-----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, FCBpuBYzbejjPSpkneZxAsJZBA5XSTaWEr1mnODS8CY4Ot3YzRmK6WSwwOxWsqoj nmoHn+FEbgBzDvk6tcfh3A== 0000948524-98-000069.txt : 19980810 0000948524-98-000069.hdr.sgml : 19980810 ACCESSION NUMBER: 0000948524-98-000069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980807 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: 98679845 BUSINESS ADDRESS: STREET 1: ONE CALIFORNIA ST STREET 2: SUITE 1400 CITY: SAN FRANCISCO STATE: CA ZIP: 94111-5415 BUSINESS PHONE: 4156782000 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, 1998 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, 1998 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 the 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 19 PART 1 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, 1998 1997 --------------- -------------- ASSETS Cash and Cash Equivalents $ 12,859,000 $ 27,051,000 Cash in Escrow -- 19,214,000 Cash Investments -- 3,888,000 Restricted Cash 344,000 335,000 Accounts Receivable 1,173,000 1,295,000 Prepaid Expenses and Other Assets 109,000 178,000 Properties and Improvements 13,949,000 13,909,000 Accumulated Depreciation (5,523,000) (5,263,000) --------------- -------------- Net Properties and Improvements 8,426,000 8,646,000 Deferred Franchise Fees 26,000 29,000 --------------- --------------- TOTAL ASSETS $ 22,937,000 $ 60,636,000 =============== =============== LIABILITIES AND PARTNERS' EQUITY Accounts Payable $ 907,000 $ 1,542,000 Accrued Property Taxes 53,000 116,000 Accrued Interest 174,000 307,000 Accrued Prepayment Penalties -- 438,000 Other Liabilities 1,297,000 1,487,000 Deferred Gain on Sale of Property 300,000 300,000 Notes Payable 8,443,000 26,983,000 --------------- --------------- TOTAL LIABILITIES 11,174,000 31,173,000 --------------- --------------- PARTNERS' EQUITY General Partners -- 348,000 Limited Partners(59,932 Units Outstanding) 11,763,000 29,115,000 -------------- --------------- TOTAL PARTNERS' EQUITY 11,763,000 29,463,000 --------------- --------------- TOTAL LIABILITIES AND PARTNERS' EQUITY $ 22,937,000 $ 60,636,000 =============== =============== See notes to financial statements (unaudited). Page 2 of 19 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS (UNAUDITED) For the Six Months Ended June 30, ------------------------------------ 1998 1997 ---------------- ---------------- REVENUES: Hotel Operations $ 2,202,000 $ 12,254,000 Interest and Other 370,000 179,000 ---------------- ---------------- Total Revenues 2,572,000 12,433,000 ---------------- ---------------- EXPENSES: Hotel Operations Rooms 443,000 2,426,000 Administrative 289,000 1,430,000 Marketing 233,000 1,288,000 Energy 103,000 603,000 Repair and Maintenance 110,000 677,000 Management Fees 80,000 484,000 Property Taxes 50,000 353,000 Other 131,000 464,000 ---------------- ---------------- Total Hotel Operations 1,439,000 7,725,000 Depreciation and Other Amortization 263,000 1,491,000 Interest 434,000 2,166,000 General and Administrative 496,000 408,000 ---------------- ---------------- Total Expenses 2,632,000 11,790,000 ---------------- ---------------- NET INCOME (LOSS) $ (60,000) $ 643,000 ================ ================ NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ (1) $ 10 ================ ================ CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ 288 $ 20 ================ ================ See notes to financial statements (unaudited). Page 3 of 19 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended June 30, ------------------------------------ 1998 1997 ---------------- ---------------- REVENUES: Hotel Operations $ 1,194,000 $ 6,542,000 Interest and Other 168,000 77,000 ---------------- ---------------- Total Revenues 1,362,000 6,619,000 ---------------- ---------------- EXPENSES: Hotel Operations Rooms 238,000 1,264,000 Administrative 161,000 745,000 Marketing 123,000 652,000 Energy 45,000 267,000 Repair and Maintenance 67,000 364,000 Management Fees 47,000 264,000 Property Taxes 23,000 199,000 Other 61,000 241,000 ---------------- ---------------- Total Hotel Operations 765,000 3,996,000 Depreciation and Other Amortization 132,000 739,000 Interest 215,000 1,083,000 General and Administrative 176,000 236,000 ---------------- ---------------- Total Expenses 1,288,000 6,054,000 ---------------- ---------------- NET INCOME $ 74,000 $ 565,000 ================ ================ NET INCOME PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ 1 $ 9 ================ ================ CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ 3 $ 10 ================ ================ See notes to financial statements (unaudited). Page 4 of 19 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY (UNAUDITED) For the Six Months Ended June 30, 1998 and 1997 General Limited Partner Partners Total ------------- ------------- ------------ Balance, January 1, 1998 $ 348,000 $ 29,115,000 $ 29,463,000 Net Income (Loss) 5,000 (65,000) (60,000) Cash