-----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, RGsXwovgbPeY27iNn0JHN+k9J3oCJuJReN6JWKe+/KYgDamBUrIzHL2IVc7wamQ4 qZysVV2BMt2AkOWFO5K2Ug== 0000948524-96-000058.txt : 19961113 0000948524-96-000058.hdr.sgml : 19961113 ACCESSION NUMBER: 0000948524-96-000058 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRIC PARTNERS GROWTH SUITE INVESTORS LP CENTRAL INDEX KEY: 0000800730 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 943050708 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17660 FILM NUMBER: 96660132 BUSINESS ADDRESS: STREET 1: ONE CALIFORNIA ST STREET 2: SUITE 1400 CITY: SAN FRANCISCO STATE: CA ZIP: 94111-5415 BUSINESS PHONE: 4156872000 MAIL ADDRESS: STREET 1: ONE CALIFORNIA ST STREET 2: SUITE 1400 CITY: SAN FRANCISCO STATE: CA ZIP: 94111-5415 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-Q 1 9/30/96 FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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 incorporation or organization) Identification No.) One 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 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 --- --- Page 1 of 20 PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited). METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership BALANCE SHEETS (UNAUDITED) September 30, December 31, 1996 1995 ------------ ------------ ASSETS CASH AND CASH EQUIVALENTS $ 3,358,000 $ 10,248,000 CASH INVESTMENTS 3,893,000 -- RESTRICTED CASH 308,000 302,000 ACCOUNTS RECEIVABLE 1,551,000 1,034,000 PREPAID EXPENSES AND OTHER ASSETS 201,000 196,000 PROPERTIES AND IMPROVEMENTS 89,668,000 87,885,000 ACCUMULATED DEPRECIATION (31,100,000) (28,935,000) ------------ ------------ NET PROPERTIES AND IMPROVEMENTS 58,568,000 58,950,000 DEFERRED FINANCING COSTS 85,000 127,000 DEFERRED FRANCHISE FEES 183,000 214,000 ------------ ------------ TOTAL ASSETS $ 68,147,000 $ 71,071,000 ============ ============ LIABILITIES AND PARTNERS' EQUITY ACCOUNTS PAYABLE $ 1,105,000 $ 1,022,000 ACCRUED PROPERTY TAXES 515,000 391,000 ACCRUED INTEREST 253,000 344,000 OTHER LIABILITIES 1,658,000 1,095,000 DEFERRED GAIN ON SALE OF PROPERTY 300,000 300,000 NOTES PAYABLE 42,571,000 42,669,000 ------------ ------------ TOTAL LIABILITIES 46,402,000 45,821,000 ------------ ------------ PARTNERS' EQUITY (DEFICIENCY): GENERAL PARTNERS 59,000 100,000 LIMITED PARTNERS (59,932 units outstanding) 21,686,000 25,150,000 ------------ ------------ TOTAL PARTNERS' EQUITY 21,745,000 25,250,000 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY $ 68,147,000 $ 71,071,000 ============ ============ See notes to financial statements (unaudited). Page 2 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS (UNAUDITED)
For the Nine Months Ended September 30, --------------------------- 1996 1995 ----------- ----------- REVENUES: Hotel operations $17,639,000 $19,194,000 Interest and other 331,000 229,000 ----------- ----------- Total revenues 17,970,000 19,423,000 ----------- ----------- EXPENSES: Hotel operations: Rooms 3,480,000 3,801,000 Administrative 2,264,000 2,375,000 Marketing 1,948,000 1,848,000 Energy 907,000 1,015,000 Repair and maintenance 1,040,000 968,000 Management fees 632,000 997,000 Property taxes 551,000 688,000 Other 653,000 697,000 ----------- ----------- Total hotel operations 11,475,000 12,389,000 Depreciation and other amortization 2,196,000 2,719,000 Interest 3,263,000 3,755,000 General and administrative 972,000 482,000 ----------- ----------- Total expenses 17,906,000 19,345,000 ----------- ----------- NET INCOME $ 64,000 $ 78,000 =========== =========== NET INCOME PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ 1 $- =========== =========== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ 58 $ 23 =========== ===========
See notes to financial statements (unaudited). Page 3 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended September 30, --------------------------- 1996 1995 ----------- ----------- REVENUES: Hotel operations $ 6,156,000 $ 6,561,000 Interest and other 107,000 80,000 ----------- ----------- Total revenues 6,263,000 6,641,000 ----------- ----------- EXPENSES: Hotel operations: Rooms 1,207,000 1,352,000 Administrative 743,000 898,000 Marketing 675,000 625,000 Energy 274,000 362,000 Repair and maintenance 336,000 337,000 Management fees 234,000 344,000 Property taxes 121,000 234,000 Other 198,000 240,000 ----------- ----------- Total hotel operations 3,788,000 4,392,000 Depreciation and other amortization 718,000 891,000 Interest 1,084,000 1,252,000 General and administrative 435,000 188,000 ----------- ----------- Total expenses 6,025,000 6,723,000 ----------- ----------- NET INCOME (LOSS) $ 238,000 $ (82,000) =========== =========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ 4 $ (1) =========== =========== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ 43 $ 8 =========== ===========
See notes to financial statements (unaudited). Page 4 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) (UNAUDITED) For the Nine Months Ended September 30, 1996 and 1995 General Limited Partner Partners Total ------------ ------------ ------------ BALANCE, JANUARY 1, 1996 $ 100,000 $ 25,150,000 $ 25,250,000 NET INCOME 30,000 34,000 64,000 CASH DISTRIBUTIONS (71,000) (3,498,000) (3,569,000) ------------ ------------ ------------ BALANCE, SEPTEMBER 30, 1996 $ 59,000 $ 21,686,000 $ 21,745,000 ============ ============ ============ BALANCE, JANUARY 1, 1995 $ (68,000) $ 23,916,000 $ 23,848,000 NET INCOME (LOSS) 96,000 (18,000) 78,000 CASH DISTRIBUTIONS (28,000) (1,348,000) (1,376,000) ------------ ------------ ------------ BALANCE, SEPTEMBER 30, 1995 $ -- $ 22,550,000 $ 22,550,000 ============ ============ ============ See notes to financial statements (unaudited). Page 5 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, ---------------------------- 1996 1995 ------------ ----------- OPERATING ACTIVITIES Net Income $ 64,000 $ 78,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,339,000 2,813,000 Cost associated with note payable change (see Footnote 5) 74,000 -- Changes in operating assets and liabilities: Accounts receivable (517,000) (335,000) Prepaid expenses and other assets (5,000) (47,000) Accounts payable, accrued expenses, and other liabilities 