-----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, CzVBcSMskgv7qAy+ywz/m5dEFPT/ByRpkhmV6m+7DFjzbv3rDBAnm+h93OwNqvOu Y3jh5nd2s4oecZZYiM1qjw== 0000810661-97-000016.txt : 19970402 0000810661-97-000016.hdr.sgml : 19970402 ACCESSION NUMBER: 0000810661-97-000016 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSION VALLEY COMFORT SUITES LTD CENTRAL INDEX KEY: 0000810661 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 330213497 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18080 FILM NUMBER: 97572889 BUSINESS ADDRESS: STREET 1: 3145 SPORTS ARENA BLVD CITY: SAN DIEGO STATE: CA ZIP: 92110 BUSINESS PHONE: 6192261212 MAIL ADDRESS: STREET 1: 631 CAMINO DEL RICO SOUTH CITY: SAN DIEGO STATE: CA ZIP: 92108 FORMER COMPANY: FORMER CONFORMED NAME: MOTELS OF AMERICA SERIES X DATE OF NAME CHANGE: 19900418 10KSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 Commission File No.: 33-11224-LA Mission Valley Comfort Suites Ltd., A California Limited Partnership (Name of small business issuer in its charter) California 33-0213497 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1466 9th Avenue, San Diego, California 92101 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (619) 699-6100 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Limited Partnership Interests (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 / / State issuer's revenues for its most recent fiscal year: $2,025,358. The aggregate market value of the voting securities held by non- affiliates is not determinable as there is no established market and the securities have only limited voting rights. State the number of limited partnership interests outstanding as of December 31, 1996: 5,900 interests held by 914 limited partners. DOCUMENT INCORPORATED BY REFERENCE Definitive Prospectus dated February 6, 1987, as supplemented December 2, 1987 is incorporated by reference into Part III. 1 MISSION VALLEY COMFORT SUITES, LTD. A California Limited Partnership PART I Item 1. Business Mission Valley Comfort Suites Ltd., A California Limited Partnership, formerly Motels of America Series X, A California Limited Partnership, (the Partnership) was formed on September 18, 1987 pursuant to the California Revised Uniform Limited Partnership Act. As of December 31, 1996, the Partnership consisted of a general partner, GHG Hospitality, Inc. (GHG), and 914 limited partners owning 5,900 limited partnership interests. The limited partnership interests sold at a public offering price of $1,000 each commencing February 6, 1987 pursuant to a Registration Statement on Form S-18 under the Securities Act of 1933 (Registration 33-11224-LA). The offering of $5,900,000 was fully subscribed and closed on March 21, 1988. The Partnership was organized to lease a parcel of land in the Mission Valley area of San Diego, California and build and operate thereon a 122-room Comfort Suites motel as a franchise of Choice International. The land was leased from Colony Ventures Ltd., a nonaffiliated party, by Motels of America, Inc. (MOA) and the former general partners in November 1986, and was held for the benefit of the Partnership until the Partnership had raised sufficient funds to build the motel. MOA and the former general partners assigned the land lease to the Partnership for their actual carrying costs. The motel was opened for business in September 1988 under a twenty-year franchise agreement with Quality Inns International, Inc. to provide the Partnership with consultation in the areas of design, construction, and operation of the motel. The agreement required the payment of initial franchise fees of $50,000 and requires ongoing royalty and chain-affiliated advertising fees based on a percentage of gross room revenues. Since January 1, 1990, the motel has been operated pursuant to a management agreement with GHG. The profitability of a motel is subject to general economic risks, the management ability of the operator, intense competition, desirability of a particular location, and other factors relating to its operations. The demand for particular accommodations may vary seasonally and may be affected by economic recessions, changes in travel patterns caused by changes in energy prices, strikes, relocation of highways, the construction of additional highways and other factors. To meet competition in the industry and to maintain economic values, continuing expenditures must be made for modernizing, refurnishing, and maintaining existing facilities prior to the expiration of their anticipated useful lives. There is no assurance that the Partnership's motel can be profitably operated. Further, there is no assurance the motel can be sold at a profit. Consequently, there