-----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, OZ+wesQyuVuZYHX8txGut6EzpESHgokCZeHuPtLgoFGyqj2y1AI9UfnQqA/hJGMp AEKxd2BLjG08boi9aZ4ZTg== 0000948524-97-000131.txt : 19971113 0000948524-97-000131.hdr.sgml : 19971113 ACCESSION NUMBER: 0000948524-97-000131 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 000-17660 FILM NUMBER: 97715733 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 SEPTEMBER 30, 1997 10Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 21 PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited). METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership BALANCE SHEETS (UNAUDITED) September 30, December 31, 1997 1996 ---- ---- ASSETS CASH AND CASH EQUIVALENTS $ 3,843,000 $ 3,436,000 CASH INVESTMENTS 3,888,000 3,893,000 RESTRICTED CASH 327,000 308,000 ACCOUNTS RECEIVABLE 1,546,000 715,000 PREPAID EXPENSES AND OTHER ASSETS 207,000 209,000 PROPERTIES AND IMPROVEMENTS 13,906,000 90,456,000 ACCUMULATED DEPRECIATION (5,127,000) (31,825,000) ------------ ------------ NET PROPERTIES AND IMPROVEMENTS 8,779,000 58,631,000 REAL ESTATE HELD FOR SALE 49,336,000 -- DEFERRED FINANCING COSTS 33,000 73,000 DEFERRED FRANCHISE FEES 148,000 171,000 ------------ ------------ TOTAL ASSETS $ 68,107,000 $ 67,436,000 ============ ============ LIABILITIES AND PARTNERS' EQUITY ACCOUNTS PAYABLE $ 1,375,000 $ 1,107,000 ACCRUED PROPERTY TAXES 593,000 311,000 ACCRUED INTEREST 295,000 263,000 OTHER LIABILITIES 1,640,000 1,347,000 DEFERRED GAIN ON SALE OF PROPERTY 300,000 300,000 NOTES PAYABLE 42,351,000 42,518,000 ------------ ------------ TOTAL LIABILITIES 46,554,000 45,846,000 ------------ ------------ PARTNERS' EQUITY (DEFICIENCY): GENERAL PARTNERS 59,000 59,000 LIMITED PARTNERS (59,932 Units outstanding) 21,494,000 21,531,000 ------------ ------------ TOTAL PARTNERS' EQUITY 21,553,000 21,590,000 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY $ 68,107,000 $ 67,436,000 ============ ============ See notes to financial statements (unaudited). Page 2 of 21 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS (UNAUDITED) For the Nine Months Ended September 30, --------------------------- 1997 1996 ---- ---- REVENUES: Hotel operations $ 18,748,000 $ 17,639,000 Interest and other 261,000 331,000 ------------ ------------ Total revenues 19,009,000 17,970,000 ------------ ------------ EXPENSES: Hotel operations: Rooms 3,674,000 3,480,000 Administrative 2,140,000 2,264,000 Marketing 1,939,000 1,948,000 Energy 887,000 907,000 Repair and maintenance 1,014,000 1,040,000 Management fees 747,000 632,000 Property taxes 568,000 551,000 Other 717,000 653,000 ------------ ------------ Total hotel operations 11,686,000 11,475,000 Depreciation and other amortization 1,621,000 2,196,000 Interest 3,248,000 3,263,000 General and administrative 656,000 972,000 ------------ ------------ Total expenses 17,211,000 17,906,000 ------------ ------------ NET INCOME $ 1,798,000 $ 64,000 ============ ============ NET INCOME PER LIMITED PARTNERSHIP ASSIGNEE UNIT $29 $ 1 == === CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT $30 $58 === === See notes to financial statements (unaudited). Page 3 of 21 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended September 30, --------------------------- 1997 1996 ---- ---- REVENUES: Hotel operations $ 6,494,000 $ 6,156,000 Interest and other 82,000 107,000 ------------ ------------ Total revenues 6,576,000 6,263,000 ------------ ------------ EXPENSES: Hotel operations: Rooms 1,248,000 1,207,000 Administrative 710,000 743,000 Marketing 651,000 675,000 Energy 284,000 274,000 Repair and maintenance 337,000 336,000 Management fees 263,000 234,000 Property taxes 215,000 121,000 Other 253,000 198,000 ------------ ------------ Total hotel operations 3,961,000 3,788,000 Depreciation and other amortization 130,000 718,000 Interest 1,082,000 1,084,000 General and administrative 248,000 435,000 ------------ ------------ Total expenses 5,421,000 6,025,000 ------------ ------------ NET INCOME $ 1,155,000 $ 238,000 ============ ============ NET INCOME PER LIMITED PARTNERSHIP ASSIGNEE UNIT $19 $ 4 === === CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT $10 $43 === === See notes to financial statements (unaudited). Page 4 of 21 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY (UNAUDITED) For the Nine Months Ended September 30, 1997 and 1996 General Limited Partner Partners Total ------- -------- ----- BALANCE, JANUARY 1, 1997 $ 59,000 $ 21,531,000 $ 21,590,000 NET INCOME 37,000 1,761,000 1,798,000 CASH DISTRIBUTIONS (37,000) (1,798,000) (1,835,000) ------------ ------------ ------------ BALANCE, SEPTEMBER 30, 1997 $ 59,000 $ 21,494,000 $ 21,553,000 ============ ============ ============ BALANCE, JANUARY 1, 1996 $ 100,000 $ 25,150,000 $ 25,250,000 NET INCOME (LOSS) 30,000 34,000 64,000 CASH DISTRIBUTIONS (71,000) (3,498,000) (3,569,000) ------------ ------------ ------------ BALANCE, SEPTEMBER 30, 1996 $ 59,000 $ 21,686,000 $ 21,745,000 ============ ============ ============ See notes to financial statements (unaudited). Page 5 of 21 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended September 30, --------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES Net Income $ 1,798,000 $ 64,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,772,000 2,339,000 Cost associated with note payable change -- 74,000 Changes in operating assets and liabilities: Accounts receivable (831,000) (517,000) Prepaid expenses and other assets 2,000 (5,000) Accounts payable, accrued expenses, and other liabilities 875,000 679,000 ------------ ------------ Net cash provided by operating activities 3,616,000 2,634,000 ------------ ------------ INVESTING ACTIVITIES Proceeds from sale of cash investments 3,893,000 1,969,000 Purchase of cash investment (3,888,000) (5,862,000) Capital improvements (1,083,000) (1,783,000) Restricted cash - increase (19,000) (6,000) ------------ ------------ Net cash used by investing activities (1,097,000) (5,682,000) ------------ ------------ FINANCING ACTIVITIES Notes payable principal payments (277,000) (273,000) Cash distribution to partners (1,835,000) (3,569,000) ------------ ------------ Cash used by financing activities (2,112,000) (3,842,000) ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 407,000 (6,890,000) Cash and cash equivalents at beginning of period 3,436,000 10,248,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,843,000 $ 3,358,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid in cash during the period $ 3,098,000 $ 3,211,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES Note payable increase $ -- $ 74,000 ============ ============ See notes to financial statements (unaudited). Page 6 of 21 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 Nine Months Ended September 30, --------------------------------------- 1997 1996 ---- ---- Partnership management fees $160,000 $133,000 Reimbursement of administrative expense 225,000 206,000 -------- -------- Total $385,000 $339,000 ======== ======== 3. Net Income Per Limited Partnership Assignee Unit The net income per limited partnership assignee Unit is computed by dividing the net income allocated to the limited partners by 59,932 assignee Units outstanding. 4. Cash Investments The Partnership considers cash investments to be those investments with an original maturity date of more than three months at the time of purchase. The cash investment at September 30, 1997 matures in March 1998 and bears interest at an effective rate of 5.6% per annum. 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/or defendant in legal proceedings related to the hotel, loans secured by the hotel and the land lease at the Residence Inn - Nashville. 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 nine months ended September 30, 1997 and 1996, of the eight properties were as follows: 1997 1996 ---- ---- Hotel operating revenues $15,305,000 $14,695,000 Hotel operating expenses $9,441,000 $9,118,000 Depreciation and other amortization $1,238,000 $1,823,000 Interest $2,602,000 $2,608,000 No depreciation and amortization of deferred franchise fees for the eight properties are recorded after June 30, 1997. Page 7 of 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This Item should be read in conjunction with Financial Statements and other Items contained elsewhere in this Report. Properties A description of the properties in which the Partnership has an ownership interest, along with the occupancy and room rate data, follows: OCCUPANCY AND ROOM RATE SUMMARY
Average Occupancy Average Daily Room Rate (%) ($) ----------------------- -------------------------- Nine Three Nine Three Months Months Months Months Ended Ended Ended Ended Date Sept. 30, Sept. 30, Sept. 30, Sept. 30, of --------- --------- ---------- ---------- Name and Location Rooms Purchase 1997 1996 1997 1996 1997 1996 1997 1996 ----------------- ----- -------- ---- ---- ---- ---- ---- ---- ---- ---- Residence Inn - Ontario 200 04/88 73 75 68 72 79.06 68.78 86.91 75.41 Ontario, California Residence Inn - Fort Wayne 80 06/88 84 91 91 90 67.15 66.87 70.17 71.01 Fort Wayne, Indiana Residence Inn - Columbus (East) 80 06/88 90 87 94 90 74.78 74.97 78.98 77.91 Columbus, Ohio Residence Inn - Indianapolis (North) 88 06/88 79 81 78 86 79.75 78.76 85.04 80.57 Indianapolis, Indiana Residence Inn - Lexington 80 06/88 92 93 91 95 78.01 70.19 80.80 73.51 Lexington, Kentucky Residence Inn - Louisville 96 06/88 90 88 95 93 91.45 87.13 91.64 92.57 Louisville, Kentucky Residence Inn - Winston-Salem 88 06/88 84 85 91 85 79.74 75.48 78.50 73.39 Winston-Salem, North Carolina Residence Inn - Nashville (Airport) 168 05/89 82 77 90 85 87.50 78.58 98.83 92.46 Nashville, Tennessee Residence Inn - Altamonte Springs 128 03/90 85 86 76 85 92.73 84.77 100.01 87.56 Altamonte Springs, Florida
Results of Operations Net income increased $1,734,000 and $917,000 for the first three quarters and third quarter of 1997, respectively, when compared to the same periods in 1996. Of the increases, approximately $600,000, for each period, is the result of depreciation not being recorded after June 30, 1997 on the real estate assets held for sale (see Note 6 to the financial statements). In addition, operations improved substantially at the Residence Inn - Nashville for both the nine and three months ended September 30, 1997 in comparison to the same period in 1996. For the nine months ended September 30, 1997, operations also improved substantially at the Residence Inns - Lexington and Altamonte Springs. Revenues from hotel operations increased 6% and 5% in the nine and three months ended September 30, 1997, respectively, compared to the same periods in 1996, due to improved operations at seven of the hotels. Hotel operating expenses increased 2% and 5% for the nine and three months ended September 30, 1997, respectively, when compared to the same periods in 1996. For the nine months ended September 30, 1997, room operating expenses increased, particularly at the Residence Inn - Ontario, and the management fees increased at all but two of the properties as a result of the overall