-----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, JeTyPMMqU/EZ0IF3Euwbv15fq5TzEr/c7ths6fhjRBRJUdhAV3351mlm0dE2P61V r73+jo94u3KTVjHHuxnuEA== 0000948524-96-000003.txt : 19960605 0000948524-96-000003.hdr.sgml : 19960605 ACCESSION NUMBER: 0000948524-96-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRIC PARTNERS GROWTH SUITE INVESTORS LP CENTRAL INDEX KEY: 0000800730 STANDARD INDUSTRIAL CLASSIFICATION: 7011 IRS NUMBER: 943050708 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-17660 FILM NUMBER: 96541168 BUSINESS ADDRESS: STREET 1: C/O METRIC MANAGEMENT INC STREET 2: 950 TOWER LN CITY: FOSTER CITY STATE: CA ZIP: 94404 BUSINESS PHONE: 4153787000 FORMER COMPANY: FORMER CONFORMED NAME: FOX GROWTH SUITE INVESTORS DATE OF NAME CHANGE: 19880412 FORMER COMPANY: FORMER CONFORMED NAME: MRI BUSINESS PROPERTIES FUND LTD IV DATE OF NAME CHANGE: 19871104 10-K405 1 12/31/95 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - - --- EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - - --- EXCHANGE ACT OF 1934 For the transition period from to ------------------ --------------------- Commission file number 0-17660 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership (Exact name of Registrant as specified in its charter) CALIFORNIA 94-3050708 - - ---------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1 California Street San Francisco, California 94111-5415 - - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 678-2000 (800) 347-6707 in all states Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Assignee Units 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 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 market for the Limited Partnership Assignee Units exists and therefore a market value for such Units cannot be determined. METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership PART I Item 1. Business. Metric Partners Growth Suite Investors, L.P., a California Limited Partnership (the "Partnership"), was organized in 1984 under the California Uniform Limited Partnership Act. The managing general partner of the Partnership is Metric Realty, an Illinois general partnership. Metric Realty is owned by Metric Holdings, Inc. and Metric Realty Corp. Metric Realty Corp. is the Managing Partner of Metric Realty. The associate general partner of the Partnership is GHI Associates II, L.P., a California Limited Partnership. The general partner of GHI Associates II is Metric Realty and the limited partner is Prudential-Bache Properties, Inc. The Partnership's Registration Statement filed pursuant to the Securities Act of 1933 (No. 33-8610) was declared effective by the Securities and Exchange Commission on April 14, 1988. The Partnership marketed its securities pursuant to its Prospectus dated April 14, 1988 which was thereafter supplemented (hereinafter the "Prospectus"). This Prospectus was filed with the Securities and Exchange Commission pursuant to Rule 424(b) of the Securities Act of 1933. The principal business of the Partnership is to acquire, hold for investment, manage and ultimately sell all-suite, extended stay hotels which are operated under franchise licenses from Residence Inn by Marriott, Inc. The Partnership is a "closed" limited partnership real estate syndicate. For a further description of the Partnership's business, see the sections entitled "Risk Factors" and "Investment Objectives and Policies" in the Prospectus. Beginning in April 1988, the Partnership offered $60,000,000 in Limited Partnership Assignee Units. The offering was closed on June 30, 1989 with total funding of $59,932,000. The net proceeds of the offering were used to purchase ten hotel properties, which are described on Item 2. The acquisition activities of the Partnership were completed on March 16, 1990, with the purchase of its final hotel property. Since that time, the principal activity of the Partnership has been managing its portfolio. As the Partnership's long-term goal is to ultimately liquidate the portfolio, the markets where the hotels are located are monitored on an ongoing basis for potential sales opportunities. In mid 1995, the Partnership believed that market conditions in Atlanta were optimum to consider a sale of the Residence Inn-Atlanta (Perimeter West) and initiated discussions with potential purchasers. Following a series of negotiations, the Partnership entered into a purchase and sale agreement with an unaffiliated buyer and sold the property on October 3, 1995. The Partnership's remaining property portfolio is geographically diversified with nine hotels located in seven states. Both the income and expenses of operating the properties which the Partnership owns are subject to factors outside the Partnership's control, such as oversupply of similar properties resulting from overbuilding, increases in unemployment or population shifts, or changes in patterns of needs of users. In addition, there are risks inherent in owning and operating hotels and other lodging facilities because such properties are management and labor intensive and especially susceptible to the impact of economic and other conditions outside the control of the Partnership. 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 Partnership can be sold or, if sold, that such sale can be made upon favorable terms. 1 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 Partnership. Environmental site assessments were performed for each of the properties at the time of property acquisition. No material adverse environmental conditions or liabilities were identified. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean-up site. The Partnership and the hotel management companies maintain property and liability insurance on the properties. The Partnership believes such coverage to be adequate. The Partnership is subject to the general competitive conditions of the lodging industry. In addition, each of the Partnership's properties competes in an area which normally contains numerous other properties which may be considered competitive. 2 Item 2. Properties. A description of the hotel properties which the Partnership owns is as follows: Date of Name and Location Purchase Rooms - - ----------------- -------- ----- Residence Inn-Ontario 04/88 200 2025 East D Street Ontario, California Residence Inn-Fort Wayne 06/88 80 4919 Lima Road Fort Wayne, Indiana Residence Inn-Columbus (East) 06/88 80 2084 South Hamilton Road Columbus, Ohio Residence Inn-Indianapolis 06/88 88 3553 Founders Road Indianapolis, Indiana Residence Inn-Lexington 06/88 80 1080 Newtown Pike Lexington, Kentucky Residence Inn-Louisville 06/88 96 120 North Hurstbourne Lane Louisville, Kentucky Residence Inn-Winston-Salem 06/88 88 7835 North Point Boulevard Winston-Salem, North Carolina Residence Inn-Nashville (Airport) 05/89 168 2300 Elm Hill Pike Nashville, Tennessee Residence Inn-Atlanta (Perimeter West)(1) 10/89 128 6096 Barfield Road Atlanta, Georgia Residence Inn-Altamonte Springs 03/90 128 270 Douglas Ave Altamonte Springs, Florida (1) Sold in October 1995. See the Financial Statements in Item 8 for information regarding any encumbrances to which the properties of the Partnership are subject. 3 Occupancy and room rates for the years ended December 31, 1995, 1994 and 1993 are as follows: Average Average Occupancy Rate (%) Daily Room Rate ($) ------------------ -------------------
1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- HOTELS: Residence Inn-Ontario ....................... 72 69 73 67.84 67.57 66.77 Residence Inn-Columbus (East) ............... 89 87 84 68.98 64.23 64.25 Residence Inn-Fort Wayne .................... 93 89 82 62.43 59.04 60.14 Residence Inn-Indianapolis .................. 80 85 82 75.69 69.48 65.70 Residence Inn-Lexington ..................... 84 87 91 71.90 70.66 69.14 Residence Inn-Louisville .................... 85 90 90 79.92 75.04 72.07 Residence Inn-Winston-Salem ................. 85 85 83 71.94 65.47 64.71 Residence Inn-Nashville (Airport) ........... 77 75 74 77.43 72.71 70.99 Residence Inn-Atlanta (Perimeter West) (1) .. 81 82 79 87.82 76.76 71.14 Residence Inn-Altamonte Springs ............. 82 78 76 78.31 77.52 80.67
(1) Sold in October 1995. Project Operations Project Operations for the years ended December 31, 1995, 1994 and 1993 are shown on the next three pages. Project Operations tables reflect the components of income or loss (before gain on sale) for each property which the Partnership owns and the components of the loss at the Partnership level. In addition, non-cash items such as depreciation and amortization are shown. The tables also reflect principal payments on the Partnership's notes payable and capital improvements. 4 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for The Year Ended December 31, 1995 (000's)
Columbus Fort Winston Ontario (East) Wayne Indianapolis Lexington Louisville Salem ------- ------ ----- ------------ --------- ---------- ----- REVENUES: Hotel operations: Rooms $3,603 $1,783 $1,693 $1,994 $1,751 $2,363 $1,956 Telephone and other 244 66 94 99 135 157 111 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Hotel operations 3,847 1,849 1,787 2,093 1,886 2,520 2,067 Interest and other 53 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Total revenues 3,900 1,849 1,787 2,093 1,886 2,520 2,067 ----------- ----------- ----------- ----------- ----------- ----------- ------------ EXPENSES: Hotel operations: Rooms 672 396 331 444 380 416 391 Administrative 385 298 196 292 236 264 280 Marketing 446 157 165 228 174 243 192 Energy 274 107 91 97 90 98 100 Repair and maintenance 189 101 64 127 123 115 121 Management fees 154 120 116 137 123 165 135 Property taxes 78 89 80 79 51 80 66 Other 201 54 51 56 70 78 64 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Hotel operations 2,399 1,322 1,094 1,460 1,247 1,459 1,349 Depreciation and other amortization 496 206 204 253 245 286 248 Interest 855 279 293 339 330 381 335 General and administrative 0 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Total expenses 3,750 1,807 1,591 2,052 1,822 2,126 1,932 ----------- ----------- ----------- ----------- ----------- ----------- ------------ INCOME(LOSS) (1) 150 42 196 41 64 394 135 Plus non-cash items - net 442 210 209 258 250 292 254 Less notes payable principal payments 5 17 17 20 20 23 20 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Project operations 587 235 388 279 294 663 369 Capital Improvements 163 268 228 163 326 220 84 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Project operations after capital improvements $424 ($33) $160 $116 ($32) $443 $285 =========== =========== =========== =========== =========== =========== ============ Altamonte Nashville Atlanta Springs Partnership Total --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $3,654 $2,496 $2,982 $0 $24,275 Telephone and other 173 153 142 0 1,374 ------------ ------------ ----------- ----------- ------------- Hotel operations 3,827 2,649 3,124 0 25,649 Interest and other 7 54 0 344 458 ------------ ------------ ----------- ----------- ------------- Total revenues 3,834 2,703 3,124 344 26,107 ------------ ------------ ----------- ----------- ------------- EXPENSES: Hotel operations: Rooms 877 493 767 0 5,167 Administrative 415 533 325 0 3,224 Marketing 384 258 291 0 2,538 Energy 236 131 174 0 1,398 Repair and maintenance 216 109 164 0 1,329 Management fees 115 132 167 0 1,364 Property taxes 105 82 167 0 877 Other 264 64 68 0 970 ------------ ------------ ----------- ----------- ------------- Hotel operations 2,612 1,802 2,123 0 16,867 Depreciation and other amortization 597 349 626 0 3,510 Interest 899 467 674 0 4,852 General and administrative 0 0 0 809 809 ------------ ------------ ----------- ----------- ------------- Total expenses 4,108 2,618 3,423 809 26,038 ------------ ------------ ----------- ----------- ------------- INCOME(LOSS) (1) (274) 85 (299) (465) 69 Plus non-cash items - net 590 307 773 0 3,585 Less notes payable principal payments 100 28 83 0 333 ------------ ------------ ----------- ----------- ------------- Project operations 216 364 391 (465) 3,321 Capital Improvements 331 178 202 0 2,163 ------------ ------------ ----------- ----------- ------------- Project operations after capital improvements ($115) $186 $189 ($465) $1,158 ============ ============ =========== =========== =============
(1) Before gain on sale of property. 5 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Year Ended December 31, 1994 (000's)
Columbus Fort Winston Ontario (East) Wayne Indianapolis Lexington Louisville Salem ------- ------ ----- ------------ --------- ---------- ----- REVENUES: Hotel operations: Rooms $3,381 $1,636 $1,527 $1,892 $1,780 $2,354 $1,790 Telephone and other 220 59 84 104 134 122 113 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Hotel operations 3,601 1,695 1,611 1,996 1,914 2,476 1,903 Interest and other 40 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Total revenues 3,641 1,695 1,611 1,996 1,914 2,476 1,903 ----------- ----------- ----------- ----------- ----------- ----------- ------------ EXPENSES: Hotel operations: Rooms 649 342 309 410 353 392 395 Administrative 428 268 189 236 275 252 264 Marketing 436 152 166 215 148 244 182 Energy 250 122 96 98 89 103 103 Repair and maintenance 171 77 87 104 117 113 130 Management fees 144 110 105 129 125 162 124 Property taxes 63 57 65 70 51 81 67 Other 147 50 43 53 62 64 76 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Hotel operations 2,288 1,178 1,060 1,315 1,220 1,411 1,341 Depreciation and other amortization 550 283 272 346 307 371 323 Interest 856 281 294 341 332 383 337 General and administrative 0 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Total expenses 3,694 1,742 1,626 2,002 1,859 2,165 2,001 ----------- ----------- ----------- ----------- ----------- ----------- ------------ INCOME(LOSS) (53) (47) (15) (6) 55 311 (98) Plus non-cash items - net 510 287 277 351 313 377 329 Less notes payable principal payments 4 15 16 18 18 20 18 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Project operations 453 225 246 327 350 668 213 Capital Improvements 184 27 37 200 37 266 116 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Project operations after capital improvements $269 $198 $209 $127 $313 $402 $97 =========== =========== =========== =========== =========== =========== ============ Altamonte Nashville Atlanta Springs Partnership Total --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $3,347 $2,931 $2,808 $0 $23,446 Telephone and other 169 169 134 0 1,308 ----------- ----------- ----------- ----------- -------------- Hotel operations 3,516 3,100 2,942 0 24,754 Interest and other 20 18 0 176 254 ----------- ----------- ----------- ----------- -------------- Total revenues 3,536 3,118 2,942 176 25,008 ----------- ----------- ----------- ----------- -------------- EXPENSES: Hotel operations: Rooms 789 605 680 0 4,924 Administrative 330 355 316 0 2,913 Marketing 344 302 248 0 2,437 Energy 248 159 170 0 1,438 Repair and maintenance 216 144 142 0 1,301 Management fees 105 155 147 0 1,306 Property taxes 121 75 187 0 837 Other 270 75 61 0 901 ----------- ----------- ----------- ----------- -------------- Hotel operations 2,423 1,870 1,951 0 16,057 Depreciation and other amortization 688 453 611 0 4,204 Interest 901 622 670 0 5,017 General and administrative 0 0 0 677 677 ----------- ----------- ----------- ----------- -------------- Total expenses 4,012 2,945 3,232 677 25,955 ----------- ----------- ----------- ----------- -------------- INCOME(LOSS) (476) 173 (290) (501) (947) Plus non-cash items - net 668 451 747 0 4,310 Less notes payable principal payments 99 37 72 0 317 ----------- ----------- ----------- ----------- -------------- Project operations 93 587 385 (501) 3,046 Capital Improvements 427 38 116 0 1,448 ----------- ----------- ----------- ----------- -------------- Project operations after capital improvements ($334) $549 $269 ($501) $1,598 =========== =========== =========== =========== ==============
6 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Year Ended December 31, 1993 (000's)
Columbus Fort Winston Ontario (East) Wayne Indianapolis Lexington Louisville Salem ------- ------ ----- ------------ --------- ---------- ----- REVENUES: Hotel operations: Rooms $3,539 $1,562 $1,433 $1,715 $1,822 $2,256 $1,726 Telephone and other 205 57 62 97 113 83 100 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Hotel operations 3,744 1,619 1,495 1,812 1,935 2,339 1,826 Interest and other 107 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Total revenues 3,851 1,619 1,495 1,812 1,935 2,339 1,826 ----------- ----------- ----------- ----------- ----------- ----------- ------------ EXPENSES: Hotel operations: Rooms 669 331 302 381 367 407 389 Administrative 428 253 173 236 266 201 271 Marketing 445 148 172 211 164 231 200 Energy 237 95 91 100 83 108 103 Repair and maintenance 172 74 93 104 131 110 87 Management fees 150 106 97 118 126 154 119 Property taxes 98 102 63 71 51 81 68 Other 159 52 40 54 73 61 66 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Hotel operations 2,358 1,161 1,031 1,275 1,261 1,353 1,303 Depreciation and other amortization 750 374 356 427 399 479 430 Interest 856 278 291 338 329 379 333 General and administrative 0 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Total expenses 3,964 1,813 1,678 2,040 1,989 2,211 2,066 ----------- ----------- ----------- ----------- ----------- ----------- ------------ INCOME(LOSS) (113) (194) (183) (228) (54) 128 (240) Plus non-cash items - net 643 385 367 439 411 493 442 Less notes payable principal payments 4 6 6 7 7 8 7 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Project operations 526 185 178 204 350 613 195 Capital Improvements 72 232 107 74 59 99 68 ----------- ----------- ----------- ----------- ----------- ----------- ------------ Project operations after capital improvements $454 ($47) $71 $130 $291 $514 $127 =========== =========== =========== =========== =========== =========== ============ Altamonte Nashville Atlanta Springs Partnership Total --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $3,227 $2,626 $2,839 $0 $22,745 Telephone and other 160 154 117 0 1,148 ----------- ----------- ----------- ----------- -------------- Hotel operations 3,387 2,780 2,956 0 23,893 Interest and other 20 18 0 152 297 ----------- ----------- ----------- ----------- -------------- Total revenues 3,407 2,798 2,956 152 24,190 ----------- ----------- ----------- ----------- -------------- EXPENSES: Hotel operations: Rooms 707 551 580 0 4,684 Administrative 325 319 317 0 2,789 Marketing 351 279 259 0 2,460 Energy 213 162 157 0 1,349 Repair and maintenance 170 125 133 0 1,199 Management fees 101 139 149 0 1,259 Property taxes 119 160 178 0 991 Other 270 107 46 0 928 ----------- ----------- ----------- ----------- -------------- Hotel operations 2,256 1,842 1,819 0 15,659 Depreciation and other amortization 667 426 600 0 4,908 Interest 909 618 666 0 4,997 General and administrative 0 0 0 764 764 ----------- ----------- ----------- ----------- -------------- Total expenses 3,832 2,886 3,085 764 26,328 ----------- ----------- ----------- ----------- -------------- INCOME(LOSS) (425) (88) (129) (612) (2,138) Plus non-cash items - net 647 469 728 0 5,024 Less notes payable principal payments 90 13 54 0 202 ----------- ----------- ----------- ----------- -------------- Project operations 132 368 545 (612) 2,684 Capital Improvements 49 250 179 0 1,189 ----------- ----------- ----------- ----------- -------------- Project operations after capital improvements $83 $118 $366 ($612) $1,495 =========== =========== =========== =========== ==============
7 Item 3. Legal Proceedings. There are no material pending legal proceedings to which the Partnership is a party or to which any of its assets are subject, except the following: Metric Partners Growth Suite Investors, L.P. vs. Kenneth E. Nelson, The Nelson Group, et al., San Francisco County Superior Court, Case No. 928065. Nashville Lodging Company vs. Metric Partners Growth Suite Investors, L.P., et al., Circuit Court, State of Wisconsin, Case No. 94CV001212. Orlando Residence, Ltd. (Plaintiff) vs. Nashville Lodging Company, Metric Partners Growth Suite Investors, L.P., et al. (Defendants); Metric Partners Growth Suite Investors (Third Party Plaintiff) vs. 2300 Elm Hill Pike, Inc. et al. (Third Party Defendant), Tennessee Chancery Court for Davidson County, Case No. 92-3086-III. Orlando Residence, Ltd. (Plaintiff) vs. 2300 Elm Hill Pike, Inc., et al. (Defendants/Third Party Plaintiffs) vs. Metric Partners Growth Suite Investors, L.P. (Third Party Defendant), Tennessee Chancery Court for Davidson County, Case No. 94-1911-I. For information regarding these lawsuits see Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Note 7 to the Financial Statements. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of security holders during the period covered by this report. 8 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. From inception through February 15, 1996, Assignee Unit holders have received distributions from operations ranging from $220 - $313 for each $1,000 original investment, exclusive of a $2 payment made in 1995 in payment of Georgia real property taxes due on gain from the sale of the Residence Inn-Atlanta (Perimeter West). No market for Limited Partnership Assignee Units exists, nor is expected to develop. As of December 31, 1995, the approximate number of holders of Limited Partnership Assignee Units was as follows: Number of Record Title of Class Holders* - - -------------- -------- Limited Partnership Assignee Units.............................. 5,531 *Number of Investments Item 6. Selected Financial Data. The following represents selected financial data for Metric Partners Growth Suite Investors, L.P., a California Limited Partnership, for each of the five years in the period ended December 31, 1995. The data should be read in conjunction with the financial statements included elsewhere herein. For the Year Ended December 31, -------------------------------
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (Amounts in thousands except per unit data) TOTAL REVENUES ................... $ 26,107 $ 25,008 $ 24,190 $ 23,331 $ 22,895 ======== ======== ======== ======== ======== NET INCOME (LOSS) ................ $ 3,344 $ (947) $ (2,138) $ (2,329) $ (2,289) ======== ======== ======== ======== ======== NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE UNIT(1) .... $ 52 $ (19) $ (39) $ (38) $ (37) ======== ======== ======== ======== ======== TOTAL ASSETS ..................... $ 71,071 $ 74,936 $ 77,899 $ 81,951 $ 85,487 ======== ======== ======== ======== ======== LONG TERM OBLIGATIONS: Notes Payable ................. $ 42,669 $ 48,800 $ 49,003 $ 49,014 $ 48,775 ======== ======== ======== ======== ======== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT ....... $ 32 $ 30 $ 30 $ 28 $ 20 ======== ======== ======== ======== ======== (1) $1,000 original contribution per limited partnership assignee unit, based on limited partnership assignee units outstanding during the period, after allocation to the General Partners.
