-----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, RTwAfeoNiLtV8j9KQIuNOmihjBjogeQIpHV6Muwn52qVw2O5ZuY8nsKNoYbB68qC VmBFDY1cHHGs9Cl+cFmARg== 0000948524-99-000050.txt : 19990517 0000948524-99-000050.hdr.sgml : 19990517 ACCESSION NUMBER: 0000948524-99-000050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623078 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 MARCH 31, 1999 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 March 31, 1999 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 PART 1 FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited). METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership BALANCE SHEETS (UNAUDITED) March 31, December 31, 1999 1998 ----------- ----------- ASSETS Cash and Cash Equivalents $ 7,809,000 $ 7,485,000 Restricted Cash 5,000,000 5,353,000 Accounts Receivable 716,000 672,000 Prepaid Expenses and Other Assets 52,000 126,000 Asset to be Disposed of 8,185,000 8,185,000 Deferred Franchise Fees 24,000 24,000 =========== =========== TOTAL ASSETS $21,786,000 $21,845,000 =========== =========== LIABILITIES AND PARTNERS' EQUITY Accounts Payable $ 773,000 $ 655,000 Accrued Property Taxes 32,000 114,000 Accrued Interest 216,000 333,000 Other Liabilities 694,000 751,000 Note Payable 8,224,000 8,292,000 ----------- ----------- TOTAL LIABILITIES 9,939,000 10,145,000 ----------- ----------- PARTNERS' EQUITY General Partners -- -- Limited Partners (59,932 Units Outstanding) 11,847,000 11,700,000 ----------- ----------- TOTAL PARTNERS' EQUITY 11,847,000 11,700,000 =========== =========== TOTAL LIABILITIES AND PARTNERS' EQUITY $21,786,000 $21,845,000 =========== =========== See notes to financial statements (unaudited). Page 2 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended March 31, -------------------------- 1999 1998 ------------ ------------ REVENUES: Hotel Operations $ 998,000 $ 1,008,000 Interest and Other 145,000 202,000 ----------- ----------- Total Revenues 1,143,000 1,210,000 ----------- ----------- EXPENSES: Hotel Operations Rooms 213,000 205,000 Administrative 116,000 128,000 Marketing 101,000 110,000 Energy 64,000 58,000 Repair and Maintenance 54,000 43,000 Management Fees 30,000 33,000 Property Taxes 37,000 27,000 Other 57,000 70,000 ----------- ----------- Total Hotel Operations 672,000 674,000 Depreciation and Other Amortization -- 131,000 Interest 210,000 219,000 General and Administrative 114,000 320,000 ----------- ----------- Total Expenses 996,000 1,344,000 ----------- ----------- NET INCOME (LOSS) $ 147,000 $ (134,000) =========== =========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ 2 $ (2) =========== =========== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP ASSIGNEE UNIT $ -- $ 285 =========== =========== See notes to financial statements (unaudited). Page 3 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF PARTNERS' EQUITY (UNAUDITED) For the Three Months Ended March 31, 1999 and 1998 General Limited Partners Partners Total ------------- ------------ ------------ Balance, January 1, 1999 $ -- $ 11,700,000 $ 11,700,000 Net Income (Loss) -- 147,000 147,000 ============= ============ ============ Balance, March 31, 1999 $ -- $ 11,847,000 $ 11,847,000 ============= ============ ============ Balance, January 1, 1998 $ 348,000 $ 29,115,000 $ 29,463,000 Net Income -- (134,000) (134,000) Cash Distributions (348,000) (17,081,000) (17,429,000) ============= ============ ============ Balance, March 31, 1998 $ -- $ 11,900,000 $ 11,900,000 ============= ============ ============ See notes to financial statements (unaudited). Page 4 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, ---------------------------- 1999 1998 ------------ ------------- OPERATING ACTIVITIES Net Income (Loss) $ 147,000 $ (134,000) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation and Amortization -- 131,000 Changes in Operating Assets and Liabilities: Accounts Receivable (44,000) 233,000 Prepaid Expenses and Other Assets 74,000 92,000 Accounts Payable, Accrued Expenses, and Other Liabilities (138,000) (869,000) ------------ ------------ Net Cash Provided (Used) by Operating Activities 39,000 (547,000) ------------ ------------ INVESTING ACTIVITIES Cash in Escrow -- 19,214,000 Proceeds from Sale of Cash Investment -- 3,888,000 Capital Improvements -- (101,000) Restricted Cash - Increase 353,000 (4,000) ------------ ------------ Net Cash Provided by Investing Activities 353,000 22,997,000 ------------ ------------ FINANCING ACTIVITIES Notes Payable Principal Payments (68,000) (18,504,000) Cash Distribution to Partners -- (17,429,000) Prepayment Penalties Paid -- (438,000) ------------ ------------ Cash Used by Financing Activities (68,000) (36,371,000) ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 324,000 (13,921,000) Cash and Cash Equivalents at Beginning of Period 7,485,000 27,051,000 ============ ============ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,809,000 $ 13,130,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid in Cash During the Period $ 327,000 $ 365,000 ============ ============ See notes to financial statements (unaudited). Page 5 METRIC PARTNERS GROWTH SUITE INVESTORS, L.P., a California Limited Partnership NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. Reference to the 1998 Audited Financial