substantially improved operations. These increases were offset by lower administrative costs (particularly at the Page 8 of 21 Residence Inn - Nashville- see discussion below), and lower expenses for energy, repairs and maintenance. For the three months ended September 30, 1997, there were increases in all but administrative and marketing costs, when compared to the same period of 1996. Expense increases were experienced in room costs, particularly at the Residence Inns - Ontario and Nashville. The increase in property taxes is primarily due to a substantial tax refund having been recorded at the Residence Inn - Fort Wayne in 1996. Interest income decreased in 1997 as 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 for both the nine and three months ended September 30, 1997. The decrease is primarily due to the write-off of a $194,000 receivable in the third quarter of 1996 and the recognition in the second quarter of 1996 of a $74,000 cost associated with the additional loan obligation on the Residence Inn - Nashville. In addition, for the nine month period ended September 30, 1997, the legal expenses decreased in comparison to the same period of 1996. Investors were notified in a letter dated December 10, 1996 that the Partnership intended to proceed with the marketing for sale of the remaining hotels in its portfolio. At the beginning of the third quarter a 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 pending resolution of certain legal proceedings (see Part II, Item 1 for more details in this regard). The Partnership has received offers from potential purchasers which are currently under review. 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. It is unlikely that a sale transaction would be completed in 1997. In addition, the plaintiff in one of the legal proceedings relating to the Residence Inn - Nashville referenced above, has filed a motion for an injunction prohibiting the distribution of proceeds from the sale of the Partnership's hotels pending a final judgement in the case. A hearing on this motion has been set for December 17, 1997. The following discussion provides information concerning the operations of the Partnership's remaining nine hotels: Residence Inn - Ontario: Room revenues increased 9.5% for the first nine months of 1997 as compared to the same period of the prior year. Occupancy declined by two percentage points, to 73%, while the average daily room rate rose by $10.28 to $79.06. The increase in room revenue was offset in part by an increase of 12.9% in the hotel's operating expenses, primarily due to increases in room and administrative expenses. The closure of the nearby Lockheed facility resulted in a drop in occupancy, although average daily room rates increased as the low-rated government business terminated. The local economy continues its steady growth, as the numerous construction projects in the area transition into their operating phases. Business from the racing events at the Ontario Speedway has contributed significantly to the hotel's positive operations. Strong competition continues to come from two existing local competitors, and one new hotel, which opened last quarter. Construction began on another extended-stay hotel which will also compete directly with the Partnership's hotel. Recent marketing efforts included several client appreciation activities, which have resulted in expanded business. As previously reported, the Partnership had filed a lawsuit against the former owner of the Residence Inn - Ontario over the terms of the prior management contract. Although a verbal settlement was negotiated in the first quarter of 1993, finalization of the settlement has not occurred, and as a result of other legal proceedings involving the Partnership and affiliates of the former owner, consummation of the settlement may not be possible. Please refer to Part II, Item 1 of the Form 10-Q for detailed information regarding the status of these lawsuits and other related lawsuits seeking damages for the Partnership's alleged failure to consummate the settlement and which may affect the consummation of the settlement. In addition, in the second quarter of 1997, additional lawsuits were filed in connection with allegations by affiliates of the former owner that the General Partner and certain of its affiliates and current and former officers improperly induced the Partnership to breach the settlement. The General Partner believes these allegations are without merit. Please see Part II, Item 1 of the Form 10-Q for additional information regarding these actions. Residence Inn- Columbus (East): Room revenues increased by 2.4 % for the first three quarters of 1997 as compared to the same period of the prior year. Occupancy increased 3%, to 90%, while the average daily room rate remained relatively unchanged, at $74.78. Although the Columbus economy remains strong, growth appears to have slowed in the immediate area of the Partnership's hotel. A heavy equipment manufacturer had planned to open a large training facility nearby this quarter, although it now appears that the opening will not occur until 1998. Marketing efforts have included participation in a trade show and two major sales blitzes. The hotel continues to compete with a nearby Holiday Inn, which offers room rate discounts for customers who also commit to use utilize other hotel amenities such as meeting or conference rooms. A full service hotel, adjacent to the Residence Inn, is undergoing an extensive renovation and will be re-opening under a new name, and