9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Introduction This Item should be read in conjunction with Financial Statements contained elsewhere in this Report. Results of Operations Net income was $3,344,000 in 1995 compared to a net loss of $947,000 in 1994. The change was primarily due to the gain from the sale of the Residence Inn - Atlanta (Perimeter West) as well as increases in hotel operations revenue, resulting from improved occupancy and room rates at certain of the Partnership's properties and reduced depreciation and interest expense. Revenue from hotel operations increased 3.6% for 1995 compared to 1994. An increase in room revenues at eight of the nine Partnership's hotels held at year end was only slightly offset by a very modest decrease at the Residence Inn-Lexington. Hotel operating expenses increased 5.0% in comparison to 1994 primarily due to increases in administrative and marketing expenses and room operating costs. Interest and other income increased $204,000 in 1995 primarily as a result of larger cash balances, specifically the proceeds from the sale of the Residence Inn-Atlanta (Perimeter West), invested in interest bearing investments. Depreciation and other amortization decreased $694,000 in 1995, due to the sale of one hotel and fully depreciated furnishings at certain of the other hotels. Interest expense decreased by $165,000 in 1995 primarily due to the sale of one hotel. General and administrative expense increased $132,000 in 1995 primarily due to an increase in legal costs. On an ongoing basis, the Partnership monitors the markets where the hotels are located and reviews potential opportunities for the sale of the properties. During the second quarter of 1995, the Partnership initiated discussions with several potential purchasers regarding the sale of the Residence Inn-Atlanta (Perimeter West). After a series of negotiations, the Partnership entered into a contract for sale with a non-affiliated buyer and on October 3, 1995 the sale of the property was recorded. (See Note 6 to the Financial Statements for details of the transaction) The operations of the properties and the markets in which they are located are described below. Residence Inn-Ontario: In 1995 room revenues increased 6.6% in comparison to the prior year due to an increase in occupancy and a very slight increase in room rates, which was offset, in part, by an increase in hotel operations expenses. During the year, the local economy strengthened with new business development and an escalation in construction activity; however, during the fourth quarter federal government curtailments affected the "extended stay" patronage base at the hotel. A variety of marketing programs remain in place, focusing on promoting new business as well as retaining the existing clients. Residence Inn-Columbus: Room revenues increased 9.0% in 1995 as both room rates and occupancy improved in comparison to the prior year. This increase, however, was offset by an overall 12.2% increase in hotel operations expenses. Increases were incurred in the categories of room operating and administrative costs, repair and maintenance items and property taxes. Management continues to work with the operator in an effort to affect expense reductions. Local hotel market conditions have remained stable, although new competition is expected to come on-line later in 1996. Marketing efforts are focused on maintaining and increasing the patronage base in light of the additional new competition. Residence Inn-Fort Wayne: Room revenues increased 10.9% in 1995 in comparison to the prior year, which was only partially offset by a modest increase in hotel operations expenses. Both occupancy and room rates improved during the year as compared to 1994. The local economy and hotel market remained stable throughout the year and the Partnership's property continues to retain a strong competitive position in the marketplace. Residence Inn-Indianapolis: A 5.4% increase in room revenues for 1995 is primarily attributable to a substantial increase in room rates as compared to the prior year. Occupancy, however, reflected a decline for the year, due to a fire which occurred in the first quarter of 1995 rendering 10% of the rooms uninhabitable. The rebuilding of the damaged suites was completed in the third quarter of 1995. Reconstruction work and loss of revenue, after a deductible, was covered through the use of insurance proceeds. The local economy remained stable during the year and the operator continues to focus on increasing patronage through solicitation of major corporate accounts and training business. 10 Residence Inn-Lexington: Room revenues decreased slightly, or 1.6%, compared to the prior year and hotel operations expenses increased 2.2% during 1995. Although occupancy declined as compared to the prior year, room rates reflected an increase. The local economy remains stable; however, conditions in the hotel market continue to be competitive as two new hotel products are scheduled for completion in 1996. Responsive marketing efforts, including offers of special rates for weekend business, are being utilized to enhance performance results. Residence Inn-Louisville: Room revenues and hotel operations expenses increased slightly for the year as compared to 1994. Room rates reflected an improvement, which contributed to a decline in occupancy for the year. Economic conditions in the area appear to be stable; however, the Partnership's hotel is subject to competition from several apartment complexes in the marketplace which offer corporate units for lease at rates significantly lower than local hotels. Marketing efforts have included direct mail and telemarketing programs in an effort to expand and diversify the current patronage base. Residence Inn-Winston Salem: Room revenues increased 9.3% in 1995 in comparison to the prior year due to a substantial increase in room rates. Occupancy rates were unchanged. Conditions in the local hotel market remain competitive as two new products are due to come on line during 1996. The operator continued an aggressive marketing program, aimed primarily at attracting new training business, to enable the property to remain competitive. Residence Inn-Nashville: A 9.2% increase in room revenues for 1995 in comparison to the prior year is attributable to an improvement in both occupancy and room rates at the hotel. This increase was partially offset by a 7.8% increase in hotel operations expenses primarily due to increases in room, administrative and marketing costs. The local economy continues to be stable and unemployment low; however, competition in the hotel market remains challenging as several new hotels are scheduled to open in 1996. Marketing programs are in place to retain the existing long-term stay business as well as to attract new convention and corporate business. Residence Inn-Altamonte Springs: An increase of 6.2% in room revenues for 1995 was offset by an 8.8% increase in hotel operations expenses in comparison to the prior year. Room operating, marketing costs, and certain repair and maintenance items contributed to the increase in expenses, which was slightly offset by lower property taxes, as compared to the prior year. Occupancy increased for 1995 in comparison to the prior year and room rates increased slightly. The local economy remains stable. The new operator is focusing on maintaining current clients while working to attract new corporate business patronage. Residence Inn-Atlanta (Perimeter West): The property was sold to a non-affiliated buyer on October 3, 1995. From January 1, 1995 through October 2, 1995 the hotel generated strong project operations. Both revenues and expenses decreased in 1995 in comparison to the prior year as the property was held for only a nine-month period prior to sale. Expenses, however, did not decline proportionally due to the costs incurred with regard to a sales tax audit. 1994 Compared to 1993 Net loss decreased $1,191,000 in 1994 compared to 1993 primarily due to increases in hotel operations revenue, resulting from improved occupancy and room rates at certain of the Partnership's properties and reduced depreciation expense. Revenue from hotel operations increased 3.6% for 1994 compared to 1993. An increase in room revenues at seven of the Partnership's hotels was only partially offset by a substantial decrease at the Residence Inn-Ontario, and modest decreases at the Residence Inn-Lexington and the Residence Inn-Altamonte Springs. Hotel operating expenses increased 2.5% in comparison to 1993 primarily due to increases in administrative expenses, room operating costs, expenses for repair and maintenance, and escalations in energy costs during the winter months at several of the properties which were only partially offset by a decrease in real estate tax and marketing expense. Interest and other income decreased $43,000 in 1994 primarily as a result of recognition in 1993 of deferred income relating to the management contract at the Residence Inn-Ontario. Depreciation and amortization decreased $704,000 in 1994, due to fully depreciated furnishings at certain of the hotels. General and administrative expense decreased $87,000 in 1994 due to decreases in audit, legal and administrative costs partially offset by the cost incurred by the Partnership to obtain appraisals on the Residence Inns. 11 Partnership Liquidity and Capital Resources Introduction As presented in the Statements of Cash Flows, cash was provided by operating activities. Cash was also provided by investing activities from proceeds from cash investments and sale of a property and was used for improvements to properties and purchase of cash investments. Cash was used by financing activities for note payable payments and distributions to partners. The results of project operations before capital improvements for the year ended December 31, 1995 are determined by net income or loss (before gain on sale of property) adjusted for non-cash items such as depreciation and amortization, and reduced by principal payments made on the notes payable (see Item 2, Properties). The project operations before capital improvements is an indication of the operational performance of the property. During 1995, all of the Partnership's properties generated positive project operations before deductions for capital improvements. The Partnership, after taking into account results of project operations before capital improvements, interest income, and general and administrative expenses, on an accrual basis, experienced positive results from operations. Project operations should not be considered as an alternative to net income or loss (as presented in the financial statements), as an indicator of the Partnership's operating performance, or as an alternative to cash flow as a measure of liquidity. Project operations after capital improvements for any given year may not be indicative of the property's general performance as capital improvements are likely to be made in large amounts when associated with renovation programs. The Partnership considers cash investments to be those investments (primarily commercial paper) with an original maturity date of more than three months at time of purchase. There were no cash investments as of December 31, 1995. The former management company at the Residence Inn-Ontario which is controlled by Kenneth E. Nelson ("Nelson") defaulted on certain obligations under the management agreement. As discussed in Note 7 to the financial statements, in 1991, the Partnership terminated the management agreement and initiated legal proceedings against the former management company. The management company withheld $194,000 from property funds in unauthorized management fees prior to relinquishing management of the property. The $194,000 has been treated as a receivable in the Partnership's financial statements. In March 1993 the parties verbally agreed to settle the lawsuit (the "SF Settlement"); however, difficulties arose in consummating the settlement. After a hearing in May 1994, the Court ruled in June that in the settlement the Partnership had agreed to purchase the land underlying the Residence Inn-Nashville (the "Land") from Nashville Lodging Company ("NLC"), an affiliate of Nelson, subject to a lis pendens on the land. Following this ruling, the Partnership has attempted to negotiate and enter into a settlement agreement and a land purchase agreement and related agreements (the "Settlement Documents") among itself and Nelson and NLC and another Nelson entity, 2300 Elm Hill Pike, Inc. ("2300"). To date, these parties have not been able to reach agreement on all issues relating to the Settlement Documents. Since June 1994, numerous appearances before the Court have been made in an effort to resolve all issues regarding the Settlement Documents, but as of the date hereof, the Settlement Documents have not been completed or executed. As discussed in Note 7 to the financial statements, in May 1991 legal proceedings were initiated against the Partnership and others by Orlando Residence Ltd., ("Orlando"), holder of a promissory note issued by a previous owner of the Residence Inn-Nashville (Airport) (the "Hotel"). Orlando claimed the sale of the Hotel to the Partnership by NLC was intended to defraud, hinder and delay Orlando's recovery of the amount owed to it. Orlando sought the collection of all payments made by the Partnership in connection with the land lease to the previous owner associated with the Hotel and/or rescission of the sale of the Hotel to the Partnership. The Partnership obtained a summary judgement dismissing the case against it on September 15, 1993. In May 1994, the Partnership filed a motion for summary judgement against Nelson, NLC and 2300 to recover attorneys' fees of the Partnership related to this action. In April 1995, the Court awarded judgement to the Partnership against NLC and 2300 for a portion of the Partnership's legal fees in this case. 12 In July 1994, the Court in the case filed by Orlando ruled that the Hotel had been fraudulently conveyed to NLC by 2300 in 1986 and voided the conveyance. Judgements totalling more than $1,350,000 were subsequently entered by this Court against Nelson, NLC and 2300. Orlando may attempt to execute these judgements against Nelson, NLC and 2300 on the Land, which could deprive the Partnership of the benefits of the SF Settlement. There is also some risk that consummation of the SF Settlement, which would result in ownership of the Hotel and the Land being combined in the Partnership while the Land may be subject to the lis pendens filed by Orlando and/or other liens and judgements obtained by Orlando may adversely affect the Partnership's equity interest in the Hotel. However, the Partnership does not believe that consummation of the SF Settlement will have a material adverse effect on the Partnership or on its equity interest in the Hotel. In another action in Nashville, Tennessee, 2300 and NLC have alleged that the Partnership refused to purchase the Land as required by the SF Settlement and demanded indemnification for all costs and losses of 2300 and NLC relating to Orlando's claims. In February 1996, the Court in this action granted a motion filed by 2300 and NLC for partial summary judgement, ruling that the Partnership had breached the SF Settlement. The action will continue to determine damages and other issues. The Partnership does not believe it breached the SF Settlement and, in any event, does not believe that any damages it might ultimately be required to pay in this action will have a material adverse effect on the Partnership. See Note 7 to the Financial Statements for more information about the foregoing and other related proceedings. In April 1993, the interest rate increased on the Residence Inn - Altamonte Springs loan. In addition, in July 1993 the interest rate increased on the loans of seven other hotels. Also, the terms of the loans provided for payment of principal to commence at the same time as the interest increased. As the loans on the hotels mature in 1998, the Partnership periodically reviews alternative financing options which may be available in the marketplace. In 1995, the Partnership spent $2,163,000 on capital improvements. The majority was spent for room renovations at the Residence Inns-Lexington, Altamonte Springs, Louisville and Nashville, siding and building repairs at the Residence Inns-Columbus and Fort Wayne and a new lock system at Ontario and Nashville. In 1996, the Partnership anticipates spending approximately $2,600,000 on capital improvements. These improvements are necessary to enable the properties to remain competitive in their respective markets and are required under the franchise agreements. During the second and third quarters of 1995 the Partnership worked with Marriott in an effort to restructure contracts on certain Partnership hotels under their management. An agreement was reached whereby Marriott reduced the overall management fees, as well as the length of the contract terms. In addition, the Partnership is permitted to terminate the contract after a five year term in connection with a sale of the hotels. A termination fee would be payable if the purchaser were not to continue the Residence Inn by Marriott franchise. In exchange, the Partnership executed new agreements with Marriott for the management of the Residence Inns located in Altamonte Springs, Nashville, and Ontario. Effective January 1, 1996, Marriott manages all nine of the Partnership's remaining hotels. In accordance with, and as is customary in the management of hotels, the various management agreements with the operators provide for a percentage of revenues to be placed in capital replacement funds. The capital replacement funds are used to fund on-going capital improvements as well as room or other major renovation programs. In general, the capital replacement funds are being held at the individual properties with additions generally made monthly based on revenues and expenditures which are based on approved capital expenditure budgets by the Partnership. Unused funds are held in interest-bearing accounts. To the extent not available from an individual property's capital replacement fund, a capital improvement or renovation may be funded from the Partnership's working capital reserve. The Partnership became aware that on February 12, 1996, a third party made an unsolicited offer to a large number of unit holders of the Partnership to purchase up to 1,200 units, representing approximately 2% of the outstanding units, at a price of $205 per unit. Under applicable securities laws, the Partnership was required to notify its investors of the Partnership's views regarding this offer. A letter dated February 15, 1996 was provided to investors in fulfillment of that requirement. It should be noted that the Partnership did not take a position with respect to the offer but rather advised the holders of the assignee limited partnership units to consult their personal financial advisors on the matter, as the desirability of the offer to any unit hold could differ greatly depending upon such unit holder's financial, tax, and other individual circumstances. 13 Unit holders were also advised that the Partnership and its Transfer Agent will take such action as the Partnership deems appropriate to ensure that resale transactions do not result in the termination of the Partnership for tax purposes, cause the Partnership to be classified as a publicly traded partnership or cause the Partnership to be taxed as a corporation. In order to protect its status as a partnership for federal income tax purposes, secondary market activity in its units will be limited to less than 5% of the outstanding units per year. For any of these reasons, the Partnership may refuse to recognize a resale transaction. The Partnership may also request any information needed to ensure compliance with the terms of the Partnership Agreement and any applicable regulatory requirements. Conclusion The Partnership established an estimated value for the assignee units in the Partnership as of December 31, 1995. Appraisals of the hotels were commissioned and undertaken by a firm which is a recognized appraiser and consultant to the hotel industry. The primary methodology employed in the appraisals used in the evaluation, which was selected by the appraiser and not pursuant to any instructions from the Partnership, was the income approach to value utilizing a discounted cash flow analysis. In conjunction with the preparation of the appraisals, a discount rate was determined by the appraiser based on several relevant factors, including, but not limited to, the current investment climate for hotel properties, local hotel market and economic conditions, comparisons of occupancy and room rates with prevailing market rates for similar properties and the status of the management contract for each hotel. The Partnership believes that the assumptions utilized in the process were not unreasonable. The value of the properties as determined by the appraisal process, in combination with the book value of other Partnership assets, has resulted in an estimated net asset value of each assignee unit of $521 as of December 31, 1995. As of December 31, 1994, the value of the properties as determined by the appraisal process, in combination with the book value of other Partnership assets, resulted in an estimated net asset value of each assignee unit of $335. It should be noted, however, that appraised values represent the opinion of the appraisal firm as of the date of the appraisals and are based on market conditions at the time of the appraisals and on assumptions concerning future circumstances which may or may not be accurate. This valuation is an estimate of the assignee unit value only which has been made as of December 31, 1995 based on the methodology described herein and does not represent a market value. There can be no assurance that the sales of the assets in the current market or at any time in the future would yield net proceeds which on a per assignee unit basis would be equal to or greater than the estimated value. Further, there can be no assurance that sales of assignee units now or in the future would yield net proceeds equal to or greater than this value. The assignee units are illiquid and there is no formal liquid market where they are regularly traded. However, the Partnership is aware that some resales have taken place in the informal secondary market. In this informal market, transactions may or may not take place in any time period and occur at a price negotiated between buyer and seller. We have no knowledge concerning how a particular price may be determined. Resale transactions of which the Partnership has knowledge, reflect prices ranging from $200 to $340 in 1996 (through March 21, 1996). In 1995, sixty-five resale transactions, of which the Partnership had knowledge, were recorded at a simple average price (not weighted) of $244 per assignee unit. In 1994, thirty-one resale transactions, of which the Partnership had knowledge, were recorded at a simple average price (not weighted) of $196 per assignee unit. The Partnership's knowledge of these transactions is based solely on the books and records of its Transfer Agent. The Partnership anticipates that it will have sufficient resources to meet its capital and operating requirements into the foreseeable future. 14 Item 8. Financial Statements and Financial Statement Schedules. METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership TABLE OF CONTENTS Page Reports of Independent Auditors......................................... 16-17 Financial Statements: Balance Sheets at December 31, 1995 and 1994......................... 18 Statements of Operations for the Years ended December 31, 1995, 1994 and 1993....................................................... 19 Statements of Partners' Equity (Deficiency) for the Years ended December 31, 1995, 1994 and 1993.................................... 20 Statements of Cash Flows for the Years ended December 31, 1995, 1994 and 1993....................................................... 21 Notes to Financial Statements........................................ 22-28 Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation at December 31, 1995................................................... 29 Financial statements and financial statement schedules not included have been omitted because of the absence of conditions under which they are required or because the information is included elsewhere in the financial statements. 15 REPORT OF INDEPENDENT AUDITORS Metric Partners Growth Suite Investors, L.P., a California Limited Partnership: We have audited the accompanying balance sheets of Metric Partners Growth Suite Investors, L.P., a California Limited Partnership, (the "Partnership") as of December 31, 1995 and 1994 and the related statements of operations, partners' equity and cash flows for the years then ended. Our audit also included the financial statement schedule for 1995 and 1994 of the Partnership listed in the accompanying table of contents. These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. The financial statements and financial statement schedule of the Partnership for the year ended December 31, 1993 were audited by other auditors whose report dated March 18, 1994 expressed an unqualified opinion on these statements and schedule. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 1995 and 1994 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule for 1995 and 1994, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. San Francisco, California ERNST & YOUNG LLP February 23, 1996 16 INDEPENDENT AUDITORS' REPORT Metric Partners' Growth Suite Investors, L.P.: We have audited the accompanying statements of operations, partners' equity (deficiency) and cash flows of Metric Partners' Growth Suite Investors, L.P., (a limited partnership) (the "Partnership") for the year ended December 31, 1993. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the results of operations and cash flows of the Partnership for the year ended December 31, 1993 in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP March 18, 1994 17 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership BALANCE SHEETS December 31, 1995 1994 ---- ---- ASSETS CASH AND CASH EQUIVALENTS ...................... $ 10,248,000 $ 5,142,000 RESTRICTED CASH ................................ 302,000 -- ACCOUNTS RECEIVABLE ............................ 1,034,000 746,000 PREPAID EXPENSES AND OTHER ASSETS .............. 196,000 314,000 PROPERTIES AND IMPROVEMENTS .................... 87,885,000 96,213,000 ACCUMULATED DEPRECIATION ....................... (28,935,000) (28,008,000) ------------ ------------ NET PROPERTIES AND IMPROVEMENTS ................ 58,950,000 68,205,000 DEFERRED FINANCING COSTS ....................... 127,000 235,000 DEFERRED FRANCHISE FEES ........................ 214,000 294,000 ------------ ------------ TOTAL ASSETS ................................... $ 71,071,000 $ 74,936,000 ============ ============ LIABILITIES AND PARTNERS' EQUITY ACCOUNTS PAYABLE ............................... $ 1,022,000 $ 747,000 ACCRUED PROPERTY TAXES ......................... 391,000 319,000 ACCRUED INTEREST ............................... 344,000 317,000 OTHER LIABILITIES .............................. 1,095,000 905,000 DEFERRED GAIN ON SALE OF PROPERTY .............. 300,000 -- NOTES PAYABLE .................................. 42,669,000 48,800,000 ------------ ------------ TOTAL LIABILITIES .............................. 45,821,000 51,088,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES PARTNERS' EQUITY (DEFICIENCY): GENERAL PARTNERS .............................. 100,000 (68,000) LIMITED PARTNERS (59,932 units outstanding) ... 25,150,000 23,916,000 ------------ ------------ TOTAL PARTNERS' EQUITY ......................... 25,250,000 23,848,000 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY ......... $ 71,071,000 $ 74,936,000 ============ ============ See notes to financial statements. 18 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- REVENUES: Hotel operations.................................................... $ 25,649,000 $ 24,754,000 $ 23,893,000 Interest and other.................................................. 458,000 254,000 297,000 ------------ ------------ ------------ Total revenues...................................................... 26,107,000 25,008,000 24,190,000 ------------ ------------ ------------ EXPENSES (Including $410,000, $390,000 and $454,000 paid to managing general partner and affiliates in 1995, 1994 and 1993) Hotel operations Rooms....................................................... 5,167,000 4,924,000 4,684,000 Administrative.............................................. 3,224,000 2,913,000 2,789,000 Marketing................................................... 2,538,000 2,437,000 2,460,000 Energy...................................................... 1,398,000 1,438,000 1,349,000 Repair and maintenance...................................... 1,329,000 1,301,000 1,199,000 Management fees............................................. 1,364,000 1,306,000 1,259,000 Property taxes.............................................. 877,000 837,000 991,000 Other....................................................... 970,000 901,000 928,000 ------------- ------------ ------------ Total hotel operations.............................................. 16,867,000 16,057,000 15,659,000 Depreciation and other amortization................................. 3,510,000 4,204,000 4,908,000 Interest............................................................ 4,852,000 5,017,000 4,997,000 General and administrative.......................................... 809,000 677,000 764,000 ------------- ------------ ------------ Total expenses...................................................... 26,038,000 25,955,000 26,328,000 ------------- ------------ ------------ INCOME (LOSS) BEFORE GAIN ON SALE OF PROPERTY....................... 69,000 (947,000) (2,138,000) Gain on sale of property............................................ 3,275,000 - - ------------- ------------- ------------ NET INCOME (LOSS)................................................... $ 3,344,000 $ (947,000) $ (2,138,000) ============= ============= ============ NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE UNIT: Income (loss) before gain on sale of property....................... $(1) $(19) $(39) Gain on sale of property............................................ 53 - - --- ------ ----- NET INCOME (LOSS)................................................... $52 $(19) $(39) === ===== ===== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT...................................................... $32 $30 $30 === === ===