is no guarantee of any profit or that the limited partners' investments will be preserved against loss. 2 There is significant competition in the lodging market. The Partnership is in competition either directly or indirectly with a large number of hotels and motels of varying quality and sizes, including other motels which are part of national or regional chains. Such hotels and motels may have greater financial resources and personnel with more experience than the Partnership and the general partner. The San Diego area in particular has a large number of hotel and motel projects that in the aggregate could dilute average occupancy and affect profitability. The Partnership has no employees. Item 2. Property The Partnership was assigned the land lease on September 18, 1987. The Partnership does not intend to acquire any additional property. Property name and address Property description Comfort Suites A 122-room "suites only" motel on 631 Camino del Rio South approximately 1.83 acres of land, San Diego, CA 92108 subject to a 60-year lease expiring in 2046. The Partnership was assigned the land lease and reimbursed MOA and the former general partners for approximately $218,500 in lease payments they paid prior to the assignment of the land lease to the Partnership. The Partnership completed construction and opened the motel in September 1988. In the opinion of the Partnership's management, the property is adequately covered by insurance. The property is subject to a trust deed with a balance of $236,911, as of December 31, 1996. Item 3. Legal Proceedings The Partnership is not subject to any pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 3 MISSION VALLEY COMFORT SUITES, LTD. A California Limted Partnership PART II Item 5. Market for Limited Partnership Interests and Related Partner Matters There is no public trading market for the Partnership's limited partnership interests. There were approximately 914 holders of the Partnership's 5,900 limited partnership interests as of December 31, 1996. Cash distributions to holders of limited partnership interests totalled $270,000 ($45.76 per interest) in 1996 and $216,000 ($36.61 per interest) in 1995. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition: On February 6, 1987, the Partnership commenced its public offering pursuant to its Prospectus. On March 21, 1988, the Partnership completed the public offering. The Partnership received $5,117,287 (net of offering costs of $782,713) from the sale of limited partnership interests. These funds were available for investment in property, to pay legal fees and other costs related to the investments, to pay operating expenses, and for working capital. The majority of the proceeds were used to acquire and construct the property identified in Item 2 above. As a result of cost overruns related to the acquisition and construction of the motel, the Partnership borrowed $200,000 from the party that is the lessor under its land lease. The note is payable in monthly installments of $2,175, including interest at 8%, over a 20-year period. An independent appraisal valued the Partnership's motel property at $3,440,000 as of October 21, 1996. The carrying amount of investment property on the Partnership's financial statements was $3,651,965 as of December 31, 1996. Management expects that undiscounted cash flows from the motel will exceed its carrying value and, therefore, an impairment loss has not been recorded. 4 The deferred rent liability represents amounts accrued under the Partnership's land lease prior to April 1, 1993. Under the original land lease, annual rent increases were based on the greater of 2-1/2% or the increase in the Consumer Price Index. The Partnership was required by generally accepted accounting principles to record rent expense and a deferred rent liability based on projecting the 2-1/2% minimum annual rent increase over the 60-year term of the lease. Effective April 1, 1993, the land lease was amended. Under the amended land lease, monthly rent payments were reduced from $30,138 per month to $20,000 per month. Annual rent increases are based on the lesser of the increase in the Consumer Price Index or 5%, and there is no minimum annual increase. Rent expense under the amended lease is significantly lower than under the previous lease. In addition, the deferred rent liability accrued prior to April 1, 1993 is being credited to income on a straight-line basis over the remaining term of the lease. Results of Operations: Net income was $283,799 in 1996 and $223,984 in 1995. Total revenues were $2,025,358 in 1996 and $1,883,264 in 1995. The property operated at an occupancy of 73.80% in 1996 and 69.74% in 