-----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, BFvD9J6/JfL6166RNj+VaW/9yPTK2XlD4Ga/z1GVvgXne2MMANrkyIbF5O7yZItK CxS9eW2l2j+J/NGqe01SnA== 0000948524-97-000019.txt : 19970329 0000948524-97-000019.hdr.sgml : 19970329 ACCESSION NUMBER: 0000948524-97-000019 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-17660 FILM NUMBER: 97567860 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-K405 1 12/31/96 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, 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 (I.R.S. Employer of incorporation or organization) Identification No.) 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. It is anticipated that affiliates of Metric Realty will be involved in a reorganization effective April 1, 1997. As a result, it is expected that the partners of Metric Realty as of such date will be SSR Realty Advisors, Inc. and Metric Property Management, Inc.; SSR Realty Advisors, Inc. will be the Managing Partner. This change in the partners of Metric Realty will have no material effect on the Partnership. 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 in Item 2. The acquisition activities of the Partnership were completed on March 16, 1990, with the purchase of a final hotel property, the Residence Inn - Altamonte Springs. 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 hotels are currently being marketed for sale. 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. 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 1 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 company 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. Item 2. Properties. A description of the hotel properties which the Partnership owns is as follows: Name and Location Date of 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 Hurtsbourne 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 Avenue Altamonte Springs, Florida - -------- (1) Sold in October 1995. 2 See the Financial Statements in Item 8 for information regarding any encumbrances to which the properties of the Partnership are subject. Occupancy and room rates for the years ended December 31, 1996, 1995 and 1994 are as follows:
Average Average Occupancy Rate (%) Daily Room Rate ($) -------------------------- ----------------------- - ------------------------------------------------ 1996 1995 1994 1996 1995 1994 ---- ---- ---- ---- ---- ---- HOTELS: Residence Inn-Ontario........................... 74 72 69 69.60 67.84 67.57 Residence Inn-Columbus East..................... 87 89 87 74.54 68.98 64.23 Residence Inn-Fort Wayne........................ 88 93 89 67.45 62.43 59.04 Residence Inn-Indianapolis...................... 82 80 85 76.06 75.69 69.48 Residence Inn-Lexington......................... 91 84 87 71.92 71.90 70.66 Residence Inn-Louisville........................ 86 85 90 86.31 79.92 75.04 Residence Inn-Winston-Salem..................... 84 85 85 75.95 71.94 65.47 Residence Inn-Nashville (Airport)............... 76 77 75 78.74 77.43 72.71 Residence Inn-Atlanta (Perimeter West) (1)...... - 81 82 - 87.82 76.76 Residence Inn-Altamonte Springs................. 86 82 78 83.73 78.31 77.52
- -------- (1) Sold in October 1995. Project Operations Project Operations for the years ended December 31, 1996, 1995 and 1994 are shown on the following 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. 3 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Year Ended December 31, 1996 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ----- ----- ------------ --------- --------- REVENUES: Hotel operations: Rooms $3,843 $1,923 $1,753 $2,031 $1,947 $2,653 Telephone and other 242 82 98 94 140 160 ----- ----- ----- ----- ----- ----- Hotel operations 4,085 2,005 1,851 2,125 2,087 2,813 Interest and other 0 0 0 0 0 0 ----- ----- ----- ----- ----- ----- Total revenues 4,085 2,005 1,851 2,125 2,087 2,813 ----- ----- ----- ----- ----- ----- EXPENSES: Hotel operations: Rooms 698 458 366 490 342 482 Administrative 467 254 234 287 287 270 Marketing 468 198 197 259 248 310 Energy 245 109 95 114 88 100 Repair and maintenance 202 115 88 123 131 121 Management fees 123 74 89 64 76 115 Property taxes 94 71 29 76 52 77 Other 146 60 51 48 70 83 ----- ----- ----- ----- ----- ----- Hotel operations 2,443 1,339 1,149 1,461 1,294 1,558 Depreciation and other amortization 505 218 224 264 258 301 Interest 855 277 291 337 328 379 General and administrative 0 0 0 0 0 0 ----- ----- ----- ----- ----- ----- Total expenses 3,803 1,834 1,664 2,062 1,880 2,238 ----- ----- ----- ----- ----- ----- INCOME(LOSS) 282 171 187 63 207 575 Plus non-cash items - net 505 222 228 269 263 307 Less notes payable principal payments 3 18 19 22 22 25 ----- ----- ----- ----- ----- ----- Project operations 784 375 396 310 448 857 Capital Improvements 84 179 276 319 361 221 ----- ----- ----- ----- ----- ----- Project operations after capital improvements $ 700 $ 196 $ 120 $ (9) $ 87 $ 636 ===== ===== ===== ===== ===== ===== Occupancy 74% 87% 88% 82% 91% 86% ADR $69.60 $74.54 $67.45 $76.06 $71.92 $86.31