19 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) For the Years Ended December 31, 1995, 1994 and 1993
General Limited Partner Partners Total ------- -------- ----- BALANCE, JANUARY 1, 1993............................................. $ (412,000) $ 31,015,000 $30,603,000 Net Income (Loss).................................................... 197,000 (2,335,000) (2,138,000) Cash Distributions................................................... (37,000) (1,798,000) (1,835,000) ------------ ------------ ------------ BALANCE, DECEMBER 31, 1993........................................... (252,000) 26,882,000 26,630,000 Net Income (Loss).................................................... 221,000 (1,168,000) (947,000) Cash Distributions................................................... (37,000) (1,798,000) (1,835,000) ------------ ------------ ------------ BALANCE, DECEMBER 31, 1994........................................... (68,000) 23,916,000 23,848,000 Income (Loss) Before Gain on Sale of Property........................ 105,000 (36,000) 69,000 Gain on Sale of Property............................................. 102,000 3,173,000 3,275,000 Cash Distributions from Sale......................................... (2,000) (105,000) (107,000) Cash Distributions from Operations................................... (37,000) (1,798,000) (1,835,000) ------------ ------------ ------------ BALANCE, DECEMBER 31, 1995........................................... $ 100,000 $ 25,150,000 $ 25,250,000 ============ ============ ============
See notes to financial statements. 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- OPERATING ACTIVITIES: Net income (loss)................................................... $ 3,344,000 $ (947,000) $ (2,138,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................... 3,585,000 4,310,000 5,024,000 Gain on sale of property.................................... (3,275,000) - - Changes in operating assets and liabilities: Accounts receivable...................................... (288,000) - 403,000 Prepaid expenses and other assets........................ 118,000 (13,000) 15,000 Accounts payable, accrued expenses and other liabilities................................... 678,000 100,000 77,000 ------------- ------------- ------------- Net cash provided by operating activities........................... 4,162,000 3,450,000 3,381,000 ------------- ------------- ------------- INVESTING ACTIVITIES: Proceeds from sale of property - net................................ 5,684,000 - - Capital improvements................................................ (2,163,000) (1,448,000) (1,189,000) Restricted cash - deposit to escrow account......................... (302,000) - - Purchase of cash investments........................................ (1,409,000) (494,000) (2,964,000) Proceeds from sale of cash investments.............................. 1,409,000 1,478,000 4,440,000 ------------- ------------- ------------- Net cash provided (used) by investing activities.................... 3,219,000 (464,000) 287,000 ------------- ------------- ------------- FINANCING ACTIVITIES: Notes payable principal payments.................................... (333,000) (317,000) (202,000) Cash distributions to partners...................................... (1,942,000) (1,835,000) (1,835,000) -------------- -------------- ------------- Cash used by financing activities................................... (2,275,000) (2,152,000) (2,037,000) -------------- -------------- ------------- INCREASE IN CASH AND CASH EQUIVALENTS.......................................... 5,106,000 834,000 1,631,000 Cash and cash equivalents at beginning of year...................... 5,142,000 4,308,000 2,677,000 ------------- ------------ ------------- CASH AND CASH EQUIVALENTS AT END OF YEAR..................................................... $ 10,248,000 $ 5,142,000 $ 4,308,000 ============= ============ ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid in cash during the year............................... $ 4,636,000 $ 4,819,000 $ 4,501,000 ============= ============ ============= SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Balance of note payable assumed by buyer............................ $ 5,922,000 - - ============= ===== =====
See notes to financial statements. 21 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies Organization - Metric Partners Growth Suite Investors, L.P., a California Limited Partnership (the "Partnership"), was organized under the laws of the State of California to acquire, hold for investment, manage, and ultimately sell, all-suite, extended stay hotels which are a franchise of the Residence Inn by Marriott, Inc. The managing general partner is Metric Realty, an Illinois general partnership. The Associate General Partner of the Partnership is GHI Associates II, L.P., a California Limited Partnership, of which Metric Realty is the general partner and Prudential-Bache Properties, Inc., a wholly-owned subsidiary of Prudential Securities Group Inc., is the limited partner. Metric Realty is owned by Metric Holdings, Inc. and Metric Realty Corp. Metric Realty Corp. is the Managing Partner of Metric Realty. The Partnership was organized on June 28, 1984 and commenced operations on April 14, 1988. Capital contributions of $59,932,000 ($1,000 per assignee unit) were made by the limited partners. New Accounting Pronouncement - In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement 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 during the holding period are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Partnership will adopt Statement No. 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. Fair Value of Financial Instruments - In 1995, the Partnership adopted Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. Fair value is a subjective measurement based on assumptions and market data. The carrying amounts of cash and cash equivalents, restricted cash, receivables and obligations under accounts payable and accrued expenses approximate their fair value. An estimate of the fair value of the Partnership's notes payable and related accrued interest requires the use of discounted cash flow analysis based on the current market rate for similar types of borrowing arrangements. The carrying amounts of the Partnership's notes payable approximate their fair value. Use of Estimates - The preparation of the 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. Cash and Cash Equivalents - The Partnership considers all highly liquid investments, primarily commercial paper, with an original maturity date of three months or less at the time of purchase to be cash equivalents. Cash Investments - Cash investments include all cash investments not considered cash or cash equivalents. There were no cash investments at December 31, 1995 or 1994. Restricted Cash - Restricted cash consists of amounts related to the sale of the Residence Inn - Atlanta (Perimeter West) which were deposited into an escrow account. See Note 6. Credit Risk - Financial instruments which potentially subject the Partnership to concentrations of credit risk include cash and cash equivalents and restricted cash. The Partnership places its cash deposits and temporary cash investments with creditworthy, high-quality financial institutions. The concentration of such cash deposits and temporary cash investments is not deemed to create a significant risk to the Partnership. 22 Properties and Improvements - Properties and improvements are stated at cost. A provision for impairment of value is recorded when a decline in value of property is determined to be other than temporary as a result of one or more of the following: (1) a property is offered for sale at a price below its current carrying value, (2) a property has significant balloon payments due within the foreseeable future which the Partnership does not have the resources to meet, and anticipates it will be unable to obtain replacement financing or debt modification sufficient to allow a continued hold of the property over a reasonable period of time, (3) a property has been, and is expected to continue, generating significant operating deficits and the Partnership is unable or unwilling to sustain such deficit results of operations, and has been unable to, or anticipates it will be unable to, obtain debt modification, financing or refinancing sufficient to allow a continued hold of the property for a reasonable period of time or, (4) a property's value has declined based on management's expectations with respect to projected future operational cash flows and prevailing economic conditions. An impairment loss is indicated when the undiscounted sum of estimated future cash flows from an asset, including estimated sales proceeds, and assuming a reasonable period of ownership up to 5 years, is less than the carrying amount of the asset. In the absence of the above circumstances, properties and improvements are stated at cost. Acquisition fees are capitalized as a cost of properties and improvements. Certain payments received from the sellers pursuant to performance guarantee agreements in excess of the hotel's net operating income are applied as a reduction of the cost of the related hotel. Depreciation - Depreciation is computed by the straight-line method over estimated useful lives of 30 years for buildings and improvements and six years for furnishings. Deferred Financing Costs - Financing costs are deferred and amortized as interest expense over the lives of the related loans, which are three to ten years, or expensed, if financing is not obtained. Deferred Franchise Fees - Franchise fees, paid in connection with the acquisition of the Residence Inns, are deferred and amortized over the remaining lives of the franchise agreements which range from ten to fifteen years. 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 59,932 assignee units. Income Taxes - No provision for Federal and state income taxes has been made in the financial statements because income taxes are the obligation of the partners. Reclassification - Certain prior years' amounts have been reclassified to conform to the 1995 presentation. 2. Transactions With the Managing General Partner and Affiliates In accordance with the Partnership agreement, the Partnership is charged by the managing general partner and affiliates for services provided to the Partnership. The amounts are as follows: 1995 1994 1993 ---- ---- ---- Partnership management fees ............ $160,000 $160,000 $160,000 Reimbursement of expenses .............. 250,000 230,000 294,000 -------- -------- -------- Total .................................. $410,000 $390,000 $454,000 ======== ======== ======== Reimbursement of expenses include partnership accounting, professional services and investor services. In accordance with the Partnership agreement the general partners are allocated their two percent continuing interest in the Partnership's net income or loss and cash distributions. In addition, in both 1994 and 1993 the general partners were allocated gross income of $245,000 in accordance with and calculated pursuant to the Partnership agreement. However, beginning in 1995, due to the general partners equity account balance, the Partnership adjusted and limited the income allocation to the general partners to amounts equal to their two percent continuing interest in cash distributions. The general partners were allocated taxable gain and loss in accordance with the Partnership agreement. 23 3. Properties and Improvements Hotel properties and improvements at December 31, 1995 and 1994 are summarized as follows: 1995 1994 ---- ---- Land ....................................... $ 9,358,000 $ 12,276,000 Buildings and improvements ................. 61,487,000 66,376,000 Furnishings ................................ 17,040,000 17,561,000 ------------ ------------ Total ...................................... 87,885,000 96,213,000 Accumulated depreciation ................... (28,935,000) (28,008,000) ------------ ------------ Net properties and improvements ............ $ 58.950.000 $ 68,205,000 ============ ============ 4. Notes Payable The Partnership has one or more notes payable associated with each property. Individual properties are pledged as collateral for the related notes payable. The notes are generally payable monthly and require balloon payments in 1998. Interest rates on the notes are fixed at December 31, 1995 and range from 8 percent to 10.25 percent. Certain of the notes have been discounted over their term to yield interest at 10.15 to 10.5 percent per annum. Discount amortization was $124,000, $114,000 and $191,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Each note for the six Residence Inns acquired in June 1988 (with a total net book value of $29,505,000 at December 31, 1995) provides for cross-collateralization to all of these properties. The principal amount of all six notes was $18,739,000 at December 31, 1995. The Residence Inn - Nashville (Airport) note payable with an original balance of $9,250,000 wraps an existing loan which had a balance of approximately $9,336,000 at the time the Partnership acquired the property. Principal payments at December 31, 1995 are required as follows: 1996.............................................................. $ 353,000 1997.............................................................. 375,000 1998.............................................................. 42,257,000 Unamortized discount.............................................. (316,000) ------------- Total............................................................. $ 42,669,000 ============= Amortization of deferred financing costs totaled $50,000, $70,000 and $70,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 5. Minimum Future Rental Commitments One property, the Residence Inn-Nashville (Airport), is utilized through a land lease which provides for lease payments of $100,000 per annum for the first ten years, plus an additional $50,000 per annum until the purchase money note to the seller is paid in full. The $50,000 is payable in equal monthly installments with payment of the balance being subordinated to returns to the Partnership. Furthermore, up to $210,000 of the balance of the ground lease can, and has been, applied by the Partnership as an offset under a guarantee agreement. The portion of the accrued rent not paid currently accrues interest at a rate of ten percent per annum, compounded annually. Furthermore, the lease provides for additional payments based on 1.8% of the revenues of the hotel. Beginning in the eleventh lease year, the annual lease payment is adjusted every five years with the payment based on application of the then current ten-year United States Treasury Bond rate of interest, to a valuation of the land at the higher of its then fair market value or the option price in the lease. The lease extends through May 25, 2049 and contains an option to purchase the fee interest in the land. 24 Rental expense (including the 1.8% of revenues) for this lease was $219,000, $214,000 and $211,000 in 1995, 1994 and 1993. 6. Sale of Property The Partnership sold the Residence Inn-Atlanta (Perimeter West) on October 3, 1995. The net sales price was $11,350,000 after deducting $300,000 that was deposited into an escrow account (the "Shortfall Guaranty Account"). The Partnership has guaranteed certain income levels to the buyer for the years from 1996 through 1998. To the extent these income levels are not attained, the buyer will receive the deficiency, up to the maximum $300,000, from the Shortfall Guaranty Account. Any unused funds in the Shortfall Guaranty Account at December 31, 1998, will be returned to the Partnership together with interest. Gain on sale of $300,000 has been deferred until the contingency has been removed. The buyer assumed the existing loan with a balance of $5,922,000. After payment of expenses of sale, the proceeds to the Partnership are approximately $5,384,000. Of that amount, $107,000, representing state real property withholding taxes due on the gain on sale, was paid to the State of Georgia and recorded as cash distributions to partners from sale in these financial statements because such taxes are the obligation of the partners. 7. Legal Proceedings Metric Partners Growth Suite Investors, L.P. vs. Kenneth E. Nelson, The Nelson Group, et al., San Francisco County Superior Court, Case No. 928065 (the "SF Lawsuit). [This lawsuit is related to the other proceedings described below. Terms defined in the description of one case may be used in the description of the other cases.] This lawsuit relates to management of the Partnership's Residence Inn - Ontario by an entity controlled by Kenneth E. Nelson ("Nelson") from April 1988 to February 1991. As a result of several defaults by the Nelson entity under the management agreement, the Partnership gave notice of termination of the management agreement and filed the SF Lawsuit in January 1991 seeking damages and declaratory and injunctive relief against Nelson and certain related parties (collectively, the "Nelson Parties"). The Nelson Parties counterclaimed for damages and declaratory relief. In March 1993, the Partnership and the Nelson Parties verbally agreed to settle the SF Lawsuit at a settlement conference (the "SF Settlement"). Under this settlement, the Partnership is to purchase the land (the "Land") underlying the Partnership's Residence Inn - Nashville (the "Hotel") currently leased by the Partnership from Nashville Lodging Company ("NLC"), an entity controlled by Nelson. The Land purchase would be 100% seller-financed pursuant to a non-recourse promissory note of the Partnership in the amount of $1,700,000. The Court retained jurisdiction to enforce the terms of the SF Settlement. Various disagreements between the Partnership and Nelson regarding the meaning of several provisions of the SF Settlement arose after March 1993. A major disagreement related to whether the SF Settlement required the Partnership to purchase the Land subject to a certain lis pendens filed against the Land by Orlando Residence Ltd. ("Orlando") (see the "Nashville Case I" below). In February 1994, the Nelson Parties filed a motion to enforce the SF Settlement which was granted and in June 1994, the Court ruled that the Partnership had agreed to purchase the Land subject to the lis pendens filed by Orlando. Following this ruling, the Partnership has attempted to negotiate and enter into a settlement agreement and a land purchase agreement and related agreements (the "Settlement Documents") among itself and Nelson and NLC and another Nelson entity, 2300 Elm Hill Pike, Inc. ("2300"). To date, these parties have not been able to reach agreement on all issues relating to the Settlement Documents. Since June 1994, numerous appearances before the Court have been made in an effort to resolve all issues regarding the Settlement Documents, but as of the date hereof, the Settlement Documents have not been completed or executed. In July 1994, the Court in the Nashville Case I, discussed below, ruled that the Hotel had been fraudulently conveyed to NLC by 2300 in 1986 and voided the conveyance. Orlando may attempt to execute judgements against Nelson, NLC and 2300 on the Land, which could deprive the Partnership of the benefits of the SF Settlement. There is also some risk that consummation of the SF Settlement, which would result in ownership of the Hotel and the Land being combined in the Partnership while the Land may be subject to the lis pendens filed by Orlando and/or other liens and judgements related to Nashville Case I, may adversely affect the Partnership's equity interest in the Hotel. However, the Partnership does not believe that consummation of the SF Settlement will have a material adverse effect on the Partnership or on its equity interest in the Hotel. 25 Orlando Residence Ltd. vs. Metric Partners Growth Suite Investors, L.P. et al., Chancery Court for Davidson County, in Nashville, Tennessee, Case No. 92-3086-III ("Nashville Case I") 2300 was the original owner of the Hotel (including the Land). In 1985, 2300's shareholders severed their business relationships and 2300 executed a promissory note (the "Note") in favor of Orlando. 2300 defaulted on the Note and in March 1990 Orlando obtained a judgement against 2300 on the Note. 2300 conveyed its interest in the Hotel (including the Land) to NLC in 1986. In April 1989, NLC sold the Hotel and leased the Land to the Partnership. In October 1992, Orlando filed this lawsuit against Nelson and NLC and 2300, and the Partnership, alleging that the sale of the Hotel and the Land by 2300 to NLC in 1986 and NLC's subsequent sale of the Hotel and lease of the Land to the Partnership in 1989 were fraudulent conveyances, intended to hinder Plaintiff's recovery of its Note judgement against 2300. In August 1993, the Court dismissed this action against the Partnership. Orlando has previously stated that it will appeal this judgement for the Partnership. The Partnership cross-claimed against NLC, Nelson and 2300 for indemnity and breach of representations and warranties under the purchase and sale agreement between NLC and the Partnership. In April 1995, the Court awarded judgement to the Partnership against NLC and 2300 for a portion of the Partnership's legal fees in this case. In July 1994, the Court ruled that the sale of the Hotel by 2300 to NLC had been a fraudulent conveyance and voided this conveyance. In September 1994, the Court entered judgement against Nelson, NLC and 2300 for approximately $500,000. These rulings do not directly adversely affect the equity interest of the Partnership in the Hotel or its leasehold interest in the Land. In September 1995, punitive damages of $850,000 against Nelson, NLC and 2300 were awarded to Orlando. Although the defendants have appealed these judgements, they became final on December 1, 1995. In January 1996, NLC filed a petition with the U.S. Bankruptcy Court in Milwaukee, Wisconsin, for reorganization under Chapter 11 of the Bankruptcy Code. In connection with this filing, the Partnership filed an interpleader action against NLC and Orlando (which had garnished payments due to NLC from the Partnership) and the holder (the "Lender") of the underlying mortgage on the Hotel (the "Underlying Mortgage"), asking the Court to determine which parties were entitled to receive payments to be made by the Partnership to NLC under the ground lease (the "Lease") of the Land and the promissory note (the "Wrap Note") held by NLC which "wraps around" the Underlying Mortgage. All payments due to NLC under the Lease and the Wrap Note from the filing of this action through February 1996 were paid into the clerk of the Bankruptcy Court. In February 1996, the Bankruptcy Court granted motions to dismiss the reorganization proceeding filed by Orlando and the Lender. Following this dismissal, in late February 1996, the parties to the interpleader action filed by the Partnership stipulated, and the Bankruptcy Court subsequently ordered, that all payments theretofore paid into the clerk of the Bankruptcy Court pursuant to the Wrap Note and all payments due under such Note on March 1, 1996 and in the future, to the extent such payments constituted payments due under the Underlying Mortgage, would be paid directly to the Lender until further order to the contrary by the Bankruptcy Court. The parties were asked by the Bankruptcy Court to present their arguments as to the disposition of payments due under the Lease and the portion of the Wrap Note payments to be retained by NLC. These payments due for March 1996 were paid by the Partnership into the clerk of the Bankruptcy Court and are to continue to be so paid until further order to the contrary by the Bankruptcy Court. The interpleader action will have no economic effect on the Partnership since the action relates only to amounts owed by the Partnership to NLC. Nashville Lodging Company vs. Metric Partners Growth Suite Investors, L.P. et al., Circuit Court, State of Wisconsin, Case No. 94CV001212. In February 1994, NLC served this lawsuit on the Partnership. NLC alleges fraud, breach of settlement contract and breach of good faith and fair dealing and seeks compensatory, punitive and exemplary damages in an unspecified amount for the Partnership's failure to consummate the SF Settlement. In February 1994, the Partnership filed an answer and requested that the Court stay the action pending resolution of the SF Lawsuit including all appeals. The Court refused to stay the action and discovery commenced. In February 1995, the Court determined that the Partnership could be sued in Wisconsin but stayed the case until the settlement of the SF Lawsuit has been finalized. 26 Orlando Residence Ltd. vs. 2300 Elm Hill Pike, Inc. and Nashville Lodging Company vs. Metric Partners Growth Suite Investors, L.P., Chancery Court for Davidson County, in Nashville, Tennessee, Case No. 94-1911-I ("Nashville Case II"). Orlando has filed an action against 2300 and NLC in the Davidson County Chancery Court to attempt to execute on its judgement against Nelson, NLC and 2300 in Nashville Case I by subjecting the Land to sale. In May 1995, 2300 and NLC filed a third-party complaint against the Partnership, alleging it had refused to purchase the Land as required by the SF Settlement. 2300 and NLC claim as damages against the Partnership 2300 and NLC's costs in defending Nashville Case I and Nashville Case II and indemnification for any loss resulting from the claims of Orlando, among other claims of damage. In September 1995, the Court dismissed this action by Orlando against 2300 and NLC for lack of standing. However, the Court refused to dismiss the third-party action against the Partnership. In February 1996, the Court granted a motion filed by 2300 and NLC for partial summary judgement, ruling that the Partnership had breached the SF Settlement. The action will continue to determine damages and other issues. The Partnership does not believe it breached the SF Settlement and will appeal this ruling at an appropriate time. In any event, it does not believe that any damages it might ultimately be required to pay in this action will have a material adverse effect on the Partnership. The ultimate disposition of these lawsuits cannot be predicted at this time; however, based solely on the facts known to it as of the date hereof, the Partnership does not believe the lawsuits will have a material adverse effect on the Partnership. 8. 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 financial statements are as follows:
1995 1994 1993 ---- ---- ---- Net income (loss) - financial statements................... $3,344,000 $(947,000) $(2,138,000) Differences resulted from: Gain on sale of property................................ 281,000 -- -- Depreciation............................................ (95,000) 166,000 949,000 Amortization of notes payable discount.................. 124,000 114,000 191,000 Interest................................................ (17,000) (33,000) (181,000) Other................................................... (141,000) (65,000) (116,000) ---------- ---------- ----------- Net income (loss) - income tax method...................... $3,496,000 $(765,000) $(1,295,000) ========== ========= =========== Taxable income (loss) per limited partnership assignee unit after giving effect to the allocation to the general partners.................................................. $53 $(17) $(25) === ==== ==== Net assets and liabilities - financial statements.......... $25,250,000 $23,848,000 $26,630,000 Cumulative differences resulted from: Gain on sale of property................................ 300,000 -- -- Depreciation............................................ 651,000 827,000 661,000 Amortization of notes payable discount.................. 2,211,000 2,087,000 1,973,000 Interest................................................ (2,205,000) (2,186,000) (2,153,000) Capital account adjustment.............................. 5,993,000 5,993,000 5,993,000 Other................................................... 53,000 130,000 195,000 ------------- ------------ ----------- Net assets and liabilities - income tax method............. $32,253,000 $30,699,000 $33,299,000 =========== =========== ===========
27 9. Subsequent Event Effective January 1, 1996, the Partnership executed re-negotiated contracts with Marriott for the management of six of the hotels already under contract with Mariott. Furthermore, in exchange for such re-negotiated contracts, the Partnership executed new agreements with Mariott for the management of the Residence Inns located in Altamonte Springs, Nashville and Ontario. Overall, the transaction is expected to reduce fees, relatively, as well as the length of the contract terms. 28 SCHEDULE III METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995 COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN A B C D E F G H Cost Capitalized Initial Cost Subsequent Gross Amount at Which to Partnership to Acquisition Carried at Close of Period(1) -------------- -------------- -----------------------------
Accumu- Date Buildings Buildings lated of Date and and Deprecia- Con- of Encum- Improve- Improve- Carrying Improve- tion struc- Acqui- Description brances(5) Land ments ments Costs Land ments Total(2) (3)(4) tion sition - - ----------- ---------- ---- ----- ----- ----- ---- ----- -------- ------ ---- ------ (Amounts in thousands) HOTELS: Residence Inn-Ontario Ontario, California .......... $ 9,003 $ 3,338 $13,555 $ 1,232 $ (775) $ 3,185 $14,165 $17,350 $ 5,052 2/86 4/29/88 Residence Inn-Columbus (East) Columbus, Ohio ............... 2,673 587 5,277 908 (176) 571 6,025 6,596 2,438 1986 6/17/88 Residence Inn-Fort Wayne Fort Wayne, Indiana .......... 2,801 595 5,541 693 (229) 573 6,027 6,600 2,334 1985 6/17/88 Residence Inn-Indianapolis Indianapolis, Indiana ........ 3,250 996 6,128 1,143 (167) 973 7,127 8,100 2,832 1984 6/17/88 Residence Inn-Lexington 11/85 & Lexington, Kentucky .......... 3,161 799 6,114 978 (92) 787 7,012 7,799 2,638 3/86(6) 6/17/88 Residence Inn-Louisville Louisville, Kentucky ......... 3,649 1,093 6,880 1,198 (164) 1,070 7,937 9,007 3,180 1984 6/17/88 Residence Inn-Winston-Salem Winston-Salem, North Carolina ............... 3,205 669 6,341 720 (132) 657 6,941 7,598 2,773 1986 6/17/88 Residence Inn-Nashville (Airport) Nashville, Tennessee ......... 8,703 -- 11,416 2,041 (525) -- 12,932 12,932 4,255 1/85 5/26/89 Residence Inn-Altamonte Springs Altamonte Springs, 1985 & Florida ...................... 6,224 1,594 9,862 797 (350) 1,542 10,361 11,903 3,433 1988(7) 3/16/90 ------- ------- ------- ------- ------- ------- ------- ------- ------- TOTAL $42,669 $ 9,671 $71,114 $ 9,710 $(2,610) $ 9,358 $78,527 $87,885 $28,935 ======= ======= ======= ======= ======= ======= ======= ======= =======
See accompanying notes. 29 SCHEDULE III METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. A California Limited Partnership REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995 NOTES: (1) The aggregate cost for Federal income tax purposes is $88,103,000. (2) Balance, January 1, 1993................................................................$ 93,576,000 Capital Improvements................................................................... 1,189,000 ------------ Balance, December 31, 1993.............................................................. 94,765,000 Capital Improvements................................................................... 1,448,000 ------------ Balance, December 31, 1994.............................................................. 96,213,000 Cost of property and improvements sold.................................................. (10,491,000) Capital Improvements................................................................... 2,163,000 ------------ Balance, December 31, 1995..............................................................$ 87,885,000 ============ (3) Balance, January 1, 1993................................................................$ 18,998,000 Additions charged to expense........................................................... 4,857,000 ------------ Balance, December 31, 1993.............................................................. 23,855,000 Additions charged to expense............................................................ 4,153,000 ------------ Balance, December 31, 1994.............................................................. 28,008,000 Accumulated depreciation on property and improvements sold.............................. (2,533,000) Additions charged to expense........................................................... 3,460,000 ------------ Balance, December 31, 1995..............................................................$ 28,935,000 ============
(4) Depreciation is computed on lives ranging from six to 30 years. (5) Encumbrances are shown net of a discount of $316,000. (6) Completed in stages from November 1985 to March 1986. (7) Construction completed in two phases. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. The information called for by this item is incorporated herein by reference to the Registrant's Current Report on Form 8-K filed September 14, 1994 (Commission File No. 0-17660). 30 PART III Item 10. Directors and Executive Officers of the Registrant. The Partnership has no directors or executive officers. For informational purposes only, the following are the names and additional information relating to the directors and executive officers of Metric Realty Corp., the managing partner of Metric Realty, the managing general partner of the Partnership which also provides asset management services to the Partnership, and Metric Holdings, Inc., the only other partner of Metric Realty. (a) Directors Robert A. Fiddaman Director, President and Chief Executive Officer, Metric Realty Corp. Mr. Fiddaman, age 58, has served as a director of the general partner managing Metric Realty since March 1988 and was Executive Vice President, Institutional Investments, of such general partner from March 1988 to December 1993 when he became President and Chief Executive Officer of such general partner, i.e., Metric Realty Corp. Mr. Fiddaman was also a director of the other partner of Metric Realty from June 1990 to December 1992. Since February 1994, he has been Chairman of the Board, President and Chief Executive Officer of Metric Income Trust Series, Inc., a publicly-held real estate investment trust, of which Metric Realty is the Advisor. He was an officer of Fox Capital Management Corporation ("FCMC") from 1979 to March 1993, and, since 1985, has been a partner (or since December 1993, a limited partner of a limited partnership which is a partner) of Fox Realty Investors. FCMC and Fox Realty Investors are real estate investment management companies which serve directly or indirectly as general partner for 24 publicly-held real estate limited partnerships. Mr. Fiddaman is a licensed real estate broker and has served as President of the Bay Area Mortgage Association and President of the Northern California Mortgage Bankers Association. Ralph F. Verni Chairman of the Board, Metric Realty Corp.; Chairman of the Board, President and Chief Executive Officer, Metric Holdings, Inc. Mr. Verni, age 53, was elected to his positions with Metric Realty Corp. and Metric Holdings, Inc. in March 1993. He joined State Street Research and Management Company ("State Street Research"), a subsidiary of Metropolitan Life, in 1992 as Chairman and Chief Executive Officer and became President in January 1993. He also serves as Chairman of Metropolitan Asset Management Company, a wholly-owned subsidiary of MetLife which in turn serves as a holding company for several of Metropolitan Life's investment and financial subsidiaries. Mr. Verni also serves as Chairman of the Board of Metropolitan Securities, Inc., a wholly-owned broker/dealer of Metropolitan Life which serves as the distributor for mutual funds sold by Metropolitan Life representatives. He is a director of 10 registered investment companies in the State Street Research Fund complex which are managed by State Street Research or an affiliate. Mr. Verni is a member of the Board of Directors of the CML Group, Inc., a publicly-traded company. In addition, Mr. Verni is a member of the Advisory Committee for the MIT Center for Real Estate Development and a member of the Colgate University Board of Trustees and its Finance Committee. Prior to joining State Street Research, Mr. Verni was President and Chief Executive Officer of New England Investment Companies, a holding company for the real estate, investment management, and broker/dealer subsidiaries of New England Mutual Life Insurance Company ("The New England"), and was also the Chief Investment Officer and a director of The New England. Prior to joining The New England in 1982, Mr Verni spent 16 years with The Equitable Life Assurance Company in senior investment management positions. He holds a Bachelor's Degree from Colgate University and a Master's Degree in Business Administration from Columbia University. He is also a Chartered Financial Analyst. 31 Gerard P. Maus Director, Metric Realty Corp. and Metric Holdings, Inc. Mr. Maus, age 44, was elected as a director of Metric Realty Corp. and Metric Holdings, Inc. in March 1993. He joined State Street as Executive Vice President, Chief Financial Officer and Chief Administrative Officer in February 1993. Prior to joining State Street, Mr. Maus served since 1983 as a financial officer of New England and its subsidiary, New England Investment Companies ("NEIC"), most recently as Executive Vice President and Chief Financial Officer of NEIC from 1990 to January 1993. Prior to holding these positions, Mr. Maus held financial positions with Bank of New England, Coopers & Lybrand, and Liberty Mutual Life Insurance Company. He received a Bachelor of Arts Degree in Business Administration from Rutgers University in 1973 and is a Certified Public Accountant. (b) Executive Officers Margot M. Giusti Executive Vice President, Finance and Administration, and Chief Financial Officer, Metric Realty Corp.; Executive Vice President, Chief Financial Officer, Metric Holdings, Inc. Mrs. Giusti, 43, has served as Chief Financial Officer of the partner managing Metric Realty since March 1988 and as head of Administration since August 1990. She has also held the same positions with the other partner of Metric Realty since December 1992. From 1980 to 1988, she was employed by Fox Realty Investors or an affiliate in various financial positions. She graduated from the University of San Francisco in 1974 with a Bachelor of Science Degree in Business Administration. From 1974 until 1979, Mrs. Giusti was employed on the audit staff of Deloitte Haskins & Sells. From 1979 until 1980, Mrs. Giusti was controller of Wallbangers, Inc. She is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. Michael J. Hoffmann Executive Vice President, National Acquisitions Director, Metric Realty Corp. In April 1994, Michael J. Hoffmann, age 35, joined Metric Realty as Executive Vice President, National Acquisitions Director. In that capacity, he is responsible for all acquisitions for Metric clients, and supervises all acquisition personnel. Prior to joining Metric Realty, Mr. Hoffmann had been Vice President of Acquisitions for AMB Institutional Realty Advisors since 1989. He is also an attorney and was engaged in the practice of real estate law from 1984 to 1989. He is a member of the State Bars of California, Texas and Wisconsin. Mr. Hoffmann received a Bachelor of Arts in 1982, and a Master's Degree in Real Estate Appraisal and Investment Analysis and a Doctorate of Jurisprudence in 1985, from the University of Wisconsin. Herman H. Howerton Executive Vice President, General Counsel and Secretary, Metric Realty Corp. and Metric Holdings, Inc. Mr. Howerton, age 52, has served as General Counsel with the partner managing Metric Realty since 1988. He has held the same positions with the other partner of Metric Realty since December 1993 and has been Secretary of these corporations since March 1993. From 1984 to 1988, he was employed by FCMC in various legal positions. He was employed by Cushman & Wakefield in commercial leasing from 1983 to 1984. Prior to that, from 1972 to 1982, Mr. Howerton held various positions with Itel Corporation, including those of Vice President-Administration and Vice President, General Counsel and Secretary. He received a Bachelor of Arts Degree from California State University at Fresno in 1965 and a Juris Doctorate Degree from Harvard Law School in 1968. He is a member of the State Bar of California and a licensed California real estate broker. 32 James S. Keagy Executive Vice President, Director of Investment Services, Metric Realty Corp. Mr. Keagy, age 36, joined Metric Realty in July, 1995 and is in charge of all investment services for Metric Realty, including marketing investment programs and advisory services to pension plans and other tax-exempt entities. Prior to joining Metric Realty, Mr. Keagy had been a senior executive of Aldrich Eastman Waltch ("AEW"), a real estate investment advisor, since 1989. His responsibilities at AEW included business and product development and asset management. From 1982 to 1989, he worked in the real estate department of Thomson McKinnon Securities in New York, serving as the Associate Director of the department from 1985 to 1989. His responsibilities included raising capital for real estate investments, acquisitions and asset management. Mr. Keagy received a Bachelor of Science Degree from Yale College in 1980 and a Master's Degree in Business Administration-Marketing and Real Estate from Harvard University in 1982. Ronald E. Zuzack Executive Vice President, Director of Portfolio Services, Metric Realty Corp. Mr. Zuzack, age 52, has been in charge of Portfolio Services for the partner managing Metric Realty since March 1988. From 1981 to 1988, he was employed by FCMC in various asset management positions. Prior to 1981 he was employed by Union Bank as Vice President/Manager Real Estate, Sacramento Region, and acted as Vice President, Development and Property Management while employed by Inter-Cal Real Estate Corporation. He received his Bachelor of Science Degree and Master's Degree in Business Administration from the University of Missouri. Mr. Zuzack also attended the School of Mortgage Banking at Northwestern University. Item 11. Executive Compensation. The Partnership does not pay or employ any directors or officers. Compensation to the directors and officers of Metric Realty Corp., the managing partner of Metric Realty (the managing general partner of the Partnership), is paid by Metric Realty or its affiliates and is not related to the results of the Partnership. The Partnership has not established any plans pursuant to which plan or non-plan compensation has been paid or distributed during the last fiscal year or is proposed to be paid or distributed in the future, nor has the Partnership issued or established any options or rights relating to the acquisition of its securities or any plan relating to such options or rights. However, Metric Realty is expected to receive certain allocations, distributions and other amounts pursuant to the Partnership's limited partnership agreement. In addition, included in the expense reimbursements made to such general partner or affiliates by the Partnership is an allocation for a portion of the compensation (including employee benefit plans) paid to personnel rendering asset management services to the Partnership. Item 12. Security Ownership of Certain Beneficial Owners and Management. There is no person known to the Partnership who owns beneficially or of record more than five percent of the voting securities of the Partnership. Neither the Partnership's managing general partner nor affiliates of the Partnership's managing general partner have contributed capital to the Partnership. The Partnership 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 Partnership in accordance with the terms of the Partnership Agreement. Each of the directors and officers of the Partnership's managing general partner, and all of these individuals as a group, own less than one percent of the Partnership's voting securities. There are no arrangements known to the Partnership, the operations of which may, at a subsequent date, result in a change in control of the Partnership. 33 Item 13. Certain Relationships and Related Transactions. None; except that the Partnership in 1995 paid and in 1996 will pay fees and expense reimbursements to Metric Realty for services provided to the Partnership. See the Prospectus filed pursuant to Rule 424(b) of the Securities Act of 1933, which is incorporated by reference herein, and Note 2 to the Financial Statements in Item 8. All of the individuals listed in Item 10 above are officers and employees of and receive compensation from Metric Realty or an affiliate. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1., 2. and 3. See Item 8 of Form 10-K for Financial Statements for the Partnership, Notes thereto, and Financial Statement Schedules. (A table of contents to Financial Statements and Financial Statement Schedules is included in Item 8 and incorporated herein by reference.) (b) No reports on Form 8-K were required to be filed during the last quarter of the period covered by this Report other than the Form 8-K Report filed on October 3, 1995, reporting the disposition of an asset. On February 27, 1996, the Form 8-K was subsequently amended to include additional information concerning the disposition of the Residence Inn - Atlanta (Perimeter West). (c) List of Exhibits (numbered in accordance with Item 601 of Regulation S-K): 3.1 Amended and Restated Limited Partnership Agreement of the Partnership. Incorporated by reference to Post- Effective Amendment No. 3 to the Partnership's Form S-11 Registration Statement filed with the Commission on July 14, 1989. 4.1 Assignment agreement among the Partnership, Metric Realty, and Metric Assignor, Inc. on behalf of all holders of limited partnership assignee units. Incorporated by reference to Post-Effective Amendment No. 3 to the Partnership's Form S-11 Registration Statement filed with the Commission on July 14, 1989. 10.1 Lease between Nashville Lodging Company and the Partnership dated April 24, 1989, as amended by Amendment to Lease dated as of April 15, 1990. (d) Financial Statement Schedules, if required by Regulation S-K, are included in Item 8. 34 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. REGISTRANT METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership By: Metric Realty, an Illinois general partnership, its Managing General Partner By: Metric Realty Corp., a Delaware corporation, its managing partner By: /s/ Robert A. Fiddaman ----------------------- Robert A. Fiddaman President and Chief Executive Officer, Metric Realty Corp. Date: March 25, 1996 -------------------- 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. By: /s/ Robert A. Fiddaman By: /s/ Ralph F. Verni ---------------------- ------------------ Robert A. Fiddaman Ralph F. Verni Director, President and Chief Executive Chairman of the Board, Officer, Metric Realty Corp. Metric Realty Corp; Chairman of the Board, President and Chief Executive Officer, Metric Holdings, Inc. By: /s/ Margot M. Giusti By: /s/ Gerard P. Maus -------------------- ------------------ Margot M. Giusti Gerard P. Maus Principal Financial and Accounting Officer Director, Metric Realty Corp. of Metric Realty; Executive Vice President, and Metric Holdings, Inc. Finance and Administration, and Chief Financial Officer, Metric Realty Corp.; Executive Vice President, Chief Financial Officer, Metric Holdings, Inc. Date: March 25, 1996 -------------- 35 EX-10.1 2 LEASE L E A S E Between NASHVILLE LODGING COMPANY as Lessor and METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. as Lessee Dated April 24 , 1989. 2300 Elm Hill Pike Nashville, Tennessee TABLE OF CONTENTS Paragraph Page 1. Lease of Premises..................................................5 2. Term...............................................................5 3. Base Rent..........................................................5 4. Additional Rent...................................................12 5. Lessee's Option to Purchase the Premises..........................15 6. Quiet Enjoyment ..................................................20 7. Use ..............................................................21 8. Title to Buildings and Improvements...............................22 9. Permits, Licenses, Hotel Franchise Agreement......................23 10. Repairs, Governmental Regulations and Waste.......................25 11. Improvements, Changes, Alterations, Demolition and Replacement by Lessee..............................26 12. Damage or Destruction.............................................29 13. Assignment and Subletting.........................................31 14. Mortgage of Fee...................................................32 15. Mortgage of Leasehold.............................................34 16. Protection of Leasehold Lender....................................34 17. Property and Liability Insurance..................................39 18. Mechanics' and Other Liens........................................43 19. Indemnity.........................................................44 20. Eminent Domain....................................................46 Paragraph Page 21. Lessor's Right of Inspection.......................................50 22. Lessee's Defaults and Lessor's Remedies............................50 23. No Waiver..........................................................53 24. No Merger..........................................................55 25. No Partnership.....................................................55 26. Covenants Run With Land............................................55 27. Notices............................................................56 28. Limitation of Lessor's Liability...................................57 29. Limitation of Lessee's Liability...................................58 30. Estoppel Certificates..............................................58 31. Holding............................................................59 32. Arbitration........................................................59 33. General Provisions.................................................61 Exhibit A - Property Description Exhibit B - Short Form Lease Exhibit C - Base Option Price Exhibit D - Form of Deed of Trust LEASE THIS LEASE, made as of the Lot day of April, 1989, by an-between NASHVILLE LODGING COMPANY, a Wisconsin limited partnership ("Lessor"), and METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California limited partnership ("Lessee"), W I T N E S S E T H: WHEREAS Lessor is the owner of the real property, including the land (the "Land") and all buildings, structures and improvements thereon (the "Improvements"), located at 2300 Elm Hill Pike, Nashville, Tennessee, commonly known as the Residence Inn By Marriott and more particularly described in Exhibit A hereto; and WHEREAS Lessor wishes to sell to Lessee the Improvements and to lease to Lessee the Land, together with all rights, privileges and easements appurtenant thereto (herein collectively called the "Premises"), and Lessee wishes to purchase from Lessor the Improvements and to lease from Lessor the Premises, all as more particularly described in that certain Purchase and Sale Agreement, dated April Lay, 1989, among 2300 Elm Hill Pike, Inc., Lessor and Lessee (the "Purchase Agreement"). All capitalized terms not expressly defined herein shall have the meanings set forth in the Purchase Agreement. 4 NOW, THEREFORE, in consideration of the rents to be paid hereunder and of the agreements, covenants and conditions herein contained, Lessor and Lessee hereby agree as follows: 1. Lease of Premises. Lessor hereby leases and demises to Lessee, and Lessee hereby leases and takes from Lessor, the Premises for the term and upon the agreements, covenants and conditions set forth herein. 2. Term (a) The term of this Lease shall commence on April __ , 1989, and, unless sooner terminated as herein provided, shall terminate on April __, 2049. (b) As used herein, "Lease Year" shall mean each twelve (12) month period from the __ day of April through the __ day of the following April during the term hereof. 