1995. The average daily room rate was $59.11 in 1996 and $58.36 in 1995. Although city-wide occupancy rates are expected to increase in 1997, the Mission Valley area remains overbuilt and downtown San Diego has become an alternative destination for both corporate and leisure travelers. To help prevent occupancy rates from falling, the Partnership will run advertisements in Los Angeles and Phoenix offering competitive, lower rates. The Partnership has increased its sales efforts to travel agents, group tours and other leisure travelers, as well as to business. The first quarter of 1997 is showing an increase in group bookings resulting in higher than average occupancy. The summer months look promising and should generate high rates at the motel. Our web page on the Internet is resulting in additional exposure and adding to occupancy. The property manager is exploring other advertising media such as magazines that are available at highway rest stops and is participating in San Diego Convention and Visitors Bureau's nationwide campaign for San Diego. These new exposures have resulted in additional bookings. An independent consulting firm has forecast that overall in 1997 hotels in the San Diego area should experience a 7% increase in occupancy and a 4.8% increase in average daily room rates. 5 During 1996 a motel property approximately one mile from the Mission Valley Comfort Suites became a Comfort Inn and Suites franchisee of Choice International and began participating in the Choice Reservations System used by the Partnership's motel. Due to the proximity of this motel to the Partnership's motel and the availability of suites, it is in direct competition with Mission Valley Comfort Suites and has decreased the number of reservations that otherwise would have been received from the Choice Reservations System. This motel opened in June 1996; therefore, the full impact will likely not be evident until the end of 1997. As previously discussed, Management is exploring new advertising media in an effort to compensate for this new competition. The effect of current operations on liquidity was net cash provided by operating activities of $422,595 in 1996 and $397,692 in 1995. The cash was used primarily for cash distributions to partners which were $300,000 in 1996 and $240,000 in 1995 and for investment property expenditures which were $95,901 in 1996 and $124,718 in 1995. Seasonality: The motel business is seasonal with the third quarter being the strongest due to the tourist business and the last half of the fourth quarter and the first half of the first quarter being the weakest. It is not unusual for the motel operations to have negative cash flow during this weak period. 6 Item 7. Financial Statements and Supplementary Data MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership I N D E X Pages Independent Auditor's Report 8 Balance Sheets, December 31, 1996 and 1995 9-10 Statements of Operations, Years Ended December 31, 1996 and 1995 11 Statements of Partners' Capital, Years Ended December 31, 1996 and 1995 12-13 Statements of Cash Flows, Years Ended December 31, 1996 and 1995 14 Notes to Financial Statements 15-19 7 Independent Auditor's Report The Partners Mission Valley Comfort Suites Ltd., A California Limited Partnership We have audited the balance sheets of Mission Valley Comfort Suites Ltd., A California Limited Partnership, as of December 31, 1996 and 1995, and the related statements of operations, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mission Valley Comfort Suites Ltd., A California Limited Partnership, as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Levitz, Zacks, Ciceric San Diego, California February 12, 1997 8
MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Balance Sheets December 31, 1996 and 1995 (Part 1 of 2) ASSETS 1996 1995 ---------- -------- --------- Current Assets: Cash and cash equivalents $ 75,541 $ 55,694 Accounts receivable 38,797 26,647 Operating supplies 15,540 15,603 Prepaid expenses 22,422 14,207 Due from affiliate 4,848 821 --------- -------- Total current assets 157,148 112,972 Investment property, at cost: Building and improvements 4,603,619 4,541,600 Furniture, fixtures and equipment 1,211,442 1,177,560 ---------- --------- 5,815,061 5,719,160 Less accumulated depreciation 2,163,096 1,983,846 ---------- --------- Investment property, net 3,651,965 3,735,314 Franchise fees, net 29,167 31,667 ---------- --------- Total assets $3,838,280 $3,879,953 ========== ==========
See accompanying notes to financial statements 9
MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Balance Sheets December 31, 1996 and 1995 (Part 2 of 2) LIABILITIES AND PARTNERS' CAPITAL 1996 1995 ---------------------------------- --------- --------- Current Liabilities: Accounts payable $ 41,816 $ 29,003 Accrued expenses 13,180 14,535 Due to affiliate 11,440 11,852 Current portion of long-term debt 7,415 6,847 ----------- -------- Total current liabilities 73,851 62,237 Long-term debt, less current portion 229,496 236,911 Deferred rent liability 1,483,590 1,513,261 ----------- ---------- Total liabilities 1,786,937 1,812,409 Partners' Capital: General partner: Capital contributions 31,210 31,210 Cumulative net loss (114,781) (143,161) Cumulative cash distributions (187,640) (157,640) ---------- ---------- (271,211) (269,591) Limited partners (5,900 interests): Capital contributions, net of offering costs 5,117,287 5,117,287 Cumulative net loss (1,033,025)(1,288,444) Cumulative cash distributions (1,761,708)(1,491,708) ----------- ---------- 2,322,554 2,337,135 ----------- ---------- Total partners' capital 2,051,343 2,067,544 ----------- ---------- Total liabilities and partners' capital $3,838,280 $3,879,953 =========== ==========
See Accompanying notes to financial statements 10
MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statements of Operations Years Ended December 31, 1996 and 1995 1996 1995 --------- -------- Revenues: Room revenues $1,949,461 $1,812,551 Phone revenues 45,151 42,399 Interest income 2,095 1,188 Other 28,651 27,126 ----------- ---------- Total revenues 2,025,358 1,883,264 Expenses: Property operating expenses 631,071 589,360 Rent 223,504 218,882 Depreciation 185,610 174,492 General and administrative 165,028 156,910 Royalties and advertising 153,915 145,535 Management fees 121,396 112,996 Marketing 60,703 72,394 Real estate taxes 59,228 47,711 Repairs and maintenance 82,188 87,258 Property and liability insurance 37,163 30,749 Interest 19,253 20,493 Amortization 2,500 2,500 ----------- ---------- Total expenses 1,741,559 1,659,280 ----------- ---------- Net income $ 283,799 $ 223,984 =========== =========== Net income per interest $ 43.29 $ 34.17 =========== ==========
See accompanying notes to financial statements 11
MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statements of Partners' Capital Years Ended December 31, 1996 and 1995 (Part 1 of 2) General Partner --------------------------------------------------- Cumulative Cumulative Capital Net Cash Contributions Loss Distributions Total ---------------- ----------- -------------- -------- Balance, January 1, 1995 $ 31,210 $(165,559) $(133,640) $(267,989) Net income, year ended December 31, 1995 -0- 22,398 -0- 22,398 Cash distributions ($36.61 per interest) -0- -0- (24,000) (24,000) ---------- ----------- ------------ ---------- Balance, December 31, 1995 31,210 (143,161) (157,640) (269,591) Net income, year ended December 31, 1996 -0- 28,380 -0- 28,380 Cash distributions ($45.76 per interest) -0- -0- (30,000) (30,000) ---------- ------------ ------------- ---------- Balance, December 31, 1996 $ 31,210 $(114,781) $(187,640) $(271,211) ========== ============ ============= ==========
See accompanying notes to financial statements 12
MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statement of Partners' Capital Years Ended December 31, 1996 and 1996 (Part 2 of 2) Limited Partners ---------------------------------------------------- Cumulative Cumulative Total Capital Net Cash Partners' Contributions Loss Distributions Total Capital ------------- -------- ------------- --------- ---------- Balance, January 1, 1995 $5,117,287 $(1,490,030) $(1,275,708) $2,351,549 $2,083,560 Net Income, year ended December 31, 1995 -0- 201,586 -0- 201,586 223,984 Cash distributions ($36.61 per interest) -0- -0- (216,000) (216,000) (240,000) ----------- ------------- ----------- ---------- ----------- Balance, December 31, 1995 5,117,287 (1,288,444) (1,491,708) 1,337,135 2,067,544 Net income, year ended December 31, 1996 -0- 255,419 -0- 255,419 $ 283,799 Cash distributions ($45.76 per interest) -0- -0- (270,000) (270,000) (300,000) ----------- ------------ ----------- ----------- ---------- Balance, December 31, 1996 $5,117,287 $(1,033,025) $(1,761,708) $ 2,322,554 $ 2,051,343 ============ ============ ============= =========== ============
See accompanying notes to financial statements 13
MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statements of Cash Flows Years Ended December 31, 1996 and 1995 1996 1995 -------- ------- Cash flows from operating activities: Net income $ 283,799 $ 223,984 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 181,750 176,992 (Increase) decrease in: Accounts receivable (12,150) (4,058) Operating supplies 63 (885) Prepaid expenses (8,215) 19,749 Due from affiliate (4,027) 11,744 Increase (decrease) in: Accounts payable 12,813 (3,172) Accrued expenses (1,355) (2,963) Due to affiliate (412) 5,973 Deferred rent liability (29,671) (29,672) --------- -------- Net cash provided by operating activities 422,595 397,692 --------- -------- Cash flows from investing activities: Investment property expenditures (95,901) (124,718) --------- --------- Net cash used in investing activities (95,901) (124,718) --------- --------- Cash flows from financing activities: Cash distributions to partners (300,000) (240,000) Payments of long-term debt (6,847) (6,322) --------- --------- Net cash used in financing activities (306,847) (246,322) Net increase in cash and cash equivalents 19,847 26,652 Cash and cash equivalents, beginning of year 55,694 29,042 Cash and cash equivalents, end of year $ 75,541 $ 55,694 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ (19,253) $(20,493) ========== =========
See accompanying notes to financial statements 14 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements Years Ended December 31, 1996 and 1995 Note 1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Mission Valley Comfort Suites Ltd., A California Limited Partnership (the Partnership), formerly Motels of America Series X, A California Limited Partnership, was formed on September 18, 1987 pursuant to the California Revised Uniform Limited Partnership Act. The Partnership consists of a general partner which owns a 10% interest and 914 limited partners which collectively own a 90% interest. The purpose of the Partnership is to construct, own, and operate a 122-room "suites only" motel under a franchise agreement with Quality Inns International, Inc. The motel was opened in September 1988. The following is a summary of the Partnership's significant accounting policies: Cash and Cash Equivalents ------------------------- The Partnership considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Investment Property ------------------- Investment property is recorded at cost. Depreciation is computed using the straight-line method based on estimated useful lives of 5 to 35 years. Maintenance and repairs costs are expensed as incurred, while significant improvements, replacements, and major renovations are capitalized. Effective January 1, 1996, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. There was no effect on the financial statements from the adoption of SFAS No. 121. 15 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1996 and 1995 Franchise Fees --------------- Franchise fees are amortized over the 20-year life of the franchise agreement which expires in 2008. Note 1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Advertising ----------- Advertising costs are expensed as incurred. Advertising expense was $104,665 for the year ended December 31, 1996 and $100,772 for the year ended December 31, 1995. Income Taxes ------------ No provision for income taxes has been made as any liability for such taxes would be that of the partners rather than the Partnership. Net Income Per Interest ----------------------- Net income per interest is based upon the 90% allocated to limited partners divided by 5,900 limited partner interests outstanding throughout the year. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 16 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1996 and 1995 Note 2. PARTNERSHIP AGREEMENT Net income or loss and cash distributions from operations of the Partnership are allocated 90% to the limited partners and 10% to the general partner. Profits from the sale or other disposition of Partnership property are to be allocated to the general partner until its capital account equals zero; thereafter, to the limited partners until their capital accounts equal their capital contributions reduced by prior distributions of cash from sale or refinancing plus an amount equal to a cumulative but not compounded annual 8% return thereon which cumulative return shall be reduced (but not below zero) by the aggregate amount of prior distributions of cash available for distribution; thereafter, gain shall be allocated 15% to the general partner and 85% to the limited partners. Loss from sale shall be allocated 1% to the general partner and 99% to the limited partners. Note 3. FRANCHISE AGREEMENT The Partnership has entered into a twenty-year franchise agreement expiring in 2008 with Quality Inns International, Inc. to provide the Partnership with consultation in the areas of design, construction, and operation of the motel. The agreement required the payment of initial franchise fees of $50,000 and requires ongoing royalty and chain-affiliated advertising fees based on a percentage of gross room revenues. Note 4. LONG-TERM DEBT The Partnership has a note payable which is due in monthly installments of $2,175, including 8% interest, through April 2013. The note is secured by a trust deed on the Partnership's motel. The balance outstanding was $236,911 as of December 31, 1996 and $243,758 as of December 31, 1995. The fair value of long-term debt approximates its carrying amount based on borrowing rates currently available to the Partnership for loans with similar terms. Principal payments on this note are due as follows: Year Principal payments 1997 $ 7,415 1998 8,031 1999 8,697 2000 9,419 2001 10,200 Thereafter 193,149 --------- $ 236,911 ==========
