-----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, Kkat4KbdYlllpcxut8rETNse+Xl+45mviPnv/qM9J9WJ2XwOMkIJjxoN05EmMJUA P6lmzm65poyijHB6hobe4w== 0000820062-98-000009.txt : 19980518 0000820062-98-000009.hdr.sgml : 19980518 ACCESSION NUMBER: 0000820062-98-000009 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-18080 FILM NUMBER: 98622122 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 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB - Quarterly or Transitional Report /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 / / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to Commission File Number 33-11224-LA Mission Valley Comfort Suites Ltd., A California Limited Partnership (Exact name of small business issuer as specified in its charter) California 33-0213497 (State or other jurisdiction of I.R.S.Employer incorporation or organization) Identification Number) 1466 9th Avenue, San Diego, CA 92101 (Address of principal executive offices) (619) 699-6100 (Issuer's telephone number) (Former name, former address and former fiscal year, if changed since last report) Check whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Exchange Act during the last 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / X / No State the number of limited partnership interests outstanding as of the latest practicable date: 5,900 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Incorporated herein is the following unaudited financial information: Balance Sheet as of March 31, 1998 and December 31, 1997. Statement of Operations for the three month period ended March 31, 1998 and March 31, 1997. Statement of Cash Flows for the three month period ended March 31, 1998 and March 31, 1997. Notes to Financial Statements. MISSION VALLEY COMFORT SUITES LTD. A California Limited Partnership Balance Sheet March 31, 1998 and December 31, 1997 (Unaudited) (Part 1 of 2)
March 31, December 31, ASSETS 1998 1997 -------- -------- ------------ Current Assets: Cash and cash equivalents $ 131,061 $ 146,672 Accounts receivable 49,097 14,255 Operating supplies 17,587 15,011 Prepaid expenses 42,825 36,150 ----------- ---------- Total current assets 240,570 212,088 Investment property, at cost: Building and improvements 4,633,720 4,617,037 Furniture, fixtures & equipment 1,253,298 1,225,209 ----------- ----------- 5,887,018 5,842,246 Less accumulated depreciation 2,408,264 2,357,571 ----------- ----------- Total investment property, net of accumulated depreciation 3,478,754 3,484,675 Franchise fees, net (note 2) 26,042 26,667 ----------- ----------- $ 3,745,366 $ 3,723,430 =========== ===========
See accompanying notes to financial statements. Page 1 MISSION VALLEY COMFORT SUITES LTD. A California Limited Partnership Balance Sheet March 31, 1998 and December 31, 1997 (Unaudited) (Part 2 of 2)
LIABILITIES AND March 31, 1998 December 31, 1997 PARTNER'S CAPITAL ACCOUNTS ----------------- ----------------- Current liabilities: Current portion on long-term debt $ 10,635 $ 9,891 Accounts payable and accrued expenses 79,459 41,166 Due to Affiliates (note 5) 10,716 54,973 ---------- ---------- Total current liabilities 100,810 106,030 ---------- ---------- Long-term debt, less current portion 187,479 197,190 Deferred rent liability(note 6 and note 8) 1,446,500 1,453,917 ----------- ------------ Total liabilities 1,734,789 1,757,137 ----------- ------------ Partners' capital accounts: General partners: Capital contributions 31,210 31,210 Cumulative net earnings (97,358) (101,786) Cumulative cash distributions (209,140) (209,140) ------------ ---------- (275,288) (279,716) ------------ ---------- Limited partners: Capital contributions, net of offering costs 5,117,287 5,117,287 Cumulative net earnings (876,214) (916,070) Cumulative cash distributions (1,955,208) (1,955,208) ----------- ------------- 2,285,865 2,246,009 ----------- -------------- Total partners' capital accounts 2,010,577 1,966,293 ----------- -------------- $3,745,366 $3,723,430 =========== ==========
See accompanying notes to financial statements. Page 2 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statement of Operations Three Months Ended March 31, 1998 and March 31, 1997 (Unaudited)
THREE MONTHS ENDED March 31, 1998 1997 ----- ---- Revenues: Room revenues $ 457,395 $ 457,555 Phone revenue 7,516 10,182 Interest income 916 71 Other income 25,664 7,615 ---------- --------- 491,491 475,423 ----------- --------- Expenses: Property operating expenses 160,489 154,336 Depreciation 50,693 48,288 General and administrative 47,581 42,779 Amortization 625 625 Management fees 28,283 28,526 Royalties and advertising 31,726 28,950 Real estate taxes 17,925 17,424 Interest expense 4,285 5,726 Lease expense 57,815 57,038 Marketing 17,105 19,126 Property and liability insurance 9,712 9,568 Repairs & Maintenance 20,968 17,080 ---------- ------- 447,207 428,466 ---------- ------- Net earnings $ 44,284 $ 46,957 ========== ========== Net earnings per limited partnership interest $ 6.76 $ 7.16 ======= ========