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ------- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $ 2,082 $ 3,744 $ 0 $3,412 $ 0 $23,388 Telephone and other 134 148 0 124 0 1,222 ------- ------- --- ------ ------- ------- Hotel operations 2,216 3,892 0 3,536 0 24,610 Interest and other 0 0 0 0 435 435 ------- ------- --- ------ ------- ------- Total revenues 2,216 3,892 0 3,536 435 25,045 ------- ------- --- ------ ------- ------- EXPENSES: Hotel operations: Rooms 444 930 0 689 0 4,899 Administrative 287 627 9 379 0 3,101 Marketing 252 451 0 379 0 2,762 Energy 115 239 0 176 0 1,281 Repair and maintenance 146 320 0 165 0 1,411 Management fees 94 117 0 164 0 916 Property taxes 63 112 0 164 0 738 Other 66 316 0 77 0 917 ------- ------- --- ------ ------- ------- Hotel operations 1,467 3,112 9 2,193 0 16,025 Depreciation and other amortization 263 496 0 404 0 2,933 Interest 333 872 0 678 0 4,350 General and administrative 0 0 0 0 1,216 1,216 ------- ------- --- ------ ------- ------- Total expenses 2,063 4,480 9 3,275 1,216 24,524 ------- ------- --- ------ ------- ------- INCOME(LOSS) 153 (588) (9) 261 (781) 521 Plus non-cash items - net 268 496 0 564 0 3,122 Less notes payable principal payments 22 129 0 100 0 360 ------- ------- --- ------ ------- ------- Project operations 399 (221) (9) 725 (781) 3,283 Capital Improvements 430 548 0 153 0 2,571 ------- ------- --- ------ ------- ------- Project operations after capital improvements ($ 31) ($ 769) ($9) $ 572 ($ 781) $ 712 ======= ======= === ====== ======= ======= Occupancy 84% 76% 0% 86% 82% ADR $75.95 $78.74 $0.00 $83.73 $ 76.13
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 Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $3,603 $ 1,783 $1,693 $1,994 $ 1,751 $2,363 Telephone and other 244 66 94 99 135 157 ------ ------- ------ ------ ------- ------ Hotel operations 3,847 1,849 1,787 2,093 1,886 2,520 Interest and other 53 0 0 0 0 0 ------ ------- ------ ------ ------- ------ Total revenues 3,900 1,849 1,787 2,093 1,886 2,520 ------ ------- ------ ------ ------- ------ EXPENSES: Hotel operations: Rooms 672 396 331 444 380 416 Administrative 385 298 196 292 236 264 Marketing 446 157 165 228 174 243 Energy 274 107 91 97 90 98 Repair and maintenance 189 101 64 127 123 115 Management fees 154 120 116 137 123 165 Property taxes 78 89 80 79 51 80 Other 201 54 51 56 70 78 ------ ------- ------ ------ ------- ------ Hotel operations 2,399 1,322 1,094 1,460 1,247 1,459 Depreciation and other amortization 496 206 204 253 245 286 Interest 855 279 293 339 330 381 General and administrative 0 0 0 0 0 0 ------ ------- ------ ------ ------- ------ Total expenses 3,750 1,807 1,591 2,052 1,822 2,126 ------ ------- ------ ------ ------- ------ INCOME(LOSS) (1) 150 42 196 41 64 394 Plus non-cash items - net 442 210 209 258 250 292 Less notes payable principal payments 5 17 17 20 20 23 ------ ------- ------ ------ ------- ------ Project operations 587 235 388 279 294 663 Capital Improvements 163 268 228 163 326 220 ------ ------- ------ ------ ------- ------ Project operations after capital improvements $ 424 ($ 33) $ 160 $ 116 ($ 32) $ 443 ====== ======= ====== ====== ======= ====== (1) Before gain on sale of property. Occupancy 72% 89% 93% 80% 84% 85% ADR $67.84 $68.98 $62.43 $75.69 $71.90 $79.92
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $1,956 $ 3,654 $2,496 $ 2,982 $ 0 $24,275 Telephone and other 111 173 153 142 0 1,374 ------ ------- ------ ------- ----- ------- Hotel operations 2,067 3,827 2,649 3,124 0 25,649 Interest and other 0 7 54 0 344 458 ------ ------- ------ ------- ----- ------- Total revenues 2,067 3,834 2,703 3,124 344 26,107 ------ ------- ------ ------- ----- ------- EXPENSES: Hotel operations: Rooms 391 877 493 767 0 5,167 Administrative 280 415 533 325 0 3,224 Marketing 192 384 258 291 0 2,538 Energy 100 236 131 174 0 1,398 Repair and maintenance 121 216 109 164 0 1,329 Management fees 135 115 132 167 0 1,364 Property taxes 66 105 82 167 0 877 Other 64 264 64 68 0 970 ------ ------- ------ ------- ----- ------- Hotel operations 1,349 2,612 1,802 2,123 0 16,867 Depreciation and other amortization 248 597 349 626 0 3,510 Interest 335 899 467 674 0 4,852 General and administrative 0 0 0 0 809 809 ------ ------- ------ ------- ----- ------- Total expenses 1,932 4,108 2,618 3,423 809 26,038 ------ ------- ------ ------- ----- ------- INCOME(LOSS) (1) 135 (274) 85 (299) (465) 69 Plus non-cash items - net 254 590 307 773 0 3,585 Less notes payable principal payments 20 100 28 83 0 333 ------ ------- ------ ------- ----- ------- Project operations 369 216 364 391 (465) 3,321 Capital Improvements 84 331 178 202 0 2,163 ------ ------- ------ ------- ----- ------- Project operations after capital improvements $ 285 ($ 115) $ 186 $ 189 ($465) $ 1,158 ====== ======= ====== ======= ===== ======= (1) Before gain on sale of property. Occupancy 85% 77% 81% 82% 81% ADR $71.94 $77.43 $87.82 $ 78.31 $ 74.18