3. Base Rent (a) For the period from the commencement of the Lease term until the payment in full or other discharge of the Purchase Money Note (as defined in the Purchase Agreement), whether at or before its stated maturity, Lessee covenants and agrees to pay to Lessor, as annual basic rent (the "Base Rent") for the Premises, the sum of One Hundred Fifty Thousand Dollars ($150,000), of which 5 $50,000 shall be payable in equal monthly installments of $4,166.17, in advance, on the first day of each and every month during each such Lease Year or port on thereof without any right of set-off except as provided in paragraph 14 hereof. The balance of the Base Rent for each such Lease Year shall be paid as provided in subparagraph (g) below. (b) For the period from the payment in full or other discharge of the Purchase Money Note through the end of the tenth Lease Year, Lessee covenants and agrees to pay to Lessor, as the annual Base Rent for the Premises, the sum of One Hundred Thousand Dollars ($100,000), payable as provided in subparagraph (g) below. (c) For the remaining term of this Lease, beginning on the first day of the eleventh Lease Year, the term of this Lease shall be divided into consecutive five (5) year rent periods (a Parent Periods) and Lessee covenants and agrees to pay to Lessor, as annual Base Rent for the Premises during each Rent Period, an amount equal to the product derived by multiplying the greater of the fair market value of the Premises established pursuant to subparagraph (d) below or the base Option Price on the first day of the applicable Rent Period, calculated as provided in paragraph 5(b)(i) hereof, times the published yield to maturity of United States treasury bonds having a maturity closest to 10 years from the first day of the month immediately preceding the commencement 6 of the Rent Period, as published in the Wall Street Journal or, if the Wall Street Journal is not then being published, a comparable national business periodical or newspaper, less $100,000; provided that in no event shall the adjusted Base Rent be less than zero. If the mathematical result of the computation described above produces a number which is less than zero, the negative number produced by such calculation for each year during the Rent Period, plus interest thereon as hereinafter set forth, shall be due from Lessor to Lessee. Such amount, including any accrued interest thereon, shall be credited against the next Base Rent payable hereunder by Lessee, whether or not payment would otherwise be deferred under subparagraph (g) hereof. Interest at the rate of 10% per annum shall accrue on the negative amount from the first day of each Lease Year during the Rent Period until such amount is credited against the next Base Rent payable as set forth above. The adjusted Base Rent shall be payable as provided in subparagraph (g) below. (d) In the event Lessor and Lessee are not able to agree on the fair market value of the Premises for use in determining Base Rent for the succeeding Rent Period at least ninety (90) days prior to the commencement of such Rent Period, Lessor and Lessee shall select an MAI appraiser having not less than five years experience appraising commercial properties in the Nashville, Tennessee area to determine the fair market value of the Premises based on its 7 use as a 168-room Residence Inn or similar hotel or, if the use of the Premises has then been changed to a non-hotel use, based on the use to which it is being put, without regard to the highest and best use to which it might be put, using as the primary indicia of value the comparable sales comparison methodology based solely on properties improved for use as a mid-priced limited service, hotel or, if the use has been changed, for such changed use. The determination of value by the appraiser shall be binding on both Lessor and Lessee. If Lessor and Lessee are unable to agree upon an appraiser, each shall appoint an appraiser having the qualifications described above and shall give written notice thereof to the other not later than 75 days prior to the commencement of the Rent Period. If either shall fail timely to appoint an appraiser, the appointed appraiser shall select the second appraiser within 10 days thereafter. Such appraisers shall, within 10 days after the appointment of the last of them to be appointed, appoint a third appraiser. If the two appraisers are unable to agree timely on the selection of a third appraiser, then either appraiser may request such appointment by the American Arbitration Association. The third appraiser shall, within 45 days after his appointment, make an independent determination of fair market value of the Premises, using the methodology and assumptions outlined above, and submit his written report to Lessor and Lessee. 8 The fair market value of the Premises shall be as determined by the third appraiser. Lessor and Lessee shall each pay the fees of their respective appraisers and one-half the fees of the appraiser selected jointly or by the first two appraisers for a fair market value land appraisal, and Lessee shall pay any remaining fees of such joint or third-party appraisals. (e) Should the adjusted Base Rent not be finally determined prior to the commencement of any Rent Period, Lessee shall continue to pay the Base Rent payable during the immediately preceding Rent Period until such determination is made. Should the monthly pro rata Base Rent for the Rent Period in question exceed the amount previously paid by Lessee for such Rent Period, Lessee shall forthwith pay the difference to Lessor. Should the monthly pro rata Base Rent for the Rent Period in question be less than the amount previously paid by Lessee for such Rent Period, the over-payment shall be credited to the next installments of rent due hereunder. (f) If the last Rent Period during the term of this Lease is not a full five (5) years, the Base Rent for such Rent Period shall nevertheless be computed in the manner specified in subparagraph 3(c) above. Base Rent for any fractional Lease Year, including the first Lease Year if such shall be less than three hundred and sixty-five (365) days, during the term of this Lease shall be prorated appropriately. 9 (g) Payment of the Base Rent shall be made in equal monthly installments, in advance, on the first day of each and every month during the term hereof; provided, however, that (except as expressly provided~in subparagraph (a) above) such Base Rent shall be payable monthly only to the extent that Adjusted Gross Revenue (as defined in Section 8.1 of the Management Agreement executed contemporaneously herewith by Lessee and A & N Management Group, Inc.) from the operations of the Hotel for the preceding month exceeds the sum of (1) all operating expenses of the Hotel incurred in the ordinary course of business (including, without limitation, payments due under the capital leases described in Exhibit E to the Purchase Agreement and any replacement leases), (2) franchise fees due Franchisor, (3) a management fee equal to 5% of Adjusted Gross Revenue, (4) a replacement reserve contribution equal to 4% of Adjusted Gross Revenue, (5) actual debt service on any financing secured by Lessee's interest in the Hotel up to a maximum of $81,667 per month, (6) if then payable, the $4,166.67 in Base Rent payable-monthly pursuant to subparagraph (a) above, (7) a return to Lessee of $22,090 per month, and (8) for each month prior to the commencement for the fourth Lease Year, an additional return to Lessee of $6,750 per month. All Base Rent not payable currently shall earn interest at the rate of 10% per annum, compounded annually-at the commencement of each Lease Year, from the date it would otherwise have been due 10 until paid and shall be payable at the time of any sale of the Hotel or from the net proceeds of any refinancing or further financing of Lessee's interest in the Hotel after payment of all costs of such financing and, if required by the new lender, the repayment in full of all debt then secured by Lessee's interest in the Hotel or by the Premises. In the event Lessee exercises its option to purchase the Premises pursuant to paragraph 5 below, any accrued and unpaid Base Rent, and the interest thereon, shall be added to the Option Price. In all other events (subject to the set-off rights hereinafter set forth), the full amount of any accrued and unpaid Base Rent, including any interest thereon, shall be due and payable upon expiration or earlier termination of the Lease. (h) Notwithstanding any other provision of this paragraph 3 to the contrary, Lessee shall have the right to set off against all Base Rent payable on a current or deferred basis pursuant to subparagraphs (a) and (g) above any sums advanced by Lessee to the holder of the Existing Deed of Trust pursuant to paragraph 14 and against all accrued, current and future Base Rent payable pursuant to subparagraph (g) above any sums not paid when due under the terms of the Guaranty described in Article VIII of the Purchase Agreement and any sums advanced by Lessee to the holder of the Existing Deed of Trust pursuant to paragraph 14, in each case with interest on such amount at the rate of 10% per 11 annum, compounded-annually at the commencement of each Lease Year, from the date advanced by Lessee or due from Lessor until set-off against Base Rent as it accrues. (i) Lessor and Lessee intend that the Base Rent and Additional Rent payable under this Lease shall be an absolute net return to Lessor for the Lease term, free from any expense, charge or other deduction or set-off whatsoever except as expressly provided for in subparagraph (h) above. 4. Additional Rent (a) Lessee covenants and agrees to pay and discharge, as additional rent (the "Additional Rent") for the Premises during the entire term of this Lease, before delinquent, all taxes, assessments, water rents, sewer rentals, utility rates and fees, levies or other charges, general, special, ordinary, extraordinary and otherwise, of every kind and character which are or may during the term of this Lease be levied, charged, assessed or imposed upon or against the Premises or any buildings or improvements which are now or hereafter located thereon, or against any of Lessee's personal property now or hereafter located thereon, or which may be levied, charged, assessed or imposed upon or against the fee or leasehold estate created hereby, or which may be levied upon or measured by the rental payable hereunder, including without limitation, any gross receipts tax levied by the City of Nashville, the County of Davidson, the 12 State of Tennessee, the Federal government or any other governmental body with respect to receipt of such rental by Lessors Lessee will deliver to Lessor annually, or at such lesser intervals as may be required by the holder of the Existing Deed of Trust (as defined in paragraph 14 hereof), receipts, or duplicates thereof, evidencing payment before delinquent of such taxes, assessments and other charges and will at all times save Lessor harmless from the payment thereof or the payment of any claims or demands becoming chargeable against or payable in respect of the Premises or any buildings or improvements which are now or hereafter located thereon, or the use and occupancy thereof. At the commencement and at the end of the term of this Lease, such taxes, assessments and other charges to be paid by Lessee shall be prorated on the basis of the fiscal year of the taxing authority in question so that, at the commencement and at the end of the term of this Lease, as to any such taxes, assessments and other charges levied or assessed for a fiscal year preceding the commencement or extending beyond the end of such term, Lessee will pay only such proportion of such taxes, assessments and other charges as the portion of such fiscal year following the commencement and preceding the end of such term bears to the entire fiscal year. (b) Anything herein to the contrary notwithstanding, Lessee shall not be required to pay any franchise, capital levy or transfer tax with respect to 13 any sale or transfer of Lessor's interest in the Premises, or any net income tax measured by the income of Lessor from all sources, or any tax which may, at any time during the term of this Lease, be required to be paid on any gift or demise, deed, mortgage, descent or other alienation of any part or all of the estate of Lessor in and to the Premises, except as hereinafter provided. If Lessee shall be required by law to pay, and pursuant thereto does pay, any tax, assessment or charge specified in this subparagraph 4(b), Lessor shall, immediately upon request, reimburse Lessee for any such payments; provided, however, that if at any time during the term hereof under the laws of the United States of America or any state or political subdivision thereof in which the Premises are situate a tax on rent or other tax, assessment or charge, by whatever name called, is levied, assessed or imposed against Lessor on the rent payable hereunder to Lessor as a substitute in whole or in part for any existing tax or other charge on real estate or as an additional tax or charge on real estate, Lessee shall pay such tax, assessment or other charge as soon as the same becomes due and payable. (c) Subject to the provisions of subparagraph 19(a) hereof, Lessor shall have the right, but not the obligation, at all times during the term hereof to pay any taxes, assessments or other charges levied or assessed upon or against the Premises or any buildings or improvements which are now or hereafter 14 located thereon, and to pay, cancel and clear off all tax sales, liens, charges and claims upon or against the Premises or any buildings or improvements which are now or hereafter located thereon, and to redeem the Premises from the same, or any of them, from time to time, without being obligated to inquire as to the validity of the same. Any sum so paid by Lessor shall become Additional Rent due and payable by Lessee within ten (10) days following receipt of notice from Lessor. (d) All sums advanced by Lessor pursuant to this paragraph 4 and any sums advanced by Lessor pursuant to any other provision of this Lease shall constitute Additional Rent and shall earn interest at a rate equal to the lesser of two percent (2%) in excess of the reference rate or other base rate then in effect as announced by Bank of America N.T.& S.A. at its San Francisco main office for unsecured commercial loans or the maximum rate of interest permitted by applicable law from the date due until paid. 5. Lessee's Option to Purchase the Premises (a) Lessor hereby grants to Lessee an exclusive and irrevocable option (the "Option") to purchase the Premises, for the price and upon the terms and conditions specified in this paragraph 5, at any time prior to the expiration of this Lease. Lessee may exercise the Option at any time prior to March 1, 2049 by 15 giving Lessor written notice of exercise of the Option. Upon exercise of the Option by Lessee, Lessor shall be obligated to sell and convey to Lessee and Lessee shall be obligated to purchase from Lessor the Premises for the price and upon the terms and conditions specified in this paragraph 5. As used in this paragraph 5, "Closing Date" shall mean the date ninety (90) days following the date of written notice of the exercise of the Option unless an earlier date, which shall be not less than thirty (30) days following the date of the notice, is specified in the notice of exercise. Lessee acknowledges that Lessor may elect to convey the Premises to Lessee pursuant to this paragraph 5 as part of an exchange under Section 1031 of the Internal Revenue Code, or its successor section, and agrees to cooperate with Lessor in connection with any such exchange, provided that Lessee shall not be required to take title to any property other than the Premises, Lessor shall indemnify Lessee against any and all costs, claims, damages or causes of action arising out of such exchange and the exchange shall not delay the closing for more than three days or otherwise vary the terms of the transaction contemplated herein. Lessee agrees to advise Lessor when it enters into good faith negotiations with respect to any sale or refinancing of the Hotel which would involve Lessee's purchase of the Premises. (b) Lessee shall pay to Lessor, as the total purchase price for the 16 Premises (the "Option Price"), cash in an amount equal to the sum of (i) the base Option Price on the Closing Date, which shall be an amount equal to the base Option Price shown on Exhibit C attached hereto for the Lease Year immediately preceding the Lease Year in which the closing occurs plus the product of the scheduled increase in the Option Price for the year in which the closing occurs times a fraction the numerator of which is the number of days elapsed between the commencement of the then current Lease Year and the Closing Date and the denominator of the which is 365 (subject to adjustment of the scheduled base Option price pursuant to paragraph 20(b) hereof), (ii) an amount equal to 10% per annum of the increase in the base Option Price for the full Lease Year immediately preceding the Lease Year in which the closing occurs calculated from the first day of the then current Lease Year to the Closing Date, (iii) any unpaid Base Rent or Additional Rent accrued as of the Closing Date (after adjustment for any set-offs permitted hereunder or under the terms of the Guaranty described in Article VIII of the Purchase Agreement), and (iv) an amount equal to 10% per annum, compounded annually at the commencement of each Lease Year, from the date the obligation arose to the Closing Date of item (iii) above, less the sum of (w) any amounts due under the terms of the Guaranty which are not offset by Base Rent which has accrued and remains unpaid as of the Closing Date, (x) any amounts advanced to cure defaults under or to pay in full 17 the indebtedness secured by the Existing Deed of Trust and not set-off against accrued Base Rent, (y) interest on the amounts set forth in (w) and (x) above at the rate of 108 per annum, compounded annually at the commencement of each Lease Year, from the date the obligation arose to the Closing Date and (z) the amount, if any, then owing under the note given by the holder of the Purchase Money Note to Lessee pursuant to Section 12.2(a) of the Purchase Money Deed of Trust. Purchase of the Land by Lessee pursuant to this paragraph 5 shall satisfy in full and discharge the obligations of the holder of the Purchase Money Note under the note and deed of trust evidencing and securing the obligation described in Section 12.2(a) of the Purchase Money Deed of Trust. (c) The purchase and sale of the Premises will close through an escrow opened by Lessee with a title insurance company (title Company) qualified to do business in the State of Tennessee and located in the City of Nashville designated by Lessee. Prior to the Closing Date, Lessor and Lessee shall deposit in escrow with Title Company all documents and funds necessary to close the purchase and sale hereunder, together with escrow instructions consistent herewith, and the escrow shall close on the date upon which such deposits have been made. Lessor shall convey to Lessee by warranty deed fee simple title to the Premises (or such portion thereof as shall not have been taken by eminent domain in the event of such taking prior to the Closing Date), subject only 18 to (i) the lien of taxes, assessments or other charges payable by Lessee under paragraph 4 hereof, (ii) such matters, except the Existing Deed of Trust and the Purchase Money Deed of Trust if the Purchase Money Note has then been paid in full, as are set forth in the policy of title insurance issued to Lessee, as of the date hereof, by Southern Title Insurance Company, and (iii) such other matters as may be created, suffered to be created or consented to by Lessee or by Lessor at Lessee's request (collectively, the "Permitted Exceptions"), and shall assign to Lessee any eminent domain award with respect to the Premises which has not been previously paid to Lessor. Lessee shall be released from all obligation to Lessor under this paragraph 5 unless, on the Closing Date, Title Company shall be willing to issue to Lessee its ALTA form policy of owner's title insurance, in the amount of the Option Price, insuring Lessee that title to the Premises is vested in Lessee, subject only to the matters specified in this subparagraph 5(c), provided that Lessor shall have the right to extend the Closing Date for not more than 30 days following notice from the Title Company of the existence of a title defect or exception other than a Permitted Exception in order to cure or attempt to cure such defect. (d) The cost of the premium for the title insurance policy issued to Lessee on the Closing Date shall be paid one-half by Lessee and one-half by 19 Lessor. The transfer tax payable in respect of conveyance of the Premises shall be paid by Lessor; provided, however, that any increase in the transfer tax attributable to an increase in the rate of such tax above such amount as would be charged if the Closing Date were as of the date hereof shall be shared equally by Lessor and Lessee. Escrow fees shall be paid one-half (1/2) by Lessor and one-half (1/2) by Lessee. All other costs of closing the escrow shall be borne in accordance with the custom then prevailing in the City of Nashville. (e) If the escrow is not closed on or before the Closing Date (as it may be extended pursuant to subparagraph (c) above), without affecting the obligations and liabilities of either Lessor or Lessee hereunder, the escrow shall terminate and Title Company shall return to each party all documents and funds deposited by such party in escrow, unless Lessor and Lessee agree in writing to extend the Closing Date. 6. Quiet Enjoyment Lessor covenants that upon payment by Lessee of the rent herein reserved and upon performance and observance by Lessee of all of the agreements, covenants and conditions herein contained on the part of Lessee to be performed and observed, and subject to the exceptions to title set forth in subparagraph 5(c) above, Lessee shall peaceably hold and quietly enjoy the Premises during the 20 entire term of this Lease without hindrance, molestation or interruption by Lessor or by anyone lawfully or equitably claiming by, through or under Lessor. 7. Use (a) Lessee shall have the right to use the Premises for any lawful purpose; provided, however, in no event shall the Premises be used for any purpose or use (nor shall any activity be carried on upon the Premises) which in any manner causes, creates or results in a nuisance or violates the terms of any instrument or obligation affecting the Premises, including without limitation any deed of trust, mortgage or other security interest now or hereafter constituting a lien or encumbrance on the Premises, and provided further that Lessor shall have the right, in its sole discretion, to disapprove any change in use which reduces the value of either the Premises or the Improvements, as~those values may be determined separately, or any use involving the use and/or storage of hazardous, toxic or radioactive materials (collectively, "Hazardous Materials") except in a manner which is incidental to and necessary for the operation of a use which is otherwise permitted hereunder. (b) Lessee shall not bring onto the Premises any Hazardous Materials not reasonably required for or incident to the normal operations of the Hotel or any other permitted use and shall strictly comply with all statutes, laws, ordinances, rules, regulations and precautions now or hereafter mandated by any 21 federal, state, local or other governmental agency with respect to the use, generation, storage or disposal of Hazardous Materials and hereby agrees to indemnify, defend and hold Lessor harmless from and against all claims, liabilities, losses, damage or cost arising out of the use, generation, storage or disposal of Hazardous Materials by Lessee or any person claiming through or under Lessee (other than any acts or omissions of A & N Management Group, Inc. ("A & N") for which Lessee has no duty to indemnify A & N under the terms of the Management Agreement). Lessor represents and warrants to Lessee that, to the best of Lessor's knowledge, the Premises are presently in full compliance with all environmental laws, ordinances, rules and regulations and there are no Hazardous Materials on the Premises other than those used in the normal operations of a hotel. Lessee acknowledges that it has been advised by Lessor that Lessor has conducted no soils or other tests for the presence of Hazardous Materials on the Premises. Lessor hereby agrees to indemnify, defend and hold Lessee harmless from and against all claims, liabilities, losses, damage or cost arising out of the use, generation, storage, disposal or presence of any Hazardous Materials on the Premises attributable to any period prior to the commencement of this Lease. The indemnities contained in this paragraph 7 shall survive the termination of this Lease. 8. Title to Buildings and Improvements 22 (a) Title to the Improvements and to all other buildings, structures and improvements that may from time to time exist on the Premises and all furniture, fixtures, equipment and other personal property that are now, or may from time to time be, used or intended to be used in connection with the Premises shall be and remain in Lessee until the termination of this Lease. Upon the termination of this Lease, title to the Improvements and any other buildings, structures and improvements constituting real property and any easements for access, main tenance, use and support for such Improvements, shall pass to and vest in Lessor without cost or charge to it. All furniture, fixtures, equipment and other personal property used by Lessee in the operation of the Hotel or any other business conducted on the Premises shall remain the property of Lessee and shall be removed by Lessee from the Premises at the end of the term of the Lease. (b) Lessee shall on termination of this Lease execute and deliver any and all deeds, bills of sale, assignments and other documents which in Lessor's sole judgment may be necessary or appropriate to transfer, to evidence or to vest in Lessor clear title to the Improvements and all other buildings, structures and improvements located on the Premises at the time of such termination. 9. Permits, Licenses, Hotel Franchise Agreement. 23 (a) Lessor will from time to time during the term of this Lease execute and deliver all applications for permits, licenses or other authorizations relating to the Premises required by any municipal, county, state or Federal authorities, or required in connection with the construction, reconstruction, repair or alteration of any buildings or improvements now or hereafter located on the Premises. Lessor will from time to time during the term of this Lease execute, acknowledge and deliver any and all instruments required to grant rights-of-way and easements in favor of municipal and other governmental authorities or public utility companies incident to the installation of water lines, fire hydrants, sewers, electricity, telephone, gas, steam and other facilities and utilities reasonably required for the use and occupancy of the Premises. Lessor's obligations pursuant to this paragraph 9 are subject to and limited by the use restrictions set forth in paragraph 7 and the approval requirements of paragraph 11 of this Lease. Lessee shall pay all costs associated with any permits, licenses or other instruments referred to in this paragraph, provided that, in the event such costs or fees must be paid by Lessor, Lessee shall reimburse Lessor for any sums advanced by Lessor within 10 days following receipt of notice from Lessor and all such amounts advanced by Lessor shall be Additional Rent hereunder. (b) For so long as the Premises is used for hotel purposes, Lessee 24 shall operate the hotel located on the Premises pursuant to a franchise agreement with Residence Inns by Marriott or another national hotel franchisor selected by Lessee, in Lessee's sole discretion, and shall perform in a timely manner all of the obligations of the franchisee thereunder. Notwithstanding the foregoing, Lessee shall have no obligation to enter into a new franchise arrangement if the then existing franchise agreement is terminated as a result of any failure by A & N Management Group, Inc. ("A & N.") to perform the franchisee's obligations thereunder as and to the extent required by the Management Agreement between Lessee and A & N. 10. Repairs, Governmental Regulations and Waste (a) Lessee shall, during the term of this Lease, at its own cost and expense and without any cost or expense to Lessor: (i) Keep and maintain all buildings and improvements now or hereafter located on the Premises and all appurtenances thereto in good and neat condition, order and repair and shall allow no nuisances to exist or be maintained therein. Lessee shall likewise keep and maintain the grounds, sidewalks, roads and parking and landscaped areas in good and neat condition, order and repair. Lessor shall not be obligated to make any repairs, replacements or renewals of any kind, nature or description whatsoever to the Premises or any buildings or improvements now or hereafter located thereon; and 25 (ii) Comply with and abide by all Federal, state, county, municipal and other governmental statutes, ordinances, laws, regulations, requirements, orders and rulings then in effect affecting the Premises, all buildings and improvements now or hereafter located thereof, or any activity or condition on or in the Premises. (b) Lessee agrees that it will not commit or permit waste upon the Premises. 