an additional new extended-stay hotel is expected to open in November. Page 9 of 21 Residence Inn - Fort Wayne: Room revenues for the first nine months of 1997 decreased 7.9% as compared to the same period of the prior year, primarily resulting from a decline in occupancy of 7%, to 84%. The average daily room rate remained essentially unchanged at $67.15, while operating expenses declined 8.2% due to decreases in room, administrative and marketing costs. The Fort Wayne economy continues to improve, with new businesses moving into the area and existing ones expanding operations. Five hotels currently provide the bulk of competition for the Partnership's hotel, and several nearby apartment complexes are placing more focus on corporate apartments, reserved for 30-90 day stays. A new hotel opened in October of this year and will likely become a strong competitor, while another is undergoing an extensive renovation, due to be completed by year end. The hotel's marketing staff continues to focus on the maintenance of strong relationships with the existing large clients and a comprehensive campaign aimed at attracting new business. Residence Inn - Indianapolis: Room revenues remained relatively stable for the first nine months of 1997 as compared to the same period of the prior year. Occupancy decreased by 2%, to 79% while the average daily room rate increased by $0.99, to $79.75. At this time, rooms are coming on line in the Indianapolis hotel market at a more rapid rate than current demand. During the last twelve months, six new hotels opened in the area, and an existing operation added 30 new suites. In addition, one new extended-stay hotel is anticipated to open by the end of the year, and a total of ten others are either in the planning or development stages. Marketing efforts are currently concentrating on attracting business from local software companies which conduct training business requiring extended stays. Residence Inn - Lexington: Room revenues increased by 8.8%, for the first nine months of the year, as compared to the same period of 1996. Occupancy, although reflecting a slight decrease, remained strong, at 92%, the highest rate in the Portfolio. Operations were negatively impacted by an accident involving an employee, causing a charge to administrative costs equal to the amount of the hotel's insurance deductible. Economic conditions in Lexington remain stable. Long-term stay business for the Partnership's hotel continues to come primarily from several large corporate clients which have used the hotel consistently over the past several years. The horse racing industry has also proven to be a continuous source of patronage, at high "special event" rates. The Partnership's Residence Inn maintains a solid position in the market, although construction began during the quarter on a 200-suite hotel which will likely prove to be a strong source of competition. No date for completion has yet been announced. Plans have also been approved for two new extended-stay hotels in South Lexington. The sales strategy continues to focus on the maintenance of strong communication with the hotel's largest accounts to retain this important segment of the patronage base. Residence Inn - Louisville: Room revenues increased by 7.1% for the first three quarters of 1997 as compared to the same period of 1996. The average daily room rate increased by $4.32 to $91.45, and the occupancy for the period rose to 90%, an increase of 2%. Hotel operating expenses were significantly higher, by 8.9% as compared to the same period of 1996, primarily arising from a sales and use tax levied against the hotel by the State of Kentucky. As evidenced by the opening of a new Ford truck plant, the economy in Louisville continues to exhibit solid growth. The opening, along with several large trade shows and unusually heavy convention business have all contributed to the positive operations at the hotel. Four extended-stay hotels currently compete directly with the Partnership's hotel, as do several local apartment complexes offering short-term leases. Additionally, two new all-suite hotels are anticipated to open in 1998. Aggressive proactive direct sales strategies used by the marketing staff have resulted in improved relationships with existing clients and have generated new accounts. Residence Inn - Winston-Salem: Room revenues increased by 5.1% for the first nine months of the year, as compared to the same period of 1996, which was offset only in part by an increase in operating expenses of 3.3%. Although occupancy declined slightly, to 84%, as compared to the same period of the prior year, the average daily room rate increased by $4.26 to $79.74. Although the departure of several divisions of RJR from Winston-Salem initially caused a downturn in the area's economy, it appears to be in recovery. The Partnership's hotel has received additional new business from existing corporate clients, particularly in the training sector, complimenting higher than usual patronage from conventions. A new US Postal Service Facility is anticipated to open across the street from the Residence Inn by mid-year 1998, which may provide new business for the hotel. Competition, however, remains quite strong and is growing in intensity, as currently there are six hotels under construction in the market, with a total of 600 rooms. Residence Inn - Nashville: Room revenues increased by 15.4% for the nine months ended September 30, 1997, as compared to the same period of last year, due to an increase in the average daily room