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 Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $ 3,381 $ 1,636 $ 1,527 $ 1,892 $1,780 $2,354 Telephone and other 220 59 84 104 134 122 ------- ------- ------- ------- ------ ------ Hotel operations 3,601 1,695 1,611 1,996 1,914 2,476 Interest and other 40 0 0 0 0 0 ------- ------- ------- ------- ------ ------ Total revenues 3,641 1,695 1,611 1,996 1,914 2,476 ------- ------- ------- ------- ------ ------ EXPENSES: Hotel operations: Rooms 649 342 309 410 353 392 Administrative 428 268 189 236 275 252 Marketing 436 152 166 215 148 244 Energy 250 122 96 98 89 103 Repair and maintenance 171 77 87 104 117 113 Management fees 144 110 105 129 125 162 Property taxes 63 57 65 70 51 81 Other 147 50 43 53 62 64 ------- ------- ------- ------- ------ ------ Hotel operations 2,288 1,178 1,060 1,315 1,220 1,411 Depreciation and other amortization 550 283 272 346 307 371 Interest 856 281 294 341 332 383 General and administrative 0 0 0 0 0 0 ------- ------- ------- ------- ------ ------ Total expenses 3,694 1,742 1,626 2,002 1,859 2,165 ------- ------- ------- ------- ------ ------ INCOME(LOSS) (53) (47) (15) (6) 55 311 Plus non-cash items - net 510 287 277 351 313 377 Less notes payable principal payments 4 15 16 18 18 20 ------- ------- ------- ------- ------ ------ Project operations 453 225 246 327 350 668 Capital Improvements 184 27 37 200 37 266 ------- ------- ------- ------- ------ ------ Project operations after capital improvements $ 269 $ 198 $ 209 $ 127 $ 313 $ 402 ======= ======= ======= ======= ====== ====== Occupancy 69% 87% 89% 85% 87% 90% ADR $ 67.57 $ 64.23 $ 59.04 $ 69.48 $70.66 $75.04
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $ 1,790 $ 3,347 $2,931 $ 2,808 $ 0 $ 23,446 Telephone and other 113 169 169 134 0 1,308 ------- ------- ------ ------- ----- -------- Hotel operations 1,903 3,516 3,100 2,942 0 24,754 Interest and other 0 20 18 0 176 254 ------- ------- ------ ------- ----- -------- Total revenues 1,903 3,536 3,118 2,942 176 25,008 ------- ------- ------ ------- ----- -------- EXPENSES: Hotel operations: Rooms 395 789 605 680 0 4,924 Administrative 264 330 355 316 0 2,913 Marketing 182 344 302 248 0 2,437 Energy 103 248 159 170 0 1,438 Repair and maintenance 130 216 144 142 0 1,301 Management fees 124 105 155 147 0 1,306 Property taxes 67 121 75 187 0 837 Other 76 270 75 61 0 901 ------- ------- ------ ------- ----- -------- Hotel operations 1,341 2,423 1,870 1,951 0 16,057 Depreciation and other amortization 323 688 453 611 0 4,204 Interest 337 901 622 670 0 5,017 General and administrative 0 0 0 0 677 677 ------- ------- ------ ------- ----- -------- Total expenses 2,001 4,012 2,945 3,232 677 25,955 ------- ------- ------ ------- ----- -------- INCOME(LOSS) (98) (476) 173 (290) (501) (947) Plus non-cash items - net 329 668 451 747 0 4,310 Less notes payable principal payments 18 99 37 72 0 317 ------- ------- ------ ------- ----- -------- Project operations 213 93 587 385 (501) 3,046 Capital Improvements 116 427 38 116 0 1,448 ------- ------- ------ ------- ----- -------- Project operations after capital improvements $ 97 ($ 334) $ 549 $ 269 ($501) $ 1,598 ======= ======= ====== ======= ===== ======== Occupancy 85% 75% 82% 78% 80% ADR $ 65.47 $72.71 $76.76 $ 77.52 $ 70.42
6 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. 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. 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. Metric Partners Growth Suite Investors, L.P. vs. Joe Huddleston, Commissioner of Revenue for the State of Tennessee, Tennessee Chancery Court for Davidson County, Case No. 94-1227-II. Metric Partners Growth Suite Investors, L.P. vs. Joe Huddleston, Commissioner of Revenue for the State of Tennessee. GSI filed this action April 25, 1994 to challenge the assessment of a sales and use tax deficiency by the State for the period 1989 through 1993 in the amount of $122,799 with accrued interest through February 20, 1994 of $35,248 (the alleged deficiency plus estimated accrued interest totaled $205,000 at December 31, 1996). In general, the claimed deficiency relates presumably to sales tax related to food and beverage items used in the Hotel's complimentary breakfast and evening social hour. In February 1997, GSI learned that this case had been dismissed for failure to prosecute by its attorneys. A motion seeking reinstatement of the case was filed by GSI on March 18, 1997, and a hearing is scheduled for April 18, 1997. 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. 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, 1997, Assignee Unit holders have received distributions from operations and sales ranging from $291 - $384 for each $1,000 limited partnership assignee Unit, exclusive of a $2 payment made in 1995 to the State of Georgia for 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. 7 As of December 31, 1996, the approximate number of holders of Limited Partnership Assignee Units was as follows: Number of Record Title of Class Holders* -------------- -------- Limited Partnership Assignee Units.......... 4,939 - -------- *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, 1996. The data should be read in conjunction with the financial statements included elsewhere herein.
