-----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, VNMZ2dNYmbFZm6JiKgkpKDTm4Hb/02SG2HujX/muQ/6EgQgwZiYmPO3U5NJKdQu2 MT5sZ8kKswDU5k3kR+SWgg== 0000948524-97-000091.txt : 19970814 0000948524-97-000091.hdr.sgml : 19970814 ACCESSION NUMBER: 0000948524-97-000091 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRIC PARTNERS GROWTH SUITE INVESTORS LP CENTRAL INDEX KEY: 0000800730 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 943050708 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17660 FILM NUMBER: 97658722 BUSINESS ADDRESS: STREET 1: ONE CALIFORNIA ST STREET 2: SUITE 1400 CITY: SAN FRANCISCO STATE: CA ZIP: 94111-5415 BUSINESS PHONE: 4156872000 MAIL ADDRESS: STREET 1: ONE CALIFORNIA ST STREET 2: SUITE 1400 CITY: SAN FRANCISCO STATE: CA ZIP: 94111-5415 FORMER COMPANY: FORMER CONFORMED NAME: FOX GROWTH SUITE INVESTORS DATE OF NAME CHANGE: 19880412 FORMER COMPANY: FORMER CONFORMED NAME: MRI BUSINESS PROPERTIES FUND LTD IV DATE OF NAME CHANGE: 19871104 10-Q 1 JUNE 30, 1997 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________to__________________ Commission file number 0-17660 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership (Exact name of Registrant as specified in its charter) CALIFORNIA 94-3050708 --------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One California Street San Francisco, California 94111-5415 --------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(415) 678-2000 (800) 347-6707 in all states Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ ================================================================================ Page 1 of 20 PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited). METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership BALANCE SHEETS (UNAUDITED) June 30, December 31, 1997 1996 ---- ---- ASSETS CASH AND CASH EQUIVALENTS $ 7,092,000 $ 3,436,000 CASH INVESTMENTS -- 3,893,000 RESTRICTED CASH 323,000 308,000 ACCOUNTS RECEIVABLE 1,412,000 715,000 PREPAID EXPENSES AND OTHER ASSETS 129,000 209,000 PROPERTIES AND IMPROVEMENTS 13,830,000 90,456,000 ACCUMULATED DEPRECIATION (4,998,000) (31,825,000) ------------ ------------ NET PROPERTIES AND IMPROVEMENTS 8,832,000 58,631,000 REAL ESTATE HELD FOR SALE 49,128,000 -- DEFERRED FINANCING COSTS 47,000 73,000 DEFERRED FRANCHISE FEES 150,000 171,000 ------------ ------------ TOTAL ASSETS $ 67,113,000 $ 67,436,000 ============ ============ LIABILITIES AND PARTNERS' EQUITY ACCOUNTS PAYABLE $ 1,268,000 $ 1,107,000 ACCRUED PROPERTY TAXES 393,000 311,000 ACCRUED INTEREST 284,000 263,000 OTHER LIABILITIES 1,450,000 1,347,000 DEFERRED GAIN ON SALE OF PROPERTY 300,000 300,000 NOTES PAYABLE 42,408,000 42,518,000 ------------ ------------ TOTAL LIABILITIES 46,103,000 45,846,000 ------------ ------------ PARTNERS' EQUITY (DEFICIENCY): GENERAL PARTNERS 59,000 59,000 LIMITED PARTNERS (59,932 Units outstanding) 20,951,000 21,531,000 ------------ ------------ TOTAL PARTNERS' EQUITY 21,010,000 21,590,000 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY $ 67,113,000 $ 67,436,000 ============ ============ See notes to financial statements (unaudited). Page 2 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS (UNAUDITED) For the Six Months Ended June 30, --------------------------- 1997 1996 ---- ---- REVENUES: Hotel operations $ 12,254,000 $ 11,483,000 Interest and other 179,000 224,000 ------------ ------------ Total revenues 12,433,000 11,707,000 ------------ ------------ EXPENSES: Hotel operations: Rooms 2,426,000 2,273,000 Administrative 1,430,000 1,521,000 Marketing 1,288,000 1,273,000 Energy 603,000 633,000 Repair and maintenance 677,000 704,000 Management fees 484,000 398,000 Property taxes 353,000 430,000 Other 464,000 455,000 ------------ ------------ Total hotel operations 7,725,000 7,687,000 Depreciation and other amortization 1,491,000 1,478,000 Interest 2,166,000 2,179,000 General and administrative 408,000 537,000 ------------ ------------ Total expenses 11,790,000 11,881,000 ------------ ------------ NET INCOME (LOSS) $ 643,000 $ (174,000) ============ ============ NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE UNIT $10 $(3) === === CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT $20 $15 === === See notes to financial statements (unaudited). Page 3 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended June 30, --------------------------- 1997 1996 ---- ---- REVENUES: Hotel operations $ 6,542,000 $ 6,076,000 Interest and other 77,000 112,000 ------------ ------------ Total revenues 6,619,000 6,188,000 ------------ ------------ EXPENSES: Hotel operations: Rooms 1,264,000 1,135,000 Administrative 745,000 825,000 Marketing 652,000 648,000 Energy 267,000 286,000 Repair and maintenance 364,000 379,000 Management fees 264,000 199,000 Property taxes 199,000 239,000 Other 241,000 215,000 ------------ ------------ Total hotel operations 3,996,000 3,926,000 Depreciation and other amortization 739,000 714,000 Interest 1,083,000 1,086,000 General and administrative 236,000 318,000 ------------ ------------ Total expenses 6,054,000 6,044,000 ------------ ------------ NET INCOME $ 565,000 $ 144,000 ============ ============ NET INCOME PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ 9 $ 2 === === CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT $10 $ 7 === === See notes to financial statements (unaudited). Page 4 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY (UNAUDITED) For the Six Months Ended June 30, 1997 and 1996 General Limited Partner Partners Total ------- -------- ----- BALANCE, JANUARY 1, 1997 $ 59,000 $ 21,531,000 $ 21,590,000 NET INCOME 24,000 619,000 643,000 CASH DISTRIBUTIONS (24,000) (1,199,000) (1,223,000) ------------ ------------ ------------ BALANCE, JUNE 30, 1997 $ 59,000 $ 20,951,000 $ 21,010,000 ============ ============ ============ BALANCE, JANUARY 1, 1996 $ 100,000 $ 25,150,000 $ 25,250,000 NET INCOME (LOSS) 18,000 (192,000) (174,000) CASH DISTRIBUTIONS (18,000) (899,000) (917,000) ------------ ------------ ------------ BALANCE, JUNE 30, 1996 $ 100,000 $ 24,059,000 $ 24,159,000 ============ ============ ============ See notes to financial statements (unaudited). Page 5 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, ---------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES Net Income (Loss) $ 643,000 $ (174,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,589,000 1,572,000 Cost associated with note payable change -- 74,000 Changes in operating assets and liabilities: Accounts receivable (697,000) (837,000) Prepaid expenses and other assets 80,000 14,000 Accounts payable, accrued expenses, and other liabilities 367,000 99,000 ------------ ------------ Net cash provided by operating activities 1,982,000 748,000 ------------ ------------ INVESTING ACTIVITIES Proceeds from sale of cash investments 3,893,000 -- Purchase of cash investment -- (1,969,000) Capital improvements (799,000) (841,000) Restricted cash - increase (15,000) (6,000) ------------ ------------ Net cash provided (used) by investing activities 3,079,000 (2,816,000) ------------ ------------ FINANCING ACTIVITIES Notes payable principal payments (182,000) (186,000) Cash distribution to partners (1,223,000) (917,000) ------------ ------------ Cash used by financing activities (1,405,000) (1,103,000) ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,656,000 (3,171,000) Cash and cash equivalents at beginning of period 3,436,000 10,248,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,092,000 $ 7,077,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid in cash during the period $ 2,047,000 $ 2,185,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES Note payable increase $ -- $ 74,000 ============ ============ See notes to financial statements (unaudited). Page 6 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. Reference to 1996 Audited Financial Statements These unaudited financial statements should be read in conjunction with the Notes to Financial Statements included in the 1996 audited financial statements. The financial information contained herein reflects all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation. 2. Transactions with the Managing General Partner and Affiliates In accordance with the Partnership Agreement, the Partnership is charged by the managing general partner and affiliates for services provided to the Partnership. The amounts are as follows: For the Six Months Ended June 30, ------------------------ 1997 1996 ---- ---- Partnership management fees $ 106,000 $ 80,000 Reimbursement of administrative expense 150,000 125,000 --------- --------- Total $ 256,000 $ 205,000 ========= ========= 3. Net Income (Loss) Per Limited Partnership Assignee Unit The net income (loss) per limited partnership assignee Unit is computed by dividing the net income (loss) allocated to the limited partners by 59,932 assignee Units outstanding. 4. Cash Investments The Partnership considers cash investments to be those investments with an original maturity date of more than three months at the time of purchase. There were no cash investments at June 30, 1997. 5. Legal Proceedings The Partnership is a plaintiff and counterclaim defendant in legal proceedings relating to the management agreement at the Residence Inn - Ontario, a defendant in legal proceedings seeking damages for alleged failure to consummate a settlement of the Residence Inn - Ontario case, a plaintiff and defendant in legal proceedings related to the hotel and the land lease at the Residence Inn - Nashville and a plaintiff in legal proceedings related to sales and use tax assessments by the State of Tennessee. Additionally, the Managing and Associate General Partners of the Partnership and certain of their affiliates and certain current and former employees of the Managing General Partner or its affiliates are plaintiffs and defendants in legal proceedings related to the Residence Inn - Nashville. See Part II, Item 1, Legal Proceedings, for a detailed description of these matters. 6. Real Estate Held for Sale The Partnership has adopted a plan to market for sale eight of its nine remaining hotels. The hotels being marketed for sale are the Residence Inns - Ontario, Fort Wayne, Columbus (East), Indianapolis (North), Lexington, Louisville, Winston Salem and Altamonte Springs. Pursuant to FAS 121, these eight hotels were classified as real estate held for sale on June 30, 1997 and are presented at the lower of carrying value or fair market value less estimated cost to dispose. The revenues and expenses for the six months ended June 30, 1997 and 1996, of the eight properties were as follows: For the Six Months Ended June 30, ------------------------ 1997 1996 ---- ---- Hotel operating revenues $10,113,000 $9,693,000 Hotel operating expenses $ 6,258,000 $6,119,000 Depreciation and other amortization $ 1,238,000 $1,222,000 Interest $ 1,735,000 $1,740,000 Page 7 of 20 No further depreciation and amortization of deferred costs for the eight properties will be provided after June 30, 1997. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This Item should be read in conjunction with Financial Statements and other Items contained elsewhere in this Report. Properties A description of the properties in which the Partnership has an ownership interest, along with the occupancy and room rate data, follows: OCCUPANCY AND ROOM RATE SUMMARY
Average Average Occupancy Daily Rate Room Rate (%) (%) Six Three Six Three Months Months Months Months Ended Ended Ended Ended Date June 30, June 30, June 30, June 30, of --------- --------- ---------- ----------- Name and Location Rooms Purchase 1997 1996 1997 1996 1997 1996 1997 1996 ----------------- ----- -------- ---- ---- ---- ---- ---- ---- ---- ---- Residence Inn - Ontario 200 04/88 75 76 74 79 78.65 68.34 78.21 67.91 Ontario, California Residence Inn - Fort Wayne 80 06/88 80 91 87 91 65.41 64.82 64.38 65.03 Fort Wayne, Indiana Residence Inn - Columbus (East) 80 06/88 87 86 88 90 72.51 73.44 75.21 74.03 Columbus, Ohio Residence Inn - Indianapolis (North) 88 06/88 80 78 87 79 77.19 77.76 80.64 81.86 Indianapolis, Indiana Residence Inn - Lexington 80 06/88 92 93 96 95 76.62 68.48 82.55 73.00 Lexington, Kentucky Residence Inn - Louisville 96 06/88 87 85 87 86 91.35 84.15 96.15 89.16 Louisville, Kentucky Residence Inn - Winston-Salem 88 06/88 81 85 85 84 80.44 76.54 81.63 81.96 Winston-Salem, North Carolina Residence Inn - Nashville (Airport) 168 05/89 78 72 88 78 86.08 76.06 89.12 80.51 Nashville, Tennessee Residence Inn - Altamonte Springs 128 03/90 90 86 87 84 92.78 86.94 91.64 83.89 Altamonte Springs, Florida Page 8 of 20
