-----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, OeBSH/sH3tbGBZaQZVjl8Vml12z5PZrO6fg69z5srxOjOo39pSQeyH9chsNOP0IL P9J9pqspcUGIMWrR3+HkUw== 0000810661-98-000003.txt : 19980401 0000810661-98-000003.hdr.sgml : 19980401 ACCESSION NUMBER: 0000810661-98-000003 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 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: SEC FILE NUMBER: 000-18080 FILM NUMBER: 98583816 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 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB /x/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1997 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. /x/ Yes / / No State issuer's revenues for its most recent fiscal year: $2,040,601. 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, 1997: 5,900 interests held by 880 limited partners. 1 DOCUMENT INCORPORATED BY REFERENCE Definitive Prospectus dated February 6, 1987, as supplemented December 2, 1987 is incorporated by reference into Part III. 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, 1997, the Partnership consisted of a general partner, GHG Hospitality, Inc. (GHG), and 880 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 sub- scribed 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 Choice International 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 manage- ment ability of the operator, intense competition, desirability of a particular location, and other factors relating to its operations. The demand for parti- cular accommodations may vary seasonally and may be affected by economic reces- sions, 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 main- taining existing facilities prior to the expiration of their anticipated useful lives. 2 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. 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. At the time of the public offering in 1987 and 1988, the Prospectus stated that the general partner expected that the Partnership would consider selling or refinancing the motel after operating it for a period of approximately six to ten years. A recent informal survey conducted by the general partner of a number of limited partners indicated that a substantial majority would like the motel to be sold. For these reasons, the general partner decided in early 1998 to initiate the process which could possibly result in a sale of the motel. On March 3, 1998, the Partnership entered into an agreement with Hotel Partners, Inc., a real estate broker specializing in hotel and motel properties, to list the motel for sale. The initial listing price is $5,000,000. However, there is no assurance that a buyer can be found or that the motel can be sold for this price. Furthermore, any sale would be subject to the approval of limited part- ners holding a majority of the limited partnership interests. Item 2. Property The Partnership was assigned the land lease on September 18, 1987. The Part- nership constructed the following property which was completed in September 1988. 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. 3 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 $207,081 as of December 31, 1997. The trust deed requires monthly payments of $2,175, including interest at 8%, until paid in full. 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. 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 880 holders of the Partnership's 5,900 limited partnership interests as of December 31, 1997. Cash distributions to holders of limited partnership interests totalled $193,500 ($32.80 per interest) in 1997 and $270,000 ($45.76 per interest) in 1996. 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. In 1993, the note was amended to add accrued interest of $60,000 to the principal balance so that the new balance was $260,000. The note is payable in monthly installments of $2,175, including interest at 8%, over a 20-year period. The note is secured by a trust deed on the Partner- ship's motel. In March 1997, the Partnership voluntarily began making 4 monthly payments of $4,350 in order to retire the note earlier than scheduled and reduce interest expense over the term of the note. The balance outstanding on the note was $207,081 as of December 31, 1997. An independent appraisal valued the Partnership's investment property at $4,000,000 as of July 23, 1997. The carrying amount of investment property on the Partnership's financial statements was $3,484,675 as of December 31, 1997. 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 prin- ciples 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, 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. Consequently, rent expense is now being recognized based on the amount due each month rather than on the straight-line basis. 