For the Year Ended December 31, ------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (Amounts in thousands except per unit data) TOTAL REVENUES ............... $25,045 $26,107 $ 25,008 $ 24,190 $ 23,331 ======= ======= ======== ======== ======== NET INCOME (LOSS) ............ $ 521 $ 3,344 $ (947) $ (2,138) $ (2,329) ======= ======= ======== ======== ======== NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE UNIT (1) $ 8 $ 52 $ (19) $ (39) $ (38) ======= ======= ======== ======== ======== TOTAL ASSETS ................. $67,436 $71,071 $ 74,936 $ 77,899 $ 81,951 ======= ======= ======== ======== ======== LONG TERM OBLIGATIONS: Notes Payable ............. $42,518 $42,669 $ 48,800 $ 49,003 $ 49,014 ======= ======= ======== ======== ======== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT ... $ 68 $ 32 $ 30 $ 30 $ 28 ======= ======= ======== ======== ========
(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. 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 1996 Compared to 1995 Net income was $521,000 in 1996 compared to net income of $3,344,000 in 1995. The net income in 1995 was comprised of $69,000 income before gain on sale of property and $3,275,000 gain on sale of property, whereas there was no gain on sale of property in 1996. Income before gain on sale of property increased by $452,000 in 1996 compared to 1995 despite the loss of income from the Residence Inn - Atlanta. Income before gain on sale of property increased at seven of the nine remaining properties, although substantially reduced by an increase in loss at the Residence Inn - Nashville and an increase in loss at the Partnership level. Revenues from hotel operations decreased 4% for 1996 compared to 1995 due to the sale of the Residence Inn - Atlanta in 1995. The remaining nine properties all experienced increases in revenue totaling 7% as average daily room rates 8 increased or stayed even and occupancy increased at five of the properties. Properties experiencing decreases in occupancy had increases in rates to more than offset the fall in occupancy. Hotel operating expenses decreased 5% primarily as a result of the sale of the Residence Inn - Atlanta in 1995. Hotel operating expenses, exclusive of the effect of the sale of one hotel, increased by 6% primarily due to significant increases in administrative and repair and maintenance expenses at the Residence Inn - Nashville and in marketing costs at all of the hotels. Administrative expenses at the Residence Inn - Nashville increased due to the increase in accrual, from $40,000 at December 31, 1995 to $205,000 at December 31, 1996, for potential payment 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 Corporation, which provided for lower base fees and introduced incentive fees on all the properties which are tied to the operations of the properties. Furthermore, the agreements provided for an increase in certain marketing fees charged by Marriott causing an increase in marketing costs for 1996 when compared to 1995. Interest and other income decreased by $23,000 in 1996. The decrease was the net result of a $91,000 increase in interest income primarily due to higher cash balances, specifically the proceeds from the sale of the Residence Inn - Atlanta and a $114,000 decrease in income resulting from recognition in 1995 of deferred income relating to the terminated management contracts for the Residence Inns - Ontario and Atlanta. Depreciation and amortization decreased $577,000 in 1996 as 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 decreased $502,000 in 1996 compared to 1995 primarily due to the sale of the Residence Inn - Atlanta. General and administrative expenses increased $407,000 in 1996 when compared to 1995 primarily due to the write-off of a $194,000 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 1996. See Note 4 to the Financial Statements. The $194,000 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, with whom the Partnership is involved in various litigations [see Note 7 to the Financial Statements, Legal Proceedings]) of such land, but collection is no longer deemed probable for financial statement purposes only. The operations of the properties and the markets in which they are located are described below. Residence Inn-Ontario: In 1996 room revenues increased 6.7% in comparison to the prior year due to an increase in occupancy and in room rates, which was offset, in part, by an increase in hotel operations expenses. During the year, the local economy continued to strengthen with new business development and the opening of the nearby Mills Shopping Center. This growth has also prompted increased competition, as nearby suite hotels are offering heavily discounted rates. In addition, construction permits have been issued for three new extended stay hotels within the market. A variety of marketing programs remain in place, focusing on promoting new business as well as retaining the existing clients. Residence Inn-Columbus East: Room revenues increased 7.9% in 1996 as room rates improved substantially in comparison to the prior year. Occupancy reflected a modest decrease. Competition within the market will increase dramatically in 1997, as four new hotels are expected to open by mid year. Marketing efforts are focused on maintaining the existing patronage base in addition to increasing new business in light of the anticipated new competition. Residence Inn-Fort Wayne: Room revenues increased 3.5% in 1996 in comparison to the prior year, which was offset by a 5% increase in hotel operations expenses. Occupancy declined 5% for the year although room rates improved significantly as compared to 1995. Growth in the local economy has prompted increased competition from apartment complexes and other hotels within the market, two of which opened in the fourth quarter of 1996. Residence Inn-Indianapolis: A slight increase in room revenues for 1996 is primarily attributable to a modest increase in occupancy and room rates. Revenues were severely impacted by the boycott of the Indianapolis 500 auto race by several of its major competitors. Growth in the Indianapolis market is creating increased pressure on the Partnership's hotel, with three new hotels expected to open by mid 1997, and construction to begin on two others. Management, in addition to marketing to its traditional extended stay client base, is focusing efforts on increasing its share of the leisure and convention market. 9 Residence Inn-Lexington: Room revenues in 1996 increased 11.2% compared to the prior year, which was only partially offset by an increase in operations expenses of 3.8%. Occupancy increased 7% as compared to the prior year, while room rates remained stable. The Lexington economy continues to be strong, and it appears new hotel competition is being largely absorbed by growth in the market. Management is working to increase patronage from its largest corporate clients. Residence Inn-Louisville: Room revenues increased by 12.3% in 1996 as compared to the prior year, resulting from significant growth in room rates and a slight increase in occupancy, which were only partially offset by a 6.8% increase in operations expenses. Although competition is very strong in the Louisville hotel market, with competitors offering heavily discounted rates, the Partnership's property has been able to maintain its position by providing a high level of customer service. This position will be difficult to maintain, however, as five new hotels are expected to open in 1997, which will create a significant marketing challenge for Management. Residence Inn-Winston Salem: Room revenues increased 6.4% in 1996 in comparison to the prior year due primarily to an increase in room rates, which was only partially offset by an increase in operations expenses. Market conditions are unstable, as several of the area's largest employers are moving their operations to other areas, which is resulting in a shift from an industrial to a service based economy. Management is striving to maintain its market share through aggressive sales campaigns aimed at increasing patronage in all market sectors. Residence Inn-Nashville: Room revenues increased 2.5% for 1996 in comparison to the prior year, primarily attributable to a slight increase in room rates at the hotel. This increase was more than offset by an increase of 19.1% in hotel operations expenses due to the increased accrual (from $40,000 at December 31, 1995, to $205,000 at December 31, 1996) for potential payment to the State of Tennessee for a sales and use tax assessed against the property covering the period from 1989 through 1993 and from a significant increase for certain repair and expense items. The Partnership has filed a lawsuit against the State disputing the sales and use tax, but recently learned that this lawsuit was dismissed for lack of prosecution by the Partnership's attorneys. A motion seeking reinstatement of the case was filed by the Partnership on March 18, 1997, and a hearing is scheduled for April 18, 1997. Competition in the hotel market, already intense, is anticipated to increase as yet another extended stay hotel is scheduled to open by mid-1997. Residence Inn-Altamonte Springs: Room revenues for 1996 increased by 14.4% for 1996 as compared to the prior year, arising from increases in both occupancy and room rates. These increases were only partially offset by a 3.3% increase in hotel operations expenses in comparison to 1995. The Partnership's hotel maintained a favorable position in the market in 1996 as the local economy improved and no new supply was added in the hotel market. However, in 1997 five new extended stay hotels are planned, and existing competitors are intending to expand which will provide a significant challenge to the Partnership's property. 