rate of $8.92, to $87.50, and an increase in occupancy of 5%, to 82%. Overall operating results for the period were positive and markedly improved over the same period of 1996. The hotel's operating expenses decreased 4.8% primarily die to a reduction in administrative expenses. This reduction was caused by a favorable settlement regarding the disputed sales and use taxes which were assessed by the State of Tennessee against the Partnership. The Partnership proposed, and the State accepted, payment of Page 10 of 21 $122,000, and payment was made in November 1997. The accrual that the Partnership had carried on its books for potential payment of this assessment totaled $217,000 (including interest) at June 30, 1997. In the third quarter the liability was reduced to the amount of the settlement, $122,000, resulting in a credit of $95,000 to administrative expenses. As $141,000 of the potential liability for the assessment had been recognized in the first nine months of 1996, the administrative expenses were unusually high in 1996 causing an additional decrease when compared to 1996. Despite strong competition, particularly from several new budget extended-stay hotels, the Partnership's hotel has maintained its share of the market through aggressive sales campaigns. Advertisements are routinely placed in national travel magazines which provide a constant source of patronage. Direct sales calls, aimed particularly at companies which may provide long-term or group business, have also proven effective. The hotel's in-house maintenance staff has continued with projects aimed at improving the curbside appeal of the property. On May 3, 1996, the Partnership filed a lawsuit seeking a judicial determination of the rights and obligations of the Partnership and the seller of the Residence Inn-Nashville with respect to the wrap-around purchase money note issued by the Partnership to the seller, the senior note "wrapped" by the purchase money note, and the ground lease between the Partnership and the seller as a consequence of the Partnership's cure of defaults by the seller under the senior note. In August 1996, the Court in this action granted the Partnership's motion for summary judgement. As a result, the wrap-around note has been satisfied and the Partnership is now the direct obligator under the senior loan. However, the seller is appealing from this ruling. Please refer to Part II, Item 1 for detailed information regarding the lawsuit and other related actions. Residence Inn - Altamonte Springs: Room revenues increased by 5.9% for the first three quarters of 1997 as compared to the same period of 1996, which was only partially offset by an increase of 5% in operating expenses. The average daily room rate increased by $7.96, to $92.73 for the period, while occupancy decreased only slightly to 85%. A drop in the amount of business generated from sporting events combined with the normal decline in hotel occupancy typical for the summer months in Florida contributed to the lower average occupancy. The Partnership's hotel remained, however, ahead of its competition in both occupancy and rates for the quarter. The hotel is beginning to see an increase in competition arising from extended-stay hotels or apartment complexes which offer lower rates in exchange for reduced service, a compromise more businesses are accepting in order to reduce costs. Two new hotels are nearing completion, with openings scheduled for early 1998, a third is expected to open by mid-year, and a fourth by year-end 1998. Two others will likely begin construction in 1998. Partnership Liquidity and Capital Resources First Three Quarters 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 and for purchase of cash investment. 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 nine and three months ended September 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 nine months 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 nine months of 1997, the Partnership spent $1,083,000 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 $700,000 on capital improvements, which are necessary to keep the properties competitive in their respective markets and are required under the agreements with Marriott. Page 11 of 21 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 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. Gemisys will again begin accepting and processing resale transactions on January 2, 1998. 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. All of the Partnership's properties are subject to mortgages which mature and require balloon payments in April or July of 1998. The Partnership has requested an extension from the lender with respect to the Residence Inn - Nashville. Depending upon the outcome of the current negotiations to sell the other eight hotels, the Partnership may begin the process to refinance those hotels during the fourth quarter of 1997. The Partnership anticipates that the eight mortgages can be refinanced at favorable rates and terms. Page 12 of 21 The Partnership anticipates that it will have sufficient resources to meet its capital and operating requirements into the foreseeable future. Cash distribution to investors for the first and second quarters of 1997 were made at an annualized rate of 4%, and a cash distribution from third 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 13 of 21 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Nine Months Ended September 30, 1997 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $3,099 $1,352 $1,132 $1,402 $1,439 $1,982 Telephone and other 176 53 55 48 83 108 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 3,275 1,405 1,187 1,450 1,522 2,090 Interest and other 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues 3,275 1,405 1,187 1,450 1,522 2,090 ----------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Hotel operations: Rooms 615 315 229 347 226 354 Administrative 397 198 139 150 213 264 Marketing 357 142 118 151 145 207 Energy 166 86 62 65 60 62 Repair and maintenance 153 80 55 92 93 93 Management fees 122 42 49 48 74 91 Property taxes 73 73 32 (3) 35 56 Other 128 38 36 37 50 60 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 2,011 974 720 887 896 1,187 Depreciation and other amortization 259 115 120 141 139 148 Interest 641 207 217 251 244 282 General and administrative 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total expenses 2,911 1,296 1,057 1,279 1,279 1,617 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME(LOSS) 364 109 130 171 243 473 Plus non-cash items - net 259 118 123 145 142 153 Less notes payable principal payments 0 15 16 18 18 20 ----------- ----------- ----------- ----------- ----------- ----------- Project operations 623 212 237 298 367 606 Capital Improvements 177 103 7 136 64 30 ----------- ----------- ----------- ----------- ----------- ----------- Project operations after capital improvements $446 $109 $230 $162 $303 $576 =========== =========== =========== =========== =========== =========== Occupancy 73% 90% 84% 79% 92% 90% ADR $79.06 $74.78 $67.15 $79.75 $78.01 $91.45
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $1,491 $3,276 $0 $2,703 $0 $17,876 Telephone and other 91 167 0 91 0 872 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 1,582 3,443 0 2,794 0 18,748 Interest and other 0 0 0 0 261 261 ------------ ----------- ----------- ----------- ----------- ------------- Total revenues 1,582 3,443 0 2,794 261 19,009 ------------ ----------- ----------- ----------- ----------- ------------- EXPENSES: Hotel operations: Rooms 329 727 0 532 0 3,674 Administrative 173 302 0 304 0 2,140 Marketing 170 367 0 282 0 1,939 Energy 81 171 0 134 0 887 Repair and maintenance 95 214 0 139 0 1,014 Management fees 75 103 0 143 0 747 Property taxes 50 127 0 125 0 568 Other 55 234 0 79 0 717 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 1,028 2,245 0 1,738 0 11,686 Depreciation and other amortization 141 383 0 175 0 1,621 Interest 248 646 0 512 0 3,248 General and administrative 0 0 0 0 656 656 ------------ ----------- ----------- ----------- ----------- ------------- Total expenses 1,417 3,274 0 2,425 656 17,211 ------------ ----------- ----------- ----------- ----------- ------------- NET INCOME(LOSS) 165 169 0 369 (395) 1,798 Plus non-cash items - net 145 384 0 303 0 1,772 Less notes payable principal payments 18 98 0 74 0 277 ------------ ----------- ----------- ----------- ----------- ------------- Project operations 292 455 0 598 (395) 3,293 Capital Improvements 72 426 0 68 0 1,083 ------------ ----------- ----------- ----------- ----------- ------------- Project operations after capital improvements $220 $29 $0 $530 ($395) $2,210 ============ =========== =========== =========== =========== ============= Occupancy 84% 82% 85% 83% ADR $79.74 $87.50 $92.73 $82.22 Page 14 of 21
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Nine Months Ended September 30, 1996 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $2,831 $1,320 $1,229 $1,410 $1,323 $1,850 Telephone and other 183 59 73 64 100 113 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 3,014 1,379 1,302 1,474 1,423 1,963 Interest and other 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues 3,014 1,379 1,302 1,474 1,423 1,963 ----------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Hotel operations: Rooms 506 298 250 329 239 337 Administrative 340 179 159 191 212 185 Marketing 334 131 142 174 167 214 Energy 168 76 68 75 67 70 Repair and maintenance 155 78 67 86 95 87 Management fees 90 52 51 44 43 81 Property taxes 69 45 8 56 36 58 Other 119 47 39 30 52 58 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 1,781 906 784 985 911 1,090 Depreciation and other amortization 378 163 163 196 194 224 Interest 641 208 218 253 246 284 General and administrative 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total expenses 2,800 1,277 1,165 1,434 1,351 1,598 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME(LOSS) 214 102 137 40 72 365 Plus non-cash items - net 378 166 167 200 198 228 Less notes payable principal payments 3 14 14 16 16 18 ----------- ----------- ----------- ----------- ----------- ----------- Project operations 589 254 290 224 254 575 Capital Improvements 51 55 249 289 196 186 ----------- ----------- ----------- ----------- ----------- ----------- Project operations after capital improvements $538 $199 $41 ($65) $58 $389 =========== =========== =========== =========== =========== =========== Occupancy 75% 87% 91% 81% 93% 88% ADR $68.78 $74.97 $66.87 $78.76 $70.19 $87.13