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. Choice International is requiring all franchisees to convert to their compu- terized property management system by 1999. The Partnership is expected to complete the conversion in the fourth quarter of 1998 at an estimated cost of $30,000. Management also plans to install phone lines for data ports and voice mail in 1998 for an estimated cost of $20,000 in order to better serve government and corporate guests. The cost of the computer conversion and phone line installation will be funded by cash from operations. As discussed in Item 1, the general partner decided in early 1998 to initiate the process which could possibly result in a sale of the motel. Any sale would be subject to the approval of limited partners holding a majority of the limited partnership interests. If a sale is consummated, the net sale proceeds, after payment of all liabilities and costs to wind down the affairs of the Part- nership, would be paid to the limited partners in the form of a final liquid- ating distribution and the Partnership would be dissolved. Results of Operations: Net income was $129,950 in 1997 and $283,799 in 1996. Total revenues were $2,040,601 in 1997 and $2,025,358 in 1996. The property operated at an occupancy of 73.87% in 1997 and 73.86% in 1996. The average daily room rate was $59.73 in 1997 and $59.11 in 1996. 5 In 1997, the Partnership incurred costs of $108,403 associated with a proposal to reorganize the Partnership into a real estate investment trust (REIT). The efforts were discontinued when management and the proposed sponsor of the REIT were unable to negotiate mutually acceptable terms and conditions for a reorganization. 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 Partner- ship'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. The Choice Reservations System accounted for 7,688 room nights (23% of total room nights) in 1997 compared to 6,493 room nights (20% of total room nights) in 1996. Management believes the increase in room nights provided by the Choice Reservations System would have been even greater if not for the new competition. The effect of current operations on liquidity was net cash provided by operating activities of $343,146 in 1997 and $422,595 in 1996. The cash was used primarily for cash distributions to partners which were $215,000 in 1997 and $300,000 in 1996, payments of long-term debt which were $29,830 in 1997 and $6,847 in 1996, and investment property expenditures which were $27,185 in 1997 and $95,901 in 1996. 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 oper- ations 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, 1997 and 1996 9-10 Statements of Operations, Years Ended December 31, 1997 and 1996 11 Statements of Partners' Capital, Years Ended December 31, 1997 and 1996 12-13 Statements of Cash Flows, Years Ended December 31, 1997 and 1996 14 Notes to Financial Statements 15-20 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, 1997 and 1996, 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 stand- ards. 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, 1997 and 1996, 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, CPAs San Diego, California February 10, 1998 8 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Balance Sheets, page 1 December 31, 1997 and 1996
...ASSETS... 1997 1996 Current Assets: Cash and cash equivalents $ 146,672 $ 75,541 Accounts receivable 14,255 38,797 Operating supplies 15,011 15,540 Prepaid expenses 36,150 22,422 Due from affiliate -0- 4,848 ----------- ---------- Total current assets 212,088 157,148 ----------- ---------- Investment property, at cost: Building and improvements 4,617,037 4,603,619 Furniture, fixtures and equipment 1,225,209 1,211,442 ------------ ------------ 5,842,246 5,815,061 Less accumulated depreciation 2,357,571 2,163,096 ------------ ------------ Investment property, net 3,484,675 3,651,965 ------------ ------------ Franchise fees, net 26,667 29,167 ------------ ------------ Total assets $3,723,430 $3,838,280 ============ ============
See accompanying notes to financial statements. 9 MISSION VALLEY COMFORT SUITES, LTD., A California Limited Partnership Balance Sheets, page 2 December 32, 1996 and 1997
...LIABILITIES AND PARTNERS' CAPITAL... 1997 1996 Current Liabilities: Accounts payable $ 24,136 $ 41,816 Accrued expenses 17,030 13,180 Due to affiliate 28,629 11,440 Guest deposits 26,344 -0- Current portion of long-term debt 9,891 7,415 ----------- ----------- Total current liabilities 106,030 73,851 Long-term debt, less current portion 197,190 229,496 Deferred rent liability 1,453,917 1,483,590 ------------- ------------ Total liabilities 1,757,137 1,786,937 ------------ ------------ Partners' Capital: General partner: Capital contributions 31,210 31,210 Cumulative net loss (101,786) (114,781) Cumulative cash distributions (209,140) (187,640) ------------- ------------- (279,716) (271,211) ------------- ------------- Limited partners (5,900 interests): Capital contributions, net of offering costs 5,117,287 5,117,287 Cumulative net loss (916,070) (1,033,025) Cumulative cash distributions (1,955,208) (1,761,708) ------------- ------------- 2,246,009 2,322,554 ------------- ------------- Total partners' capital 1,966,293 2,051,343 ------------- ------------- Total liabilities and partners' capital $3,723,430 $ 3,838,280 ============= ==============