1995 Compared to 1994 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. Partnership Liquidity and Capital Resources Introduction 10 As presented in the Statements of Cash Flows, cash was provided by operating activities. Cash was also used by investing activities for purchases of cash investments and improvements to properties and was provided from proceeds from 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, 1996 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 (see Item 2, Properties). The project operations before capital improvements is an indication of the operational performance of the property. During 1996, eight of the Partnership's nine remaining 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. The cash investments at December 31, 1996 are described in Note 1 to the Financial Statements. 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 was treated as a receivable in the Partnership's financial statements until 1996 when it was written off. See discussion in the Results of Operations section. 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. 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. The Partnership obtained a summary judgement dismissing the case against it on September 15, 1993. 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 totaling more than $1,350,000 were subsequently entered by this Court against Nelson, NLC and 2300. Based on this judgement, Orlando purchased the land at a judicial sale and became the landlord under the Lease. However, this judgement was reversed in December, 1996 and, if the reversal becomes final, NLC will likely become the owner of the Land pending the outcome of a new trial. 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. 11 See Note 7 to the financial statements for more information about the foregoing and other related proceedings. The loans on all the hotels mature in 1998. The Partnership periodically reviews alternative financing options which may be available in the marketplace. However, as reported to investors in December 1996, it is the Partnership's intention to proceed with the marketing for sale of the remaining hotels in the portfolio. This decision was reached after consideration of many factors including the improvement in operations of the hotels, in combination with their age and the increasing competition in each of their respective markets, and the recent activity of buyers purchasing hotels similar to those owned by the Partnership. After review of the 1996 year end appraisals, the Partnership interviewed a number of real estate brokerage firms and selected brokers who have begun marketing the hotels. In 1996, the Partnership spent $2,571,000 on capital improvements. The majority was spent on room, meeting room and/or gatehouse renovations at the Residence Inns - Columbus, Fort Wayne, Indianapolis, Winston-Salem, Lexington, and Nashville. Capital was spent on deck and stairway work and exterior painting at the Residence Inns - Lexington and Nashville, doors and entryway improvements at the Residence Inn - Fort Wayne, HVAC units at the Residence Inns - Louisville and Indianapolis, siding replacements and painting of trim at the Residence Inn - - Altamonte Springs, and for lock upgrades at the Residence Inns - Columbus, Indianapolis, Lexington, Louisville, and Winston-Salem. Improvements to the landscaping and grounds were made at the Residence Inns - Lexington and Nashville. Voicemail systems were installed at the Residence Inns - Altamonte Springs and Nashville. In 1997, the Partnership anticipates spending approximately $2,300,000 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 base management fee, and incorporated incentive fees which are tied to the operations of the properties. The restructured agreements also provided for an increase in certain marketing fees charged by Marriott. The length of the contract terms was reduced. 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 management agreements 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 in separate accounts 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. In February, October, and December 1996 (two) unsolicited offers to purchase Units were made to the investors in the Partnership, of which the Partnership was aware. Under applicable securities laws, the Partnership was required to notify its investors of its views regarding these offers, and did so in February, November, December 1996, and in January 1997. The Partnership took no position with respect to the offers but rather advised the holders of assignee limited partnership Units to consult their personal financial advisors, as the desirability of any particular offer to any Unit holder could differ greatly depending upon such Unit holder's financial, tax, and other individual status. 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 do not result in 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. Unit holders were reminded that, in order to protect its status as a partnership for federal income tax purposes, secondary market activity in its Units would be limited to less than 5% of the outstanding Units per calendar year, and that, for any of these reasons the Partnership may refuse to recognize a resale transaction. Primarily as a result of the unsolicited offer in February 1996, in the early part of the year there were a number of resale transactions of assignee limited partnership Units of the Partnership which caused trading to reach 4.9% as of April 9, 1996. Subsequent to that date and through the remainder of the calendar year, the Partnership did not recognize resale 12 transactions for 1996, and its Transfer Agent returned all paperwork regarding such transactions to the originators. This action was taken by the General Partner in accordance with its fiduciary responsibility and with the advice of Counsel to protect the Partnership's tax status as a limited partnership. At the beginning of 1997 the suspension of resale transactions was removed; however, on February 26, 1997, the Partnership's Transfer Agent informed the General Partner that trading had again reached 4.9% (near the 5% maximum percentage), at which time the General Partner again suspended processing of resale transactions. Unit holders were advised of that suspension, in accordance with Section 12.1 of the Partnership Agreement, via a special communication dated February 27, 1997. All paperwork submitted from the time of the suspension through the remainder of the calendar year will be returned to the originator. Conclusion The Partnership established an estimated value for the assignee Units in the Partnership as of December 31, 1996. 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 $503 as of December 31, 1996. As of December 31, 1995, 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 $521. The change in value was primarily due to the distribution of a portion of the proceeds from the sale of the Residence Inn - Atlanta (Perimeter West) in the amount of $33.37 per assignee Unit and due to only modest changes in values of the hotels over the past year. 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, 1996 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. A total of 325 resale transactions were recorded on the books of the Transfer Agent between January 1, 1997 and February 26, 1997 (at which time the Partnership suspended trading- see above), reflecting prices ranging from $191 to $466 per Unit, with a simple average price (not weighted) of $283. In 1996 a total of 122 resale transactions were recorded on the books of the Transfer Agent reflecting prices between $100 and $340, with a simple average price (not weighted) of $239 per Unit. 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. 13 Item 8. Financial Statements and Financial Statement Schedules. METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership TABLE OF CONTENTS
Page ---- Report of Independent Auditors..................................................... 15 Financial Statements: Balance Sheets at December 31, 1996 and 1995.................................... 16 Statements of Operations for the Years ended December 31, 1996, 1995 and 1994... 17 Statements of Partners' Equity for the Years ended December 31, 1996, 1995 and 1994............................................... 18 Statements of Cash Flows for the Years ended December 31, 1996, 1995 and 1994... 19 Notes to Financial Statements................................................... 20-25 Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation at December 31, 1996... 26-27 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.
