 7,767 $17,351 $25,118 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 FOR THE YEARS ENDED DECEMBER 31, Cash flows from operating activities: 1996 1995 1994 Net income $ 5,862 $ 6,370 $ 6,208 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,201 3,916 3,539 Minority interest in joint venture's operations (393) 76 (648) Change in operating assets and liabilities: Deferred costs and other assets (122) (20) (1) Accounts payable, other liabilities and due to an affiliate of the joint venture partner (144) 412 (120) Net cash provided by operating activities 9,404 10,754 8,978 Cash flows from investing activities: Additions to real estate (2,860) (3,154) (1,627) Restricted cash decrease (increase) 567 1,418 (327) Net cash used in investing activities (2,293) (1,736) (1,954) Cash flows from financing activities: Notes payable principal payments (651) (525) (500) Joint venture partner distributions (838) (367) -- Cash distributions to partners (7,051) (7,422) (6,877) Net cash used in financing activities (8,540) (8,314) (7,377) (Decrease) Increase in Cash and Cash Equivalents (1,429) 704 (353) Cash and cash equivalents at beginning of year 3,657 2,953 3,306 Cash and cash equivalents at end of year $ 2,228 $ 3,657 $ 2,953 Supplemental disclosure of cash flow information: Interest paid in cash during the year $ 4,218 $ 3,716 $ 4,045 See Accompanying Notes to Consolidated Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - Organization and Significant Accounting Policies Organization Growth Hotel Investors, Combined Fund No. 1, (the "Partnership"), is a general partnership organized in 1986 under the laws of the State of California to acquire a majority interest in a joint venture, Hampton/GHI Associates No. 1, which was formed to acquire, manage and ultimately sell eighteen hotels which are franchised by Hampton Inns, Inc. ("Hampton"), a wholly owned subsidiary of the Promus Hotels, Inc. ("Promus"). The properties owned by the joint venture are located in Alabama, Arkansas, Georgia, Michigan, North Carolina, South Carolina, Tennessee and Texas. The general partners are Growth Hotel Investors ("GHI") and Growth Hotel Investors II ("GHI II"); both are California limited partnerships which are affiliated through their general partners. Cash is distributed first to the Partnership as a priority return on its invested capital prior to any distributions to Hampton. Income before depreciation and amortization is allocated between the Partnership and Hampton in the same ratio as their respective cash distributions. Depreciation and amortization are allocated on the basis of residual interests except for the expenses related to acquisition and loan fees paid by the Partnership which are allocated 100 percent to the Partnership. The residual interests in Hampton/GHI Associates No. 1 are 80 percent for the Partnership and 20 percent for Hampton. Principles of Consolidation The consolidated financial statements include the accounts of the Partnership and its majority owned joint venture. All significant intercompany transactions and balances have been eliminated. Losses in excess of capital contributions have been allocated to the minority interest as it is considered probable by the managing general partner that such losses will be recovered through gains from the eventual sale of the Partnership's properties. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $1,995,000 and $1,911,000 for the years ended December 31, 1996 and 1995, respectively. Fair Value of Financial Instruments In 1995, the Partnership implemented "Statement of Financial Accounting Standards No. 107," "Disclosure about Fair Value of Financial Instruments," as amended by "SFAS No. 119," "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate fair value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgage by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. Investment Properties In 1995 the Partnership adopted "FASB Statement No. 121," "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," 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. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity, when purchased, of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Depreciation Depreciation is computed using the straight-line method based on estimated useful lives ranging from 5 to 39 years. Deferred Costs Deferred costs represent financing costs, franchise fees and land lease cost. Financing costs are deferred and amortized, as interest expense, over the life of the related loans, which range from eight to ten years, or expensed, if financing is not obtained. Franchise fees paid in connection with the acquisition of the hotels are deferred and amortized over the lives of the franchise agreements, which are twenty years. Land lease costs paid in connection with the acquisition of certain hotels are deferred and amortized over the lives of the lease agreements, which are twenty years. At December 31, 1996 and 1995, accumulated amortization of deferred costs totaled $350,000 and $1,347,000, respectively. The fully amortized costs have been written off during 1996. Net deferred costs of $403,000 and $545,000 for 1996 and 1995, respectively, are included in deferred costs and other assets. Net Income Allocation Net income is allocated between GHI and GHI II based on the ratio of each partner's capital contribution to the Partnership. Income Taxes Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Reclassifications: Certain reclassifications have been made to the 1995 and 1994 balances to conform to the 1996 presentation. Note B - Related Party Transactions The Partnership has agreements with an affiliate of its joint venture partner, which provide for the management and operation of the joint venture properties and services provided under each property's franchise agreement. Fees paid pursuant to these agreements are generally based on a percentage of gross revenues from operations of the property and were $5,602,000 , $5,545,000 and $5,295,000 for the years ended December 31, 1996, 1995 and 1994, respectively. In addition, an affiliate of the managing general partner of GHI and GHI II, was paid fees of $10,000 relating to successful real estate tax appeals on certain of the Partnership's properties during the year ended December 31, 1994. Note C - Restricted Cash Restricted cash at December 31, 1996 and 1995, represents funds provided for and maintained by certain properties, pursuant to the related notes payable agreements, to meet future capital requirements and debt service payments. Note D - Notes Payable Properties and improvements are pledged as collateral for the related notes payable. The notes currently bear interest at rates ranging from 7.63 percent to 10 percent. The mortgages encumbering sixteen of the eighteen hotels that are owned by the joint venture are cross collateralized. Amortization of deferred financing costs totaled $103,000 for the year ended December 31, 1996, and $124,000 for each of the years ended December 31, 1995 and 1994. The notes are payable monthly and mature beginning in July 1997, through August 1997. The mortgages encumbering the Partnership's Hampton Inn-Mountain Brook and Hampton Inn-Northlake properties in the amounts of approximately $2,543,000 and $2,366,000, respectively, matured on August 1, 1996. The Managing General Partner has been successful in extending these loans until August 1, 1997. The mortgage encumbering the remaining properties in the Combined Fund in the amount of approximately $35,276,000 matured on December 1, 1996. The Managing General Partner has been successful in extending these loans until July 1, 1997. The Managing General Partner plans to liquidate the partnership upon the sale of the investment properties, which include payment of debt. If the sale does not consummate as planned, the Managing General Partner plans to negotiate extensions for those encumbrances which will mature in 1997. The estimated fair values of the Partnership's aggregate debt is approximately $40,185,000. The estimate is not necessarily indicative of the amounts the Partnership may pay in actual market transactions. Principal payments at December 31, 1996, are required as follows (in thousands): 1997 $40,185 Total $40,185 Note E - Minimum Future Rental Commitments Minimum future rental commitments on operating leases (including four land leases) at December 31, 1996, are payable as follows (in thousands): 1997 $ 