679,000 882,000 ------------ ----------- Net cash provided by operating activities 2,634,000 3,391,000 ------------ ----------- INVESTING ACTIVITIES Proceeds from sale of cash investment 1,969,000 -- Purchase of cash investments (5,862,000) (1,409,000) Capital improvements (1,783,000) (1,608,000) Restricted cash - increase (6,000) -- ------------ ----------- Net cash used by investing activities (5,682,000) (3,017,000) ------------ ----------- FINANCING ACTIVITIES Notes payable principal payments (273,000) (268,000) Cash distribution to partners (3,569,000) (1,376,000) ------------ ----------- Cash used by financing activities (3,842,000) (1,644,000) ------------ ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,890,000) (1,270,000) Cash and cash equivalents at beginning of period 10,248,000 5,142,000 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,358,000 $ 3,872,000 ============ =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid in cash during the period $ 3,211,000 $ 3,636,000 ============ =========== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES Note payable increase (see Footnote 5) $ 74,000 $- ============ ===========
See notes to financial statements (unaudited). Page 6 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. Reference to 1995 Audited Financial Statements These unaudited financial statements should be read in conjunction with the Notes to Financial Statements included in the 1995 audited financial statements. The financial information contained herein reflects all normal and recurring adjustments that are, in the opinion of management, necessary for a fair 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: For the Nine Months Ended September 30, ------------------------- 1996 1995 -------- -------- Partnership management fees $133,000 $120,000 Reimbursement of administrative expenses 206,000 171,000 -------- -------- Total $339,000 $291,000 ======== ======== 3. Net Income (Loss) Per Limited Partnership Assignee Unit The net income (loss) per limited partnership assignee unit is computed by dividing the net income (loss) allocated to the limited partners by 59,932 assignee units outstanding. 4. Cash Investments The Partnership considers cash investments to be those investments with an original maturity date of more than three months at the time of purchase. The cash investments at September 30, 1996 mature in February and March 1997 and bear interest at an effective rate of 5.7% per annum. 5. Note Payable and Land Lease On April 15, 1996, the Partnership made a payment of approximately $176,000 to the lender of the underlying mortgage of the wrap note on the Residence Inn - Nashville (Airport). The payment was made to cure defaults by that lender to the holder of the wrap note for non-payment of the debt and impound payments due on January 1, 1996 and February 1, 1996. As described in Part II Item 1 - Legal Proceedings, the Partnership is now the direct obligor to the first note holder and the note payable balance has been increased by $74,000, the difference between the balance of the first note and the balance of the wrap note on April 15, 1996. The $74,000 cost incurred to prevent foreclosure and to eliminate the wrap note was recorded in the second quarter of 1996 as a general and administrative expense in these financial statements. The terms of the first note vary slightly from those of the wrap note. The interest rate is 9.5% per annum on the first note compared to 9.9433% on the wrap note and monthly payments of interest and principal are approximately $2,600 lower on the first note. Similar to the wrap note, the first note matures in April 1998 and requires a balloon payment. As a further consequence of the Partnership becoming a direct obligor to the first note holder, the payments due under the land lease on Residence Inn - Nashville (Airport) are reduced by $50,000 per year. Page 7 of 20 6. Adaption of Accounting Pronouncement In March, 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement requires impairment losses to be recorded on long- lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets during the holding period are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Partnership adopted Statement No. 121 in the first quarter of 1996. No impairment losses were required to be recorded as a result of adopting Statement No. 121. 7. Legal Proceedings The Partnership is a plaintiff and counterclaim defendant in legal proceedings relating to the management agreement at the Residence Inn - Ontario, a defendant and counterclaim plaintiff in legal proceedings seeking damages for alleged failure to consummate a settlement of the Residence Inn - Ontario case, and a plaintiff and/or defendant in other legal proceedings related to the Residence Inn - Nashville; see Part II, Item 1, Legal Proceedings, for a detailed description of these matters. Page 8 of 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This Item should be read in conjunction with Financial Statements and other Items contained elsewhere in this Report. Properties A description of the properties in which the Partnership has an ownership interest, along with the occupancy and room rate data, follows: OCCUPANCY AND ROOM RATE SUMMARY
Average Average Occupancy Rate (%) Daily Room Rate ($) Nine Nine Three Months Three Months Months Months Date Ended Ended Ended Ended of September 30, September 30, September 30, September 30, Name and Location Rooms Purchase 1996 1995 1996 1995 1996 1995 1996 1995 ----------------- ----- -------- ---- ---- ---- ---- ---- ---- ---- ---- Residence Inn - Ontario 200 04/88 75 76 72 70 68.78 68.18 75.41 68.41 Ontario, California Residence Inn - Fort Wayne 80 06/88 91 93 90 97 66.87 61.44 71.01 64.55 Fort Wayne, Indiana Residence Inn - Columbus (East) 80 06/88 87 89 90 92 74.97 68.09 77.91 68.50 Columbus, Ohio Residence Inn - Indianapolis (North) 88 06/88 81 81 86 86 78.76 76.46 80.57 78.72 Indianapolis, Indiana Residence Inn - Lexington 80 06/88 93 82 95 88 70.19 72.51 73.51 72.76 Lexington, Kentucky Residence Inn - Louisville 96 06/88 88 85 93 89 87.13 80.59 92.57 84.07 Louisville, Kentucky Residence Inn - Winston-Salem 88 06/88 85 85 85 86 75.48 70.61 73.39 72.43 Winston-Salem, North Carolina Residence Inn - Nashville (Airport) 168 05/89 77 79 85 80 78.58 77.97 92.46 80.88 Nashville, Tennessee Residence Inn - Atlanta (1) 128 10/89 N/A 80 N/A 83 N/A 87.99 N/A 86.87 (Perimeter West) Atlanta, Georgia Residence Inn - Altamonte Springs 128 03/90 86 84 85 82 84.77 79.30 87.56 77.08 Altamonte Springs, Florida