10 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statements of Operations Years Ended December 31, 1997 and 1996
1997 1996 Revenues: Room revenues $ 1,964,912 $ 1,949,461 Phone revenues 34,090 45,151 Interest income 3,227 2,095 Other 38,372 28,651 ------------ ------------- Total revenues 2,040,601 2,025,358 ------------ ------------- Expenses: Property operating expenses 660,221 631,071 Land rent 228,411 223,504 Depreciation 194,475 185,610 General and administrative 165,599 165,028 Royalties and chain-affiliated advertising 151,056 153,915 Management fees 122,243 121,396 REIT proposal costs 108,403 -0- Marketing 77,207 60,703 Repairs and maintenance 76,470 82,188 Real estate taxes 66,817 59,228 Property and liability insurance 38,553 37,163 Interest 18,696 19,253 Amortization 2,500 2,500 ----------- ----------- Total expenses 1,910,651 1,741,559 ----------- ----------- Net income $ 129,950 $ 283,799 =========== =========== Net income per interest $ 19.82 $ 43.29 ======= =======
See accompanying notes to financial statements. 11 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statements of Partners' Capital, page 1 Years Ended December 31, 1997 and 1996 General Partner
Cumulative Cumulative Capital Net Cash Contributions Loss Distributions Total 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) Net income, year ended December 31, 1997 -0- 12,995 -0- 12,995 Cash distributions ($32.80 per interest) -0- -0- (21,500) (21,500) --------- --------- --------- --------- Balance, December 31, 1997 $ 31,210 $ (101,786) $(209,140) $(279,716) ========== =========== ========== ===========
See Accompanying notes to financial statements. 12 MISSION VALLEY COMFORT SUITES, LTD., A California Limited Partnership Statements of Partners' Capital, page 2 Years ended December 31, 1997 and 1996
Limited Partners Capital Cumulative Cumulative Total Contributions Net Cash Total Partners' Loss Distributions Capital Balance, Dec. 31, 1995 $ 5,117,287 $(1,288,444) $(1,491,708) $2,337,135 $2067,544 Net income, year ended Dec. 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, Dec. 31, 1996 5,117,287 (1,033,025) (1,761,708) 2,322,554 2,051,343 Net income, year ended December 31, 1997 -0- 116,955 -0- 116,955 129,950 Cash Distributions ($32..80 per interst) -0- -0- (193,500) (193,500 (215,.000) ----------- --------- ----------- --------- ---------- Balance, Dec. 31, 1997 $5,117,287 $(916,070) $1,955,208) $2,246,009 $1,966,293 =========== ========== =========== ========== ==========
13 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statements of Cash Flows Years Ended December 31, 1997 and 1996
1997 1996 Cash flows from operating activities: Net income $ 129,950 $ 283,799 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 196,975 181,750 (Increase) decrease in: Accounts receivable 24,542 (12,150) Operating supplies 529 63 Prepaid expenses (13,728) (8,215) Due from affiliate 4,848 (4,027) Increase (decrease) in: Accounts payable (17,680) 12,813 Accrued expenses 3,850 (1,355) Due to affiliate 17,189 (412) Guest deposits 26,344 -0- Deferred rent liability (29,673) (29,671) -------- -------- Net cash provided by operating activities 343,146 422,595 -------- -------- Cash flows from investing activities: Investment property expenditures (27,185) (95,901) -------- -------- Net cash used in investing activities (27,185) (95,901) -------- -------- Cash flows from financing activities: Cash distributions to partners (215,000) (300,000) Payments of long-term debt (29,830) (6,847) --------- --------- Net cash used in financing activities (244,830) (306,847) --------- --------- Net increase in cash and cash equivalents 71,131 19,847 Cash and cash equivalents, beginning of year 75,541 55,694 -------- -------- Cash and cash equivalents, end of year $146,672 $75,541 Supplemental disclosure of cash flow information: Interest paid $(18,696) $(19,253) ======== =========