Distributions (353,000) (17,287,000) 17,640,000) ------------ ------------ ------------ Balance, June 30, 1998 $ -- $ 11,763,000 $ 11,763,000 ============ ============ ============ 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 ============ ============ ============ See notes to financial statements (unaudited). Page 5 of 19 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, ----------------------------- 1998 1997 ------------- ------------ OPERATING ACTIVITIES Net Income (Loss) $ (60,000) $ 643,000 Adjustments to Reconcile Net Income (Loss)to Net Cash Provided (Used) by Operating Activities: Depreciation and Amortization 263,000 1,589,000 Changes in Operating Assets and Liabilities: Accounts Receivable 122,000 (697,000) Prepaid Expenses and Other Assets 69,000 80,000 Accounts Payable, Accrued Expenses, and Other Liabilities (1,459,000) 367,000 ------------ ------------ Net Cash Provided (Used) by Operating Activities (1,065,000) 1,982,000 ------------ ------------ INVESTING ACTIVITIES Cash in Escrow 19,214,000 -- Proceeds from Sale of Cash Investments 3,888,000 3,893,000 Capital Improvements (40,000) (799,000) Restricted Cash - Increase (9,000) (15,000) ------------ ------------ Net Cash Provided by Investing Activities 23,053,000 3,079,000 ------------ ------------ FINANCING ACTIVITIES Notes Payable Principal Payments (18,540,000) (182,000) Cash Distribution to Partners (17,640,000) (1,223,000) ------------ ------------ Cash Used by Financing Activities (36,180,000) (1,405,000) ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14,192,000) 3,656,000 Cash and Cash Equivalents at Beginning of Period 27,051,000 3,436,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,859,000 $ 7,092,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid in Cash During the Period $ 567,000 $ 2,047,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Accrued Capital Improvements Paid $ 88,000 $ -- ============ ============ See notes to financial statements (unaudited). Page 6 of 19 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. Reference to the 1997 Audited Financial Statements These unaudited financial statements should be read in conjunction with the Notes to Financial Statements included in the 1997 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, ------------------------------ 1998 1997 ----------- ----------- Partnership management fees $ 72,000 $106,000 Reimbursement of administrative expense 105,000 150,000 ----------- ----------- Total $177,000 $256,000 =========== =========== 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 investment 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, 1998. 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, and a plaintiff and defendant in legal proceedings related to the Residence Inn - Nashville; see Part II, Item 1, Legal Proceedings, for a detailed description of these matters. 6. Note Payable The balloon mortgage payment for the Residence Inn - Nashville, totaling approximately $8.5 million, became due on April 1, 1998 and the Partnership is currently in default. The Partnership has made the regular monthly debt service payments through August 1, 1998, as attempts were being made to negotiate a sales contract for the hotel with an unaffiliated third party buyer. During protracted negotiations the prospective buyer requested terms unacceptable to the Partnership and the letter of intent was withdrawn. The Partnership is again attempting to negotiate an extension of the existing loan, but is also considering other options. If the Partnership were to pay the loan in full, it would have to seek permission from the Court to use a portion of the $5 million that the Court restricted (see part II, Item I). While the Partnership has continued to undertake efforts to preserve its equity in the hotel, it may no longer be economically feasible to continue to hold the asset. Page 7 of 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This Item should be read in conjunction with Financial Statements and other Items contained elsewhere in this Report. Properties A description of the properties in which the Partnership has or had an ownership interest, along with the occupancy and room rate data follows:
OCCUPANCY AND ROOM RATE SUMMARY Average Occupancy Rate (%) Average Daily Room Rate ($) ------------------------------- -------------------------------- Six Months Three Months Six Months Three Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, Date of --------------- --------------- ---------------- --------------- Name and Location Rooms Purchase 1998 1997 1998 1997 1998 1997 1998 1997 - -------------------------------- -------- ---------- ------- ------- ------- ------- ------ ------- ------- ------ Residence Inn - Ontario (1) 200 04/88 N/A 75 N/A 74 N/A 78.65 N/A 78.21 Ontario, California Residence Inn - Ft. Wayne (1) 80 06/88 N/A 80 N/A 87 N/A 65.41 N/A 64.38 Fort Wayne, Indiana Residence Inn - Columbus (East)(1) 80 06/88 N/A 87 N/A 88 N/A 72.51 N/A 75.21 Columbus, Ohio Residence Inn - Indianapolis (North)(1) 88 06/88 N/A 80 N/A 87 N/A 77.19 N/A 80.64 Indianapolis, Indiana Residence Inn - Lexington (1) 80 06/88 N/A 92 N/A 96 N/A 76.62 N/A 82.55 Lexington, Kentucky Residence Inn - Louisville (1) 96 06/88 N/A 87 N/A 87 N/A 91.35 N/A 96.15 Louisville, Kentucky Residence Inn - Winston-Salem (1) 88 06/88 N/A 81 N/A 85 N/A 80.44 N/A 81.63 Winston-Salem, North Carolina Residence Inn - Nashville(Airport) 168 05/89 84 78 87 88 82.42 86.08 85.09 89.12 Nashville, Tennessee Residence Inn - Altamonte Springs (1) 128 03/90 N/A 90 N/A 87 N/A 92.78 N/A 91.64 Altamonte Springs, Florida 1) Sold in December 1997.