11. Improvements, Changes, Alterations, Demolition and Replacement by Lessee (a) Subject to the limitations on use set forth in paragraph 7 hereof, Lessee shall have the right at any time and from time to time during the term of this Lease to make such improvements to the Premises and such changes and alterations, structural or otherwise, to any buildings, improvements, fixtures and equipment on the Premises, including demolition of any or all buildings and improvements now or hereafter located on the Premises and replacement thereof, as Lessee shall deem necessary or desirable. (b) All improvements, changes and alterations (other than changes or alterations of movable trade fixtures and equipment) pursuant to subparagraph (a) above shall be undertaken in all cases subject to the following conditions which Lessee covenants to observe and perform: (i) no improvement, change or alteration, and no demolition and 26 replacement, shall be undertaken until Lessee shall have procured and paid for, so far as the same may be required from time to time, all municipal and other governmental permits and authorizations of the various municipal departments and governmental subdivisions having jurisdiction, and Lessor agrees to join in the application for such permits or authorizations whenever such action is necessary. (ii) no improvement, change or alteration involving an estimated cost of more than One Hundred Thousand Dollars ($100,000), and no demolition and replacement, shall be undertaken until Lessor shall have been furnished by Lessee with evidence reasonably acceptable to Lessor of the availability of funds necessary to complete such work or, at Lessee's expense, with a contractor's performance and a labor and material payment bond, in the principal amount of such estimated cost, naming Lessor as obligee and issued by a surety company authorized to do business in Tennessee. (iii) All contracts for amounts in excess of $25,000 entered into by Lessee for and work in connection with any demolition, improvements, changes or alterations involving an estimated cost of more than One Hundred Thousand Dollars ($100,000) shall provide that, in the event of termination of this Lease, Lessor shall have the right to assume all Lessee's obligations and succeed to all Lessee's rights under such contract without charge or penalty. 27 (iv) All improvements, changes and alterations, and any demolition and replacement, when completed, shall be of such a character that the value of the buildings and improvements on the Premises immediately after any such improvement, change, alteration or demolition and replacement shall be equal to or greater than the value of the buildings and improvements on the Premises immediately before any such improvement, change, alteration or demolition and replacement. (v) All work done in connection with any improvement, change, alteration or demolition and replacement shall be done promptly and in a good and workmanlike manner and in compliance with all laws, ordinances, orders, rules, regulations and requirements of all Federal, state and municipal governments and the appropriate departments, commissions, boards and officers thereof, and in accordance with the orders, rules regulations and of the appropriate Fire Rating Bureau or any other body hereafter constituted exercising similar functions. All such work shall be at the sole cost and expense of Lessee and, upon completion thereof, shall be (subject to the provisions of paragraphs 14 and 15 hereof) free and clear of all liens and encumbrances of any nature whatsoever, including mechanics' liens. The work with respect to any improvement, change, alteration or demolition and replacement shall be prosecuted with reasonable dispatch, delays due to strikes, lockouts, 28 acts of God, inability to obtain labor, materials or energy, governmental restrictions or similar causes beyond the reasonable control of Lessee excepted. In addition to the insurance coverage referred to in paragraph 17 below, workmen's compensation insurance covering all persons employed in connection with the work and with respect to whom death or injury claims could be asserted against Lessor, Lessee or the Premises, and Owner's Protective policy coverage, naming Lessor with limits of not less than One Million Dollars ($1,000,000), shall be maintained by Lessee, at Lessee's sole cost and expense, at all times when any work is in process in connection with any improvement, change, alteration or demolition and replacement. All such insurance shall be obtained and kept in force as otherwise provided in paragraph 17 below. (c) NOTICE: Notice is hereby given to the public that Lessor shall not be liable for any claims of mechanics, journeymen, supplymen or of anyone working on their behalf for work performed on the Premises by or on behalf, or at the direction of Lessee. 12. Damage or Destruction (a) Except as provided in subparagraph (c) below, no loss or damage by fire or other cause required to be insured against hereunder, resulting in either partial or total destruction of any building or improvement on the Premises, shall operate to terminate this Lease, or to relieve or discharge 29 Lessee from the payment of rents or other amounts payable hereunder as they become due and payable, or from the performance and observance of any of the agreements, covenants and conditions herein contained on the part of Lessee to be performed and observed. (b) If any buildings or improvements located on the Premises at any time during the term of this Lease shall be damaged or destroyed by fire or other cause and Lessee does not elect to purchase the Premises pursuant to subparagraph 12(c) below, then Lessee, with all reasonable diligence, shall repair reconstruct or replace such buildings or improvements upon the same general plans and dimensions as before the occurrence of such fire or other cause or with such changes or alterations as may be made in conformity with paragraph 11 hereof. All such repair, reconstruction or replacement shall be at the sole cost and expense of Lessee and, upon completion thereof, shall be (subject to the provisions of paragraphs 14 and 15 hereof) free and clear of all liens and encumbrances of any nature whatsoever, including mechanics' liens. (c) If any buildings or improvements now or hereafter located on the Premises are totally or substantially destroyed by a cause not required to be insured against hereunder, or if the insurance proceeds available for rebuilding are insufficient to pay the entire cost of such rebuilding, Lessee shall, at its 30 option, either repair, reconstruct or replace such buildings or improvements in accordance with subparagraph 12(b) above or elect to purchase the Premises for the price and on the terms set forth in paragraph S above by giving Lessor written notice thereof within ninety (90) days after such total or substantial destruction. Should Lessor and Lessee for any reason disagree as to whether any destruction of such buildings or improvements is total or substantial, the matter shall be determined by arbitration in the manner provided in paragraph 32 hereof. 13. Assignment and Subletting (a) Subject to the provisions of paragraph 15 hereof, Lessee shall not assign this Lease, or any interest therein, whether voluntarily or by operation of law, or sublease all or substantially all of the Premises, without the prior written consent of Lessor, which may be withheld by Lessor in its absolute discretion. Lessor and Lessee have specifically bargained for this provision, and Lessee acknowledges and agrees that Lessor would not have entered into this Lease without retaining the absolute, unfettered right to withhold its consent to any assignment of this Lease or to a sublease of all or substantially all of the Premises for any reason or no reason whatsoever. Lessee acknowledges that this provision is of the essence of this Lease. (b) Lessee shall have the right, in the regular and ordinary course of 31 its business of maintaining and operating the Hotel or the buildings and improvements now or hereafter located on the Premises, to let rooms to Hotel guests and to sublease any offices, spaces or related facilities in such buildings and improvements to individual occupancy users in the ordinary course of business (including, without limitation, extended stay hotel guests) as Lessee shall deem appropriate without Lessor's prior consent. 14. Mortgage of Fee. Lessee hereby agrees that the leasehold interest created herein shall be subject and subordinate to the Existing Deed of Trust (sometimes hereinafter referred to as the "Fee Mortgage") in favor of Savers Federal Savings and Loan Association (the "Fee Lender"). Lessor shall be obligated to make all payments and to perform all covenants of the debtor under the terms of the Existing Note and Existing Deed of Trust except those covenants which relate to the operation of the Hotel or which otherwise can be performed only by the owner of the Hotel, provided that Lessor shall be excused from such obligation hereunder in the event and to the extent that Lessee shall have failed to perform any parallel obligation under the Purchase Money Note or the Purchase Money Deed of Trust. Lessor shall also be obligated to deliver to Lessee at such time as the Purchase Money Noteis paid or otherwise discharged in full a deed of trust encumbering 32 the Land as security for the performance of the obligations of Lessor or its successor holder of the Purchase Money Note, which are described more fully in Section 12.2(a) of the Purchase Money Deed of Trust. Lessee shall perform all covenants of the debtor set forth in the Existing Deed of Trust which relate to the operation of the Hotel or which otherwise can be performed only by the owner of the Hotel and shall take no action with respect to the Hotel or the Premises which would give rise to an event of default under the Existing Deed of Trust. If Lessor fails timely to make any payments due under the Existing Note or the Existing Deed of Trust, is otherwise in default under the Existing Note or the Existing Deed of Trust or fails timely to pay in full the principal balance and any accrued interest under the Existing Note upon receipt of payment in full or other discharge of the Purchase Money Note, and Lessee shall not be in default of any parallel obligation in the Purchase Money Note or Purchase Money Deed of Trust, Lessee shall have the right to cure such default or to pay such balance and, at Lessee's sole election, to set-off any sums so advanced against the Base Rent otherwise due hereunder or to reduce the Option Price by such amount. If, at any time during the term of this Lease, Lessee shall be entitled to make payments on the Existing Note directly to the Fee Lender (whether or not the Purchase Money Note shall then remain in effect) and Lessee fails timely to make any such payment, Lessor shall have the right to advance such funds to the Fee 33 Lender and any sums so advanced shall become Additional Rent hereunder payable within ten (10) days following receipt of notice from Lessor. 15. Mortgage of Leasehold (a) Concurrently herewith, Lessor and Lessee shall enter into a Purchase Money Deed of Trust encumbering Lessee's interest in the leasehold created by this Lease. (b) Lessee shall have the right at any time, subject to the limitations on prepayment contained in the Purchase Money Note and Purchase Money Deed of Trust and provided that the financing is on terms no less favorable to Lessee than the terms generally available at the time for similar properties and is made by an institutional lender having assets of not less than $500,000,000, to refinance the Purchase Money Note or to enter into any further financing of the Hotel, on such terms as Lessee may deem appropriate, and, in connection therewith, to grant to the lender a security interest in Lessee's leasehold interest in the Premises. Each of the foregoing security interests shall hereafter be referred to as a "Leasehold Mortgage" and the holder of the Leasehold Mortgage shall be referred to as the "Leasehold Lender." 16. Protection of Leasehold Lender. During the continuance of any Leasehold Mortgage and until such time as the lien of the Leasehold Mortgage has been extinguished: 34 (a) Except as otherwise expressly provided in this paragraph 16, Lessor shall not accept any surrender of this Lease, nor shall Lessor consent to any amendment or modification of this Lease, without the prior written consent of Leasehold Lender. (b) Notwithstanding any default by Lessee in the performance or observance of any agreement, covenant or condition of this Lease on the part of Lessee to be performed or observed, Lessor shall have no right to terminate this Lease unless an event of default shall have occurred and be continuing, Lessor shall have given Leasehold Lender written notice of such event of default, and Leasehold Lender shall have failed to remedy such default or acquire Lessee's leasehold estate created hereby or commence foreclosure or other appropriate proceedings in the nature thereof, all as set forth in, and within the time specified by, this paragraph 16. (c) Should any event of default under this Lease occur, Leasehold Lender shall have sixty (60) days after receipt of written notice from Lessor setting forth the nature of such event of default, and, if the default is such that possession of the Premises may be reasonably necessary to remedy the default, a reasonable time after the expiration of such sixty (60) day period, within which to remedy such default, provided that (i) Leasehold Lender shall have fully cured any default in the payment of any monetary obligations of 35 Lessee under this Lease within such sixty (60) day period and shall continue to pay currently such monetary obligations as and when the same are due and (ii) Leasehold Lender shall have acquired Lessee's leasehold estate created hereby or commenced foreclosure or other appropriate proceedings in the nature thereof within such period, or prior thereto, and is diligently prosecuting any such proceedings. All right of Lessor to terminate this Lease as the result of the occurrence of any such event of default shall be subject to, and conditioned upon, Lessor having first given Leasehold Lender written notice of such event of default and Leasehold Lender having failed to remedy such default or acquire Lessee's leasehold estate created hereby or commence foreclosure or other appropriate proceedings in the nature thereof as set forth in and within the time specified by this subparagraph 16(c). (d) Any event of default under this Lease which cannot be cured by the payment of money and which in the nature thereof cannot be remedied by Leasehold Lender shall be deemed to be remedied if (i) within sixty (60) days after receiving written notice from Lessor setting forth the nature of such event of default, or prior thereto, Leasehold Lender shall have acquired Lessee's leasehold estate created hereby or shall have commenced foreclosure or other appropriate proceedings in the nature thereof, (ii) Leasehold Lender shall 36 diligently prosecute any such proceedings to completion, and (iii) Leasehold Lender shall have fully cured any default in the payment and performance of any monetary or other obligations of Lessee hereunder which do not require possession of the Premises within such sixty (60) day period and shall thereafter continue to faithfully perform all such monetary obligations which do not require possession of the Premises, and (iv) after gaining possession of the Premises performing all other obligations of Lessee hereunder as and when the same are due. (e) If Leasehold Lender is prohibited by any process or injunction issued by any court or by reason of any action by any court having jurisdiction of any bankruptcy or insolvency proceeding involving Lessee from commencing or prosecuting foreclosure or other appropriate proceedings in the nature thereof the times specified in subparagraph 16(c) and 16(d) above for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition; provided that Leasehold Lender shall have fully cured any default in the payment of any monetary obligations of Lessee under this Lease and shall continue to pay currently such monetary obligations as and when the same fall due. (f) Lessor shall mail or deliver to Leasehold Lender a duplicate copy of any and all notices in writing which Lessor may from time to time give to or 37 serve upon Lessee pursuant to the provisions of this Lease, and such copy shall be mailed or delivered to Leasehold Lender at, or as near as possible to, the same time such notices are given or served by Lessor. No notice by Lessor to Lessee hereunder shall be deemed to have been given unless and until a copy thereof shall have been mailed to delivered to Leasehold Lender. (g) Foreclosure of the Leasehold Mortgage, or any sale thereunder, whether by judicial proceedings or by virtue of any power contained in the Leasehold Mortgage, or any conveyance of the leasehold estate created hereby from Lessee to Leasehold Lender through, or in lieu of, foreclosure or other appropriate proceedings in the nature thereof shall not require the consent of Lessor or constitute a breach of any provision of or a default under this Lease, and upon-such foreclosure, sale or conveyance Lessor shall recognize Leasehold Lender, or any other foreclosure sale-purchaser (but not any purchaser from such other foreclosure sale purchaser), as Lessee hereunder. In the event Leasehold Lender becomes Lessee under this Lease, Leasehold Lender shall be personally liable for the obligations of Lessee under this Lease only for the period of time that Leasehold Lender remains Lessee, and Leasehold Lender shall have the right to assign this Lease thereafter without any restriction otherwise imposed on Lessee by paragraph 13 hereof, provided that Leasehold Lender's assignee 38 shall agree in writing to assume all of the obligations of Lessee hereunder and provided further that any further assignment shall be subject to the provisions of paragraph 13. (h) Should Lessor terminate this Lease by reason of any default by Lessee hereunder, Lessor shall, upon written request by Leasehold Lender given within thirty (30) days after such termination, immediately execute and deliver a new lease of the Premises to Leasehold Lender, or its nominee, purchaser, assignee or transferee, for the remainder of the term of this Lease with the same agreements, covenants and conditions (except for any requirements which have been fulfilled by Lessee prior to termination) as are contained herein and with priority equal to that hereof; provided, however, that Leasehold Lender shall promptly cure any defaults of Lessee susceptible to cure by Leasehold Lender. (i) Lessor shall not be obligated to recognize any party as a Leasehold Lender hereunder until Lessor receives actual notice of the name and address of such lender. Lessor and Lessee will cooperate in including in this Lease by suitable amendment from time to time any provision which may reasonably be necessary to implement the provisions of this paragraph 16; provided, however, that such amendment shall not in any way affect the term hereby demised nor affect adversely in any material respect any rights of Lessor under this Lease. 17. Property and Liability Insurance 39 (a) Lessee shall, at its sole expense, obtain and keep in force during the term hereof "all risk" insurance (excluding earthquake insurance) naming Lessor, the Fee Lender, the Leasehold Lender and such other parties as Lessor may designate as an additional insureds thereunder, in the customary form in the City of Nashville for buildings and improvements of similar character, on all buildings and improvements now or hereafter located on the Premises, and on all machinery, furniture, fixtures and equipment located therein. the amount of such insurance at all times during the term hereof shall not be less than ninety percent (90%) of the actual replacement cost liability of Lessor and Lessee including, without limitation, coverage for contractual liability, broad form property damage, host liquor law liability, personal injury and non-owned automobile liability, with respect to the Premises or arising out of the maintenance, use or occupancy thereof, and insurance on all boilers and other pressure vessels, whether fired or unfired, located in, on, or about the Premises, without exclusion for explosion, collapse and underground damage, in an amount not less than Two Hundred Fifty Thousand Dollars ($250,000). All of such insurance shall insure the performance by Lessee of the indemnity agreement as to liability for injury to or death of persons and damage to property set forth in subparagraph 19(b) hereof. All of such insurance shall be 40 noncontributing with any insurance which may be carried by Lessor and shall contain a provision that Lessor, although named as an insured, shall nevertheless be entitled to recover under the policy for any loss, injury or damage to Lessor, its agents and employees, or the property of such persons. The limits and coverage of all such insurance shall be adjusted by agreement of Lessor and Lessee during every fifth (5th) Lease Year during the term hereof and whenever any rebuilding occurs in conformity with the then prevailing custom of insuring property similar to the Premises in the City of Nashville, and any disagreement regarding such adjustment shall be settled by arbitration in the manner provided in paragraph 32 hereof. (c) All insurance provided for in this paragraph 17, and all renewals thereof, shall be issued by companies having a Best's rating of not less than A-XIII, unless otherwise approved by Lessor. The fire and extended coverage insurance specified in subparagraph 17(a) above shall be payable to Lessor, Lessee, the Fe'e Lender and the Leasehold Lender, as their interests may appear, and any loss adjustment shall require the joint written consent of Lessor, Lessee, the Fe'e Lender and the Leasehold Lender. The fire and extended coverage insurance specified in subparagraph 17(a) above and the general liability and boiler insurance specified in subparagraph 17(b) above shall be carried in the 41 joint names of Lessee, Lessor and such other parties having an interest in the Premises as Lessor may designate. All insurance policies shall be subject to approval by Lessor and Lender as to form and substance and shall expressly provide that such policies, except for the boiler insurance specified in paragraph 17(b) above, shall not be canceled or altered without thirty (30) days' prior written notice to Lessor, the Fee Lender and the Leasehold Lender, in the case of the insurance specified in subparagraph 17(a) above, and to Lessor, in the case of the insurance specified in subparagraph 17(b) above. Upon the issuance thereof, each insurance policy or a duplicate or certificate thereof shall be delivered to Lessor, the Fee Lender and the Leasehold Lender. Nothing herein shall be construed to limit the right of Leasehold Lender to cause Lessee to carry or procure other insurance covering the same or other risks in addition to the insurance specified in this paragraph 17. (e) Subject to the rights of the Fee Lender and the Leasehold Lender and subject to Lessee's right pursuant to paragraph 12(c) to purchase the Premises, all amounts that shall be received under any insurance policy specified in subparagraph 17(a) above shall be first applied to the payment of the cost of repair, reconstruction or replacement of any buildings or improvements, or furniture, fixtures, equipment and machinery, that~is damaged or destroyed. Any amount remaining from the proceeds of any such insurance funds, after the repairing, 42 reconstructing and replacing of any buildings or improvements, or furniture, fixtures, equipment and machinery, as herein required, or the entire amount of such proceeds not retained by the Fee Lender or the Leasehold Lender if Lessee elects to purchase the Premises, shall be immediately paid to and be the sole property of Lessee. 18. Mechanics' and Other Liens. Lessee shall promptly discharge or remove by bond or otherwise prior to judgment being rendered in any foreclosure action with respect thereto any and all mechanics', materialmen's and other liens for work or labor done, services performed, materials, appliances, teams or power contributed, used or furnished to be used in or about the Premises for or in connection with any operations of Lessee, any alterations, improvements, repairs or additions which Lessee may make or permit or cause to be made, or any work or construction by, for or permitted by Lessee on or about the Premises, and to save and hold Lessor and all of the Premises and all buildings and improvements thereon free and harmless of and from any and all such liens and claims of liens and suits or other proceedings pertaining thereto. Lessee covenants and agrees to give Lessor written notice not less than ten (10) days in advance of the commencement of any construction, alteration, addition, improvement or repair costing in excess of Twenty-Five Thousand Dollars 43 ($25,000) in order that Lessor may post appropriate notices of Lessor's nonresponsibility. 