14 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, 1996 and 1995 and the related statements of operations, partners' equity and cash flows for the three year period ended December 31, 1996. Our audit also included the financial statement schedule for 1996 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. 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, 1996 and 1995 and the results of its operations and its cash flows for the three year period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule for 1996 and 1995, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP San Francisco, California February 26, 1997 15 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership BALANCE SHEETS December 31, 1996 1995 ---- ---- ASSETS CASH AND CASH EQUIVALENTS ...................... $ 3,436,000 $ 10,248,000 CASH INVESTMENTS ............................... 3,893,000 -- RESTRICTED CASH ................................ 308,000 302,000 ACCOUNTS RECEIVABLE ............................ 715,000 1,034,000 PREPAID EXPENSES AND OTHER ASSETS .............. 209,000 196,000 PROPERTIES AND IMPROVEMENTS .................... 90,456,000 87,885,000 ACCUMULATED DEPRECIATION ....................... (31,825,000) (28,935,000) ------------ ------------ NET PROPERTIES AND IMPROVEMENTS ................ 58,631,000 58,950,000 DEFERRED FINANCING COSTS ....................... 73,000 127,000 DEFERRED FRANCHISE FEES ........................ 171,000 214,000 ------------ ------------ TOTAL ASSETS ................................... $ 67,436,000 $ 71,071,000 ============ ============ LIABILITIES AND PARTNERS' EQUITY ACCOUNTS PAYABLE ............................... $ 1,107,000 $ 1,022,000 ACCRUED PROPERTY TAXES ......................... 311,000 391,000 ACCRUED INTEREST ............................... 263,000 344,000 OTHER LIABILITIES .............................. 1,347,000 1,095,000 DEFERRED GAIN ON SALE OF PROPERTY .............. 300,000 300,000 NOTES PAYABLE .................................. 42,518,000 42,669,000 ------------ ------------ TOTAL LIABILITIES .............................. 45,846,000 45,821,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES................... PARTNERS' EQUITY: GENERAL PARTNERS .............................. 59,000 100,000 LIMITED PARTNERS (59,932 units outstanding) ... 21,531,000 25,150,000 ------------ ------------ TOTAL PARTNERS' EQUITY ......................... 21,590,000 25,250,000 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY ......... $ 67,436,000 $ 71,071,000 ============ ============ See notes to financial statements. 16 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 ---- ---- ---- REVENUES: Hotel operations ....................................... $24,610,000 $ 25,649,000 $ 24,754,000 Interest and other ..................................... 435,000 458,000 254,000 ----------- ------------ ------------ Total revenues ......................................... 25,045,000 26,107,000 25,008,000 ----------- ------------ ------------ EXPENSES (Including $461,000, $410,000 and $390,000 paid to managing general partner and affiliates in 1996, 1995 and 1994, respectively) Hotel operations Rooms .......................................... 4,899,000 5,167,000 4,924,000 Administrative ................................. 3,101,000 3,224,000 2,913,000 Marketing ...................................... 2,762,000 2,538,000 2,437,000 Energy ......................................... 1,281,000 1,398,000 1,438,000 Repair and maintenance ......................... 1,411,000 1,329,000 1,301,000 Management fees ................................ 916,000 1,364,000 1,306,000 Property taxes ................................. 738,000 877,000 837,000 Other .......................................... 917,000 970,000 901,000 ----------- ------------ ------------ Total hotel operations ................................. 16,025,000 16,867,000 16,057,000 Depreciation and other amortization .................... 2,933,000 3,510,000 4,204,000 Interest ............................................... 4,350,000 4,852,000 5,017,000 General and administrative ............................. 1,216,000 809,000 677,000 ----------- ------------ ------------ Total expenses ......................................... 24,524,000 26,038,000 25,955,000 ----------- ------------ ------------ INCOME (LOSS) BEFORE GAIN ON SALE OF PROPERTY .......... 521,000 69,000 (947,000) Gain on sale of property ............................... -- 3,275,000 -- ----------- ------------ ------------ NET INCOME (LOSS) ...................................... $ 521,000 $ 3,344,000 $ (947,000) =========== ============ ============ NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE UNIT: Income (loss) before gain on sale of property .......... $ 8 $ (1) $ (19) Gain on sale of property ............................... -- 53 -- ----------- ------------ ------------ NET INCOME (LOSS) ...................................... $ 8 $ 52 $ (19) =========== ============ ============ CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT ......................................... $ 68 $ 32 $ 30 =========== ============ ============
See notes to financial statements. 17 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) For the Years Ended December 31, 1996, 1995 and 1994
General Limited Partner Partners Total ------- -------- ----- BALANCE, JANUARY 1, 1994 .................... $(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 Net Income .................................. 43,000 478,000 521,000 Cash Distributions from Sale ................ (41,000) (2,000,000) (2,041,000) Cash Distributions from Operations .......... (43,000) (2,097,000) (2,140,000) --------- ------------ ------------ BALANCE, DECEMBER 31, 1996 .................. $ 59,000 $ 21,531,000 $ 21,590,000 ========= ============ ============
See notes to financial statements. 18 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 ---- ---- ---- OPERATING ACTIVITIES: Net income (loss) .............................................. $ 521,000 $ 3,344,000 $ (947,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization .......................... 3,122,000 3,585,000 4,310,000 Cost associated with note payable change (see Note 4) .. 74,000 -- -- Gain on sale of property ............................... -- (3,275,000) -- Changes in operating assets and liabilities: Accounts receivable ................................. 319,000 (288,000) -- Prepaid expenses and other assets ................... (13,000) 118,000 (13,000) Accounts payable, accrued expenses and other liabilities .............................. 176,000 678,000 100,000 ------------ ------------ ----------- Net cash provided by operating activities ...................... 4,199,000 4,162,000 3,450,000 ------------ ------------ ----------- INVESTING ACTIVITIES: Proceeds from sale of property - net ........................... -- 5,684,000 -- Capital improvements ........................................... (2,571,000) (2,163,000) (1,448,000) Restricted cash - increase ..................................... (6,000) (302,000) -- Purchase of cash investments ................................... (5,862,000) (1,409,000) (494,000) Proceeds from sale of cash investments ......................... 