Results of Operations Net income was $643,000 for the first half of 1997 compared to net loss of $174,000 for the same period in 1996 and net income increased by $421,000 from $144,000 for the second quarter of 1996 to $565,000 for the second quarter of 1997. The improved results are primarily attributable to substantially improved operations at the Residence Inn - Nashville, which experienced weak operations throughout 1996. In addition, operations improved at the Residence Inns - Altamonte Springs, Lexington, and Indianapolis. Revenues from hotel operations increased 7% and 8% in the first half and second quarter of 1997, respectively, as compared to the same periods of 1996 due to substantial increases at five of the hotels. Hotel operating expenses increased by 1% and 2% for the first half and second quarter of 1997, respectively, when compared to 1996. The slight increases resulted from escalating room costs and management fees, which were partially offset by decreases in administrative expenses, particularly at the Residence Inn - Nashville, and decreases in property tax, energy, and repairs and maintenance expenses. Interest income decreased in 1997 compared to 1996 as a result of lower cash balances due to the distribution of a portion of the sales proceeds from the Residence Inn - Atlanta (Perimeter West) in August 1996. General and administrative expenses decreased substantially in 1997 as compared to 1996 due to the recognition in 1996 of a $74,000 cost associated with the additional loan obligation on the Residence Inn - Nashville. In addition, legal expenses decreased in the first half of 1997 compared to the same period in 1996. In a letter to investors dated December 10, 1996, the Partnership reported that it intends to proceed with the marketing for sale of the remaining hotels in the Partnership's Portfolio. The Partnership has since interviewed and chosen a real estate broker to market the properties for sale. In July of 1997 the broker actively began marketing eight of the nine remaining hotels for sale. Upon review and legal consultation, the Partnership decided to forgo the marketing of the Residence Inn - Nashville at this time pending resolution of certain legal issues (see Part II, Item 1 for more details in this regard). Investors will be kept appraised as to the status of operations and the potential sale of properties either through regularly scheduled reports or special communications. The following discussion provides information concerning the operations of the Partnership's remaining nine hotels: Residence Inn - Ontario: Room revenues increased 10% for the first six months of 1997 as compared to the same period of the prior year. Occupancy declined slightly, to 75%, while the average daily room rate climbed $10.31 to $78.65. These increases were offset in part by an increase of 12% in the hotel's operating expenses, primarily due to increases in room expenses. Through the second quarter, Lockheed continued to provide the hotel's largest share of business; however, the facility closed in July. Business generated by Lockheed employee relocations has increased temporarily, but is expected to terminate by December. Expansion of other businesses in the area continues, however, arising from firms moving into the new Mills Shopping Center and from the recently-opened California Speedway. Additionally, the convention center under construction across the street from the hotel is scheduled to open in late 1997. Two nearby discount extended-stay hotels continue to provide intense competition for the Partnership's hotel by consistently discounting rates. A new all-suite hotel also opened during the quarter, which is anticipated to place pressure on occupancy and room rates at the Residence Inn Residence Inn- Columbus (East): Room revenues remained unchanged for the first half of 1997 as compared to the same period of the prior year. Occupancy increased slightly, to 87%, while the average daily room rate declined $0.93 to $72.51. Although the Columbus economy continues to expand, most of the growth has been centered in the north and northeast quadrants of the city, with very little change in the east where the Partnership's hotel is located. The sales staff has been very active in its attempts to increase business, particularly through sales blitzes and telemarketing campaigns. The hotel also continues to pursue business from one of its former large corporate patrons which had recently signed a contract with a competing hotel. Primary competition continues to be from a nearby Holiday Inn, although another extended stay hotel is currently under construction approximately 1/2 mile from the Partnership's property, and a neighboring hotel is scheduled for an extensive multi-million dollar renovation. Competition arising from these projects is expected to increase dramatically by year-end. Residence Inn - Fort Wayne: Room revenues for the first half of 1997 decreased 12% as compared to the same period of the prior year, primarily resulting from a substantial decline in occupancy of 11%, to 80%. This decrease was only partially offset by a marginal increase of $0.59 in the average daily room rate to $65.41, and a decrease of 17% in operating expenses, primarily due to lower property taxes. The Fort Wayne hotel market has begun to recover from a slump caused by labor disputes in the auto industry, but competition from existing hotels and apartment complexes has increased. A new discount extended-stay hotel is currently under construction, and is positioned to capture rate-conscious business from the auto industry and the Fort Wayne airport. The hotel's sales and marketing staff are focusing on maintaining the existing client base while Page 9 of 20 continuing to research leads on new business from local newspapers, as well as through the offering of relocation packages. Residence Inn - Indianapolis: Room revenues increased by 2% for the first six months of 1997 as compared to the same period of the prior year. Occupancy also increased by 2% to 80% while the average daily room rate remained relatively stable. Significant savings in operating