19. Indemnity (a) Provided that Lessee shall pay under protest, post a bond in twice the amount in dispute or give Lessor other evidence reasonably acceptable to Lessor of Lessee's ability to pay any disputed amount, Lessee shall have the right to contest the amount or validity of any lien of the nature set forth in paragraph 18 hereof or the amount or validity of any tax, assessment, charge or other item to be paid by Lessee under paragraph 4 hereof by giving Lessor written notice of Lessee's intention to do so within twenty (20) days after the recording of such lien or at least ten (10) days prior to the delinquency of such tax, assessment, charge or other item, as the case may be. In any such case Lessee shall not be in default hereunder, and Lessor shall not satisfy and discharge such lien nor pay such tax, assessment, charge or other item, as the case may be, until ten (10) days after the final determination of the amount or validity thereof, within which time Lessee shall satisfy and discharge such lien or pay such tax, assessment, charge or other item to the extent held valid and all penalties, interest and costs in connection therewith; provided, however, that the satisfaction and discharge of any such lien shall not, in any case, be delayed until execution is had upon any judgment rendered thereon, nor shall the 44 payment of any such tax, assessment, charge or other item, together with penalties, interest and costs, in any case be delayed until sale is made or threatened to be made of the whole or any part of the Premises on account thereof, and any such delay shall be a default of Lessee hereunder. In the event of any such contest, Lessee shall protect and indemnify Lessor against all loss, cost (including reasonable attorney' fees), expense and damage resulting therefrom. (b) To the fullest extent allowed by law, Lessee covenants and agrees that Lessor shall not at any time or to any extent whatsoever be liable, responsible or in anywise accountable for any loss, injury, death or damage to persons or property which at any time may be suffered or sustained by Lessee, any person claiming under Lessee (other than any claim by A & N for which Lessee has no liability under the terms of the Management Agreement) or by any person who may at any time be using, occupying or visiting the Premises or be in, on or about the Premises, not arising out of the intentional or negligent acts of Lessor, and Lessee shall forever indemnify, defend, hold and save Lessor free and harmless of, from and against any and all claims, liability, loss or damage whatsoever (including reasonable attorneys' fees) on account of any such loss, injury, death or damage. Lessee hereby waives all claims against Lessor for damages to the buildings and improvements now or hereafter located on the 45 Premises and to the property of Lessee in, upon or about the Premises, and for injuries to persons or property in, on or about the Premises, from any cause arising at any time during the term of this Lease, except for any such claims arising from the intentional or negligent acts of Lessor. 20. Eminent Domain (a) If the whole of the Premises should be taken by any public or quasi-public authority under the power or threat of eminent domain during the term of this Lease, or if a substantial portion of the Premises should be taken so as materially to impair the then existing use of the Premises, and thereby frustrate Lessee's purpose in entering into this Lease, then, in either of such events, this Lease shall terminate at the time of such taking unless Lessee elects to continue the Lease and to use the Premises for some other purpose permitted by paragraph 7 hereof. In the event the Lease is terminated, provided that the Option shall not have been exercised, (i) all compensation and damages payable for or on account of the Premises, exclusive of the buildings and improvements thereon, shall be payable to and be the sole property of Lessor and the Fee Lender, as their interests may appear; and (ii) all compensation and damages payable for or on account of the buildings and improvements located on the Premises shall be divided between Lessor, Lessee, the Fee Lender and the Leasehold Lender as follows: 46 (A) All compensation and damages payable for or on account of buildings and improvements having a remaining useful life less than the remaining term of this Lease as of the date of such taking shall be payable to and be the sole property of Lessee, the Fee Lender and the Leasehold Lender, as their interests may then appear; and (B) A proportionate share of all compensation and damages payable for or on account of buildings and improvements having a remaining useful life greater than the remaining term of this Lease as of the date of such taking, determined by the ratio that the then remaining term bears to the then remaining useful life of such buildings and improvements, shall be payable to and be the sole property of Lessee, the Fee Lender and the Leasehold Lender, as their interests may appear, and the remaining share thereof shall be payable to and be the sole property of Lessor and the Fee Lender, as their interests may appear. (b) If less than the whole of the Premises should be taken by any public or quasi-public authority under the power or threat of eminent domain during the term of this Lease and this Lease is not terminated as provided in subparagraph 20(a) above, Lessee shall promptly reconstruct and restore the Premises and the Improvements, with respect to the portion of the Premises and the Improvements not so taken, as an integral unit of the same quality and character as existed prior to such taking, and the annual Base Rent payable by 47 Lessee from and after the date Of the condemnation award shall be (i) for all periods prior to payment in full or other discharge of the Purchase Money Note, an amount equal to $50,000 plus five percent (5%) of the difference between $2,000,000 and the amount of any condemnation award received by Lessor, (ii) for all periods following payment in full or other discharge of the Purchase Money Note through the end of the tenth Lease Year, an amount equal to five percent (5%) of the difference between $2,000,000 and the amount of any condemnation award received by Lessor, and (iii) for all periods thereafter, an amount equal to the product of the greater of the fair market value established pursuant to paragraph 3(d) or the base Option Price on the date of the condemnation, calculated as provided in paragraph 5(b)(i) hereof, less the condemnation award received by Lessor multiplied by the applicable United States Treasury bond rate for the Rent Period in question less $100,000. The base Option Price shall also be reduced as of the same date by the amount of the condemnation award received by Lessor, and all subsequent increases in the base Option Price shall be recalculated to equal five (5%) of the difference between $2,000,000 and the amount of the condemnation award received by Lessor plus ten percent (10%) of the increase in the base Option Price for the immediately preceding Lease Year. All compensation and damages payable for or on account of such taking shall be 48 applied first to the reconstruction and restoration of the Premises by Lessee pursuant to this paragraph 20(b) and the remainder shall be divided among Lessor, Lessee and Lender in the manner provided in subparagraph 20(a) above. (c) Notwithstanding the foregoing, in the event of a taking by any public or quasi-public authority under the power or threat of eminent domain during the term hereof at a time when the Option has been exercised and provided that the Premises is subsequently transferred to Lessee,-all compensation and damages payable for or on account of the Premises shall be payable to and be the sole property of Lessee. (d) No taking of any leasehold interest in the Premises or any part thereof shall terminate or give Lessee the right to surrender this Lease, nor excuse Lessee from full performance of its covenants for the payment of rent and other charges or any other obligations hereunder capable of performance by Lessee after any such taking, but in such case all compensation and damages payable for or on account of such taking shall be payable to and be the sole property of Lessee and Leasehold Lender. (e) Should Lessor and Lessee for any reason disagree (i) as to whether any portion of the Premises taken is so substantial as materially to impair the use of the Premises contemplated by Lessee, or (ii) on the division of any compensation or damages paid for or on account of any taking of any or any portion of the Premises, then, and in any of such events, the matter shall be 49 determined by arbitration in the manner provided in paragraph 32 hereof. 21. Lessor's Right of Inspection. Lessor may, at any reasonable time and from time to time during the term hereof, enter upon the Premises for the purpose of inspecting the buildings or improvements now or hereafter located thereon and for such other purposes as may be necessary or proper for the reasonable protection of its interests, and Lessee shall, within ten (10) days after the receipt of written notice thereof, make such repairs and replacements as Lessor may reasonably require to correct any dangerous condition or to prevent waste to the Hotel. In the event Lessee shall fail or neglect to make such repairs and replacements within the time herein specified, Lessor and its agents may enter the Premises and, at Lessee's expense, perform and carry out such repairs and replacements, and Lessor, in so doing, shall not be liable for any inconvenience, disturbance, loss of business or other damage resulting therefrom. Any expense thereby incurred by Lessor shall become Additional Rent due and payable on the next day after the incurrence of any such expense. 22. Lessee's Defaults and Lessor's Remedies. If (i) default shall be made by Lessee in the payment punctually when due of any rent or other moneys due hereunder and shall continue for a period of ten (10) days after written 50 notice thereof to Lessee; (ii) default shall be made by Lessee in the performance or observance of any of the other agreements, covenants or conditions of this Lease and such default shall continue for a period of thirty (30) days after written notice thereof to Lessee, or, in the case of a default which cannot be cured by the payment of money and cannot be cured within thirty (30) days, shall continue for an unreasonable period after such written notice; (iii) (a) Lessee shall fail to perform any obligations or covenants under the Purchase Money Deed of Trust or any of the covenants under the Existing Deed of Trust which it is obligated pursuant to paragraph 14 to perform or, following an assumption by Lessee of the Existing Note, shall fail to make any payments thereunder when due, (b.) the Existing Lender shall give notice of its intent to accelerate the obligation evidenced by the Existing Note and (c) Lessee shall fail to cure such default within thirty (30) days following such notice; (iv) Lessee shall abandon the Premises or shall cease for a period of more than thirty (30) days to operate the Hotel or other business then being conducted on the Premises for any reason other than damage or destruction to the Improvements, strike, riot, act of God or other reason outside the reasonable control of Lessee or any renovation, improvement or alteration permitted by paragraph 11 hereof; (v) Lessee shall admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy, insolvency, 51 reorganization, readjustment of debt, dissolution or liquidation under any law or statute of the Federal government or any state government or any subdivision of either now or hereafter in effect, make an assignment for the benefit of its creditors, consent to or acquiesce in the appointment of a receiver of itself or of the whole or any substantial part of the Premises; (vi) a court of competent jurisdiction shall enter an order, judgment or decree appointing a receiver of Lessee or of the whole or any substantial part of the Premises, and such order, judgment or decree shall not be vacated, set aside or stayed within sixty (60) days from the date of entry of such order, judgment or decree, or a stay thereof be thereafter set aside; (vii) a court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against Lessee under any bankruptcy, insolvency, reorganization, readjustment of debt, dissolution or liquidation law or statute of the Federal government or any state government or any subdivision of either now or hereafter in effect, and such order judgment or decree shall not be vacated, set aside or stayed within sixty (60) days from the date of entry of such order, judgment or decree, or a stay thereof be thereafter set aside; or (viii) under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of Lessee or of the whole or any substantial part of the Premises, and such custody 52 or control shall not be terminated within sixty (60) days from the date of assumption of such custody or control; then any such event shall constitute an event of default by Lessee. Upon the occurrence of any event of default by Lessee, Lessor shall have the following rights and remedies, which shall be the sole remedies of Lessor hereunder: (a) The right to terminate this Lease, in which event Lessee shall immediately surrender possession of the Premises, and pay to Lessor all rent and all other amounts payable by Lessee hereunder to the later of the date of such termination or the surrender of the Premises by Lessee; and (b) The right to cause a receiver to be appointed in any action against Lessee to take possession of the Premises or to collect the rents or profits therefrom. Neither appointment of such receiver nor any other action taken by Lessor shall constitute an election on the part of Lessor to terminate this Lease unless written notice of termination is given to Lessee; and (c) In the event of fraud, willful misconduct or waste by Lessee, the right to sue for damages proximately caused by such fraud, willful misconduct or waste. 23. Nonwaiver. If any action or proceeding is instituted or if any other steps are taken by Lessor or Lessee, and a compromise, part payment or 53 settlement thereof shall be made, either before or after judgment, the same shall not constitute or operate as a waiver by Lessor or Lessee of any agreement, covenant or condition of this Lease or of any subsequent breach thereof. No waiver of any default under this Lease shall constitute or operate as a waiver of any subsequent default hereunder, and no delay, failure or omission in exercising or enforcing any right, privilege, or option under this Lease shall constitute a waiver, abandonment or relinquishment thereof or prohibit or prevent any election under or enforcement or exercise of any right, privilege, or option hereunder. No waiver of any provision hereof by Lessor or Lessee shall be deemed to have been made unless and until such waiver shall have been reduced to writing and signed by Lessor or Lessee, as the case may be. The receipt by Lessor of rent with knowledge of any default under this Lease shall not constitute or operate as a waiver of such default. Payment by Lessee or receipt by Lessor of a lesser amount than the stipulated rent or other sums due Lessor shall operate only as a payment on account of such rent or other sums. No endorsement or statement on any check or other remittance or in any communication accompanying or relating to such payment shall operate as a compromise or accord and satisfaction unless the same is approved in writing by Lessor, and Lessor may accept such check, remittance or payment without prejudice to its right to recover the balance of any rent or other sums due by Lessee and pursue any remedy provided under this Lease or by law. 54 24. No Merger (a) There shall be no merger of the leasehold estate created by this Lease or with the fee estate in the Premises by reason of the fact that the same person may own or hold the leasehold estate created by this Lease or any interest in such leasehold estate and/or the fee estate in the Premises or any interest in such fee estate; and no merger shall occur unless and until Lessor, Lessee and Leasehold Lender shall join in a written instrument effecting such merger and shall duly record the same. (b) No termination of this Lease shall cause a merger of the estates of Lessor and Lessee, unless Lessor so elects, and any such termination shall, at the option of Lessor, either work a termination of any sublease in effect or act as an assignment to Lessor of Lessee's interest in any such sublease. 25. No Partnerships. It is expressly understood and agreed that Lessor does not, in any way or for any purpose, become a partner of Lessee in the conduct of Lessee's business, or otherwise, or a joint venturer or a member of a joint enterprise with Lessee. 26. Covenants Run With Land (a) The agreements, covenants and conditions in this Lease contained are and shall be deemed to be covenants running with the land and the reversion 55 and shall be binding upon and shall inure to the benefit of Lessor and Lessee and their respective successors and assigns and all subsequent Lessors and Lessees respectively hereunder. (b) All references in this Lease to "Lessee" or "Lessor" shall be deemed to refer to and include successors and assigns of Lessee or Lessor, respectively, without specific mention of such successors or assigns. 27. Notices. Except as otherwise provided hereunder, any notice or communication to Lessor, Lessee, the Fee Lender or the Leasehold Lender shall be in writing and be delivered personally, sent by overnight courier or mailed by certified mail, postage prepaid. Notices or communications shall be addressed to Lessor c/o Mr. Kenneth E. Nelson, Three Corporate Plaza, Suite 202, Newport Beach, California 92660, with a copy addressed to Godfrey & Kahn, 780 North Water Street, Milwaukee, Wisconsin 53202, Attention: Helge Lee, Esq. or such other address or addresses as Lessor shall from time to time designate, or to such agent of Lessor as it may from time to time designate, by notice in writing to Lessee. Notices or communications shall be addressed to Lessee c/o MP Realty Services, 950 Tower Road, Foster City, California 94404, Attention: Portfolio Management, with a copy addressed to Pettit & Martin, 101 California Street, Suite 3500, San Francisco, California 94111, Attention: Joan H. Story, Esq. or 56 such other address or addresses as Lessee shall from time to time designate, or to such agent of Lessee as it may from time to time designate, by notice in writing to Lessor. Notices or communications to the Fee Lender or the Leasehold Lender shall be addressed to such party at the address designated from time to time by such Lender by notice in writing to Lessor and Lessee. Any notice mailed in the manner above set forth shall be deemed delivered upon the earlier of actual receipt, two business days following deposit with an overnight courier or four business days following deposit in the U.S. mails. 28. Limitation of Lessor's Liability. The term "Lessor," as used in this Lease, so far as covenants or obligations on the part of Lessor are concerned, shall be limited to mean and include only the owner or owners at the time in question of the fee or any lesser estate in the Premises, and in the event of any transfer of the title to such fee or lesser estate the Lessor herein named (and in case of any subsequent transfer, the then transferor) shall be automatically freed and relieved from and after the date of such transfer of all personal liability for the performance of and covenants or obligations on the part of Lessor contained in this Lease thereafter to be performed; provided, however, that any funds in the hands of Lessor or the then transferor at the time of such transfer, in which Lessee has an interest, shall be turned over to the transferee and any amount then due and payable to Lessee by Lessor or the 57 then transferor under any provision of this Lease shall be paid to Lessee; and provided, further, that upon any such transfer, the transferee shall expressly assume, subject to the limitations of this paragraph 28, all of the agreements, covenants and conditions in this Lease to be performed on the part of Lessor from and after the date of the transfer, it being intended hereby that the covenants and obligations contained in this Lease on the part of Lessor shall, subject as aforesaid, be binding on each Lessor, its successors and assigns, only during its period of ownership. 29. Limitation of Lessee's Liability. The term "Lessee," as used in this Lease, so far as covenants and obligations on the part of Lessee are concerned, shall be limited to mean and include only the owner at the time in question of the leasehold interest in the Premises, and in the event of any transfer of the title to such leasehold the then Lessee shall be automatically freed and relieved from and after the date of such transfer of all personal liability for the performance of and covenants or obligations on the part of Lessee contained in this Lease thereafter to be performed. 30. Estopped Certificates. Lessee or Lessor, as the case may be, will execute, acknowledge and deliver to the other and/or to the Fee Lender and the Leasehold Lender, promptly upon request, its certificate certifying (a) that this Lease is unmodified and in full force and effect (or, if there have been 58 modifications, that this Lease is in full force and effect, as modified, and stating the modifications), (b) the dates, if any, to which the Base Rent, Adjusted Rent and Additional Rent have been paid, (c) whether there are then existing any charges, offsets or defenses against the enforcement by Lessor of any agreement, covenant or condition hereof on the part of Lessee to be performed or observed (and, if so, specifying the same), and (d) whether there are then existing any defaults by Lessee in the performance or observance by Lessee of any agreement, covenant or condition hereof on the part of Lessee to be performed or observed and whether any notice has been given to Lessee of any default which has not been cured (and, if so, specifying the same). Any such certificate may be relied upon by a prospective purchaser, mortgagee or trustee under a deed of trust of the Premises or any part thereof. 31. Holding Over. This Lease shall terminate without further notice upon the expiration of the term specified, and any holding over by Lessee after the expiration of said term shall not constitute a renewal hereof or give Lessee any rights hereunder or in or to the Premises, except as otherwise herein provided, it being understood and agreed that this Lease cannot be renewed, extended or in any manner modified except in writing signed by Lessor and Lessee. 32. Arbitration. Whenever, under any provision of this Lease, arbitration is required then: 59 (a) Lessor and Lessee shall each appoint one (1) arbitrator within thirty (30) days after a written notice requesting arbitration shall have been given by one of them to the other, and written notice of appointment shall be given to the other party. (b) Said two (2) arbitrators shall permit the parties to conduct reasonable discovery and to present evidence to the arbitrators and shall, within sixty (60) days after the appointment of the last-appointed arbitrator, resolve the question or dispute before them in writing, setting forth the reasons for their decision, and notify Lessor and Lessee of the results thereof. (c) If said two (2) arbitrators cannot agree within said period, they shall, within a period of thirty (30) additional days, agree upon and appoint a third arbitrator. (d) Said three (3) arbitrators shall, within thirty (30) days after the appointment of the third arbitrator, resolve the question or dispute before them in writing and notify Lessor and Lessee of the results thereof. (e) The decision of at least two (2) of said three (3) arbitrators, rendered in writing and setting forth in reasonable detail the reasons for the decision, shall be conclusive and binding upon Lessor and Lessee. 60 (f) If either Lessor or Lessee fails to appoint an arbitrator within the time limited in subparagraph (a) above, or if the two (2) arbitrators appointed by Lessor and Lessee fail to agree upon and appoint a third arbitrator, such second or third arbitrator (as the case may be), shall be appointed by the presiding judge of the Superior Court in and for the County of Davidson upon application by either party. Except as provided hereunder, the arbitration shall proceed in accordance with the laws then in effect of the State of Tennessee relating to arbitration. (g) Each of the parties hereto shall pay nor the services of its appointees, attorneys and witnesses plus one-half (1/2) of the fee charged by the third arbitrator (if any) and one-half (1/2) of all other proper costs relating to arbitration. (h) All arbitrators appointed pursuant to this paragraph 32 shall be real estate brokers or M.A.I. appraisers who are thoroughly familiar with appraisal procedures and with commercial property values in the City of Nashville. 33. General Provisions (a) In case any one or more of the provisions contained in this Lease shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Lease, but this Lease shall be construed as if such 61 invalid, illegal or unenforceable provisions had not been contained herein. (b) Time is of the essence of each and all of the agreements, covenants and conditions of this Lease. (c) Except as provided in paragraph 13(a) above, whenever in this Lease the consent or approval of either Lessor or Lessee is required or permitted, the party requested to give such consent or approval will act promptly and will not unreasonably withhold its consent or approval. (d) Contemporaneously with the execution of this Lease, Lessor and Lessee will execute, acknowledge and record in the Official Records of the County of Davidson a Short Form Lease in the form of Exhibit B hereto. (e) Lessor and Lessee intend that the obligations of the Lessor to sell the Premises to Lessee and the obligations of the Lessee to purchase the Premises from the Lessor on the terms and conditions set forth in paragraph 5 hereof shall be specifically enforceable, without limitation on the right of Lessee or Lessor to seek damages or to resort to any other remedy available at law. Notwithstanding the foregoing or any other provision of this Lease to the contrary, Lessor shall not have the right to terminate this Lease as the result of any failure by Lessee to purchase the Premises in accordance with paragraph 62 5. The monetary damages of Lessee arising from Lessor's breach of Lessor's obligations to sell the Premises in accordance with the terms and conditions set forth in paragraph S shall be secured by a deed of trust encumbering the Premises in the form of Exhibit D hereto, which is hereby made a part hereof. Contemporaneously with the execution of this Lease, Lessor shall execute, acknowledge and record in the official records of the County of Davidson a deed of trust in said form. In the event (i) Lessor shall fail or refuse to perform its obligations under paragraph 5, (ii) Lessee shall elect to foreclose its interest under the deed of trust recorded pursuant to this paragraph 33(e) and (iii) Lessee shall be the successful bidder at the foreclosure sale, Lessee shall pay to Lessor following such foreclosure sale the then applicable Option Price less all costs (including reasonable attorneys' fees), losses and damages incurred or suffered by Lessee as a result of Lessor's failure to perform as required herein. If Lessor has timely tendered performance of its obligations under paragraph 5 hereof and Lessee's obligations under paragraph 5 have been breached, Lessee shall cause said deed of trust to be reconveyed on demand. (f) In the event of any action or proceeding at law or in equity between Lessor and Lessee to enforce any provision of this Lease or to protect or establish any right or remedy of either party hereunder, the unsuccessful 63 party to such litigation shall pay to the prevailing party all costs and expenses, including reasonable attorneys' fees, incurred therein by such prevailing party, and if such prevailing party shall recover judgment in any such action or proceeding, such costs, expenses and attorneys' fees shall be included in and as a part of such judgment. (g) This instrument constitutes the entire agreement between Lessor and Lessee with respect to the subject matter hereof and supersede all prior offers and negotiations, oral or written. This Lease may not be amended or modified in any respect whatsoever except by an instrument in writing signed by Lessor and Lessee. (h) It is intended by the parties that this Lease and the Purchase Money Note and the Purchase Money Deed of Trust are separate instruments and, except for the set-off rights referred to therein, evidence separate obligations of each of the parties thereto. The terms and provisions set forth in this Lease and in the Purchase Money Note and the Purchase Money Deed of Trust are to be read independently and enforced as provided in each such document. 