(1) Property was sold in October 1995. Page 9 of 20 Results of Operations Net income decreased $14,000 in the first three quarters of 1996 compared to the same period in 1995 due to increased loss at the Residence Inn - Nashville, decreased income at the Residence Inn - Ontario and an increase in the Partnership's general and administrative expenses which were mostly offset by improved operations at the other seven of the Partnership's remaining properties. Net income was $238,000 for the third quarter of 1996 compared to net loss of $82,000 for the same period in 1995. The increase in operations resulted from improvements at all but one of the Partnership's properties only partially offset by an increase in the Partnership's general and administrative expenses. Revenues from hotel operations decreased 8% and 6% in the first three quarters and third quarter of 1996, respectively, compared to the same periods in 1995 primarily due to the loss of income from the Residence Inn - Atlanta which was only partially offset by 5% and 7% increases, for the first three quarters and third quarter, respectively, in hotel operating revenues from the Partnership's remaining nine hotels. Hotel operating expenses decreased 7% and 14% in the first three quarters and third quarter of 1996, respectively, compared to the same periods in 1995 primarily as a result of the sale of the Residence Inn - Atlanta. Hotel operating expenses, exclusive of the effect of the sale of one hotel, increased 7% and 3% in the first three quarters and third quarter of 1996, respectively, compared to the same periods in 1995 primarily due to a significant increase in administrative, marketing and repair and maintenance expenses incurred at the Residence Inn - Nashville to counteract weak market conditions and to enable the hotel to maintain a competitive position in the challenging operating environment. Also, administrative expenses at the Residence Inn - Nashville increased due to the increase in the accrual, from $40,000 at December 31, 1995 to $181,000 (including estimated penalties and interest), for potential payments to the State of Tennessee, as a result of a sales and use tax audit covering the period 1989-1993 (see Residence Inn - Nashville, below). Overall management fee expense decreased compared to 1995 due to the restructured agreements with Marriott. Interest and other income increased by $102,000 and $27,000 in the first three quarters and third quarter of 1996 when compared to the same periods in 1995, primarily due to higher cash balances, specifically the proceeds from the sale of the Residence Inn - Atlanta, invested in interest bearing instruments. Depreciation and amortization decreased in 1996 when compared to 1995 due to the sale of one hotel in the fourth quarter of 1995 as well as fully depreciated furnishings at certain of the other hotels. Interest expense in 1996 decreased when compared to 1995 due to the sale of the Residence Inn - Atlanta. General and administrative expenses increased $490,000 and $247,000 in the first three quarters and third quarter of 1996, respectively, when compared to 1995 primarily due to the write-off of a $193,000 receivable (as discussed below), increases in legal costs associated with the Residence Inn - Nashville and increases in administrative expenses. In addition, the $74,000 additional loan obligation, assumed as a result of the Partnership becoming the direct obligor on the first note on the Residence Inn - Nashville, was recorded as a Partnership expense in the second quarter of 1996. See Footnote 5 to the Financial Statements. The $193,000 receivable from a previous management company of the Residence Inn - Ontario has been written off. It was previously financially supported by the contemplated sale to the Partnership by an affiliated entity of said management company (the owner until August 1996 of the land whereupon the Residence Inn - Nashville is located, and with whom the Partnership is involved in various litigations [see Part II, Item 1. Legal Proceedings]) of such land, but collection is no longer deemed probable for financial statement purposes only. The Partnership continually 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. The proceeds from sale were added to the Partnership's working capital reserve. On August 15, 1996, a portion of the proceeds from this sale, in the amount of approximately $2,000,000, was distributed pro rata to the assignee limited partnership unit holders as of July 31, 1996. The General Partners received a distribution of approximately $41,000 as their allocated share of these proceeds as per the terms of the Partnership Agreement. The remaining proceeds will continue to be held in reserve for the Partnership's future capital improvement and working capital needs. 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 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 Page 10 of 20 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. The following discussion provides information concerning the operations of the Partnership's nine remaining hotels. Residence Inn - Ontario: Room revenues increased slightly for the first three quarters of 1996 in comparison to the same period of 1995, which was offset by a 3% increase in hotel operating expenses. Occupancy and room rates remained relatively unchanged. The hotel market in Southern California is extremely competitive as other extended-stay hotels consistently discount rates. Management continues to focus marketing efforts on securing business from the numerous large construction projects in the area, as well as on expanding its base of government business. Residence Inn - Columbus East: Room revenues increased by 8% for the first three quarters of 1996 as compared to the same period of 1995, due primarily to an increase in average daily room rates (the largest increase in the portfolio- $6.88). Occupancy declined two percentage