Page 8 of 19 Results of Operations During the six and three months ended June 30, 1998, the Partnership had a net loss of $60,000 and net income of $74,000, respectively, compared to net income of $643,000 and $565,000 for the same periods in 1997, respectively. The changes are primarily due to the sale of eight hotels on December 30, 1997. Operations for the remaining hotel decreased for the quarter ended June 30, 1998 compared to 1997, but still reflect a substantial increase on a year-to-date basis compared to last year. In addition, the net operations from the Partnership's interest income less its administrative expenses improved for both the six and three months ended June 30, 1998 compared to 1997. Revenues and expenses from hotel operations decreased substantially in the first six and three months ended June 30, 1998 when compared to 1997 due to the sale of the eight hotels in late 1997. Revenues from the Partnership's remaining hotel, the Residence Inn - Nashville, decreased for the second quarter as both occupancy and rates were below those experienced in 1997. However, on a year-to-date basis the revenues reflect an increase of 3% in 1998 compared to 1997 as a result of a six percent increase in occupancy, which was only partially offset by a decrease in room rates. The operating expenses at the Residence Inn - Nashville remained nearly constant for the two years as an increase in administrative costs was offset by other cost decreases, particularly in repair and maintenance and property tax costs. Depreciation and interest expense decreased in the first six and three months ended June 30, 1998 compared to 1997 also as a result of the previously mentioned sale. Interest income increased due to higher cash balances resulting from sales proceeds. The Partnership's general and administrative expenses increased in the first half of 1998 compared to 1997 primarily due to an increase in legal costs which was only partially offset by decreases in Partnership management fees and administrative costs. The second quarter general and administrative expenses decreased in 1998 compared to 1997 primarily due to decreases in Partnership management fees and administrative costs. The following discussion provides information concerning the operations of the Partnership's single remaining hotel: Residence Inn - Nashville: Operating results were positive for the first six months of 1998 and improved over the same period of last year. While the average daily room rate declined by $3.66 to $82.42 for the first half of 1998, average occupancy increased by 6% to 84%. The Nashville Airport hotel market continued to weaken during the quarter, primarily resulting from the closure of Opryland theme park, which is undergoing a major renovation. The park, which had been a steady source of patronage for the Partnership's hotel, closed in January 1998. The first of five incremental re-openings is scheduled for the spring of 2000, for what will ultimately be a 1.1 million square foot complex combining numerous theme restaurants, more than 200 retail shops, and an entertainment corridor. Additionally, patronage was down significantly at the Opryland Convention Center, which has traditionally provided overflow traffic to the Partnership's hotel. The Partnership's hotel continues to work with the other hotels of the Nashville Airport Hospitality Association and with the other Nashville area Marriott products to attract new business. In an effort to maintain market share, the hotel is attempting to recapture the weekend leisure traffic through new special rates. Competition will also become stronger in the near future, as one nearby hotel is currently under renovation, and another new hotel, with 120 rooms, is expected to open in the fall. Capital expenditures during the quarter included repaving the parking lot, construction of a new drainage system, and landscaping upgrades, as well as structural upgrades to two of the buildings. Partnership Liquidity and Capital Resources Second Quarter of 1998 As presented in the Statement of Cash Flows, cash was used by operating activities. Cash was provided by investing activities from sales proceeds previously held in escrow and 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 quarter ended June 30, 1998 and 1997 (as shown in the tables on pages 12 and 13) 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. Project operations before capital improvements is an indication Page 9 of 19 of the operational performance of the property. During the first six months of 1998, the Partnership's remaining hotel 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 first half of 1998. 