64 IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the date first hereinabove Written. NASHVILLE LODGING COMPANY, a Wisconsin limited partnership By Nashville Residence Corporation, a Tennessee corporation By_______________________________ Its______________________________ METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California limited partnership By: Metric Partners, an Illinois general partnership, its managing partner By: FGM Investment Partners, L.P., a California limited partnership, its general partner By: FGM Investments, Inc., a California corporation, its general partner By ____________________________________ Its Authorized Representative 65 EXHIBIT A TO LEASE (Legal Description) 66 AMENDMENT TO LEASE THIS AMENDMENT TO LEASE is entered into as of this 25 day of April, 1990 by and between NASHVILLE LODGING COMPANY, a Wisconsin limited partnership ("Lessor"), and METRIC PARTNERS GROWTH SUITE INVESTORS, L. P., a California limited partnership ("Lessee"). RECITALS A. Lessor and Lessee entered into a Lease dated as of April 24, 1989 (the "Lease") with respect to certain land located at 2300 Elm Hill Pike, Nashville, Tennessee, upon which The Residence Inn By Marriott-Nashville (the "Hotel") is situated. B. In connection with and in consideration for termination of that certain Management Agreement dated as of April 24, 1989 with respect to the Hotel between Lessee and Nelson Hotels of Tennessee, Inc., a Wisconsin corporation affiliated with Lessor, Lessor and Lessee desire to amend the Lease to provide for the payment of additional Base Rent and the delivery of certain operating reports to Lessor. All terms not otherwise defined herein shall have the meanings set forth in the Lease. NOW, THEREFORE, Lessor and Lessee agree to amend the Lease as follows: AGREEMENT 1. Additional Base Rent. a. In addition to the Base Rent described in Section 3 of the Lease and the Additional Rent described in Section 4 of the Lease, Lessee shall pay to Lessor as additional Base Rent hereunder ("Additional Base Rent") an amount equal to the lesser of (i) 1.8% of the Adjusted Gross Revenue from the operations of the Hotel for each twelve-month period commencing on May 1, 1990 and ending on April 14, 1998 (each, a "measuring year") or (ii) for each measuring year from and after May 1, 1991 1.8% of the Adjusted Gross Revenue for the prior measuring year commencing May 1, 1990 increased by the percentage of such Adjusted Gross Revenue which is the same as the percentage increase, if any, in the Consumer Price Index measured from the first day of the measuring year commencing May 1, 1991 to the end of the measuring year for which payment is being made. As used herein, "Consumer Price Index" shall mean the United States Department of Labor's Bureau of Labor Statistics' Consumer Price Index for all consumers in the State of Tennessee or the successor of such index. Lessee's obligation to pay Additional Base Rent Pursuant to this paragraph 1 shall survive the termination of this Lease prior to April 14, 1998 for any reason (including without limitation Lessee's purchase of the land pursuant to the option set forth in Section 5 of the Lease) except that set forth in subparagraph (f) below and shall continue to be payable notwithstanding such early termination. b. For the purpose of calculating Additional Base Rent, the following definitions shall apply: i. "Gross Revenue" shall mean all income and revenue of every kind resulting from the operation of the Hotel and all of its facilities including, without limitation, all income and revenue received from transient guests, licensees, concessionaires and other persons occupying space at and/or rendering services to the guests of the Hotel (but not the gross receipts received by such licensees, concessionaires and other persons); provided, however, that Gross Revenue shall not include, or if included, shall be reduced by the amount of the following: (1) the proceeds of any loan to Owner; and (2) any cash contributions or loans by Owner. (ii) "Adjusted Gross Revenue" shall mean Gross Revenue in any Fiscal Year after deducting the following items (whether paid or unpaid) accruing during such Fiscal Year to the extent included in Gross Revenue: (1) federal, state and municipal excise, sales and use taxes, whether collected directly from patrons, guests or users of the Hotel or charged as a part of the sales prices of any goods, services or displays, such as gross receipts, admission, cabaret or similar or equivalent taxes; (2) any vending machine revenues from machines now owned by Owner (other than sales commissions or other renumeration received by Owner with respect to such machines); (3) the proceeds payable to Owner by reason of any hazard or business interruption insurance policies, title insurance policies or items of a similar nature; (4) the proceeds of any permanent taking by condemnation or eminent domain by any public or quasi-public authority of all or any part of the Hotel; (5) any reversal of any contingency or tax reserve; (6) any cash or credit rebates or refunds paid to patrons, guests, lessees, concessionaires or other users of the Hotel, any correction of overcharges, the price of any merchandise given in exchange of other merchandise which does not result in additional income (or, if such exchanges result in additional income, that part of the price of such merchandise equal to the price of the returned merchandise), and any other items of the nature of those items set forth herein; (7) any allowance for bad debts; (8) the proceeds to Owner from the sale or other disposition of the Hotel or any part thereof or other assets of Owner not sold in the ordinary course of business; (9) any payments made directly to Owner to induce it to enter into any lease, agreement or other transaction in connection with the Hotel; (10) any proceeds from settlement of legal proceedings; (11) interest on the capital replacement reserve. c. Except as expressly provided in subparagraphs (e), (f) and (g) below, Additional Base Rent shall be paid monthly on or before the day upon which the operator of the Hotel is paid its monthly management fee, but in no event later than the twentieth (20th) day of the month following the month in which the Adjusted Gross Revenue upon which it is computed is earned, and shall be based on the monthly profit and loss statement for the preceding month and a schedule for computation of the Additional Base Rent prepared by the operator of the Hotel and delivered to Lessor at the time the Additional Base Rent is paid. At the end of each fiscal year for the Hotel during which Additional Base Rent is payable hereunder, the amount of the Additional Base Rent due hereunder shall be adjusted to reflect changes in actual revenues and expenses shown on the year-end profit and loss statement prepared by the operator of the Hotel from those shown on the monthly statements previously delivered to Lessor, as well as changes in the Consumer Price Index which affect the maximum Additional Base Rent payable hereunder. Any Additional Base Rent due Lessor shall be paid at the time the year-end profit and loss statement is submitted to Lessor. Any overpayment of Additional Base Rent shall be credited against the next Additional Base Rent due. d. In the event any Additional Base Rent is not paid on or before the due date, Lessee shall be obligated to pay a late charge of $250 and the delinquent rent shall earn interest until paid at a default rate equal to one percent (1%) in excess of the Reference Rate established from time to time by the Bank of America N.T. & S.A. e. Notwithstanding the foregoing, Lessee's obligation to pay Additional Base Rent hereunder shall terminate in the event and as of the date Lessee sells the Hotel to any person or entity not affiliated with Lessee, provided that in the event such sale occurs prior to May 1, 1994, Lessee shall pay to Lessor on or before the date title to the Hotel is transferred to the purchaser an amount equal to 1.8% of the Adjusted Gross Revenue from the operation of the Hotel for the 12 month period immediately preceding the sale times a fraction, the numerator of which is the number of months from the date of the sale to May 1, 1994 and the denominator of which is 12. f. Further notwithstanding the foregoing, Lessee's obligation to pay Additional Base Rent shall terminate upon the happening of either of the following events within one (1) year from the date hereof: (i) Cessation of the operation of the Hotel as a hotel as a result of damage to or destruction of a material part of the Hotel; (ii) Cessation of the operation of the Hotel as a hotel as a result of a taking by condemnation or eminent domain of all or a material portion of the Hotel; g. If either of the events described in subparagraphs f.(i) and (ii) above occur at any time on or after the date which is one (1) year following the date of this Amendment, the Additional Base Rent from and after such occurrence shall be calculated based on the Adjusted Gross Revenue for the corresponding month in the 12 month period immediately preceding such occurrence and shall be payable only for the period from such occurrence through April 30, 1994. 2. Delivery of Reports. a. Lessee shall deliver to Lessor at the time each payment of Additional Base Rent is due a profit and loss statement showing the results of the operation of the Hotel for the immediately preceding month and the fiscal year to date. Lessee shall also deliver to Lessor copies of the annual budget (for the Hotel approved by Lessee) and, not less often than quarterly, any reports showing results of the operation of the Hotel for the preceding quarter and fiscal year to date as compared to the annual budget. b. Lessee shall also deliver to Lessor copies of all inspection reports rendered to Lessee by the franchisor of the Hotel. 3. Defaults and Remedies. In the event Lessee fails to pay any Additional Base Rent when due, Lessor's sole remedies shall be those set forth in Section 22 of the Lease. Any failure by Lessee to perform any of its obligations under Section 2 of this Amendment to Lease shall not constitute a default hereunder unless Lessor has given Lessee notice of such default no later than sixty (60) days following the date any such report is issued or, with respect to inspection reports prepared by the franchisor of the Hotel, sixty (60) days following receipt by Lessor of notice that an inspection has been performed and, in either case, Lessee fails to deliver such report to Lessor within thirty (30) days following receipt of Lessor's notice of default. 4. Except as expressly amended herein, all terms and provisions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, Lessor and Lessee have entered into this Amendment to Lease as of the day first above written. LESSOR: NASHVILLE LODGING COMPANY, a Wisconsin limited partnership By: Nashville Residence Corporation, a Tennessee corporation, its general partner By: /s/Kenneth E. Nelson ------------------------- Kenneth E. Nelson, President [Signatures continued on next page] LESSEE: METRIC PARTNERS GROWTH SUITE INVESTORS, L. P., a California limited partnership By: Metric Partners, an Illinois general partnership, its general partner By: FGM Investment Partners, L. P., a California limited partnership, its general partner By: FGM Investments, Inc., a California corporation, its general partner By: ---------------- Its Authorized Representative Exhibit A Land in Davidson County, Tennessee, said Parcel being Lot No. 1 as shown on the subdivision Plat of the Atrium, Phase One, of record in Book 6250, page 84, Register's Office Davidson County, Tennessee, and being more particularly described by metes and bounds as follows: Beginning at the northwest intersection of Atrium Way and Elm Hill Pike, said point being the most northerly radius return of said intersection; thence along the easterly margin of Atrium Way, North 07 deg. 57 min. 08 sec. East a distance of 109.53 feet to a point; thence South 82 deg. 02 min. 52 sec. West a distance of 5.00 feet to a point; thence around a curve to the left having a central angle of 73 deg. 59 min. 28 sec., a radius of 166.00 feet, a length of 214.37 feet, a chord which bears North 44 deg. 56 min. 52 sec. West for a distance of 199.78 feet; thence North 81 deg. 56 min. 36 sec. West, a distance of 149.69 feet to a point; thence leaving said right of way, North 18 deg. 47 min. 21 sec. East a distance of 123.44 feet to a point; thence North 50 deg. 03 min. 51 sec. East a distance of 255.00 feet to a point; thence South 69 deg. 09 min. 37 sec. East, a distance of 96.81 feet to a point; thence South 22 deg. 06 min. 36 sec. West a distance of 29.16 feet to a point; thence South 69 deg. 44 min. 06 sec. East a distance of 136.16 feet to a point; thence North 32 deg. 04 min. 16 sec., East a distance of 57.74 feet to a point; thence South 29 deg. 57 min. 39 sec. East a distance of 112.74 feet to a point; thence South 73 deg. 58 min. 30 sec. East a distance of 233.32 feet to a point; thence South 08 deg. 41 min. 38 sec. West a distance of 301.97 feet to a point situated in the northerly margin of Elm Hill Pike; thence along said road, South 82 deg. 02 min. 52 sec. West, a distance of 374.00 feet to a point; thence around a curve to the right having a central angle of 90 deg. 00 min. 00 sec., a radius of 25.00 feet, a length of 39.27 feet, a chord which bears North 52 deg. 57 min. 08 sec. West for a distance of 35.36 feet to the point of beginning and containing 5.70 acres of land, more or less, according to a survey made by Allen R. Trombo of Dale and Associates, Tennessee Registered Land Surveyor No. 1127, on April 20, 1989. Being the same property conveyed to Nashville Residence Corp., a Tennessee Corporation, by deed from Miller Kimbrough, Jr., Trustee of record in Book 6074, page 851, Register's Office for Davidson County, Tennessee . THERE IS INCLUDED in this conveyance easements over the herein described property for access, maintenance, use and support of such buildings and improvements. SCHEDULE A PERMITTED EXCEPTIONS 1. All taxes on the "Improvements" as defined herein for the year 1989 and subsequent years, a lien but not yet due and payable. 2. Deed of Trust executed by Nashville Residence Corp., a Tennessee corporation co John Kooistra, Jr., Trustee, dated June 14, 1983, and recorded in Book 6074, page 855, Register's Office of Davidson County, Tennessee, in favor of Savers Federal Savings and Loan Association, a federal savings and loan association, which states that it secures a debt in the principal sum of $9,500,000.00 payable as therein specified, together with any terms, conditions, restrictions, or limitations recited therein. The present amount due should be determined by contacting the owner of the debt. William L. Rosenberg was appointed Successor Trustee under said deed of trust by Appointment of Successor Trustee of record in Book 6856, page 884, Register's Office Davidson County, Tennessee. 3. Financing Statement in favor of Savers Federal Savings and Loan Association, of record in Book 6074, page 893, Register's Office for Davidson County, Tennessee. 4. Statement of Continuation in favor of Savers Federal Savings and Loan Association of record in Book 7560, page 12, Registers Office for Davidson County, Tennessee. 5. Assignment of Rents and Leases in favor of Savers Federal Savings and Loan Association, of record in Book 6074, page 896, Register's Office for Davidson County, Tennessee. 6. Assignment of Construction Contract to Savers Federal Savings and Loan Association of record in Book 6074, page 907, Register's Office for Davidson County, Tennessee. 7. Assignment of Plans and Specifications to Savers Federal Savings and Loan Association, of record in Book 6074, page 914, Register's Office for Davidson County, Tennessee. 8. Assignment of Management Agreement to Savers Federal Savings and Loan Association, of record in Book 6074, page 920, Register's Office for Davidson County, Tennessee. 9. 10. Easement for flow of Simms Creek across premises. 11. 12. Encroachments, restrictions, easement and other matters shown on plat of record in Book 6250, page 84, Register's Office of Davidson County, Tennessee. 13. Agreements for Dedication of Easement for Sanitary Sewers and/or Storm Drainage to the Metropolitan Government of Nashville and Davidson County, Tennessee, of record in Book 4260, page 10, and Book 4427, page 915, Registered Office of Davidson County, Tennessee. 14. Lease between Nashville Lodging Company and Metric Partners Growth Suite Investors, L. P. executed simultaneously herewith. SCHEDULE B Land in Davidson County Tennessee said Parcel being Lot No. 1 as shown on the subdivision Plat of the Atrium Phase One, of record in Book 6250 page 84, Register's Office Davidson County, Tennessee, and being more particularly described by metes and bounds as follows: Beginning at the northwest intersection of Atrium and Elm Hill Pike, said point being the most northerly radius return of said intersection; thence along the easterly margin of Atrium Way North 07 deg. 57 min. 08 sec. East a distance of 109.53 feet to a point; thence South 82 deg. 02 min. 52 sec. West a distance of 5.00 feet to a point; thence around a curve to the left having a central angle of 73 deg. 59 min. 28 sec., a radius of 166.00 feet, a length of 214.37 feet, a chord which bears North 44 deg. 56 min. 52 sec. West for a distance of 199.78 feet; thence North 81 deg. 56 min. 36 sec. West, a distance of 149.69 feet to a point; thence leaving said right of way North 18 deg. 47 min. 21 sec. East a distance of 123.44 feet to a point; thence North 50 deg. 03 min. 51 sec. East a distance of 255.00 feet to a point; thence South 69 deg. 09 min. 37 sec. East, a distance of 96.81 feet to a point; thence South 22 deg. 06 min. 36 sec. West a distance of 29.16 feet to a point; thence South 69 deg. 44 min. 06 sec., East a distance of 136.16 feet to a point; thence North 32 deg. 04 min. 16 sec. East a distance of 57.74 feet to a point; thence South 29 deg. 57 min. 39 sec. East a distance of 112.74 feet to a point; thence South 73 deg. 58 min. 30 sec. East a distance of 233.32 feet to a point; thence South 08 deg. 41 min. 38 sec. West a distance of 301.97 feet to a point situated in the northerly margin of Elm Hill Pike; thence along said road, South 82 deg. 02 min. 52 sec. West, a distance of 374.00 feet to a point; thence around a curve to the right having a central angle of 90 deg. 00 min. 00 sec., a radius of 25.00 feet, a length of 39.27 feet, a chord which bears North 52 deg. 57 min. 08 sec. West for a distance of 35.36 feet to the point of beginning and containing 5.70 acres of land, more or less, according to a survey made by Allen R. Trombo of Dale and Associates, Tennessee Registered Land Surveyor No. 1127, on April 20, 1989. Being the same property conveyed to Nashville Residence Corp., a Tennessee Corporation, by deed from Miller Kimbrough, Jr., Trustee of record in Book 6074, page 851, Register's Office for Davidson County, Tennessee. THERE IS INCLUDED in this conveyance easements over the herein described property for access, maintenance, use and support at such buildings and improvements. STATE OF ____WISCONSIN_________________) ) SS. COUNTY OF ____MILWAUKEE________________) On , before me, the undersigned, a Notary Public in and for said state, personally appeared ____________________ and ____________________, known to me to be the ____________________ and ____________________ of Nashville Residence Corporation, a Tennessee corporation, the general partner of Nashville Lodging Company, a Wisconsin limited partnership, described in the attached instrument, and also known to me to be the person who executed the attached instrument on behalf of Nashville Lodging Company, and acknowledged to me that Nashville Loding Company executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal. -------------------- Notary Public EXHIBIT B SHORT FORM LEASE THIS INSTRUMENT PREPARED BY: Joan H. Story, Esq. Pettit & Martin 101 California St. Suite 3500 San Francisco, CA 94111 SHORT FORM OF LEASE THIS LEASE, made and entered into this ________ day of April 1989, by and between NASHVILLE LODGING COMPANY, a Wisconsin limited partnership, as Lessor, and METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California limited partnership, as Lessee, W I T N E S S E T H: WHEREAS Lessor is the owner of all the real property including the land (the "Land") and all buildings, structures and improvements thereon (the "Improvements"), located at 2300 Elm Hill Pike, Nashville, Tennessee, commonly known as the Residence Inn By Marriott and more particularly described in Exhibit A hereto; and WHEREAS Lessor wishes to sell to Lessee the Improvements and to lease to Lessee the Land, together with all rights, privileges and easements appurtenant thereto (herein collectively called the "Premises"), and Lessee wishes to purchase from Lessor the Improvements and to lease from Lessor the Premises, all as more particularly described in that certain Purchase and Sale Agreement, dated April_________ , 1989, among Nashville Residence Corporation, Lessor and Lessee. NOW, THEREFORE, Lessor and Lessee hereby agree as follows: 1. That upon the covenants and conditions as set forth in that certain unrecorded lease of even date between Lessor and Lessee (said lease being hereinafter called the "Lease"), Lessor does hereby lease the Premises unto Lessee, and Lessee does hereby hire and take the Premises from Lessor. By this reference the Lease is incorporated in this instrument and made a part hereof. 2. The term of this Lease shall commence on the date hereof and shall terminate on the ______ day of April, 2049, unless said term shall be sooner terminated under the provisions of the Lease. 3. The Lease provides Lessee with an option (the "Option") to purchase the Premises on terms and conditions and for the consideration set forth in the Lease. 4. This Short Form of Lease does not modify, alter, amend or change in any way the provisions of the Lease, which shall for all purposes govern and determine the relationship between Lessor and Lessee and their rights and duties with respect to this lease. IN WITNESS WHEREOF, the undersigned have executed this Short Form of Lease as of the day and year first hereinabove written. NASHVILLE LODGING COMPANY, a Wisconsin limited partnership By Nashville Residence Corporation, a Tennessee corporation By______________________________ its__________________________ By______________________________ its__________________________ METRIC PARTNERS GROWTH SUITE INVESTORS, L. P., a California limited partnership By: Metric Partners, an Illinois general partnership, its managing partner By: FGM Investment Partners, L.P., a California limited partnership, its general partner By: FGM Investments, Inc., a California corporation, its general Partner By:________________ Its Authorized Representative STATE OF ______________________) ) SS COUNTY OF______________________) On __________________ , before me, the undersigned, a Notary Public in and for said state, personally appeared ____________________ and __________________________ , known to me to be the __________________________ and ____________________________of Nashville Residence Corporation, a Tennessee corporation, the general partner of Nashville Lodging Company, a Wisconsin limited partnership, described in the attached instrument, and also known to me to be the person who executed the attached instrument on behalf of Nashville Lodging Company, and acknowledged to me that Nashville Loding Company executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal. ----------------------- Notary Public EXHIBIT C Nashville Residence Inn Ground Lease Option Price Base Option Base Option ----------- ----------- 12-mo 12-mo ending Price Increase ending Price Increase ------ ----- -------- ------ ----- -------- 1990 2,100,000 2020 18,549,402 1,586,309 1991 2,200,000 100,000 2021 20,294,342 1,744,940 1992 2,310,000 110,000 2022 22,213,777 1,919,434 1993 2,431,000 121,000 2023 24,325,154 2,111,378 1994 2,584,100 133,100 2024 26,647,670 2,322,515 1995 2,710,510 146,410 2025 29,202,437 2,554,767 1996 2,871,561 161,051 2026 32,012,681 2,810,244 1997 3,048,717 177,156 2027 35,103,949 3,091,258 1998 3,243,589 194,872 2028 38,504,343 3,400,395 1999 3,457,948 214,359 2029 42,244,778 3,740,434 2000 3,693,742 235,795 2030 46,359,258 4,114,478 2001 3,953,117 259,374 2031 50,885,181 4,525,926 2002 4,238,428 285,312 2032 55,883,699 4,978,513 2003 4,552,271 313,843 2033 51,340,069 5,478,370 2004 4,897,498 345,227 2034 67,364,078 6,024,007 2005 5,277,248 379,750 2035 73,990,484 6,626,408 2006 5,694,973 417,725 2036 81,279,532 7,269,048 2007 6,154,470 459,497 2037 89,297,485 8,017,953 2008 6,659,917 505,447 2038 98,117,234 8,819,749 2009 7,215,909 555,992 2039 107,818,957 9,701,723 2010 7,827,500 611,591 2040 118,490,853 10,671,896 2011 8,500,250 672,750 2041 130,229,938 11,739,085 2012 9,240,275 740,025 2042 143,142,932 12,912,994 2013 10,054,302 814,027 2043 157,347,225 14,204,293 2014 10,949,733 895,430 2044 172,971,948 15,624,723 2015 11,934,706 984,973 2045 190,159,142 17,187,195 2016 13,018,177 1,083,471 2046 209,065,057 18,905,914 2017 14,209,994 1,191,818 2047 229,861,562 20,796,506 2018 15,520,994 1,310,999 2048 252,737,719 22,876,158 2019 16,963,093 1,442,099 2049 277,901,490 25,163,772 EXHIBIT D LONG FORM DEED OF TRUST AND ASSIGNMENT OF RENTS This Deed of Trust, made this 24 day of April, 1989 , between Nashville Lodging Co., A Wisconsin Limited Partnership ,herein called Trustor, whose address is 3 Corporate Plaza, Suite 202, Newport, California 92660 Philip Kelly , herein called Trustee and Metric Partners Growth Suite Investors, L.P. , herein called Beneficiary. Witnesseth: That Trustor irrevocably grants transfers and assigned to trustee in trust, with power of sale, that property in Davidson County, Tennessee , described as: SEE SCHEDULE B ATTACHED HERETO. This conveyance is subject to the matters on Schedule A attached hereto and Deed of Trust, Leasehold Deed of Trust and Security Agreement dated of even date herewith from Beneficiary (as Trustor) to Trustor (as Beneficiary). TOGETHER WITH the rents, issues and profits thereof, SUBJECT, HOWEVER, to the right, power and authority herein-after given to and conferred upon Beneficiary to collect and apply such rents, issues and profits. For the Purpose of Securing: 1. Performance of each agreement of Trustor herein contained. 2. The monetary damages of Beneficiary, if any, arising from a breach by Trustor of its obligation to sell certain real property as set forth in Paragraph 5 of that certain Lease by and among Trustor, as Lessor, and Beneficiary, as Lessee dated of even date herewith. STATE OF______________________ ) ) SS COUNTY OF_____________________ ) On ______________ , before me, the undersigned, a Notary Public in and for said state, personally appeared _______________________________ , known to me to be the authorized representative for FGM Investments, Inc., a California corporation, the general partner of FGM Investment Partners, L.P., a California limited partnership, the general partner of Metric Partners, an Illinois general partnership, the managing partner of Metric Partners Growth Suite Investors, L.P., the California limited partnership described in the attached instrument, and also known to me to be the person who executed the attached instrument on behalf of Metric Partners Growth Suite Investors, L.P. and acknowledged to me that Metric Partners Growth Suite Investors, L.P. executed the same. IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal. ------------------ Notary Public EX-27 3 FDS
5 YEAR Dec-31-1995 Dec-31-1995 10248000 0 1034000 0 0 11478000 87885000 28935000 71071000 2852000 42669000 0 0 0 25250000 71071000 0 25649000 0 16867000 0 0 4852000 69000 0 0 3275000 0 0 3344000 52 0
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