points. The local economy appears to be growing, with construction beginning on a large shopping mall seven miles from the Residence Inn. Although the property continues to maintain a strong market position, several new hotels are under construction in the area. The current marketing strategy is aimed at attracting new clients in an attempt to replace lower rated government business. Residence Inn - Fort Wayne: Room revenues increased by 6% for the first three quarters of 1996 as compared to the same period of the prior year, resulting primarily from an increase of $5.43 in the average daily room rate. Occupancy declined by two percentage points. Operating expenses increased by 4% resulting primarily from increased room operating costs, marketing and administrative expenses and repair and maintenance costs, which were partially offset by lower management fees and property taxes. The local economy remains strong; however, competition is intensifying within the hotel market. Management is currently directing marketing efforts towards high quality customer service to maintain and expand business from its existing corporate client base. Residence Inn - Indianapolis (North): Room revenues increased by 3% for the first three quarters of 1996 in comparison to the same period of last year, while expenses declined 4%. Occupancy remained stable and average daily room rates increased $2.30. The overall economy in the Indianapolis area remains stable with conservative growth anticipated. Competition is increasing in the marketplace, however, with several hotels currently under construction. The sales staff is concentrating on increasing the occupancy rate by focusing on extended-stay business from both existing and new clients. Residence Inn - Lexington: Room revenues increased 10% during the first three quarters of 1996 as compared to the same period of 1995, due primarily to an improvement of 11% in occupancy (the largest increase in the portfolio). The increase in room revenues was offset in part by a 7% increase in expenses, the majority arising from higher marketing and administrative costs, which were offset in part by lower management fees and room operating expenses. Competition is growing in the Lexington market, with one competitor building a new extended-stay hotel within a mile of the Partnership's property. The marketing strategy is focused on increasing business from the hotel's current largest clients through exemplary customer service and attention, while attempting to attract new business from companies relocating to or conducting training in the area. Residence Inn - Louisville: Room revenues increased by 12% for the first quarter of 1996, as occupancy improved by 3% and average daily room rates by $6.54 in comparison to the first three quarters of 1995. Hotel operating expenses increased by 6.5% primarily due to increased room maintenance costs and higher marketing expenses. Competition in the market remains strong, with three new extended-stay hotels expected to open during the first half of 1997. Sales and marketing efforts will be focused on retaining and expanding business from existing clients. Residence Inn - Winston-Salem: Room revenues increased by 6% resulting from an increase in average daily room rates of $4.87, while occupancy remained stable for the first three quarters of 1996 as compared to the same period of 1995. Operating expenses increased by 8%, attributable mainly to increased room operating and marketing expenses, which were only partially offset by lower management fees. The local economy is experiencing the effects of a change from an industrial to a service base, and several businesses are relocating from the area. Marketing efforts are focused on capturing business from other large corporate clients as the hotel's current largest client is reducing its operations in the area. Page 11 of 20 Residence Inn - Nashville (Airport): Room revenues, occupancy rates, and average daily room rates remained relatively unchanged for the first nine months of 1996 as compared to the same period of 1995. Operating expenses increased by 21% due in part to high repair and maintenance costs necessary to enable the hotel to maintain market position, and to the increased accrual for the potential payment of a sales and use tax assessed against the property by the State of Tennessee (currently $181,000, including estimated penalties and interest) covering the period from 1989 to 1993. The Partnership has filed a complaint with the State disputing this tax, which remains unresolved. Competition is increasing in the already difficult market, as other owners and managers are dramatically discounting rates to capture business. The economy remains strong which may absorb some of the pressure in the hotel market, including that from hotels currently under construction. Residence Inn - Altamonte Springs: Room revenues increased by nearly 10% for the first three quarters of 1996 as compared to the same period of 1995, due to an increase in occupancy of 2% and an increase in average daily room rates of $5.47. Hotel operating expenses increased by 5%, resulting from significantly higher marketing and administrative expenditures, which were only partially offset by lower room operating expenses. Many large new businesses are locating to the area which has increased the demand in the hotel market. Competition is increasing, however, with several new extended-stay hotels either planned or currently under construction in the area. Marketing efforts are focused on capturing new business from relocations and training programs. Partnership Liquidity and Capital Resources First Three Quarters of 1996 As presented in the Statement of Cash Flows, cash was provided by operating activities. Cash was provided from investing activities from the sale of investments and was used by investing activities for capital improvements and purchase of cash investments. Cash was used by financing activities for distributions to partners and principal payments on notes payable. The results of project operations before capital improvements for the first three quarters of 1996 and 1995 (as shown in the tables on pages 14 and 15) are determined by net income or loss adjusted for non-cash items such as depreciation and amortization and reduced by principal payments made on the notes payable. The project operations before capital improvements is an indication of the operational performance of the property. During the first three quarters of 1996, eight of the Partnership's nine remaining hotel properties generated positive project operations before deduction for capital improvements, while the Residence Inn - Nashville (Airport) experienced negative operations. 