expenses, coupled with a large property tax refund contributed to the overall positive operations and improved operating results of the hotel. The local economy remains strong with low unemployment rates. Competition in the market has, however, increased as two hotels opened during the first quarter, and a third hotel opened this summer. In addition, four more hotels are scheduled to come on line by the end of the year. The marketing strategy for the hotel is focused on increasing the extended-stay patronage base. In addition, a new banner was added at the property, increasing visibility and, in turn, higher-rated short-term summer leisure business. Residence Inn - Lexington: Room revenues increased substantially, by 11%, for the first six months of the year, as compared to the same period of 1996. Occupancy remained strong, at 92%, the highest rate in the Portfolio, while the hotel's general operating expenses declined by 6%. The economy in Lexington remains strong, and the Partnership's hotel continues to dominate the extended-stay market. Additionally, a new system of "special event rates" was implemented, providing for top rates for special events, regardless of the length of stay, a strategy which has been accepted by patrons. The high occupancy generated last quarter by flood relief workers has been replaced by a significant increase this quarter in long-term corporate training business. The property's landscaping was upgraded during the quarter, which served to significantly increase its curbside appeal. Although the hotel currently enjoys little direct competition, construction began on a new 200-suite extended-stay hotel in July, which will likely impact the Partnership's hotel when the new rooms come on line. Residence Inn - Louisville: Room revenues increased by 11% for the first half of 1997 as compared to the same period of 1996, resulting primarily from an increase of $7.20 in the average daily room rate to $91.35. The hotel's occupancy for the period rose to 87%, an increase of 2%. Administrative expenses, primarily a sales and use tax levied against the hotel by the State of Kentucky, were significantly higher, resulting in a slight decline in overall operating results. Although the Louisville economy has remained strong, the Partnership's hotel continues to face strong competition in the local market. Several other extended-stay hotels offer suites at discounted rates, capturing much of the lower-rated business. Two new hotels opened recently in the market, and plans were confirmed for two more to open in 1998, with a third under consideration. Residence Inn - Winston-Salem: Room revenues remained relatively unchanged for the period, as compared to the first half of 1996. Occupancy declined 4%, to 81%, as compared to the same period of the prior year; however the decrease was offset by an increase in the average daily room rate of $3.90 to $80.44, which resulted in a slight improvement in operating results for the period. The Winston-Salem economy is beginning to show signs of stability after the economic decline which followed the relocation of several large corporate divisions from the area. Corporate business is showing signs of improvement, and the hotel has garnered some new business from this segment. Marketing efforts are currently concentrated on increasing patronage from mid-term stay clients. Primary competition for the Partnership's hotel is from a local apartment complex offering units for short-term stays. Additionally, one new discount extended-stay hotel opened in the market with 111 rooms, targeting the most rate-sensitive clients. Three more hotels are anticipated to open by year-end. Residence Inn - Nashville: Room revenues increased by nearly 18% for the first half of the year, due in large part to an increase in the average daily room rate of $10.02 to $86.08, and an increase in occupancy of 6%, to 78%. The hotel's operating expenses declined by 7%, due in part to $83,000 recorded in the first half of 1996 related to the sales and use taxes discussed below. Overall operating results for the period were positive and markedly improved over the same period of 1996. The improvement in operations was partially due to a significant increase in business arising from conventions. High rated, short-term patronage has also increased, in part due to advertisements aimed at attracting business from wedding parties and other groups. Competition in the already tight market will increase, as a new extended-stay hotel is scheduled to open in September of 1997, just two blocks from the Partnership's hotel, and another hotel, a direct competitor, is undergoing an extensive renovation. Additionally, Opryland theme park added 100 new rooms to its hotel, which will likely impact the patronage from that source previously captured by the Partnership's hotel. The exterior of the hotel was recently completely repainted, and draperies and art work were upgraded in all of the suites. The hotel continues to face additional sales and use taxes levied against it by the State of Tennessee covering the period from 1989 through 1993. The estimated liability for the potential payment of these taxes totaled $217,000 (including interest) at June 30, 1997. The Partnership filed a lawsuit against the State disputing these taxes, and a trial is scheduled for the fourth quarter of this year. Page 10 of 20 Residence Inn - Altamonte Springs: Room revenues increased by 8% for the first six months of 1997 as compared to the same period of 1996. The average daily room rate increased by $5.84, to $92.78 for the period, and occupancy increased 4%, to 90%, providing for improved positive operating results for the period. The increases were only partially offset by an increase of 7% in operating expenses. Market conditions continue to be favorable for the Partnership's hotel. Strong demand from the corporate (particularly from relocations and training) and leisure sectors has permitted the hotel to post the best second quarter results in its history. The local economy continues to expand at a rapid pace with several corporations moving into Altamonte Springs and nearby Lake Mary. Several hotels currently compete with the Residence Inn - Altamonte Springs, although demand