Statements These unaudited financial statements should be read in conjunction with the Notes to Financial Statements included in the 1998 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 Three Months Ended March 31, -------------------------- 1999 1998 -------- -------- Partnership management fees $ -- $ 53,000 Reimbursement of administrative expense 33,000 53,000 ======== ======== Total $ 33,000 $106,000 ======== ======== As discussed in Note 2 to the 1998 audited financial statements, pursuant to the Partnership Agreement, immediately prior to liquidation and if certain distribution levels to the limited partners are not met, the general partners may be obligated to return all or a portion of the cumulative amounts received in distributions. At March 31, 1999 such amount is approximately $810,000 and the Partnership believes circumstances will be such that the general partners will be required to re-contribute this amount. 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. Restricted Cash The $5,000,000 restricted cash at March 31, 1999 represents the amount, which (as discussed in Part II, Item 1) the Court enjoined the Partnership from conveying, transferring, or otherwise disposing of. At December 31, 1998, the balance, in addition to the $5,000,000, consists of amounts related to the sale of the Residence Inn - Atlanta (Perimeter West) which were deposited in an escrow account. (See Note 7 to the 1998 audited financial statements). In March 1999, the escrow account was closed and the total amount in the account was transferred to the Partnership. 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 other legal proceedings; see Part II, Item 1, Legal Proceedings, for a detailed description of these matters. 6. Asset to be Disposed Of At December 31, 1998, the Partnership's remaining property, the Residence Inn - Nashville, was classified as asset to be disposed of and an impairment provision, in the amount of $195,000, was recorded in 1998 to reduce the carrying value to the estimated fair value less costs to dispose of. The estimated fair value for this property is equivalent to the principal balance on the mortgage note payable (see Note 7. below) less Page 6 costs to dispose of the property. The estimated fair value of the property does not necessarily represent the amount at which the property will ultimately be disposed of. 7. Note Payable On April 1, 1998, the balloon mortgage payment for the Residence Inn - Nashville, totaling $8,491,000, became due and payable. The Partnership did not make the payment and has since been in default. The Partnership was unable to negotiate an extension with the lender and was unable to sell the property (see Note 5 to the 1998 audited financial statements). The Partnership discontinued the monthly debt service payments effective with the payment due December 1, 1998. In January 1999, the lender contacted the Partnership and it was agreed that the Partnership would make the monthly debt service payments to cover the payments due December 1, 1998 through April 1, 1999, in exchange for the lender agreeing to work towards taking title to the property via a deed in lieu of foreclosure and assuming the management contract with Marriott (with Marriott's consent), thereby relieving the Partnership of a potential obligation to pay approximately $1,400,000 in termination fees plus other costs, and relief from the ground lease. Consequently, on February 5, 1999, the Partnership paid $265,000 to cover the monthly payments (including impound) due through February 1, 1999. The Partnership also paid the debt service installments due March 1 and April 1, 1999. The lender has decided to foreclosure on the property and it is anticipated that the Partnership will make no further debt service payments. The Partnership will work, in the foreclosure process, towards facilitating an assignment of the Marriott contract to a new owner. There can, however, be no assurance that such assignment can be consummated, and the Partnership could be liable to pay the termination fee of approximately $1,400,000 plus other costs. The foreclosure sale is expected to occur in June 1999. 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. Year 2000 Readiness Disclosure With the change to the year 2000, computer programs or hardware utilizing two digits rather than four to define the applicable year may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to conduct normal business activities. In anticipation of the year 2000, in late 1996 the Managing General Partner conducted a thorough inventory of all software programs it had in use and identified programs that would require modification to correct date handling methodology. Furthermore, the Managing General Partner initiated a policy requiring that all future software purchases be year-2000 compliant. With the exception of the Managing General Partner's financial accounting system, the majority of the hardware and software in use was determined to be year-2000 compliant or it was determined that compliance could be achieved with minor modifications. These modifications were 100% completed by year-end 1998. With respect to the financial accounting system, the Managing General Partner is in the process of implementing a Year 2000-compliant software