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $1,419 $2,839 $0 $2,552 $0 $16,773 Telephone and other 83 105 0 86 0 866 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 1,502 2,944 0 2,638 0 17,639 Interest and other 0 0 0 0 331 331 ------------ ----------- ----------- ----------- ----------- ------------- Total revenues 1,502 2,944 0 2,638 331 17,970 ------------ ----------- ----------- ----------- ----------- ------------- EXPENSES: Hotel operations: Rooms 310 688 0 523 0 3,480 Administrative 190 526 (8) 290 0 2,264 Marketing 168 342 0 276 0 1,948 Energy 79 175 0 129 0 907 Repair and maintenance 100 251 0 121 0 1,040 Management fees 61 88 0 122 0 632 Property taxes 44 85 18 132 0 551 Other 43 202 0 63 0 653 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 995 2,357 10 1,656 0 11,475 Depreciation and other amortization 192 373 0 313 0 2,196 Interest 250 655 0 508 0 3,263 General and administrative 0 0 0 0 972 972 ------------ ----------- ----------- ----------- ----------- ------------- Total expenses 1,437 3,385 10 2,477 972 17,906 ------------ ----------- ----------- ----------- ----------- ------------- NET INCOME(LOSS) 65 (441) (10) 161 (641) 64 Plus non-cash items - net 196 373 0 433 0 2,339 Less notes payable principal payments 16 99 0 77 0 273 ------------ ----------- ----------- ----------- ----------- ------------- Project operations 245 (167) (10) 517 (641) 2,130 Capital Improvements 329 345 0 83 0 1,783 ------------ ----------- ----------- ----------- ----------- ------------- Project operations after capital improvements ($84) ($512) ($10) $434 ($641) $347 ============ =========== =========== =========== =========== ============= Occupancy 85% 77% 86% 83% ADR $75.48 $78.58 $84.77 $76.16 Page 15 of 21
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Three Months Ended September 30, 1997 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $991 $501 $432 $488 $494 $703 Telephone and other 55 13 22 16 35 37 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 1,046 514 454 504 529 740 Interest and other 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues 1,046 514 454 504 529 740 ----------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Hotel operations: Rooms 212 100 77 123 74 109 Administrative 152 76 48 62 80 71 Marketing 112 51 43 53 48 65 Energy 57 24 14 22 20 18 Repair and maintenance 51 26 21 26 27 29 Management fees 24 16 27 16 29 47 Property taxes 26 31 12 16 12 19 Other 54 13 13 10 15 18 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 688 337 255 328 305 376 Depreciation and other amortization 0 0 0 0 0 0 Interest 213 69 72 83 81 94 General and administrative 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total expenses 901 406 327 411 386 470 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME(LOSS) 145 108 127 93 143 270 Plus non-cash items - net 0 1 1 1 1 2 Less notes payable principal payments 0 5 6 6 6 7 ----------- ----------- ----------- ----------- ----------- ----------- Project operations 145 104 122 88 138 265 Capital Improvements 11 47 (1) 53 21 20 ----------- ----------- ----------- ----------- ----------- ----------- Project operations after capital improvements $134 $57 $123 $35 $117 $245 =========== =========== =========== =========== =========== =========== Occupancy 68% 94% 91% 78% 91% 95% ADR $86.91 $78.98 $70.17 $85.04 $80.80 $91.64
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $527 $1,249 $0 $815 $0 $6,200 Telephone and other 32 53 0 31 0 294 ------------ ----------- ----------- -------------- ----------- ------------- Hotel operations 559 1,302 0 846 0 6,494 Interest and other 0 0 0 0 82 82 ------------ ----------- ----------- -------------- ----------- ------------- Total revenues 559 1,302 0 846 82 6,576 ------------ ----------- ----------- -------------- ----------- ------------- EXPENSES: Hotel operations: Rooms 109 270 0 174 0 1,248 Administrative 54 73 0 94 0 710 Marketing 61 126 0 92 0 651 Energy 28 68 0 33 0 284 Repair and maintenance 26 80 0 51 0 337 Management fees 33 39 0 32 0 263 Property taxes 16 40 0 43 0 215 Other 19 82 0 29 0 253 ------------ ----------- ----------- -------------- ----------- ------------- Hotel operations 346 778 0 548 0 3,961 Depreciation and other amortization 0 130 0 0 0 130 Interest 83 215 0 172 0 1,082 General and administrative 0 0 0 0 248 248 ------------ ----------- ----------- -------------- ----------- ------------- Total expenses 429 1,123 0 720 248 5,421 ------------ ----------- ----------- -------------- ----------- ------------- NET INCOME(LOSS) 130 179 0 126 (166) 1,155 Plus non-cash items - net 2 131 0 44 0 183 Less notes payable principal payments 6 33 0 26 0 95 ------------ ----------- ----------- -------------- ----------- ------------- Project operations 126 277 0 144 (166) 1,243 Capital Improvements 15 77 0 41 0 284 ------------ ----------- ----------- -------------- ----------- ------------- Project operations after capital improvements $111 $200 $0 $103 ($166) $959 ============ =========== =========== ============== =========== ============= Occupancy 91% 90% 76% 84% ADR $78.50 $98.83 $100.01 $87.42 Page 16 of 21
METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Three Months Ended September 30, 1996 (000's)
Columbus Fort Ontario (East) Wayne Indianapolis Lexington Louisville ------- ------ ----- ------------ --------- ---------- REVENUES: Hotel operations: Rooms $913 $469 $432 $512 $470 $696 Telephone and other 58 17 25 24 32 32 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 971 486 457 536 502 728 Interest and other 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues 971 486 457 536 502 728 ----------- ----------- ----------- ----------- ----------- ----------- EXPENSES: Hotel operations: Rooms 177 106 86 117 86 126 Administrative 107 52 69 65 49 68 Marketing 118 44 47 61 54 79 Energy 52 26 16 18 18 24 Repair and maintenance 59 27 28 21 30 28 Management fees 29 25 25 16 15 38 Property taxes 14 13 (61) 19 12 19 Other 39 12 11 8 16 16 ----------- ----------- ----------- ----------- ----------- ----------- Hotel operations 595 305 221 