-----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, MJZqnGEQ1EHThtgDwqYg8bQVJtC9YjdzdQz7RvM9IbMCeh3Px9Z20uai+d5eGwaI 0kWXz+SOJ2gH+oEyVjMAwA== 0000820062-99-000014.txt : 19990331 0000820062-99-000014.hdr.sgml : 19990331 ACCESSION NUMBER: 0000820062-99-000014 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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: 99578229 BUSINESS ADDRESS: STREET 1: 1466 9TH AVE CITY: SAN DIEGO STATE: CA ZIP: 92101 BUSINESS PHONE: 6192261212 MAIL ADDRESS: STREET 1: 1466 9TH AVE CITY: SAN DIEGO STATE: CA ZIP: 92101 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, 1998 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) 3725 Talbot Street #296, San Diego, California 92106 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (619) 294-9435 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: $1,112,678. 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, 1998: 5,900 interests held by 866 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 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, 1998, the Partnership consisted of a general partner, GHG Hospitality, Inc. (GHG), and 866 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 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. 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. An informal survey conducted by the general partner of a number of limited partners in early 1998 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. On July 2, 1998, the Partnership sold its motel property and related assets to Piyal, LLC (the Purchaser) for $5,000,000 in cash. The Purchaser also assumed the Partnership's obligations under the land lease. Net cash proceeds received by the Partnership from the sale were $4,647,699 after deducting the payment of the first trust deed of $188,965, sales commissions of $150,000 and net pro rations and other closing costs of $13,336. The sale was approved by limited partners holding a majority of the Partnership's limited partnership interests pursuant to a Consent Solicitation Statement dated June 18,1998. 2 The Partnership paid a liquidating distribution to the limited partners of $4,446,371 ($753.62 per interest) on July 21, 1998. The Partnership retained some cash to cover its remaining liabilities and any unexpected claims. Any amount not needed for this purpose will be distributed to the partners when management determines that all liabilities and potential claims have been paid or provided for at which time management intends to cause the Partnership to be dissolved. The liquidation and dissolution of the Partnership was approved by limited partners holding a majority of the Partnership's limited partnership interests pursuant to a Consent Solicitation Statement dated June 18, 1998. The Partnership has no employees. Item 2. Property The Partnership did not own any property as of December 31, 1998, and the Partnership does not intend to acquire any property in the future. Prior to the July 2, 1998 sale of its motel property, the Partnership owned the following property which it acquired in 1987 and 1988. 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. Item 3. Legal Proceedings The Partnership is a defendant in a complaint filed on July 23, 1998 in Superior Court of San Diego County by Isabel Callahan and Roberta Callahan Webster. The plaintiffs are seeking compensatory damages of an unspecified amount related to injuries they claim to have received as a result of separate slip and fall accidents while staying at the Partnership's motel. The claim is being defended by the Partnership's insurance carrier and management believes that any loss related to this claim will be fully covered by insurance and, therefore, will not have an effect on the financial position of the Partnership. Item 4. Submission of Matters to a Vote of Security Holders On June 18, 1998, a Consent Solicitation Statement was submitted to the limited partners to approve (i) the sale of substantially all of the assets of the Partnership and (ii) the complete termination and liquidation of the Partnership resulting in cash distributions to the limited partners. 3 On July 2, 1998, the general partner announced that the results of the consent solicitation were as follows:
Limited Percent Partnership to Interests Total Sale of substantially all assets: Voted for: Consent card returned 3,630 61.50% Consent card not returned by deadline - deemed to be "voted for" 2,243 38.01 _________ _________ Total voted for 5,873 99.54 Voted against 23 .39 Abstained 4 .07
Termination and liquidation of Partnership: Voted for: Consent card returned 3,634 61.60% Consent card not returned by deadline - deemed to be "voted for" 2,243 38.01 _________ ________ Total voted for 5,877 99.61 Voted against 23 0.39 Abstained 0 0.00
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 866 holders of the Partnership's 5,900 limited partnership interests as of December 31, 1998. Cash distributions to holders of limited partnership interests totaled $4,577,141 ($775.79 per interest) in 1998 and $193,500 ($32.80 per interest) in 1997. 4 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. 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. An informal survey conducted by the general partner of a number of limited partners in early 1998 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. On July 2, 1998, the Partnership sold its motel property and related assets to Piyal, LLC (the Purchaser) for $5,000,000 in cash. The Purchaser also assumed the Partnership's obligations under the land lease. Net cash proceeds received by the Partnership from the sale were $4,647,699 after deducting the payment of the first trust deed of $188,965, sales commissions of $150,000 and net pro rations and other closing costs of $13,336. The sale was approved by limited partners holding a majority of the Partnership's limited partnership interests pursuant to a Consent Solicitation Statement dated June 18,1998. The Partnership paid a liquidating distribution to the limited partners of $4,446,371 ($753.62 per interest) on July 21, 1998. The Partnership retained some cash to cover its remaining liabilities and any unexpected claims. Any amount not needed for this purpose will be distributed to the partners when management determines that all liabilities and potential claims have been paid or provided for at which time management intends to cause the Partnership to be dissolved. The liquidation and dissolution of the Partnership was approved by limited partners holding a majority of the Partnership's limited partnership interests pursuant to a Consent Solicitation Statement dated June 18, 1998. Accrued expenses as of December 31, 1998, includes estimated costs of $66,133 to administer the affairs of the Partnership from January 1, 1999 until the final liquidation and dissolution. 