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 for the period. 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. The project operations after capital improvements for any given period may not be indicative of the property's general performance as capital improvements are likely to be made in large amounts associated with renovation programs. In the first three quarters of 1996, the Partnership spent $1,783,000 on capital improvements. The majority was spent on room renovations at the Residence Inns - Fort Wayne, Indianapolis, Winston-Salem, Nashville and Louisville. In addition, capital was spent on stairway work and exterior painting at the Residence Inn - Lexington and Indianapolis, doors and entry way improvements at the Residence Inn - Fort Wayne, HVAC units at the Residence Inn - Louisville and for lock upgrades at the Residence Inns - Columbus, Indianapolis, Lexington, Louisville and Winston Salem. Voice mail systems were put into place at the Residence Inns - - Altamonte Springs and Nashville. In the remainder of 1996, the Partnership anticipates spending approximately $1,092,000 on capital improvements. These improvements are necessary to keep properties competitive in their respective markets and necessary under the management agreements. In accordance with, and as is customary in the management of hotels, a percentage of revenues is 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 part of the Partnership's approved capital expenditure budgets. Unused funds are being 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. Page 12 of 20 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 holder could differ greatly depending upon such unit holder's financial, tax, and other individual circumstances. Unit holders were also advised that the Partnership and its Transfer Agent would take such action as the Partnership deemed appropriate to ensure that resale transactions did 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. Gemisys, the Partnership's Transfer Agent, informed the Partnership that resale transactions of Assignee Units in the Partnership reached 4.9 percent as of April 9, 1996 which is near the five percent maximum percentage which, under IRS guidance, may be traded in a calendar year without jeopardizing the Partnership's tax status. In order to protect its tax status as a partnership for Federal income tax purposes, the Partnership informed Gemisys that it would no longer recognize resales of limited partnership assignee units in 1996. Investors were notified of such suspension of trading in accordance with Section 12.3 of the Partnership Agreement by way of a special communication dated April 10, 1996. 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. 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 April 9, 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. 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. A cash distribution to investors for the first quarter of 1996 was made at an annualized rate of 3%. A cash distribution for the second quarter of 1996 was made at an annualized rate of 4%. A cash distribution for the third quarter of 1996 will be made at an annualized rate of 4% on or about November 15, 1996. Cash distributions for 1995 were made quarterly, at an annualized rate of 3%. On August 15, 1996, a portion of the proceeds from the sale of the Residence Inn-Atlanta (Perimeter West), in the amount of $2,041,000, was distributed to the assignee limited partnership unit holders and the General Partners. Page 13 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Nine Months Ended September 30, 1996 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------- ------- ------- ------- ------- REVENUES: Hotel operations: Rooms $ 2,831 $ 1,320 $ 1,229 $ 1,410 $ 1,323 $ 1,850 Telephone and other 183 59 73 64 100 113 ------- ------- ------- ------- ------- ------- Hotel operations 3,014 1,379 1,302 1,474 1,423 1,963 Interest and other 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Total revenues 3,014 1,379 1,302 1,474 1,423 1,963 ------- ------- ------- ------- ------- ------- EXPENSES: Hotel operations: Rooms 506 298 250 329 239 337 Administrative 340 179 159 191 212 185 Marketing 334 131 142 174 167 214 Energy 168 76 68 75 67 70 Repair and maintenance 155 78 67 86 95 87 Management fees 90 52 51 44 43 81 Property taxes 69 45 8 56 36 58 Other 119 47 39 30 52 58 ------- ------- ------- ------- ------- ------- Hotel operations 1,781 906 784 985 911 1,090 Depreciation and other amortization 378 163 163 196 194 224 Interest 641 208 218 253 246 284 General and administrative 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Total expenses 2,800 1,277 1,165 1,434 1,351 1,598 ------- ------- ------- ------- ------- ------- NET INCOME(LOSS) 214 102 137 40 72 365 Plus non-cash items - net 378 166 167 200 198 228 Less notes payable principal payments 3 14 14 16 16 18 ------- ------- ------- ------- ------- ------- Project operations 589 254 290 224 254 575 Capital Improvements 51 55 249 289 196 186 ------- ------- ------- ------- ------- ------- Project operations after capital improvements $ 538 $ 199 $ 41 ($ 65) $ 58 $ 389 ======= ======= ======= ======= ======= ======= Occupancy 75% 87% 91% 81% 93% 88% ADR $ 68.78 $ 74.97 $ 66.87 $ 78.76 $ 70.19 $ 87.13