325 280 398 Depreciation and other amortization 127 54 56 68 65 76 Interest 213 69 72 84 82 94 General and administrative 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- Total expenses 935 428 349 477 427 568 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME(LOSS) 36 58 108 59 75 160 Plus non-cash items - net 127 54 58 69 66 77 Less notes payable principal payments 0 5 5 5 5 6 ----------- ----------- ----------- ----------- ----------- ----------- Project operations 163 107 161 123 136 231 Capital Improvements 23 6 222 198 40 38 ----------- ----------- ----------- ----------- ----------- ----------- Project operations after capital improvements $140 $101 ($61) ($75) $96 $193 =========== =========== =========== =========== =========== =========== Occupancy 72% 90% 90% 86% 95% 93% ADR $75.41 $77.91 $71.01 $80.57 $73.51 $92.57
Winston Altamonte Salem Nashville Atlanta Springs Partnership Total ----- --------- ------- ------- ----------- ----- REVENUES: Hotel operations: Rooms $462 $1,114 $0 $803 $0 $5,871 Telephone and other 27 40 0 30 0 285 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 489 1,154 0 833 0 6,156 Interest and other 0 0 0 0 107 107 ------------ ----------- ----------- ----------- ----------- ------------- Total revenues 489 1,154 0 833 107 6,263 ------------ ----------- ----------- ----------- ----------- ------------- EXPENSES: Hotel operations: Rooms 104 229 0 176 0 1,207 Administrative 56 166 0 111 0 743 Marketing 54 129 0 89 0 675 Energy 21 63 0 36 0 274 Repair and maintenance 35 69 0 39 0 336 Management fees 20 34 0 32 0 234 Property taxes 15 28 18 44 0 121 Other 13 63 0 20 0 198 ------------ ----------- ----------- ----------- ----------- ------------- Hotel operations 318 781 18 547 0 3,788 Depreciation and other amortization 66 117 0 89 0 718 Interest 83 216 0 171 0 1,084 General and administrative 0 0 0 0 435 435 ------------ ----------- ----------- ----------- ----------- ------------- Total expenses 467 1,114 18 807 435 6,025 ------------ ----------- ----------- ----------- ----------- ------------- NET INCOME(LOSS) 22 40 (18) 26 (328) 238 Plus non-cash items - net 68 117 0 131 (74) 693 Less notes payable principal payments 5 30 0 26 0 87 ------------ ----------- ----------- ----------- ----------- ------------- Project operations 85 127 (18) 131 (402) 844 Capital Improvements 272 114 0 29 0 942 ------------ ----------- ----------- ----------- ----------- ------------- Project operations after capital improvements ($187) $13 ($18) $102 ($402) ($98) ============ =========== =========== =========== =========== ============= Occupancy 85% 85% 85% 85% ADR $73.39 $92.46 $87.56 $81.55 Page 17 of 21
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 at a discount 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 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. 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 has asked the Chancery Court to return ownership of the Land to it, which would result in it again becoming the landlord under the Lease. The Court heard argument regarding NLC's request on September 11, 1997, but has not yet ruled on this request. Page 18 of 21 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. In late October 1997, 2300 and NLC filed a motion for an injunction to prohibit GSI from distributing proceeds from the sale of the Residence Inns owned by GSI, pending a final judgement in this case. A hearing on this motion has been set for December 17, 1997. 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 have appealed 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"). Page 19 of 21 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"). 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 in either action. However, as to the Declaratory Relief Action, the defendants filed motions to quash service of process, to stay the case and to transfer it to Tennessee, which motions were denied by the Court on September 15, 1997. The defendants subsequently filed a demurrer, claiming in essence that the plaintiffs' claims cannot be asserted in a declaratory relief action. A hearing on this demurrer is scheduled for November 13, 1997. As to the Inducement Action, the Inducement Action Defendants removed the lawsuit from the Chancery Court to the U.S. District Court for Tennessee on July 25, 1997. On August 11, 1997, Nelson asked the Court to remand this action to the Chancery Court, but no decision has yet been rendered on Nelson's request. 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 court has not yet taken action on these matters, but has set a trial date of May 28, 1998. 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 was scheduled for the fourth quarter of 1997. In September 1997, GSI proposed to settle this potential liability by paying approximately $122,000 and agreeing to pay sales tax on complimentary items going forward, which proposal was accepted by the State in late October 1997. GSI paid the agreed amount on November 3, 1997, which completed the settlement of this proceeding. 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 20 of 21 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: November 13, 1997 --------------------------------- Page 21 of 21 EX-27 2 FDS
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 7,731,000 0 1,546,000 0 0 9,484,000 91,540,000 33,425,000 68,107,000 3,903,000 42,351,000 0 0 0 21,553,000 68,107,000 0 18,748,000 0 11,686,000 0 0 3,248,000 1,798,000 0 0 0 0 0 0 1,798,000 29
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