380 1998 380 1999 384 2000 390 2001 399 Thereafter 1,887 Total $3,820 The land leases extend through 2004, 2006, 2007 and 2008 and contain options to extend the lease periods 20, 20, 50 and 40 years, respectively. Rental expense for these leases was $448,000, $478,000 and $481,000 in 1996, 1995 and 1994, respectively. Note F - Legal Proceedings On February 21 and February 28, 1996, certain holders of limited partnership units in GHI and GHI II commenced separate actions against, among others, the general partner of GHI and GHI II, pertaining to the tender offer. On March 15, 1996, the above actions were settled and the settlement has received final court approval. As required by the settlement of the class action brought in connection with the tender offer made by Devon Associates discussed in "Note H", the Partnership, GHI and GHI II ("the Sellers") marketed all of their properties for sale. In this regard, the Sellers retained Bear, Sterns & Co. Inc. to assist in the marketing of such properties. As of March 14, 1997, the Sellers and the joint ventures in which the Sellers have a controlling interest and Equity Inns Partnrship, L.P. (the "Buyer") entered into certain purchase and sale agreements pursuant to which the Buyer agreed to purchase from these entities the twenty- eight hotels owned directly or indirectly by these entities for an aggregate purchase price of $182 million, subject to adjustment. The closing of these sales, which is anticipated to occur during the second quarter of 1997, is subject to many conditions including, favorable completion by the Buyer of its due diligence review and GHI and GHI II receiving consents to the sale from their respective limited partners holding a majorty of the outstanding limited partnership interests in GHI and GHI II. Accordingly, there can be no assurance that the sale will be consummated with the Buyer or any other potential buyer. Note G - Investment Properties and Accumulated Depreciation
Initial Cost To Partners Cost Buildings And (Removed Related Subsequent To Description Encumbrances Land Property Acquisition (amounts in thousands) Growth Hotel Investors Combined Fund No. 1: Hampton Inn - Memphis I40 East Memphis, Tennessee $ 1,771 $ -- $ 3,838 $ 541 Hampton Inn - Columbia-West West Columbia, South Carolina 2,062 350 4,133 324 Hampton Inn - Spartanburg Spartanburg, South Carolina 1,767 275 3,545 357 Hampton Inn - Little Rock-North North Little Rock, Arkansas 2,015 524 3,862 315 Hampton Inn - Amarillo Amarillo, Texas 1,120 501 1,810 396 Hampton Inn - Greenville Greenville, South Carolina 2,054 539 3,942 106 Hampton Inn - Charleston Airport North Charleston, South Carolina 2,144 495 4,205 323 Hampton Inn - Memphis-Poplar Memphis, Tennessee 2,798 1,236 4,993 71 Hampton Inn - Greensboro Greensboro, North Carolina 1,982 439 3,866 254 Hampton Inn - Birmingham Birmingham, Alabama 2,426 758 4,447 64 Hampton Inn - Atlanta-Roswell Roswell, Georgia 2,643 1,207 4,668 (141) Hampton Inn - Chapel Hill Chapel Hill, North Carolina 2,257 930 3,926 (5) Hampton Inn - Dallas-Richardson Richardson, Texas 2,769 1,371 4,766 (311) Hampton Inn - Nashville-Briley Parkway Nashville, Tennessee 2,183 -- 4,796 (23) Hampton Inn - San Antonio-Northwest San Antonio, Texas 2,451 781 4,475 (58) Hampton Inn - Madison Heights Madison Heights, Michigan 2,834 963 5,323 653 Hampton Inn - Mountain Brook Birmingham, Alabama 2,543 -- 4,782 699 Hampton Inn - Northlake Atlanta, Georgia 2,366 -- 4,439 510 TOTAL $40,185 $10,369 $75,816 $4,075
Gross Amount At Which Carried at December 31, 1996 Building And Accumulated Year of Date of Depreciable Description Land Improvements Total Depreciation Construction Acquisition Life-Years Growth Hotel Investors Combined Fund No. 1: (Amounts in thousands) Hampton Inn - Memphis I40 East Memphis, Tennessee $ -- $ 4,379 $ 4,379 $ 1,769 1984 12/19/86 5-30 Yrs Hampton Inn - Columbia-West West Columbia, South Carolina 350 4,457 4,807 1,845 1985 12/19/86 5-30 Yrs Hampton Inn - Spartanburg Spartanburg, South Carolina 275 3,902 4,177 1,616 1984 12/19/86 5-39 Yrs Hampton Inn - Little Rock-North North Little Rock, Arkansas 524 4,177 4,701 1,600 1985 12/19/86 5-39 Yrs Hampton Inn - Amarillo Amarillo, Texas 501 2,206 2,707 919 1985 