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ------- ------- ------- ------- ------- ------- REVENUES: Hotel operations: Rooms $ 1,419 $ 2,839 $ 0 $ 2,552 $ 0 $16,773 Telephone and other 83 105 0 86 0 866 ------- ------- ------- ------- ------- ------- Hotel operations 1,502 2,944 0 2,638 0 17,639 Interest and other 0 0 0 0 331 331 ------- ------- ------- ------- ------- ------- Total revenues 1,502 2,944 0 2,638 331 17,970 ------- ------- ------- ------- ------- ------- EXPENSES: Hotel operations: Rooms 310 688 0 523 0 3,480 Administrative 190 526 (8) 290 0 2,264 Marketing 168 342 0 276 0 1,948 Energy 79 175 0 129 0 907 Repair and maintenance 100 251 0 121 0 1,040 Management fees 61 88 0 122 0 632 Property taxes 44 85 18 132 0 551 Other 43 202 0 63 0 653 ------- ------- ------- ------- ------- ------- Hotel operations 995 2,357 10 1,656 0 11,475 Depreciation and other amortization 192 373 0 313 0 2,196 Interest 250 655 0 508 0 3,263 General and administrative 0 0 0 0 972 972 ------- ------- ------- ------- ------- ------- Total expenses 1,437 3,385 10 2,477 972 17,906 ------- ------- ------- ------- ------- ------- NET INCOME(LOSS) 65 (441) (10) 161 (641) 64 Plus non-cash items - net 196 373 0 433 0 2,339 Less notes payable principal payments 16 99 0 77 0 273 ------- ------- ------- ------- ------- ------- Project operations 245 (167) (10) 517 (641) 2,130 Capital Improvements 329 345 0 83 0 1,783 ------- ------- ------- ------- ------- ------- Project operations after capital improvements ($ 84) ($ 512) ($ 10) $ 434 ($ 641) $ 347 ======= ======= ======= ======= ======= ======= Occupancy 85% 77% 0% 86% 83% ADR $ 75.48 $ 78.58 $ 0.00 $ 84.77 $ 76.16
Page 14 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Nine Months Ended September 30, 1995 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------- ------- ------- ------- ------- REVENUES: Hotel operations: Rooms $ 2,817 $ 1,224 $ 1,156 $ 1,369 $ 1,200 $ 1,657 Telephone and other 178 41 64 75 92 111 ------- ------- ------- ------- ------- ------- Hotel operations 2,995 1,265 1,220 1,444 1,292 1,768 Interest and other 30 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Total revenues 3,025 1,265 1,220 1,444 1,292 1,768 ------- ------- ------- ------- ------- ------- EXPENSES: Hotel operations: Rooms 482 269 224 305 262 288 Administrative 271 222 141 208 168 187 Marketing 330 108 112 162 108 173 Energy 189 72 62 75 63 66 Repair and maintenance 136 72 42 93 88 81 Management fees 120 82 79 94 84 115 Property taxes 54 64 62 54 38 59 Other 152 33 34 36 43 55 ------- ------- ------- ------- ------- ------- Hotel operations 1,734 922 756 1,027 854 1,024 Depreciation and other amortization 371 156 154 190 178 214 Interest 642 210 220 255 248 286 General and administrative 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Total expenses 2,747 1,288 1,130 1,472 1,280 1,524 ------- ------- ------- ------- ------- ------- NET INCOME(LOSS) 278 (23) 90 (28) 12 244 Plus non-cash items - net 341 159 157 194 182 218 Less notes payable principal payments 4 12 13 15 14 17 ------- ------- ------- ------- ------- ------- Project operations 615 124 234 151 180 445 Capital Improvements 119 170 146 90 206 211 ------- ------- ------- ------- ------- ------- Project operations after capital improvements $ 496 ($ 46) $ 88 $ 61 ($ 26) $ 234 ======= ======= ======= ======= ======= ======= Occupancy 76% 89% 93% 81% 82% 85% ADR $ 68.18 $ 68.09 $ 61.44 $ 76.46 $ 72.51 $ 80.59
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ------- ------- ------- ------- ------- ------- REVENUES: Hotel operations: Rooms $ 1,334 $ 2,811 $ 2,281 $ 2,328 $ 0 $18,177 Telephone and other 77 135 136 108 0 1,017 ------- ------- ------- ------- ------- ------- Hotel operations 1,411 2,946 2,417 2,436 0 19,194 Interest and other 0 7 13 0 179 229 ------- ------- ------- ------- ------- ------- Total revenues 1,411 2,953 2,430 2,436 179 19,423 ------- ------- ------- ------- ------- ------- EXPENSES: Hotel operations: Rooms 263 667 479 562 0 3,801 Administrative 198 283 461 236 0 2,375 Marketing 120 289 230 216 0 1,848 Energy 67 176 113 132 0 1,015 Repair and maintenance 83 159 100 114 0 968 Management fees 92 89 120 122 0 997 Property taxes 50 83 83 141 0 688 Other 45 202 48 49 0 697 ------- ------- ------- ------- ------- ------- Hotel operations 918 1,948 1,634 1,572 0 12,389 Depreciation and other amortization 186 455 351 464 0 2,719 Interest 251 674 464 505 0 3,755 General and administrative 0 0 0 0 482 482 ------- ------- ------- ------- ------- ------- Total expenses 1,355 3,077 2,449 2,541 482 19,345 ------- ------- ------- ------- ------- ------- NET INCOME(LOSS) 56 (124) (19) (105) (303) 78 Plus non-cash items - net 190 449 349 574 0 2,813 Less notes payable principal payments 15 81 28 69 0 268 ------- ------- ------- ------- ------- ------- Project operations 231 244 302 400 (303) 2,623 Capital Improvements 52 339 147 128 0 1,608 ------- ------- ------- ------- ------- ------- Project operations after capital improvements $ 179 ($ 95) $ 155 $ 272 ($ 303) $ 1,015 ======= ======= ======= ======= ======= ======= Occupancy 85% 79% 80% 84% 82% ADR $ 70.61 $ 77.97 $ 87.99 $ 79.30 $ 74.69
Page 15 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Three Months Ended September 30, 1996 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ----- ----- ----- ----- ----- ----- REVENUES: Hotel operations: Rooms $ 913 $ 469 $ 432 $ 512 $ 470 $ 696 Telephone and other 58 17 25 24 32 32 ----- ----- ----- ----- ----- ----- Hotel operations 971 486 457 536 502 728 Interest and other 0 0 0 0 0 0 ----- ----- ----- ----- ----- ----- Total revenues 971 486 457 536 502 728 ----- ----- ----- ----- ----- ----- EXPENSES: Hotel operations: Rooms 177 106 86 117 86 126 Administrative 107 52 69 65 49 68 Marketing 118 44 47 61 54 79 Energy 52 26 16 18 18 24 Repair and maintenance 59 27 28 21 30 28 Management fees 29 25 25 16 15 38 Property taxes 14 13 (61) 19 12 19 Other 39 12 11 8 16 16 ----- ----- ----- ----- ----- ----- Hotel operations 595 305 221 325 280 398 Depreciation and other amortization 127 54 56 68 65 76 Interest 213 69 72 84 82 94 General and administrative 0 0 0 0 0 0 ----- ----- ----- ----- ----- ----- Total expenses 935 428 349 477 427 568 ----- ----- ----- ----- ----- ----- NET INCOME(LOSS) 36 58 108 59 75 160 Plus non-cash items - net 127 54 58 69 66 77 Less notes payable principal payments 0 5 5 5 5 6 ----- ----- ----- ----- ----- ----- Project operations 163 107 161 123 136 231 Capital Improvements 23 6 222 198 40 38 ----- ----- ----- ----- ----- ----- Project operations after capital improvements $ 140 $ 101 ($ 61) ($ 75) $ 96 $ 193 ===== ===== ===== ===== ===== ===== Occupancy 72% 90% 90% 86% 95% 93% ADR $75.41 $77.91 $71.01 $80.57 $73.51 $92.57