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 six months of 1998, the Partnership spent $40,000 on capital improvements at the Residence Inn - Nashville. Assuming the Partnership maintains ownership of the hotel (see below) during the remainder of 1998, it is anticipated that approximately $235,000 will be spent on capital improvements, which are necessary to keep the property competitive in its market and are required under the agreement 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 ongoing capital improvements as well as room or other major renovation programs. The capital replacement funds are held in a separate interest-bearing account with additions made monthly based on revenues and expenditures which are based on the capital expenditure budget, as approved by the Partnership. To the extent not available from the property's capital replacement fund, a capital improvement or renovation may be funded from the Partnership's working capital reserve. In January 1998, the Partnership made two distributions to its general and limited partners, one totaling $16,818,000, representing a portion of the net sales proceeds, and another one totaling $612,000 representing a distribution from 1997 operations. Additionally, in April 1998 the Partnership made a distribution totaling $211,000 in order to comply with certain states' tax withholding requirements. With respect to the use of cash, the Partnership is under certain obligations and/or restrictions. In addition to the $5 million restriction imposed by the Court (as discussed in Part II, Item 1), the Partnership was required by the purchaser of the eight hotels sold on December 30, 1997, under the terms of the sales contract, not to distribute $7.5 million of the sales proceeds for a period of one year, which amount represents the maximum possible liability of the Partnership for any breach of the sales agreement. The $7.5 million is not restricted from any other potential use by the Partnership, including the payment of the outstanding balance due on the Residence Inn - Nashville loan (see below). The balloon mortgage payment for the Residence Inn - Nashville, totaling approximately $8.5 million, became due on April 1, 1998 and the Partnership is currently in default. The Partnership has made the regular monthly debt service payments through August 1, 1998, as attempts were being made to negotiate a sales contract for the hotel with an unaffiliated third party buyer. During protracted negotiations the prospective buyer requested terms unacceptable to the Partnership and the letter of intent was withdrawn. The Partnership is again attempting to negotiate an extension of the existing loan, but is also considering other options. If the Partnership were to pay the loan in full, it would have to seek permission from the Court to use a portion of the $5 million that the Court restricted (see part II, Item I). While the Partnership has continued to undertake efforts to preserve its equity in the hotel, it may no longer be economically feasible to continue to hold the asset. Over the past several years a number of unsolicited offers to purchase Units were made to the investors in the Partnership, of which the Partnership was aware. As required by applicable securities laws, the Partnership notified its investors of its views regarding these offers. The Partnership took no position with respect to the offers but rather advised the holders of assignee limited partnership Units to consult their personal financial advisors as the desirability of any particular offer to any Unit holder could differ greatly depending upon such Unit holder's financial, tax, and other individual status. Unit holders were also advised that the Partnership and its Transfer Agent would take such action as the Partnership deemed appropriate to ensure that resale transactions did not result in termination of the Partnership for tax purposes, cause the Partnership to be classified as a publicly traded partnership or cause the Partnership to be taxed as a corporation. Unit holders were reminded that, in order to protect its status as partnership for federal income tax purposes, secondary market activity in its Units would be limited to less than 5% of the outstanding Units per calendar year, and that, for any of these reasons the Partnership may refuse to recognize a resale transaction. Trading reached 4.9 percent (near the 5% maximum percentage) on April 9, 1996 and was suspended as of that date. This action was taken by the General Partners in accordance with its fiduciary responsibility