See accompanying notes to financial statements 14 MISSION VALLEY COMFORT SUITES, LTD., A California Limited Partnership Notes to Financial Statements Note 1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Mission Valley Comfort Suites Ltd., A California Limited Partnership (the Part- ner ship), formerly Motels of America Series X, A California Limited Partner- ship, 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 880 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 in San Diego, California under a franchise agree- ment with Choice International. 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) 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 (continued) Advertising Advertising costs are expensed as incurred. Advertising expense was $113,658 for the year ended December 31, 1997 and $104,665 for the year ended December 31, 1996. 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% of net income allocated to limited partners divided by 5,900 limited partner interests outstanding through- out 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) 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 Choice International 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 payments of $2,175, including 8% interest, through April 2013. In March 1997, the Partnership voluntarily began making monthly payments of $4,350 in order to retire the note earlier than scheduled and reduce interest expense over the term of the note. The note is secured by a trust deed on the Partnership's motel. The balance outstanding was $207,081 as of December 31, 1997 and $236,911 as of December 31, 1996. 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. 17 MISSION VALLEY COMFORT SUITES, LTD., A California Limited Partnership Notes to Financial Statements (Continued) Principal payments on this note, based on the required monthly principal and interest payments of $2,175, are due as follows:
1998 $ 9,891 1999 10,712 2000 11,601 2001 12,564 2002 13,606 Thereafter 148,707 --------- $ 207,081
========= 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 $21,744 per month as of December 31, 1997. 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. 18 MISSION VALLEY COMFORT SUITES, LTD., A California Limted Partnership Notes to Financial Sttaements (Continued) Future minimum lease payments are due as follows:
1998 $ 260,928 1999 260,928 2000 260,928 2001 260,928 2002 260,928 Thereafter 11,459,428 ----------
$ 12,764,068 ========== 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. 19 MISSION VALEY COMFORT SUITES, LTD., A California Limited Partnership Notes to Financial Statements (Continued) Fees, reimbursements, salaries, and other expenses paid to GHG and GMS and included in total expenses for the years ended December 31, 1997 and 1996 are as follows:
1997 1996 Management fees $ 122,243 $ 121,395 Reimbursement for partnership administration expenses 37,547 39,188 Salaries and other allocated expenses 113,263 120,212 -------- -------- $ 273,053 $ 280,795 ========= =========
In addition, all motel staff are employed by GMS. The Partnership reimbursed GMS $375,625 in 1997 and $337,744 in 1996, including a one percent processing fee, for the wages of these employees. Note 7. SUBSEQUENT EVENT Subsequent to December 31, 1997, the Partnership entered into an agreement with a real estate broker to list the motel for sale. The initial listing price is $5,000,000. However, there is no assurance that a buyer can be found or that the motel can be sold for this price. Furthermore, any sale would be subject to the approval of limited partners holding a majority of the limited partnership interests. 20 Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None 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, 1997 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, 50, 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, 38, 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, 53, 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. 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 owner- ship of limited partnership interests in the Partnership. 21 (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, 1997 and 1996 are as follows:
1997 1996 Management fees $122,243 $121,395 Reimbursement for partnership administration expenses 37,547 39,188 Salaries and other allocated expenses 113,263 120,212 ------- ------- $273,053 $280,795 ======== ========
In addition, all motel employees are paid by GMS. The Partnership reimbursed GMS $375,625 in 1997 and $337,744 in 1996, including a one percent processing fee, for the wages of these employees. 22 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 1997 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. 23 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MISSION VALLEY COMFORT SUITES LTD. A California Limited Partnership By: GHG Hospitality, Inc. Corporate General Partner By: /s/ J. Mark Grosvenor Date: March 27, 1998 J. Mark Grosvenor President and Director of GHG In accordance with the Exchange Act, this report has been signed below by the following persons on 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, 1998 J. Mark Grosvenor President and Director of GHG By: /s/ Stephen D. Burchett Date: March 27, 1998 Stephen D. Burchett Vice President of GHG By: /s/ Sylvia Mellor Clark Date: March 27, 1998 Sylvia Mellor Clark Controller of GHG 24 EX-27 2
5 YEAR DEC-31-1997 DEC-31-1997 146,672 0 14,255 0 15,011 212,088 5,842,246 2,357,571 3,723,430 106,030 0 0 0 0 0 3,723,430 0 2,040,601 0 1,891,955 0 0 18,696 129,950 0 129,950 0 0 0 129,950 19.82 19.82
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