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ------- ------- ------- ------- ------- ------- REVENUES: Hotel operations: Rooms $ 462 $ 1,114 $ 0 $ 803 $ 0 $ 5,871 Telephone and other 27 40 0 30 0 285 ------- ------- ------- ------- ------- ------- Hotel operations 489 1,154 0 833 0 6,156 Interest and other 0 0 0 0 107 107 ------- ------- ------- ------- ------- ------- Total revenues 489 1,154 0 833 107 6,263 ------- ------- ------- ------- ------- ------- EXPENSES: Hotel operations: Rooms 104 229 0 176 0 1,207 Administrative 56 166 0 111 0 743 Marketing 54 129 0 89 0 675 Energy 21 63 0 36 0 274 Repair and maintenance 35 69 0 39 0 336 Management fees 20 34 0 32 0 234 Property taxes 15 28 18 44 0 121 Other 13 63 0 20 0 198 ------- ------- ------- ------- ------- ------- Hotel operations 318 781 18 547 0 3,788 Depreciation and other amortization 66 117 0 89 0 718 Interest 83 216 0 171 0 1,084 General and administrative 0 0 0 0 435 435 ------- ------- ------- ------- ------- ------- Total expenses 467 1,114 18 807 435 6,025 ------- ------- ------- ------- ------- ------- NET INCOME(LOSS) 22 40 (18) 26 (328) 238 Plus non-cash items - net 68 117 0 131 (74) 693 Less notes payable principal payments 5 30 0 26 0 87 ------- ------- ------- ------- ------- ------- Project operations 85 127 (18) 131 (402) 844 Capital Improvements 272 114 0 29 0 942 ------- ------- ------- ------- ------- ------- Project operations after capital improvements ($ 187) $ 13 ($ 18) $ 102 ($ 402) ($ 98) ======= ======= ======= ======= ======= ======= Occupancy 85% 85% 85% 85% ADR $ 73.39 $ 92.46 $ 87.56 $ 81.55
Page 16 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Three Months Ended September 30, 1995 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ----- ----- ----- ----- ----- ----- REVENUES: Hotel operations: Rooms $ 873 $ 421 $ 419 $ 501 $ 429 $ 601 Telephone and other 61 11 26 26 33 37 ----- ----- ----- ----- ----- ----- Hotel operations 934 432 445 527 462 638 Interest and other 10 0 0 0 0 0 ----- ----- ----- ----- ----- ----- Total revenues 944 432 445 527 462 638 ----- ----- ----- ----- ----- ----- EXPENSES: Hotel operations: Rooms 154 91 76 107 90 103 Administrative 86 76 41 58 49 60 Marketing 103 42 38 49 40 62 Energy 76 26 21 27 17 25 Repair and maintenance 49 29 16 34 27 27 Management fees 38 28 29 34 30 41 Property taxes 24 20 18 18 13 20 Other 60 12 10 11 14 18 ----- ----- ----- ----- ----- ----- Hotel operations 590 324 249 338 280 356 Depreciation and other amortization 124 54 53 60 58 71 Interest 214 70 74 85 83 95 General and administrative 0 0 0 0 0 0 ----- ----- ----- ----- ----- ----- Total expenses 928 448 376 483 421 522 ----- ----- ----- ----- ----- ----- NET INCOME(LOSS) 16 (16) 69 44 41 116 Plus non-cash items - net 114 55 54 62 59 72 Less notes payable principal payments 2 4 5 5 4 6 ----- ----- ----- ----- ----- ----- Project operations 128 35 118 101 96 182 Capital Improvements 102 115 133 71 84 76 ----- ----- ----- ----- ----- ----- Project operations after capital improvements $ 26 ($ 80) ($ 15) $ 30 $ 12 $ 106 ===== ===== ===== ===== ===== ===== Occupancy 70% 92% 97% 86% 88% 89% ADR $68.41 $68.50 $64.55 $78.72 $72.76 $84.07
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ------- ------- ------- ------- ------- ------- REVENUES: Hotel operations: Rooms $ 461 $ 1,004 $ 775 $ 739 $ 0 $ 6,223 Telephone and other 29 45 35 35 0 338 ------- ------- ------- ------- ------- ------- Hotel operations 490 1,049 810 774 0 6,561 Interest and other 0 0 4 0 66 80 ------- ------- ------- ------- ------- ------- Total revenues 490 1,049 814 774 66 6,641 ------- ------- ------- ------- ------- ------- EXPENSES: Hotel operations: Rooms 101 242 197 191 0 1,352 Administrative 62 104 283 79 0 898 Marketing 36 104 80 71 0 625 Energy 20 57 46 47 0 362 Repair and maintenance 27 53 32 43 0 337 Management fees 32 32 41 39 0 344 Property taxes 17 30 27 47 0 234 Other 17 69 15 14 0 240 ------- ------- ------- ------- ------- ------- Hotel operations 312 691 721 531 0 4,392 Depreciation and other amortization 61 133 121 156 0 891 Interest 83 224 155 169 0 1,252 General and administrative 0 0 0 0 188 188 ------- ------- ------- ------- ------- ------- Total expenses 456 1,048 997 856 188 6,723 ------- ------- ------- ------- ------- ------- NET INCOME(LOSS) 34 1 (183) (82) (122) (82) Plus non-cash items - net 63 134 120 193 0 926 Less notes payable principal payments 5 28 10 20 0 89 ------- ------- ------- ------- ------- ------- Project operations 92 107 (73) 91 (122) 755 Capital Improvements 13 41 12 26 0 673 ------- ------- ------- ------- ------- ------- Project operations after capital improvements $ 79 $ 66 ($ 85) $ 65 ($ 122) $ 82 ======= ======= ======= ======= ======= ======= Occupancy 86% 80% 83% 82% 83% ADR $ 72.43 $ 80.88 $ 86.87 $ 77.08 $ 75.80
Page 17 of 20 PART II OTHER INFORMATION Item 1. 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 four 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 disputes in connection with management of the Partnership's Residence Inn - Ontario by an entity controlled by Kenneth E. Nelson ("Nelson") from April 1988 to February 1991. In March 1993, the Partnership and Nelson verbally agreed to settle the SF Lawsuit at a settlement conference (the "SF Settlement"), whereby the Partnership would 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. Various disagreements between the Partnership and Nelson regarding the SF Settlement arose after March 1993 and documents to effectuate the SF Settlement were never 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 in 1986 and voided the conveyance. The Court in the Nashville Case I ordered a sale of the Land, subject to all prior encumbrances, including the ground lease of the Land by the Partnership (the "Lease"). As discussed in more detail below (see "Nashville Case I"), subsequent to a judicial sale held on July 24, 1996, the Court ruled in a confirmation hearing held in August 1996 that the Land would be sold to Orlando Residence, Ltd ("Orlando"). Unless NLC regains ownership of the Land, the Partnership will not be able to purchase the Land as agreed in the SF Settlement. The Partnership will ask the Court in the SF Lawsuit to resolve the remaining issues related to the SF Settlement. 