remains high and on occasion patronage has been turned down for Monday through Thursday nights. There remains significant new competition on the near horizon, however, as two new extended-stay hotels are currently under construction, and three others are expected to break ground by the end of the year. There are also preliminary plans for a new hotel less than 1/2 mile from the Partnership's property, and an existing hotel has announced plans for an additional 67 suites. Two local apartment complexes are also planing to dedicate more units to their short-term lease inventory. The hotel's sales staff is focusing its strategies on direct sales and attentive customer service, soliciting business from weekend wedding groups, and hosting special events for nearby leading real estate companies. Renovations recently completed at the hotel include a new fence around the property, landscaping of the sun deck area, and a new roof for one of the buildings. Partnership Liquidity and Capital Resources First Half of 1997 As presented in the Statement of Cash Flows, cash was provided by operating activities. Cash was provided by investing activities from proceeds from sale of cash investments and was used for capital improvements. Cash was used by financing activities for distributions to partners and principal payments on notes payable. The results of project operations before capital improvements for the six and three months ended June 30, 1997 and 1996 (as shown in the tables on pages 13 and 14) are determined by net income or loss adjusted for non-cash items such as depreciation and amortization and reduced by principal payments made on the notes payable. The project operations before capital improvements is an indication of the operational performance of the property. During the first half of 1997, all of the Partnership's nine remaining hotel properties generated positive project operations before deduction 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 for the period. Project operations should not be considered as an alternative to net income or loss (as presented in the financial statements) as an indicator of the Partnership's operating performance or as an alternative to cash flow as a measure of liquidity. The project operations after capital improvements for any given period may not be indicative of the property's general performance as capital improvements are likely to be made in large amounts associated with renovation programs. In the first half of 1997, the Partnership spent $799,000 on capital improvements. The majority was spent on room renovations at the Residence Inns - Nashville, Columbus, Indianapolis, Ontario, and Winston-Salem. In addition, capital was spent on extensive stairway work at the Residence Inn - Nashville. During the remainder of 1997, depending on sales activity, the Partnership anticipates spending approximately $1,000,000 on capital improvements, which are necessary to keep the properties competitive in their respective markets and are required under the agreements with Marriott. In accordance with, and as is customary in the management of hotels, a percentage of revenues is placed in capital replacement funds. The capital replacement funds are used to fund on-going capital improvements as well as room or other major renovation programs. In general, the capital replacement funds are being held in separate interest-bearing accounts with additions made monthly based on revenues and expenditures which are based on approved capital expenditure budgets by the Partnership. 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. As previously reported, resale transactions reached 4.9% of the total number of outstanding Units as of February 26, 1997, at which point the Managing General Partner suspended the processing of resale transactions for the remainder of the calendar year. This action was taken by the Managing 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. IRS regulations provide that should 5% or more of the outstanding assignee limited partnership Units be traded in a calendar year, the partnership could be classified as a publicly traded partnership for federal tax purposes, and could therefore be Page 11 of 20 taxed as a corporation. Gemisys, the Partnership's Servicing and Transfer Agent, has been instructed to return all paperwork regarding such transactions to the originators. The Partnership regrets this suspension, but believes that such action is in the best interest of the Partnership and its investors. 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 reasonable. 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 $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. It should be noted 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. The change in value (from December 31, 1995 to December 31, 1996) was primarily due to the distribution of a portion of the proceeds from the sale of the Residence Inn - Atlanta, in the amount of $33.37 per Unit in conjunction with the August 1996 regular quarterly distribution, and to only modest changes in values of the hotels over the past year. 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. Resale transactions of which the Partnership has knowledge, reflect prices ranging from $191 to $466 in 1997 (through February 26, 1997, at which time trading was suspended, as discussed above). The Partnership's knowledge of these transactions is based solely on the books and records of its Transfer Agent. The Partnership anticipates that it will have sufficient resources to meet its capital and operating requirements into the foreseeable future. A cash distribution to investors for the first quarter of 1997 was made at an annualized rate of 4%, and a cash distribution from second quarter operating results will be made to investors at an annualized rate of 4%. The cash distribution for the first quarter of 1996 was made at an annualized rate of 3%; cash distributions from operations for the second, third and fourth quarters of 1996 were made at an annualized rate of 4%. Page 12 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Six Months Ended June 30, 1997 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $2,108 $851 $700 $914 $945 $1,279 Telephone and