and with the advice of Counsel to protect the Partnership's tax status as a limited partnership. Unit holders were advised of the suspension, in accordance with Section 12.1 of the Partnership Agreement, via a special communication. At the beginning of 1997 the Page 10 of 19 suspension of resale transactions was removed; however, on February 26, 1997, the Partnership's Transfer Agent informed the Managing General Partner that trading had again reached 4.9%, at which time the General Partner again suspended the processing of resale transactions. Unit holders were advised of that suspension, via a special communication dated February 27, 1997. All paperwork submitted from the time of the suspension through the remainder of the calendar year was returned to the originator. At the beginning of 1998, the suspension of resale transactions was removed. On June 24, 1998 the Partnership's Transfer Agent notified the General Partner that trading for 1998 had reached 4.9% at which time the Managing General Partner again suspended the processing of resale transactions. Unit holders were advised of the suspension, via a special communication dated June 24, 1998. All paperwork submitted from that date through the remainder of the calendar year will be returned to the originator. The Partnership's Transfer Agent will again begin to accept resale transactions on January 4, 1999. Conclusion The Partnership established an estimated value for the assignee Units in the Partnership as of December 31, 1997. An appraisal of the remaining hotel was commissioned and undertaken by a firm which is a recognized appraiser and consultant to the hotel industry. The primary methodology employed in the appraisal 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 appraisal, 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 hotel's management contract. The Partnership believes that the assumptions utilized in the process are not unreasonable. The value of the property as determined by the appraisal process, in combination with the book value of other Partnership assets and liabilities as of December 31, 1997, and after deducting the distributions made on January 13, and 29, 1998 resulted in an estimated net asset value of each assignee Unit of $239. (The estimated net asset value does not take into account any distributions that the General Partners may be obligated to return to the Partnership prior to liquidation of the Partnership. See Note 2 to the 1997 audited financial statements.) As of December 31, 1996, 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. The change in value from $503 as of December 31, 1996 to $239 was primarily due to the distribution of a portion of the proceeds from the sale of the eight Residence Inns in the amount of $275 per assignee Unit. 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. This valuation is an estimate of the assignee Unit value only which has been made as of December 31, 1997 based on the methodology described herein and does not represent a market value. There can be no assurance that the sales of the remaining assets in the current market or at any time in the future would yield net proceed which on a per assignee Unit basis would be equal to or greater than the estimated value. Further, there can be no assurance that sale 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. The Partnership has no knowledge concerning how a particular price may be determined. A total of 259 resale transactions were recorded on the books of the Transfer Agent between January 1, 1998 and June 24, 1998 (at which time the Partnership suspended trading -- see above), reflecting prices ranging from $112 to $417 per Unit, with a simple average price (not weighted) of $323. The Partnership's knowledge of these transactions is based solely on the books and records of its Transfer Agent. Cash distributions from Partnership operations to investors throughout 1997 were made at an annualized rate of 4%, including the distribution made on January 29, 1998 from fourth quarter 1997 operations. On January 13, 1998 the Partnership distributed $275 per Unit from the proceeds of the sale of eight hotels in December 1997. On April 9, 1998 the Partnership made a distribution of $3.45 per Unit in order to satisfy nonresident state withholding requirements for the states of California, North Carolina, and Indiana. Future distributions will be dependent on the operations of the Partnership's remaining hotel, the Residence Inn - Nashville, general and administrative expenses and interest income, as well as the outcome of legal proceedings relating to this hotel. As discussed in Part II, Item 1, there is substantial doubt regarding the Partnership's ability to continue as a going concern. Page 11 of 19 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Six Months Ended June 30, 1998 (000's) Sold Partnership Nashville Hotels Total ----------- --------- ------- ------- REVENUES: Hotel operations: Rooms $ 0 $ 2,098 $ 0 $ 2,098 Telephone and other 0 104 0 104 ------- ------- ------- ------- Hotel operations 0 2,202 0 2,202 Interest and other 370 0 0 370 ------- ------- ------- ------- Total revenues 370 2,202 0 2,572 ------- ------- ------- ------- EXPENSES: Hotel operations: Rooms 0 443 0 443 Administrative 0 306 (17) 289 Marketing 0 233 0 233 Energy 0 103 0 103 Repair and maintenance 0 110 0 110 Management fees 0 77 3 80 Property taxes 0 55 (5) 50 Other 0 131 0 131 ------- ------- ------- ------- Hotel operations 0 1,458 (19) 1,439 Depreciation and other amortization 0 263 0 263 Interest 0 428 6 434 General and administrative 496 0 0 496 ------- ------- ------- ------- Total expenses 496 2,149 (13) 2,632 ------- ------- ------- ------- NET INCOME(LOSS) (126) 53 13 (60) Plus non-cash items - net 0 263 0 263 Less notes payable principal payments 0 71 0 71 ------- ------- ------- ------- Project operations (126) 245 13 132 Capital Improvements 0 40 0 40 ------- ------- ------- ------- Project operations after capital improvements ($ 126) $ 205 $ 13 $ 92 ======= ======= ======= ======= Occupancy N/A 84% N/A 84% ADR N/A $ 82.42 N/A $ 82.42 Page 12 of 19 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) Sold Partnership Nashville Hotels Total ----------- --------- ------ ----- REVENUES: Hotel operations: Rooms $ 0 $ 2,027 $ 9,649 $11,676 Telephone and other 0 114 464 578 ------- ------- ------- ------- Hotel operations 0 2,141 10,113 12,254 Interest and other 179 0 0 179 ------- ------- ------- ------- Total revenues 179 2,141 10,113 12,433 ------- ------- ------- ------- EXPENSES: Hotel operations: Rooms 0 457 1,969 2,426 Administrative 0 229 1,201 1,430 Marketing 0 241 1,047 1,288 Energy 0 103 500 603 Repair and maintenance 0 134 543 677 Management fees 0 64 420 484 Property taxes 0 87 266 353 Other 0 152 312 464 ------- ------- ------- ------- Hotel operations 0 1,467 6,258 7,725 Depreciation and other amortization 0 253 1,238 1,491 Interest 0 431 1,735 2,166 General and administrative 408 0 0 408 ------- ------- ------- ------- Total expenses 408 2,151 9,231 11,790 ------- ------- ------- ------- NET INCOME(LOSS) (229) (10) 882 643 Plus non-cash items - net 0 253 1,336 1,589 Less notes payable principal payments 0 65 117 182 ------- ------- ------- ------- Project operations (229) 178 2,101 2,050 Capital Improvements 0 349 450 799 ------- ------- ------- ------- Project operations after capital improvements ($ 229) ($ 171) $ 1,651 $ 1,251 ======= ======= ======= ======= Occupancy N/A 78% 83% 82% ADR N/A $ 86.08 $ 80.49 $ 81.37 Page 13 of 19 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. a California Limited Partnership Project Operations of the Residence Inns for the Three Months Ended June 30, 1998 (000's) Sold Partnership Nashville Hotel Total ----------- --------- ----- ----- REVENUES: Hotel operations: Rooms $ 0 $1,138 $ 0 $1,138 Telephone and other 0 56 0 56 ------ ------ ------ ------ Hotel operations 0 1,194 0 1,194 Interest and other 168 0 0 168 ------ ------ ------ ------ Total revenues 168 1,194 0 1,362 ------ ------ ------ ------ EXPENSES: Hotel operations: Rooms 0 238 0 238 Administrative 0 159 2 161 Marketing 0 123 0 123 Energy 0 45 0 45 Repair and maintenance 0 67 0 67 Management fees 0 47 0 47 Property taxes 0 28 (5) 23 Other 0 61 0 61 ------ ------ ------ ------ Hotel operations 0 768 (3) 765 Depreciation and other amortization 0 132 0 132 Interest 0 215 0 215 General and administrative 176 0 0 176 ------ ------ ------ ------ Total expenses 176 1,115 (3) 1,288 ------ ------ ------ ------ NET INCOME(LOSS) (8) 79 3 74 Plus non-cash items - net 0 132 0 132 Less notes payable principal payments 0 36 0 36 ------ ------ ------ ------ Project operations (8) 175 3 170 Capital Improvements 0 27 0 27 ------ ------ ------ ------ Project operations after capital improvements ($ 8) $ 148 $ 3 $ 143 ====== ====== ====== ====== Occupancy N/A 87% N/A 87% ADR N/A $85.09 N/A $85.09 Page 14 of 19 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) Sold Partnership Nashville Hotels Total ----------- --------- ------ ----- REVENUES: Hotel operations: Rooms $ 0 $1,211 $5,044 $6,255 Telephone and other 0 63 224 287 ------ ------ ------ ------ Hotel operations 0 1,274 5,268 6,542 Interest and other 77 0 0 77 ------ ------ ------ ------ Total revenues 77 1,274 5,268 6,619 ------ ------ ------ ------ EXPENSES: Hotel operations: Rooms 0 256 1,008 1,264 Administrative 0 120 625 745 Marketing 0 128 524 652 Energy 0 36 231 267 Repair and maintenance 0 74 290 364 Management fees 0 38 226 264 Property taxes 0 47 152 199 Other 0 77 164 241 ------ ------ ------ ------ Hotel operations 0 776 3,220 3,996 Depreciation and other amortization 0 127 612 739 Interest 0 216 867 1,083 General and administrative 236 0 0 236 ------ ------ ------ ------ Total expenses 236 1,119 4,699 6,054 ------ ------ ------ ------ NET INCOME(LOSS) (159) 155 569 565 Plus non-cash items - net 0 127 661 788 Less notes payable principal payments 0 33 59 92 ------ ------ ------ ------ Project operations (159) 249 1,171 1,261 Capital Improvements 0 220 289 509 ------ ------ ------ ------ Project operations after capital improvements ($ 159) $ 29 $ 882 $ 752 ====== ====== ====== ====== Occupancy N/A 88% 85% 85% ADR N/A $89.12 $81.86 $83.11 Page 15 of 19 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). [The lawsuits described below are related. 