product to replace its existing system, and anticipates the new system to be fully operational and tested by July 31, 1999. All necessary changes have been and will continue to be undertaken at no cost to the Partnership. In addition to internal systems, the Managing General Partner surveyed third parties that provide essential business services to determine their state of year-2000 readiness. The Partnership's Servicing and Transfer Agent, Gemisys, utilizes a platform programmed to correctly interpret the change to the new century. The state of year-2000 readiness of Marriott, the manager of the remaining hotel, is not considered to be of significance, as the hotel will likely be foreclosed in June 1999. The Managing General Partner anticipates there to be no material exposure to year-2000 issues. However, should the Managing General Partner's new financial accounting system not be fully operational by December 31, 1999, the Managing General Partner's contingency plan would be to process necessary transactions utilizing non-date sensitive software. Page 7 Properties A description of the remaining property in which the Partnership has an ownership interest, along with the occupancy and room rate data follows: OCCUPANCY AND ROOM RATE SUMMARY
Average Occupancy Rate (%) Average Daily Room Rate ($) ------------------------------- -------------------------------- Three Months Ended Three Months Ended March 31, March 31, Date of ------------------------------- -------------------------------- Name and Location Rooms Purchase 1999 1998 1999 1998 - -------------------------------- -------- ---------- -------------- -------------- -------------- -------------- Residence Inn - Nashville (Airport) 168 05/89 76 82 83.00 79.57 Nashville, Tennessee
Results of Operations During the three months ended March 31, 1999, the Partnership had net income of $147,000 compared to a net loss of $134,000 in 1998. The change is primarily due to no depreciation being recorded in 1999 and a reduction in general and administrative expenses. There was substantially no change in the hotel operating revenues and expenses, being primarily those of the Residence Inn - Nashville, as the decrease in occupancy was offset by an increase in room rates. Likewise, interest expense remained stable for the two years. Depreciation and other amortization decreased during the first three months of 1999 compared to 1998 as a result of the Partnership's remaining property being classified as asset to be disposed of at December 31, 1998 and no depreciation or amortization of deferred franchise fees were recorded after that date (see Notes 1 and 4 to the 1998 audited financial statements). Interest income decreased in 1999 compared to 1998 due to lower cash balances resulting from sales proceeds being distributed in January 1998. The Partnership's general and administrative expenses decreased in the first three months of 1999 compared to 1998 primarily due to a decrease in legal costs, Partnership management fees and administrative costs. The following discussion provides information concerning the operations of the Partnership's remaining hotel: Residence Inn - Nashville: Operating results were positive for the first three months of 1999 and were virtually unchanged as compared to the same period in 1998. While the average daily room rate increased by $3.43, to $83.00, for the period, average occupancy decreased by 6%, to 76%, as compared to the first three months of 1998. The Nashville Airport hotel market continues to struggle with the effect of the closure of Opryland theme park, which is undergoing a major two-year renovation. Additionally, patronage continues to decline at the Opryland Convention Center, which has traditionally provided overflow traffic to the Partnership's hotel. Contributing to the weak market is the high level of new supply, with approximately 3,000 new rooms coming on line during 1998. The 1999 capital plan, as proposed by Marriott, calls for spending approximately $1,921,000; however, the Partnership has not approved the 1999 capital plan and has put most capital expenditures on hold pending the disposal of the hotel. Partnership Liquidity and Capital Resources First Quarter of 1999 As presented in the Statement of Cash Flows, cash was provided by operating activities. Cash was provided by investing activities from receipt by the Partnership of the balance of an escrow account (the "Shortfall Guaranty Account") that had been established at the time of sale of the Residence Inn - Atlanta in October 1995. The conditions for payment from the Shortfall Guaranty Account to the buyer of the hotel were not met and, pursuant to the escrow agreement, the full amount, including any interest earned, was returned to the Partnership on March 31, 1999. Cash was used by financing activities for principal payments on notes payable. As disclosed in the Partnership's Form 10-K filed for the period ended December 31, 1998, the 1999 capital plan, as proposed by Marriott, calls for spending approximately $1,921,000, of which $1,260,000 is budgeted for suite renovations Page 8 commencing in the second quarter of 1999. These improvements are generally necessary to enable the property to remain competitive in the market and are required under the franchise agreement. The Partnership, however, has not approved the 1999 capital plan and has put all but the most necessary capital expenditures on hold pending the disposal of the hotel. 