other 121 40 33 32 48 71 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 2,229 891 733 946 993 1,350 Interest and other 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues 2,229 891 733 946 993 1,350 ----------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Hotel operations: Rooms 403 215 152 224 152 245 Administrative 245 122 91 88 133 193 Marketing 245 91 75 98 97 142 Energy 109 62 48 43 40 44 Repair and maintenance 102 54 34 66 66 64 Management fees 98 26 22 32 45 44 Property taxes 47 42 20 (19) 23 37 Other 74 25 23 27 35 42 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 1,323 637 465 559 591 811 Depreciation and other amortization 259 115 120 141 139 148 Interest 428 138 145 168 163 188 General and administrative 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total expenses 2,010 890 730 868 893 1,147 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME(LOSS) 219 1 3 78 100 203 Plus non-cash items - net 259 117 122 144 141 151 Less notes payable principal payments 0 10 10 12 12 13 ----------- ----------- ----------- ----------- ----------- ----------- Project operations 478 108 115 210 229 341 Capital Improvements 166 56 8 83 43 10 ----------- ----------- ----------- ----------- ----------- ----------- Project operations after capital improvements $312 $52 $107 $127 $186 $331 =========== =========== =========== =========== =========== =========== Occupancy 75% 87% 80% 80% 92% 87% ADR $78.65 $72.51 $65.41 $77.19 $76.62 $91.35
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $964 $2,027 $0 $1,888 $0 $11,676 Telephone and other 59 114 0 60 0 578 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 1,023 2,141 0 1,948 0 12,254 Interest and other 0 0 0 0 179 179 ------------ ----------- ----------- ----------- ----------- ------------- Total revenues 1,023 2,141 0 1,948 179 12,433 ------------ ----------- ----------- ----------- ----------- ------------- EXPENSES: Hotel operations: Rooms 220 457 0 358 0 2,426 Administrative 119 229 0 210 0 1,430 Marketing 109 241 0 190 0 1,288 Energy 53 103 0 101 0 603 Repair and maintenance 69 134 0 88 0 677 Management fees 42 64 0 111 0 484 Property taxes 34 87 0 82 0 353 Other 36 152 0 50 0 464 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 682 1,467 0 1,190 0 7,725 Depreciation and other amortization 141 253 0 175 0 1,491 Interest 165 431 0 340 0 2,166 General and administrative 0 0 0 0 408 408 ------------ ----------- ----------- ----------- ----------- ------------- Total expenses 988 2,151 0 1,705 408 11,790 ------------ ----------- ----------- ----------- ----------- ------------- NET INCOME(LOSS) 35 (10) 0 243 (229) 643 Plus non-cash items - net 143 253 0 259 0 1,589 Less notes payable principal payments 12 65 0 48 0 182 ------------ ----------- ----------- ----------- ----------- ------------- Project operations 166 178 0 454 (229) 2,050 Capital Improvements 57 349 0 27 0 799 ------------ ----------- ----------- ----------- ----------- ------------- Project operations after capital improvements $109 ($171) $0 $427 ($229) $1,251 ============ =========== =========== =========== =========== ============= Occupancy 81% 78% 90% 82% ADR $80.44 $86.08 $92.78 $81.37
Page 13 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Six Months Ended June 30, 1996 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $1,918 $851 $797 $898 $853 $1,154 Telephone and other 125 42 48 40 68 81 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 2,043 893 845 938 921 1,235 Interest and other 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues 2,043 893 845 938 921 1,235 ----------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Hotel operations: Rooms 329 192 164 212 153 211 Administrative 233 127 90 126 163 117 Marketing 216 87 95 113 113 135 Energy 116 50 52 57 49 46 Repair and maintenance 96 51 39 65 65 59 Management fees 61 27 26 28 28 43 Property taxes 55 32 69 37 24 39 Other 80 35 28 22 36 42 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 1,186 601 563 660 631 692 Depreciation and other amortization 251 109 107 128 129 148 Interest 428 139 146 169 164 190 General and administrative 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total expenses 1,865 849 816 957 924 1,030 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME(LOSS) 178 44 29 (19) (3) 205 Plus non-cash items - net 251 112 109 131 132 151 Less notes payable principal payments 3 9 9 11 11 12 ----------- ----------- ----------- ----------- ----------- ----------- Project operations 426 147 129 101 118 344 Capital Improvements 28 49 27 91 156 148 ----------- ----------- ----------- ----------- ----------- ----------- Project operations after capital improvements $398 $98 $102 $10 ($38) $196 =========== =========== =========== =========== =========== =========== Occupancy 76% 86% 91% 78% 93% 85% ADR $68.34 $73.44 $64.82 $77.76 $68.48 $84.15
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $957 $1,725 $0 $1,749 $0 $10,902 Telephone and other 56 65 0 56 0 581 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 1,013 1,790 0 1,805 0 11,483 Interest and other 0 0 0 0 224 224 ------------ ----------- ----------- ----------- ----------- ------------- Total revenues 1,013 1,790 0 1,805 224 11,707 ------------ ----------- ----------- ----------- ----------- ------------- EXPENSES: Hotel operations: Rooms 206 459 0 347 0 2,273 Administrative 134 360 (8) 179 0 1,521 Marketing 114 213 0 187 0 1,273 Energy 58 112 0 93 0 633 Repair and maintenance 65 182 0 82 0 704 Management fees 41 54 0 90 0 398 Property taxes 29 57 0 88 0 430 Other 30 139 0 43 0 455 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 677 1,576 (8) 1,109 0 7,687 Depreciation and other amortization 126 256 0 224 0 1,478 Interest 167 439 0 337 0 2,179 General and administrative 0 0 0 0 537 537 ------------ ----------- ----------- ----------- ----------- ------------- Total expenses 970 2,271 (8) 1,670 537 11,881 ------------ ----------- ----------- ----------- ----------- ------------- NET INCOME(LOSS) 43 (481) 8 135 (313) (174) Plus non-cash items - net 128 256 0 302 74 1,646 Less notes payable principal payments 11 69 0 51 0 186 ------------ ----------- ----------- ----------- ----------- ------------- Project operations 160 (294) 8 386 (239) 1,286 Capital Improvements 57 231 0 54 0 841 ------------ ----------- ----------- ----------- ----------- ------------- Project operations after capital improvements $103 ($525) $8 $332 ($239) $445 ============ =========== =========== =========== =========== ============= Occupancy 85% 72% 0% 86% 82% ADR $76.54 $76.06 $0.00 $86.94 $75.17