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 Elm Hill Pike, Inc. ("2300") (formerly known as Nashville Residence Corporation until 1986) was the original owner of the Hotel (including the Land). 2300 conveyed its interest in the Hotel (including the Land) to NLC in 1986 by unrecorded quitclaim deed. In April 1989, NLC sold the Hotel and leased the Land to the Partnership pursuant to the Lease. In October 1992, Orlando filed this lawsuit against NLC and its general partners 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 a judgment against 2300. In August 1993, the Court dismissed this action against the Partnership. The Partnership's only material continuing interest in the case is its effect on ownership of the Land and the Lease. In August 1994, the Court held that the sale of the Hotel by 2300 to NLC was a fraudulent conveyance and voided the conveyance. The defendants appealed the judgment for Orlando in this case to the Tennessee Court of Appeals, but the judgment was not stayed pending appeal. Oral argument on this appeal was held on November 1, 1996, but no decision has yet been rendered. Orlando requested and the Court ordered a judicial sale of the Land, with the sale subject to encumbrances of record, including the Lease. The sale is a credit sale, with the purchase price due in six months. This sale was held on July 24, 1996. At a confirmation hearing in August 1996, the Court ordered the Land to be sold to Orlando. He further ordered that Orlando was to become the landlord under the Lease. In addition, an affiliate of Nelson's has the right to purchase the Land from Orlando prior to January 24, 1997 for $1,500,000 cash plus interest at the legal rate from July 24, 1996. 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 Page 18 of 20 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. 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 filed this action against 2300 and NLC in the Davidson County Chancery Court to attempt to execute on its judgment 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 demand payment by the Partnership of 2300 and NLC's costs of defending Nashville Case II and indemnification for any loss resulting from the claims of Orlando, among other claims of damage. 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. However, no assurance can be given that its appeal will be successful. In any event, the Partnership 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. In June 1996, the Partnership filed a counterclaim, claiming damages for the failure of NLC to complete the SF Settlement. The Partnership also added the general partners of NLC as additional counterclaim defendants to the case. In July 1996, the counterclaim defendants filed an answer to the counterclaim and a motion for summary judgment dismissing the counterclaim. A hearing on this motion has not yet been held. Metric Partners Growth Suite Investors, L.P., vs. Nashville Lodging Co., 2300 Elm Hill Pike, Inc., Orlando Residence, Ltd., and LaSalle National Bank, as trustee under that certain pooling and servicing agreement, dated July 11, 1995, for the holders of the WHP Commercial Mortgage Pass Through Certificates, Series 1995C1 and Robert Holland, Trustee, Chancery Court for Davidson County, in Nashville, Tennessee, Case No. 96-1405-III ("Nashville Case III"). GSI filed this action May 3, 1996 to obtain, among other things, a judicial determination of the rights and obligations of GSI and NLC under the senior mortgage on the Hotel ("Senior Mortgage"), a note held by NLC "wrapped around" the Senior Mortgage (the "Wrap Note") and the Lease as a consequence of GSI's cure of certain defaults by NLC under the Senior Mortgage. GSI believes that as a result of such cure, it has become the direct obligor to the lender under the Senior Mortgage and that the Wrap Note has been satisfied and the payments due under the Lease reduced by $50,000 per year. GSI also seeks preliminary and permanent injunctive relief to prevent NLC from attempting to accelerate or foreclose the Wrap Note and/or from attempting to enforce any remedies with regard to the Lease in connection with this matter and a judgment establishing that GSI is the owner of the Hotel, subject only to the Lease and certain specified security interests. In May 1996, the Partnership obtained a temporary injunction staying NLC from undertaking any efforts to exercise any remedies pursuant to the Wrap Note or the Lease. NLC and 2300 filed an answer in June, together with a counterclaim against the Partnership. NLC and 2300 claimed damages from the Partnership and asked the Court to permit acceleration of the Wrap Note and termination of the Lease. In July 1996, the Partnership filed a motion for summary judgment in this case, asking that the Court award the relief sought by it and that the Court dismiss the counterclaim of NLC and 2300. At a hearing on this motion held in August 1996 the Court granted the Partnership's motion. The defendants have purported to appeal from this ruling. 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. Item 6. Exhibits and Reports on Form 8-K (a) No reports on Form 8-K were required to be filed during the period covered by this Report. On February 27, 1996, the Form 8-K, originally filed on October 3, 1995, reporting the disposition of the Residence Inn-Atlanta (Perimeter West), was amended to include additional information concerning the disposition of the asset. Page 19 of 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. 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 general partner By: /s/ Margot M. Giusti --------------------------- Margot M. Giusti Executive Vice President, Finance and Administration; Principal Financial and Accounting Officer of Metric Realty Corp. Date: November 11, 1996 --------------------------- Page 20 of 20 EX-27 2 FDS
5 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 7,251,000 0 1,551,000 0 0 9,003,000 89,668,000 31,100,000 68,147,000 3,531,000 42,571,000 0 0 0 21,745,000 67,847,000 0 17,639,000 0 11,475,000 0 0 3,263,000 64,000 0 0 0 0 0 0 64,000.00 1.00
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