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") then 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 1996 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 judgment underlying the judicial sale; however, the Court has ruled against NLC on its motion that the Land be reinstated to NLC. 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 judgment 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 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, and later ruled against NLC. Thus, Orlando continues to be the owner of the Land and the Partnership's landlord under the Lease. NLC may appeal this ruling for Orlando; however, Orlando has asserted that the period during which this ruling may be appealed has expired. Page 16 of 19 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 demanded 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 judgment, ruling that the Partnership had breached the SF Settlement. The action will continue to determine damages and other issues. Trial had been set for February 9, 1998, but was continued to December 7, 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 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 judgment in this case. A hearing on this motion was held in February 1998 and the Court enjoined the Partnership from conveying, transferring, distributing or otherwise disposing of its cash to any extent which would leave less than $5 million available for payment of any judgment obtained by 2300 and NLC. 2300 and NLC filed an amended complaint against the Partnership in April 1998, asserting, among other things, a bad faith breach of contract by the Partnership. In May 1998, the Court granted a motion by the Partnership to dismiss these bad faith allegations and to dismiss certain claims for specific damages made by 2300 and NLC, including attorneys' fees and the value of Nelson's time relating to efforts to enforce the SF Settlement. 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 a 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 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 Page 17 of 19 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. Oral arguments regarding this appeal were held in July 1998, but no decision has yet been rendered. Kenneth E. Nelson and Nashville Lodging Co. vs. Metric Realty et al., Chancery Court for Davidson County in Nashville, Tennessee, Case No. 97-2189-III (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 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. 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 and on January 28, 1998, the Court remanded this action back to the Chancery Court. In the Inducement Action, Defendants have 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. The Chancery Court has not yet taken action on this motion. The legal and other expenses of the Inducement Action Defendants in 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. Potential Impact of Litigation The Partnership is currently reviewing its alternatives with regard to the Partnership's remaining Hotel including potentially satisfying all or a portion of the loan or sale of the asset. These circumstances, as well as (i) the substantial legal fees and costs that have been and are expected to be incurred by the Partnership in connection with the existing lawsuits, (ii) the usual uncertainty of litigation, and (iii) the effect of these lawsuits on the Partnership's present ability to refinance or sell the Hotel, create substantial doubt about the Partnership's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from these uncertainties. 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 other than the Report filed on June 25, 1998 amending the Report filed on January 14, 1998 reporting the sale of eight of the Partnership's hotel properties, and the Report filed on June 25, 1998 including the letter from the Registrant to investors dated June 24, 1998. Page 18 of 19 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/ Ronald E.Zuzack ------------------------------ Ronald E. Zuzack Managing Director, Multi-Housing Division of SSR Realty Advisors, Inc. Date: August 5, 1998 ------------------------------ Page 19 of 19 EX-27 2
5 0000800730 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 12,859,000 0 1,173,000 0 0 14,141,000 13,949,000 5,523,000 22,937,000 2,431,000 8,443,000 0 0 0 11,763,000 22,937,000 0 2,202,000 0 1,439,000 0 0 434,000 (60,000) 0 (60,000) 0 0 0 (60,000) (1) 0
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