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. The Partnership has made no distributions to date in 1999. Future distributions will be dependent primarily upon the level of general and administrative expenses and interest income as well as the outcome of legal proceedings related to the Residence Inn - Nashville, as described further in Part II, Item 1, and the ultimate disposal of the hotel. On April 1, 1998, the balloon mortgage payment for the Residence Inn - Nashville, totaling approximately $8.5 million, became due and payable (see Note 7 to the financial statements). In exchange for a six-month forbearance agreement, during which time the Partnership pursued the potential sale of the property, the lender accepted a principal reduction payment of $100,000, reimbursement of $20,000 of its costs, and regular monthly debt service payments through November 1, 1998. The Partnership subsequently determined that a sale of the property was not feasible, and the forbearance agreement expired. The Partnership attempted to negotiate with the lender to accept the deed in lieu of foreclosure and to assume the Marriott management contract, but was unsuccessful. A deed in lieu of foreclosure would have relieved the Partnership of substantial contract termination fees that it may have to pay in the event of a foreclosure sale. In this regard, the Partnership has made regular monthly debt service payments for the months of December 1998, January, February, March and April 1999. It is now likely that the property will be foreclosed in June 1999. While the Partnership believes that the ground lease associated with the property would be terminated in the event of a foreclosure, the Partnership will be obligated to pay deferred rent under the lease. Internal Revenue Service regulations provide that, should 5% or more of the outstanding assignee limited partnership units of a limited partnership be traded via non-exempt transactions within a calendar year the limited partnership could be classified as a publicly-traded partnership for federal tax purposes, and could therefore be taxed as a corporation. Transfers that are exempt from the above restrictions include transfers at death; transfers between siblings, spouses, ancestors, or lineal descendants; and distributions from qualified retirement plans. In 1996, 1997, and again in 1998, the Managing General Partner suspended the processing of most types of resale transactions, as the level of such resale transactions reached 4.9% of the total number of outstanding Units for each of those years. This action was taken to ensure that resale transactions did not result in the termination of the Partnership for tax purposes, cause the Partnership to be classified as a publicly traded partnership or to be taxed as a corporation. Through May 10, 1999, the Partnership's Transfer Agent processed non-exempt resale transactions representing approximately 3.0% of the total number of outstanding Units. Should non-exempt transactions reach 4.9%, the Managing General Partner will again suspend processing and will promptly notify investors. Conclusion In view of (i) the sale of all of the Partnership's properties except the Residence Inn - Nashville; (ii) the anticipated foreclosure of the Residence Inn - - Nashville; (iii) the Partnership's potential liability of $1,400,000 in contract termination fees plus other costs upon disposal of the hotel; (iv) distributions the General Partners will be obligated to return to the Partnership prior to its liquidation; and (v) uncertainties related to the litigation relating to that property, the Partnership no longer provides an estimated net asset value per Unit. However, the Partnership is aware that some resale transactions of Units have taken place in the informal secondary market. In this informal market, transactions may or may not take place in any given time period and occur at a price negotiated between the buyer and seller. The Partnership has no knowledge concerning how a particular price may be determined. A total of 112 resale transactions have been recorded on the books of the Partnership's transfer agent between January 1, 1999 and May 10, 1999, reflecting prices ranging from $75 to $415 per Unit, with a simple average price of $104. 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 Page 9 states of California, North Carolina, and Indiana. Future distributions will be dependent on general and administrative expenses and interest income and fees and expenses the Partnership may be liable for upon foreclosure, as well as the outcome of legal proceedings relating to the Residence Inn - Nashville. As discussed in Part II, Item 1, there is substantial doubt regarding the Partnership's ability to continue as a going concern. 