1,969,000 1,409,000 1,478,000 ------------ ------------ ----------- Net cash provided (used) by investing activities ............... (6,470,000) 3,219,000 (464,000) ------------ ------------ ----------- FINANCING ACTIVITIES: Notes payable principal payments ............................... (360,000) (333,000) (317,000) Cash distributions to partners ................................. (4,181,000) (1,942,000) (1,835,000) ------------ ------------ ----------- Cash used by financing activities .............................. (4,541,000) (2,275,000) (2,152,000) ------------ ------------ ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................... (6,812,000) 5,106,000 834,000 Cash and cash equivalents at beginning of year ................. 10,248,000 5,142,000 4,308,000 ------------ ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR ................................................ $ 3,436,000 $ 10,248,000 $ 5,142,000 ============ ============ =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid in cash during the year .......................... $ 4,242,000 $ 4,636,000 $ 4,819,000 ============ ============ =========== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Balance of note payable assumed by buyer........................ - $ 5,922,000 - ============ ============ =========== Note payable increase (see Note 4).............................. $ 74,000 - - ============ ============ ===========
See notes to financial statements. 19 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. Fair Value of Financial Instruments - The Partnership discloses 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. The cash investments at December 31, 1996 mature in February and March 1997 and bear interest at an effective rate of 5.7% per annum. 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. Properties and Improvements - Properties and improvements are stated at cost. The Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", in 1996. The statement was issued in March 1995 and 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. No impairment losses were recorded as a result of the Partnership adopting Statement No. 121. Prior to 1996, a provision for impairment of value was recorded when a decline in value of property was determined to be other than temporary. 20 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. 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: 1996 1995 1994 ---- ---- ---- Partnership management fees .......... $186,000 $160,000 $160,000 Reimbursement of expenses ............ 275,000 250,000 230,000 -------- -------- -------- Total ................................ $461,000 $410,000 $390,000 ======== ======== ======== 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 1994 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. 3. Properties and Improvements Hotel properties and improvements at December 31, 1996 and 1995 are summarized as follows: 1996 1995 ---- ---- Land ..................................... $ 9,358,000 $ 9,358,000 Buildings and improvements ............... 62,840,000 61,487,000 Furnishings .............................. 18,258,000 17,040,000 ------------ ------------ Total .................................... 90,456,000 87,885,000 Accumulated depreciation ................. (31,825,000) (28,935,000) ------------ ------------ Net properties and improvements .......... $ 58,631,000 $ 58,950,000 ============ ============ 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, 1996 and range from 8 percent to 10.25 percent. Certain of the 21 notes have been discounted over their term to yield interest at 10.15 to 10.5 percent per annum. Discount amortization was $135,000, $124,000 and $114,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Each note for the six Residence Inns acquired in June 1988 (with a total net book value of $29,787,000 at December 31, 1996) provides for cross-collateralization to all of these properties. The principal amount of all six notes was $18,610,000 at December 31, 1996. The Residence Inn - Nashville (Airport) note payable with an original balance of $9,250,000 originally wrapped an existing loan which had a balance of approximately $9,336,000 at the time the Partnership acquired the property. However, 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 Note 7, 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 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. See Note 5 below. Principal payments at December 31, 1996 are required as follows: 1997 ................................................ $ 374,000 1998 ................................................ 42,324,000 Unamortized amount .................................. (180,000) ------------ Total ............................................... $ 42,518,000 ============ Amortization of deferred financing costs totaled $54,000, $50,000 and $70,000 for the years ended December 31, 1996, 1995 and 1994, 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. As described in Note 4, the purchase money note to the seller was paid in full in April 1996, and the $50,000 annual payment is no longer due. Prior to April 1996, the $50,000 was 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. Rental expense (including the 1.8% of revenues) for this lease was $186,000, $219,000 and $214,000 in 1996, 1995 and 1994. 22 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. The guaranteed income level for 1996 was achieved and no funds are due to seller from the Short Fall Guarantee Account for 1996. 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 (other than the sales tax related case). 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"). In December, 1996, the Tennessee Court of Appeals reversed the judgement underlying the judicial sale; this reversal is not yet final, but could result in NLC regaining ownership of the Land pending the outcome of a new trial. Unless NLC regains ownership of the Land, the Partnership will not be able to purchase the Land as agreed in 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 23 judgment was not stayed pending appeal. Oral argument on this appeal was held on November 1, 1996, and in December 1996, the Court of Appeals reversed the judgement for Orlando, sending the case back to the lower court for further proceedings. Prior to this reversal, 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 was 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. If the afore-referenced reversal becomes final, NLC will likely regain ownership of the Land and the landlord under the Lease, pending the outcome of a new trial. 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. 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 was held in January 1997 and the Partnership's counterclaim was dismissed. 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 believed that as a result of such cure, it became the direct obligor to the lender under the Senior Mortgage and that the Wrap Note had been satisfied and the payments due under the Lease reduced by $50,000 per year. GSI also sought 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 24 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 Partnership plans to seek recovery of its attorneys' fees in this action from NLC. 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:
1996 1995 1994 ---- ---- ---- Net income (loss) - financial statements ........ $ 521,000 $ 3,344,000 $ (947,000) Differences resulted from: Gain on sale of property ..................... -- 281,000 -- Depreciation ................................. (137,000) (95,000) 166,000 Amortization of notes payable discount ....... 135,000 124,000 114,000 Interest ..................................... (6,000) (17,000) (33,000) Other ........................................ (58,000) (141,000) (65,000) ------------ ------------ ------------ Net income (loss) - income tax method ........... $ 455,000 $ 3,496,000 $ (765,000) ============ ============ ============ Taxable income (loss) per limited partnership assignee unit after giving effect to the allocation to the general partners ............. $ 3 $ 53 $ (17) ============ ============ ============ Net assets and liabilities - financial statements $ 21,590,000 $ 25,250,000 $ 23,848,000 Cumulative differences resulted from: Gain on sale of property ..................... 300,000 300,000 -- Depreciation ................................. 514,000 651,000 827,000 Amortization of notes payable discount ....... 2,347,000 2,211,000 2,087,000 Interest ..................................... (2,211,000) (2,205,000) (2,186,000) Capital account adjustment ................... 5,993,000 5,993,000 5,993,000 Other ........................................ (6,000) 53,000 130,000 ------------ ------------ ------------ Net assets and liabilities - income tax method .. $ 28,527,000 $ 32,253,000 $ 30,699,000 ============ ============ ============
25 SCHEDULE III METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 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........$ 9,000 $3,338 $13,555 $1,316 $(775) $3,185 $14,249 $17,434 $5,550 2/86 4/29/88 Residence Inn-Columbus (East) Columbus, Ohio............. 2,654 587 5,277 1,086 (176) 571 6,203 6,774 2,652 1986 6/17/88 Residence Inn-Fort Wayne Fort Wayne, Indiana........ 2,782 595 5,541 969 (229) 573 6,303 6,876 2,554 1985 6/17/88 Residence Inn-Indianapolis Indianapolis, Indiana...... 3,228 996 6,128 1,462 (167) 973 7,446 8,419 3,092 1984 6/17/88 Residence Inn-Lexington 11/85 & Lexington, Kentucky........ 3,139 799 6,114 1,339 (92) 787 7,373 8,160 2,892 3/86 (6) 6/17/88 Residence Inn-Louisville Louisville, Kentucky....... 3,624 1,093 6,880 1,419 (164) 1,070 8,158 9,228 3,476 1984 6/17/88 Residence Inn-Winston-Salem Winston-Salem, North Carolina............. 3,183 669 6,341 1,150 (132) 657 7,371 8,028 3,032 1986 6/17/88 Residence Inn-Nashville (Airport) Nashville, Tennessee....... 8,647 - 11,416 2,590 (525) - 13,481 13,481 4,747 1/85 5/26/89 Residence Inn-Altamonte Springs Altamonte Springs, 1985 & Florida.................... 6,261 1,594 9,862 950 (350) 1,542 10,514 12,056 3,830 1988(7) 3/16/90 ------- ------ ------- ------- ------- ------ ------- ------- ------- TOTAL.........................$42,518 $9,671 $71,114 $12,281 $(2,610) $9,358 $81,098 $90,456 $31,825 ======= ====== ======= ======= ======= ====== ======= ======= =======
See accompanying notes. 26 SCHEDULE III METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. A California Limited Partnership REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996
NOTES: (1) The aggregate cost for Federal income tax purposes is $90,733,000. (2) Balance, January 1, 1994...............................................................$ 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 Capital Improvements ................................................................... 2,571,000 Balance, December 31, 1996 ............................................................. 90,456,000 (3) Balance, January 1, 1994...............................................................$ 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 Additions charged to expense ........................................................... 2,890,000 Balance, December 31, 1996.............................................................$ 31,825,000 (4) Depreciation is computed on lives ranging from six to 30 years. (5) Encumbrances are shown net of a discount of $180,000. (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). 27 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 59, 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 a substantial number of publicly-held real estate limited partnerships. Mr. Fiddaman graduated from Stanford University in 1959 with a Bachelor's Degree and from University of Santa Clara in 1970 with a Master's Degree in Business Administration-Finance. 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 54, 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 Insurance Company ("MetLife"), in 1992 as Chairman and Chief Executive Officer and became President in January 1993. He also serves as Chairman of SSRM Holdings, Inc., a wholly-owned subsidiary of MetLife which in turn serves as a holding company for several of MetLife's investment and management subsidiaries. He is a trustee 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, the Colgate University Board of Trustees and its Finance Committee, and the Advisory Committee of Commonwealth Capital Ventures, L.P. 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. 28 Gerard P. Maus Director, Metric Realty Corp. and Metric Holdings, Inc. Mr. Maus, age 45, 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, 44, 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. Herman H. Howerton Executive Vice President, General Counsel and Secretary, Metric Realty Corp. and Metric Holdings, Inc. Mr. Howerton, age 53, 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. James S. Keagy Executive Vice President, Director of Investment Services, Metric Realty Corp. Mr. Keagy, age 37, 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. 29 Ronald E. Zuzack Executive Vice President, Chief Investment Officer, Metric Realty Corp. Mr. Zuzack, age 53, 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 portfolio 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. 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. 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. 30 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 letter from the Registrant to investors dated December 10, 1996 filed on Form 8-K on December 11, 1996. (c) Financial Statement Schedules, if required by Regulation S-K, are included in Item 8. 31 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 27, 1997 -------------------------------------- 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, Metric Realty Corp; Chairman Officer, Metric Realty Corp. 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. and Metric Holdings, Inc. of Metric Realty; Executive Vice President, Finance and Administration, and Chief Financial Officer, Metric Realty Corp.; Executive Vice President, Chief Financial Officer, Metric Holdings, Inc.
Date: March 27, 1997 ----------------------------------------- 32 EX-27 2 FDS
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 7,329,000 0 715,000 0 0 8,253,000 90,456,000 31,825,000 67,436,000 3,028,000 42,518,000 0 0 0 21,590,000 67,436,000 0 24,610,000 0 16,025,000 0 0 4,350,000 521,000 0 0 0 0 0 521,000 8.00 0
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