17 MISSION VALLEY COMFORT SUITES LTD., A California LImited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1996 and 1995 Note 5. LEASE The Partnership leases the land underlying its motel under an operating lease which expires in 2046. Prior to April 1, 1993, rents were subject to annual increases based on the greater of 2- 1/2% or the increase in the Consumer Price Index. The total minimum rentals over the life of the lease, including the effects of the 2-1/2% minimum annual increases, were being recognized on the straight-line basis as required by generally accepted accounting principles. Effective April 1, 1993, the lease was amended to lower the rent payment to $20,000 per month. Rents are still subject to annual increases based on the increase in the Consumer Price Index, but the maximum annual increase is 5% and there is no minimum annual increase. Consequently, rent expense is now being recognized based on the amount due each month rather than on the straight-line basis. The rent payment was $21,485 per month as of December 31, 1996. As a result of the amendment to the lease agreement, a deferred rent liability of $1,594,894, which was incurred prior to April 1, 1993, is being credited to income on a straight-line basis over the remaining term of the lease. The Partnership is required to pay real estate taxes, insurance, and maintenance for the leased land and improvements thereon. Future minimum lease payments are due as follows: Year Lease payments ------- -------------- 1997 $ 257,820 1998 257,820 1999 257,820 2000 257,820 2001 257,820 Thereafter 11,580,751 ------------ $12,869,851 ============
18 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1996 and 1995 Note 6. RELATED PARTY TRANSACTIONS The motel is operated pursuant to a management agreement with GHG Hospitality, Inc. (GHG), the general partner. The agreement provides for the payment of monthly management fees of 6% of gross revenues. The agreement expires upon the termination or dissolution of the Partnership or upon three months' written notice from the general partner. The Partnership has agreed to reimburse GHG for certain expenses related to services performed in maintaining the books and administering the affairs of the Partnership. GHG and an affiliate, Grosvenor Management Services, Inc. (GMS), allocate to the Partnership certain marketing, accounting, and maintenance salaries and certain other expenses directly related to the operations of the Partnership. Fees, reimbursements, salaries, and other expenses paid to GHG and GMS and included in total expenses for the years ended December 31, 1996 and 1995 are as follows: 1996 1995 ------ ------ Management fees $121,395 $112,996 Reimbursement for partnership administration expenses 39,188 36,151 Salaries and other allocated expenses 120,212 138,446 --------- --------- $ 280,795 $287,593 ========= =========
In addition, all motel employees are paid by GMS. The Partnership reimbursed GMS $337,744 in 1996 and $314,663 in 1995, including a one percent processing fee, for the wages of these employees. Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None 19 PART III Item 9. Directors and Executive Officers of the Registrant The general partner has general responsibility and ultimate authority in all matters affecting the business of the Partnership. The general partner and its directors and executive officers as of December 31, 1996 are as follows: GHG HOSPITALITY, INC. (GHG) was incorporated in November 1989 under the laws of the state of Delaware. GHG was elected as general partner effective January 1, 1990. J. MARK GROSVENOR, 49, is President and a Director of GHG. From 1976 to 1988, he served as chief executive officer of Nite Lite Inns, a California corporation, which owned Grosvenor Enterprises, a California limited partnership, which owns Grosvenor Inn. In 1984, he acquired Medallion Foods, Inc., a food processing company, located in Newport, Arkansas. Mr. Grosvenor graduated from San Diego State University with a bachelor's