12/19/86 5-39 Yrs Hampton Inn - Greenville Greenville, South Carolina 539 4,048 4,587 1,608 1985 12/19/86 5-30 Yrs Hampton Inn - Charleston Airport North Charleston, South Carolina 495 4,528 5,023 1,808 1985 12/19/86 5-39 Yrs Hampton Inn - Memphis-Poplar Memphis, Tennessee 1,236 5,064 6,300 2,006 1985 12/19/86 5-30 Yrs Hampton Inn - Greensboro Greensboro, North Carolina 439 4,120 4,559 1,600 1986 12/19/86 5-39 Yrs Hampton Inn - Birmingham Birmingham, Alabama 758 4,511 5,269 1,757 1987 12/19/86 5-30 Yrs Hampton Inn - Atlanta-Roswell Roswell, Georgia 1,207 4,527 5,734 1,621 1987 03/04/87 5-30 Yrs Hampton Inn - Chapel Hill Chapel Hill, North Carolina 930 3,921 4,851 1,445 1987 03/04/87 5-30 Yrs Hampton Inn - Dallas-Richardson Richardson, Texas 1,371 4,455 5,826 1,542 1987 03/04/87 5-30 Yrs Hampton Inn - Nashville Briley Parkway Nashville, Tennessee -- 4,773 4,773 1,728 1987 03/04/87 5-30 Yrs Hampton Inn - San Antonio-Northwest San Antonio, Texas 781 4,417 5,198 1,523 1987 06/23/87 5-30 Yrs Hampton Inn - Madison Heights Madison Heights, Michigan 963 5,976 6,939 2,454 1987 12/29/87 5-30 Yrs Hampton Inn - Mountain Brook Birmingham, Alabama -- 5,481 5,481 2,380 1988 12/19/87 5-30 Yrs Hampton Inn - Northlake Atlanta, Georgia -- 4,949 4,949 2,179 1988 09/15/88 5-30 Yrs $10,369 $79,891 $90,260 $31,400
Reconciliation of Investment Properties and Accumulated Depreciation: Years Ended December 31, 1996 1995 1994 (in thousands) Balance at beginning of year $ 87,400 $ 94,793 $ 93,166 Property improvements 2,860 3,154 1,627 Retirement of assets -- (10,547) -- Balance at end of year $ 90,260 $ 87,400 $ 94,793 Accumulated Depreciation Balance at beginning of year $ 27,313 $ 34,108 $ 30,732 Additions charged to expense 4,087 3,752 3,376 Retirement of assets -- (10,547) -- $ 31,400 $ 27,313 $ 34,108 The aggregate cost of the real estate for Federal income tax purposed at December 31, 1996, 1995 and 1994, respectively is approximately $100,824,000, $97,964,000 and approximately $94,803,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996, 1995 and 1994, is approximately $47,821,000, $43,650,000 and $39,142,000, respectively. Note H - Tender Offers On February 15, 1996, Devon Associates ("Devon") offered to purchase up to 21,000 and 15,000 limited partnership outstanding units (the "Units") of GHI II, and GHI, respectively. Devon Associates acquired 17,287 and 13,396 units, with respect to these offers, respectively. The offer for the partnerships Units was at a purchase price of $750 and $705, respectively, per unit, net to the seller in cash, without interest, upon the terms and conditions set forth in the offer to purchase. Certain beneficial owners of Devon are affiliated with the general partners of GHI II and GHI. In addition, an affiliate of Insignia is both a shareholder in the general partner of Cayuga Associates, LP, the controlling general partner in Devon, and a limited partner in Devon. Note I - Subsequent Event As required by the settlement of the class action brought in connection with the tender offer made by Devon Associates discussed in "Note H", the Partnership, GHI and GHI II ("the Sellers") marketed all of their properties for sale. In this regard, the Sellers retained Bear, Sterns & Co. Inc. to assist in the marketing of such properties. As of March 14, 1997, the Sellers and the joint ventures in which the Sellers have a controlling interest and Equity Inns Partnrship, L.P. (the "Buyer") entered into certain purchase and sale agreements pursuant to which the Buyer agreed to purchase from these entities the twenty- eight hotels owned directly or indirectly by these entities for an aggregate purchase price of $182 million, subject to adjustment. The closing of these sales, which is anticipated to occur during the second quarter of 1997, is subject to many conditions including, favorable completion by the Buyer of its due diligence review and GHI and GHI II receiving consents to the sale from their respective limited partners holding a majorty of the outstanding limited partnership interests in GHI and GHI II. Accordingly, there can be no assurance that the sale will be consummated with the Buyer or any other potential buyer. -----END PRIVACY-ENHANCED MESSAGE-----