Page 14 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Three Months Ended June 30, 1997 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $1,056 $447 $375 $517 $535 $679 Telephone and other 59 15 18 19 21 35 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 1,115 462 393 536 556 714 Interest and other 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues 1,115 462 393 536 556 714 ----------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Hotel operations: Rooms 209 109 70 109 78 119 Administrative 113 65 48 58 72 120 Marketing 116 48 39 52 48 73 Energy 55 27 19 22 16 22 Repair and maintenance 51 31 18 32 36 35 Management fees 48 13 12 20 32 25 Property taxes 24 22 10 13 11 15 Other 42 13 14 15 17 24 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 658 328 230 321 310 433 Depreciation and other amortization 130 58 60 71 70 74 Interest 214 69 73 84 81 94 General and administrative 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total expenses 1,002 455 363 476 461 601 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME(LOSS) 113 7 30 60 95 113 Plus non-cash items - net 130 59 61 73 71 75 Less notes payable principal payments 0 5 5 6 6 6 ----------- ----------- ----------- ----------- ----------- ----------- Project operations 243 61 86 127 160 182 Capital Improvements 65 51 6 52 34 2 ----------- ----------- ----------- ----------- ----------- ----------- Project operations after capital improvements $178 $10 $80 $75 $126 $180 =========== =========== =========== =========== =========== =========== Occupancy 74% 88% 87% 87% 96% 87% ADR $78.21 $75.21 $64.38 $80.64 $82.55 $96.15
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $514 $1,211 $0 $921 $0 $6,255 Telephone and other 32 63 0 25 0 287 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 546 1,274 0 946 0 6,542 Interest and other 0 0 0 0 77 77 ------------ ----------- ----------- ----------- ----------- ------------- Total revenues 546 1,274 0 946 77 6,619 ------------ ----------- ----------- ----------- ----------- ------------- EXPENSES: Hotel operations: Rooms 117 256 0 197 0 1,264 Administrative 52 120 0 97 0 745 Marketing 56 128 0 92 0 652 Energy 23 36 0 47 0 267 Repair and maintenance 38 74 0 49 0 364 Management fees 28 38 0 48 0 264 Property taxes 17 47 0 40 0 199 Other 18 77 0 21 0 241 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 349 776 0 591 0 3,996 Depreciation and other amortization 63 127 0 86 0 739 Interest 82 216 0 170 0 1,083 General and administrative 0 0 0 0 236 236 ------------ ----------- ----------- ----------- ----------- ------------- Total expenses 494 1,119 0 847 236 6,054 ------------ ----------- ----------- ----------- ----------- ------------- NET INCOME(LOSS) 52 155 0 99 (159) 565 Plus non-cash items - net 64 127 0 128 0 788 Less notes payable principal payments 6 33 0 25 0 92 ------------ ----------- ----------- ----------- ----------- ------------- Project operations 110 249 0 202 (159) 1,261 Capital Improvements 57 220 0 22 0 509 ------------ ----------- ----------- ----------- ----------- ------------- Project operations after capital improvements $53 $29 $0 $180 ($159) $752 ============ =========== =========== =========== =========== ============= Occupancy 85% 88% 87% 85% ADR $81.63 $89.12 $91.64 $83.11
Page 15 of 20 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Three Months Ended June 30, 1996 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $1,005 $446 $397 $481 $466 $617 Telephone and other 70 18 23 23 34 44 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 1,075 464 420 504 500 661 Interest and other 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues 1,075 464 420 504 500 661 ----------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Hotel operations: Rooms 165 101 87 110 69 106 Administrative 127 61 47 55 66 59 Marketing 109 43 40 62 59 71 Energy 55 17 19 24 18 21 Repair and maintenance 48 30 24 36 32 33 Management fees 31 14 9 15 15 24 Property taxes 28 19 53 18 12 19 Other 41 21 13 11 13 19 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 604 306 292 331 284 352 Depreciation and other amortization 126 55 54 65 66 75 Interest 214 69 73 84 82 95 General and administrative 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total expenses 944 430 419 480 432 522 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME(LOSS) 131 34 1 24 68 139 Plus non-cash items - net 126 57 54 66 67 77 Less notes payable principal payments 2 5 4 6 6 6 ----------- ----------- ----------- ----------- ----------- ----------- Project operations 255 86 51 84 129 210 Capital Improvements 28 23 3 76 121 85 ----------- ----------- ----------- ----------- ----------- ----------- Project operations after capital improvements $227 $63 $48 $8 $8 $125 =========== =========== =========== =========== =========== =========== Occupancy 79% 90% 91% 79% 95% 86% ADR $67.91 $74.03 $65.03 $81.86 $73.00 $89.16
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $507 $1,012 $0 $835 $0 $5,766 Telephone and other 31 38 0 29 0 310 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 538 1,050 0 864 0 6,076 Interest and other 0 0 0 0 112 112 ------------ ----------- ----------- ----------- ----------- ------------- Total revenues 538 1,050 0 864 112 6,188 ------------ ----------- ----------- ----------- ----------- ------------- EXPENSES: Hotel operations: Rooms 104 216 0 177 0 1,135 Administrative 65 252 (13) 106 0 825 Marketing 57 114 0 93 0 648 Energy 26 59 0 47 0 286 Repair and maintenance 36 95 0 45 0 379 Management fees 27 32 0 32 0 199 Property taxes 17 29 0 44 0 239 Other 16 59 0 22 0 215 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 348 856 (13) 566 0 3,926 Depreciation and other amortization 64 122 0 87 0 714 Interest 84 216 0 169 0 1,086 General and administrative 0 0 0 0 318 318 ------------ ----------- ----------- ----------- ----------- ------------- Total expenses 496 1,194 (13) 822 318 6,044 ------------ ----------- ----------- ----------- ----------- ------------- NET INCOME(LOSS) 42 (144) 13 42 (206) 144 Plus non-cash items - net 64 122 0 128 74 835 Less notes payable principal payments 6 40 0 21 0 96 ------------ ----------- ----------- ----------- ----------- ------------- Project operations 100 (62) 13 149 (132) 883 Capital Improvements 43 231 0 54 0 664 ------------ ----------- ----------- ----------- ----------- ------------- Project operations after capital improvements $57 ($293) $13 $95 ($132) $219 ============ =========== =========== =========== =========== ============= Occupancy 84% 78% 84% 84% ADR $81.96 $80.51 $83.89 $77.10