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 filed a motion with the Chancery Court to set aside the judicial sale and to return ownership of the Land to it, which would result in it again becoming the landlord under the lease. NLC also filed a lien lis pendens against the Land, giving notice of NLC's attempts to set aside the sale. In November, 1997, the Court denied this motion. On June 8, 1998, the Court granted a motion filed by Orlando to dissolve the lien lis pendens filed by NLC. Orlando asserted, and the Court agreed, that the order of November 1997 denying NLC's motion to set aside the sale of the Land was a final, unappealable order that finally disposed of NLC's claim to set aside the sale. In July of 1998, NLC appealed the Court's Page 10 order of June 8, 1998. This appeal is currently pending. Unless NLC's appeal is successful, Orlando will continue to be the owner of the Land and the Partnership's landlord under the lease. 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. 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. In late October 1998, 2300 and NLC filed a second amended complaint, asserting that a certain 1989 three-party agreement among NLC, the Partnership and the holder of a mortgage on the Hotel and the Land entitles 2300 and NLC to obtain judgment for, among other things, the cost, including attorney's fees, of this action and of Nelson's time and efforts on behalf of NLC in this action. In November 1998, the Court granted a motion filed by the Partnership, dismissing the claim of NLC and 2300 to recover for the value of Nelson's time and efforts on behalf of NLC in this and related litigation. In December 1998, the Court granted a motion for partial summary judgment filed by the Partnership, dismissing most of the remaining damage claims of 2300 and NLC, including claims for indemnification for any loss resulting from the claims of Orlando. After these claims were dismissed, 2300 and NLC amended their damage claim to seek to recover the alleged differential between the price that the Partnership agreed to pay for the Land and its alleged fair market value. The amount of this claim is approximately $1.6 million. In April 1999, the Partnership filed a motion to strike the new damage claim. At a hearing held on May 7, 1999, the Court denied the motion. The trial of the case, which had previously been set for February 9, 1998 and continued to March 15, 1999, has been further continued to permit limited discovery related to this new claim. No new trial date has yet been set. Page 11 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 on 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 August 1996 the Court granted the Partnership's motion. The defendants appealed all judgments for the Partnership in this case. The Partnership and the defendants agreed on an attorneys' fee award to the Partnership of $60,000, but no payment was expected until the defendants' appeal is resolved. Oral arguments regarding this appeal were held in July 1998, and in September 1998 the appellate court affirmed the judgments for the Partnership. Defendants moved for rehearing, which was denied in early October 1998. Defendants then filed an application with the Tennessee Supreme Court for permission to appeal the appellate court decision. This application was denied by the Tennessee Supreme Court in early March 1999. Subsequently, Defendants petitioned the Tennessee Supreme Court to reconsider its denial. This petition was denied by the Tennessee Supreme Court on May 10, 1999. 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. In the Inducement Action, Defendants in June 1998 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 in September 1998 dismissed the complaint against all Affiliates but one and denied the remaining requests for dismissal. A motion for summary judgment to dismiss the action on the basis of the statute of limitations was filed in January 1999 by the Inducement Action Defendants and was argued at a hearing held in February 1999. In April 1999, the Court denied the motion. Discovery is ongoing and the case has not been set for trial. The legal and other expenses of the Inducement Action Defendants in the Inducement Action arising as a result of the allegations made by Nelson are being 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. James Reuben et al., San Francisco County Superior Court, Case No. 998214. On September 30, 1998, the Partnership filed this lawsuit against James Reuben and several law corporations of which he is or has been a member (the "Reuben Defendants"), alleging breach of their professional obligations and fiduciary duty as attorneys for the Partnership to adequately and competently represent Page 12 and advise the Partnership in connection with the SF Settlement. The Partnership seeks unspecified damages from the Reuben Defendants arising from such breach. The Reuben Defendants answered the complaint in January 1999. Discovery has yet to commence and no trial date for this action has been set. Potential Impact of Litigation The anticipated foreclosure of the Residence Inn - Nashville (see Part I, Item 2 "Partnership Liquidity and Capital Resources"), 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. Page 13 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: May 11, 1999 --------------------- Page 14 EX-27 2 FDS
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 12,809,000 0 716,000 0 0 13,577,000 14,171,000 5,986,000 21,786,000 1,715,000 8,224,000 0 0 0 11,847,000 21,786,000 0 998,000 0 672,000 0 0 210,000 147,000 0 0 0 0 0 147,000 2 0
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