degree in business and finance. STEPHEN D. BURCHETT, 37, is Vice President of GHG. From 1984 to 1991 he worked in private business law practice in San Diego, California with Schall, Boudreau & Gore and Kaufman, Lorber, Grady & Farley. Mr. Burchett graduated from California State University Fullerton in 1981 with a bachelor's degree in finance and from the University of Santa Clara School of Law in 1984 with a juris doctorate. SYLVIA MELLOR CLARK, 52, is Controller of GHG. In 1978, she joined Grosvenor Industries, Inc., where she is controller and a director. Prior to joining Grosvenor Industries, Inc., she operated her own accounting firm from 1976 to 1978. Ms. Clark graduated from San Diego State University and National University. Item 10. Executive Compensation The Partnership has not paid and does not propose to pay any executive compensation to the general partner or any of its affiliates (except as described in Item 12 below). There are no compensatory plans or arrangements regarding termination of employment or change of control. 20 Item 11. Security Ownership of Certain Beneficial Owners and Management (a) No person or group is known to the Partnership to be the beneficial owner of more than 5% of the outstanding limited partnership interests in the Partnership. (b) The general partner does not directly or indirectly own any limited partnership interests in the Partnership. The general partner does not possess a right to acquire beneficial ownership of limited partnership interests in the Partnership. (c) There are no arrangements, known to the Partnership, which may result in a change in control of the Partnership. Item 12. Certain Relationships and Related Transactions The motel is operated pursuant to a management agreement with GHG. The agreement provides for the payment of monthly management fees of 6% of gross revenues. The Partnership has agreed to reimburse GHG for certain expenses related to services performed in maintaining the books and administering the affairs of the Partnership. GHG and an affiliate, Grosvenor Management Services, Inc. (GMS), allocate to the Partnership certain marketing, accounting, and maintenance salaries and other expenses directly related to the operation of the Partnership. Fees, reimbursements, salaries, and other expenses paid to GHG and GMS and included in total expenses for the years ended December 31, 1996 and 1995 are as follows: 1996 1995 ------- -------- Management fees $ 121,395 $ 112,996 Reimbursement for partnership administration expenses 39,188 36,151 Salaries and other allocated expenses 120,212 138,446 ---------- --------- $ 280,795 $ 287,593 ========== ==========
21 In addition, all motel employees are paid by GMS. The Partnership reimbursed GMS $337,744 in 1996 and $314,663 in 1995, including a one percent processing fee, for the wages of these employees. Item 13. Exhibits and Reports on Form 8-K (a) The following documents are filed as part of this report: 1. Financial Statements (see Index to Financial Statements filed with this annual report). 2. Exhibits: 3-A. The Prospectus of the Partnership dated February 6, 1987, as supplemented December 2, 1987, as filed with the Commission, is hereby incorporated herein by reference. 3-B. Agreement of Limited Partnership set forth as Exhibit B to the Prospectus, as filed with the Commission, is incorporated herein by reference. 3-C. Amendment to Agreement of Limited Partnership dated January 1, 1990, as filed with the Commission, is incorporated herein by reference. (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. No annual report or proxy material for the fiscal year 1996 has been sent to the limited partners of the Partnership. An annual report will be sent to the limited partners subsequent to this filing and the Partnership has incorporated such reports in this filing. 22 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act., the registrant caused this report to be signed by the undersigned, thereunto duly authorized. By: GHG Hospitality, Inc. Corporate General Partner By: /s/ J. Mark Grosvenor Date: March 27, 1997 J. Mark Grosvenor President and Director of GHG In accoprdance with the Exchange Act, this report has been signed below by the following persons on the behalf of the registrant and in the capacities and on the dates indicated. By: GHG Hospitality, Inc. Corporate General Partner By: /s/ J. Mark Grosvenor Date: March 27, 1997 J. Mark Grosvenor President and Director of GHG By: /s/ Stephen D. Burchett Date: March 27, 1997 Stephen D. Burchett Vice President of GHG By: /s/ Sylvia Mellor Clark Date March 27, 1997 Sylvia Mellor Clark Controller of GHG 23 -----END PRIVACY-ENHANCED MESSAGE-----