Page 16 of 20 PART II OTHER INFORMATION Item 1. Legal Proceedings. Metric Partners Growth Suite Investors, L.P. vs. Kenneth E. Nelson, The Nelson Group, et al., San Francisco County Superior Court, Case No. 928065 (the "SF Lawsuit). [This lawsuit is related to the other 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 may 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 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. The Court further ordered that Orlando was to become the landlord under the Lease. Because of this reversal and the refusal of the Tennessee Supreme Court to hear an appeal from Orlando, NLC may regain ownership of the Land and again be the landlord under the Lease, pending the outcome of a new trial. Page 17 of 20 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 and trial has been set for February 9, 1998. 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. 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 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 will appeal all judgments for the Partnership in this case. The Partnership and the defendants have agreed on an attorneys' fee award to the Partnership of $60,000, but no payment is expected until the defendants' appeal is resolved. Metric Realty et al vs. Kenneth E. Nelson and Nashville Lodging Co., San Francisco County Superior Court, Case No. 987134 (the "Declaratory Relief Action"). Kenneth E. Nelson and Nashville Lodging Co. vs. Metric Realty et al., U.S. District Court for the Middle District of Tennessee, in Nashville, Case No. 3-97-0779 (the "Inducement Action"). Page 18 of 20 In the second quarter of 1997, Nelson alleged that Metric Realty and GHI Associates II, L.P., the Managing and Associate General Partners, respectively, of the Partnership, and certain of Metric Realty's affiliates (the "Affiliates") and certain former and current employees of Metric Realty or its affiliates (the "Employees") had improperly induced the Partnership to breach the SF Settlement. In May 1997, Metric Realty and GHI Associates II, L.P., the Affiliates and the Employees filed the Declaratory Relief Action against Nelson and NLC to obtain a judgment that the plaintiffs did not improperly cause the Partnership to breach the SF Settlement. In June 1997, Nelson and NLC filed the Inducement Action in the Chancery Court for Davidson County, in Nashville, Tennessee (the "Chancery Court") against Metric Realty, GHI Associates II, L.P., the Affiliates and certain of the Employees (the "Inducement Action Defendants"), seeking unspecified compensatory, treble and punitive damages for the alleged improper inducement of breach of contract. No responsive pleadings have yet been filed to either action. However, the Inducement Action Defendants removed the lawsuit from the Chancery Court to the U.S. District Court for Tennessee on July 25, 1997. It is expected that Nelson will attempt to have this action remanded to the Chancery Court. The Inducement Action Defendants have also filed a motion to dismiss the complaint against the Employees and one of the Affiliates named in the action based on lack of jurisdiction and against the remaining Affiliates based on failure to state a claim. In addition, the Inducement Action Defendants have moved for a stay of the Inducement Action pending the outcome of the Declaratory Relief Action. The legal and other expenses of the Inducement Action Defendants in both the Declaratory Relief Action and the Inducement Action arising as a result of the allegations made by Nelson will be paid by the Partnership pursuant to the indemnification provisions of the Partnership's limited partnership agreement and subject to the conditions set forth in those provisions. Metric Partners Growth Suite Investors, L.P. vs. Joe Huddleston, Commissioner of Revenue for the State of Tennessee, Chancery Court for Davidson County, in Nashville, Tennessee, Case No. 94-1227-II. 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 (the alleged deficiency plus estimated accrued interest totaled $217,000 at June 30, 1997). In general, the claimed deficiency relates primarily to sales tax alleged to be owed in connection with (i) room rental to federal employees, (ii) telephone calls by guests and (iii) 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. On April 25, 1997, the Court granted the Partnership's motion to reinstate the case and a trial is scheduled for the fourth quarter of 1997. The ultimate disposition of these lawsuits cannot be predicted at this time; however, based solely on the facts known to it as of the date hereof, the Partnership does not believe the lawsuits will have a material adverse effect on the Partnership. Item 6. Exhibits and Reports on Form 8-K (a) No reports on Form 8-K were required to be filed during the period covered by this Report. Page 19 of 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership By: Metric Realty, an Illinois general partnership, its Managing General Partner By: SSR Realty Advisors, Inc., a Delaware corporation, its Managing General Partner By: /s/ William A. Finelli ------------------------------- William A. Finelli Managing Director, Principal Financial and Accounting Officer of SSR Realty Advisors, Inc. Date: August 11, 1997 --------------- Page 20 of 20 EX-27 2 FDS
5 6-MOS DEC-31-1997 JAN-1-1997 JUN-30-1997 7,092,000 0 1,412,000 0 0 8,633,000 91,255,000 33,295,000 67,113,000 3,395,000 42,408,000 0 0 0 21,010,000 67,113,000 0 12,254,000 0 7,725,000 0 0 2,166,000 643,000 0 0 0 0 0 0 643,000 10
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