See accompanying notes to financial statements. Page 3 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statement of Cash Flows Three Months Ended March 31, 1998 and March 31, 1997 (Unaudited)
THREE MONTHS ENDED March 31, 1998 1997 --------- -------- Cash flows from operating activities: Net earnings (loss) $ 44,284 $ 46,957 Adjustments to reconcile net income to cash: Depreciation and amortization 51,318 48,913 (Increase) decrease in: Accounts receivable (34,842) 13,740 Operating supplies (2,576) (441) Prepaid expenses (6,675) 15,745 Increase (decrease) in: Accounts payable and accrued expenses 11,949 6,574 Due to/from Affiliates (17,913) 23,228 Deferred rent liability (7,417) (7,418) Net cash provided by (used in) ----------- ---------- operating activities 38,128 147,298 ----------- ---------- Cash flows from investing activities: Investment property expenditures (44,772) (2,315) ----------- ---------- Net cash used in investing activities (44,772) (2,315) ---------- ---------- Cash flows from financing activities: Proceeds/(Payments) of notes payable (8,967) (3,974) Cash distributions to partners 0 0 Net cash provided by (used in) ---------- ---------- financing activities ( 8,967) (3,974) ---------- ----------- Net decrease in cash and cash equivalents (15,611) 141,009 Cash and cash equivalents, beginning of year 146,672 75,541 --------- ----------- Cash and cash equivalents, end of year 131,061 216,550 ========= ==========
See accompanying notes to financial statements. Page 4 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements March 31, 1998 Readers of this quarterly report should refer to the partnership audited financial statements and annual report Form 10-KSB (File No. 33-11224-LA) for the period ended December 31, 1997, as certain footnote disclosures which would substantially duplicate those contained in such financial reports have been omitted from this report. 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 purpose of the Partnership is to construct, own, and operate a 122-room "suites only" motel under a franchise agreement with Choice Hotels 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 39 years. Maintenance and repair costs are expensed as incurred, while significant improvements, replacements, and major renovations are capitalized. Franchise Fees Franchise fees are amortized over the 20-year life of the franchise agreement. 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. (Continued) Page 5 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) 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. 3. FRANCHISE AGREEMENT The Partnership has entered into a twenty-year franchise agreement with Choice Hotels 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. 4. 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 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, GMS Management Services, Inc. (GMS), formerly Grosvenor Management Services, Inc., allocate to the Partnership certain marketing, accounting, and maintenance salaries and certain other expenses directly related to the operation of the Partnership. (Continued) Page 6 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) 4. RELATED PARTY TRANSACTIONS (Continued) Fees and reimbursements for partnership administration expenses paid to GHG and GMS for the three months ended March 31, 1998 and March 31, 1997 are as follows:
Three Months Ended 3/31/98 3/31/97 --------- --------- Management Fees $28,283 $26,526 Reimbursement for partnership administration expenses 9,238 9,387 Salaries and other alocated expenses 23,689 19,954
In addition, all motel employees are paid by GMS. For the three months ended March 31, 1998, the Partnership reimbursed GMS $98,517. for the wages of these employees which includes a one percent processing fee. At March 31, 1998, $10,716 was due to GHG and GMS relating to reimbursement for these operating expenses. 5. LONG-TERM DEBT The Partnership has a note payable which is due in monthly installments of $2,175, including 8% interest, through April 2013. In March 1997, The Partner- ship voluntarily began making monthly payments of $4,350 in order to retire the note earlier that 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 $198,114. as of March 31,1998 and $232,91 as of March 31, 1997. 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. (Continued) Page 7 MISSION VALLEY COMFORT SUITES, LTD., A California Limited Partnership Notes to Financial Statements (Continued) LONG TERM DEBT (continued) Principal payments on this note, based on the required monthly principal and interest payments of $2,175, are due as follows:
4/1/98 - 12/31/98 $ 7,896 1999 11,291 2000 12,228 2001 13,243 2002 14,342 Thereafter 139,114 ---------- $ 198,114 ==========
(Continued) Page 8 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) 6. 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 prin- ciples. 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. The rent payment was $21,744 per month as of March 31, 1998 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:
1998 $ 260,928 1999 260,928 2000 260,928 2001 260,928 2002 260,928 Thereafter 11,580,751 ----------------- $12,764,068 ===========
7. ADJUSTMENTS In the opinion of the general partner, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation have been made to the accompanying figures as of and for the three months ended March 31, 1998. (Continued) Page 9 8. SUBSEQUENT EVENT In May 1997 the Partnership paid a distribution of $26,999 to the limited partners. 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 Partnership's motel. 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 balance outstanding on the note was $198,114 as of March 31, 1998. 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 $3,478,754 as of March 31, 1998. 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, annual rent increases are based on the lesser of the increase in the Consumer Price Index or 5%, and there is no minium 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. Page 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued Choice International is requiring all franchisees to convert to their computerized property management system by 1999. The Partnership is expected to complete the conversion in the forth 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 costs of computer conversion and phone line installation will be funded by cash from operations. As requested by the limited partners in an informal survey conducted by the general partner, now that the partnership is nearing its 10th year, the majority of the limited partners want the motel to be sold and the partnership dissolved. Consequently, the hotel brokerage firm of Hotel Partners Inter- national has been engaged by the partnership to market the hotel for sale to qualified buyers at the highest and best selling price. The initial listing price is $5,000,000. Marketing packages have been sent out to hundreds of potential buyers and the level of interest is high. The general partner will review all offers and select one or more offers to submit to the limited partners for approval. Results of Operations: For the three months ended March 31, 1998, room revenues were $457,395 the occupancy rate was 63.6% and the average daily rate was $65.45. This compares to the three months ended March 31, 1997 when room revenues were $457,555, the occupancy rate was 73.2% and the average daily rate was $56.93. As budgeted, Comfort Suites first quarter occupancy did not equal 1997, which was a record year. Surveys of competitive properties found declining occupancy typical with most properties showing similar occupancy to 1996. Management has been focusing on Average Daily Rate, though trying to stabilize Revenue Per Available Room (REVPAR). January 1997 REVPAR $39.65 January 1998 REVPAR $39.58 February 1997 REVPAR $46.25 February 1998 REVPAR $43.39 March 1997 REVPAR $45.39 March 1998 REVPAR $42.10 Super Bowl XXXII has mixed results. Although we were able to get high prices for the rooms, our general occupancy was down as it appeared normal travelers were avoiding San Diego. Numerous groups are reserved for April arrivals and they will boost year to date occupancies. Management conducted a Phoenix sales blitz, a Central Reservations promotional visit, and attended the annual ASTA trade show, in addition to normal sales activities to attract the leisure market from Phoenix. Other main feeder cities, Las Vegas and Orange County, will be targeted in the second quarter. (Continued) Page 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued In January, Choice reservations accounted for 21.93% in 1998, as compared to 23.88% in 1997. February totals were 22.94% in 1998, and 27.15% in 1997. March percentages were 22.25% in 1998, and 21.59% in 1997. This is a decline of 2.3% averaged over the first quarter. A visit to the Central Reservations Office in Grand Junction, Colorado, is being planned to promote the property to the agents there. The effect of current operations on liquidity was net cash provided by operating activities of $38,128 for the three months ended March 31, 1998, and $147,298 for the three months ended March 31, 1997. 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 a negative cash flow during this weak period. Page 12 SIGNATURES 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. (REGISTRANT) Mission Valley Comfort Suites Ltd., A California Limited Partnership By: GHG Hospitality, Inc. Corporate General Partner By (SIGNATURE) /s/ Stephen D. Burchett (NAME AND TILE) Stephen D. Burchett, Vice President (DATE) May 14, 1998 By (SIGNATURE) /s/ Sylvia Mellor Clark (NAME AND TITLE) Sylvia Mellor Clark, Controller (DATE) May 14, 1998 EX-27 2
5 3-MOS DEC-31-1998 MAR-31-1998 131,061 0 49,097 0 17,587 240,570 5,887,018 2,408,264 3,745,366 100,810 0 0 0 0 0 3,745,366 0 491,491 0 442,922 0 0 4,285 44,284 0 44,284 0 0 0 44,284 6.76 6.76
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