5 The deferred rent liability represented 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 were based on the lesser of the increase in the Consumer Price Index or 5%, and there was no minimum annual increase. Consequently, rent expense was 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 was credited to income on a straight-line basis over the remaining term of the lease. The lease was assumed by the Purchaser in connection with the sale of the motel. The deferred rent liability, which had a balance of $1,439,082 as of July 2, 1998, was eliminated and is included in the gain on disposal of discontinued operations. Results of Operations: All of the Partnership's operations are related to the motel business which was sold on July 2, 1998. Income from discontinued operations was $162,320 in 1998 and $129,950 in 1997. Gain on disposal of discontinued operations was $2,668,165 in 1998. Net income was $2,830,485 in 1998 and $129,950 in 1997. Total revenues were $1,112,678 in 1998 and $2,040,601 in 1997. The property operated at an occupancy of 71.68% in 1998 and 73.87% in 1997. The average daily room rate was $65.73 in 1998 and $59.73 in 1997. Total revenues and operating expenses decreased in 1998 compared to 1997 because the motel was operated by the Partnership for approximately six months in 1998 compared to twelve months in 1997. Gain on disposal of discontinued operations of $2,668,165 in 1998 is comprised of a gain of $1,365,117 on the sale of the motel and related assets, a gain of $1,439,082 related to the elimination of the deferred rent liability, costs of $15,325 associated with obtaining the consent of limited partners to sell the motel and liquidate and dissolve the Partnership, and estimated expenses of $120,709 to administer the affairs of the Partnership from the date of the sale until the final liquidation and dissolution. Approximately $54,576 of the estimated expenses were incurred in 1998. 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. The effect of current operations on liquidity was net cash provided by operating activities of $138,405 in 1998 and $343,146 in 1997 and net cash provided by the sale of motel and related assets of $4,647,699 6 in 1998. The cash was used primarily for cash distributions to partners which were $4,591,672 in 1998 and $215,000 in 1997, payments of long-term debt prior to the sale which were $18,116 in 1998 and $29,830 in 1997, and investment property expenditures prior to the sale which were $44,772 in 1998 and $27,185 in 1997. Year 2000 Issues: Many existing computer programs use only two digits to identify a year in the date field. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. Based on the sale of substantially all of the Partnership's assets and the cessation of substantially all of the Partnership's operations, management believes that the Year 2000 issues will not have a material effect on the Partnership. 7 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 9 Balance Sheets, December 31, 1998 and 1997 10-11 Statements of Operations, Years Ended December 31, 1998 and 1997 12 Statements of Partners' Capital, Years Ended December 31, 1998 and 1997 13-14 Statements of Cash Flows, Years Ended December 31, 1998 and 1997 15 Notes to Financial Statements 16-24 8 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, 1998 and 1997, 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, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. As more fully discussed in Note 1, the Partnership sold substantially all of its assets and paid a liquidating distribution to its limited partners in 1998. /s/ Levitz, Zacks, Ciceric, CPAs San Diego, California January 15, 1999 9 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Balance Sheets December 31, 1998 and 1997
ASSETS 1998 1997 Current Assets: Cash and cash equivalent $256,005 $146,672 Accounts receivable -0- 14,255 Operating supplies -0- 15,011 Prepaid expense -0- 36,150 Due from affiliate 15,234 -0- ------------- ----------- Total current assets 271,239 212,088 ------------- ----------- Investment property, at cost: Building and improvements -0- 4,617,037 Furniture, fixtures and equipment -0- 1,225,209 ------------- ------------ -0- 5,842,246 Less accumulated depreciation -0- 2,357,571 ------------- ------------ Investment property, net -0- 3,484,675 ------------- ------------ Franchise fees, net -0- 26,667 ------------- ----------- Total assets $271,239 $3,723,430 ============ ============
See accompanying notes to financial statements 10
LIABILITIES AND PARTNERS' CAPITAL 1998 1997 Current Liabilities: Accounts payable $ -0- $24,136 Accrued expenses 66,133 17,030 Due to affiliate -0- 28,629 Guest deposits -0- 26,344 Current portion of long-term debt -0- 9,891 ------------ ---------- Total current liabilities 66,133 106,030 Long-term debt, less current portion -0- 197,190 Deferred rent liability -0- 1,453,917 ------------ ----------- Total liabilities 66,133 1,757,137 ------------ ----------- Partners' Capital: General partner: Capital contributions 31,210 31,210 Cumulative net income (loss) 192,461 (101,786) Cumulative cash distributions (223,671) (209,140) ------------ ----------- -0- (279,716) ------------ ----------- Limited partners (5,900 interests): Capital contributions,net of offering costs 5,117,287 5,117,287 Cumulative net income (loss) 1,620,168 (916,070) Cumulative cash distributions (6,532,349) (1,955,208) ------------ ------------ 205,106 2,246,009 ------------ ------------ Total partners' capital 205,106 1,966,293 ------------ ------------ Total liabilities and partners' capital $271,239 $3,723,430 ============ ============
11 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statements of Operations Years Ended December 31, 1998 and 1997
1998 1997 Discontinued Operations: Revenues: Room revenues $1,040,372 $1,964,912 Phone revenues 14,726 34,090 Interest income 19,091 3,227 Other 38,489 38,372 ------------ ------------ Total revenues 1,112,678 2,040,601 ------------ ------------ Expenses: Property operating expenses 353,582 660,221 Land rent 116,355 228,411 Depreciation 101,377 194,475 Royalties and chain-affiliated advertising 89,164 151,056 General and administrative 71,508 165,599 Management fees 64,230 122,243 Repairs and maintenance 44,778 76,470 Marketing 43,679 77,207 Real estate taxes 35,572 66,817 Property and liability insurance 18,873 38,553 Interest 9,990 18,696 Amortization 1,250 2,500 REIT proposal costs -0- 108,403 ------------ ------------ Total expenses 950,358 1,910,651 ------------ ------------ Income from discontinued operations 162,320 129,950 Gain on disposal of discontinued operations 2,668,165 -0- ----------- ------------- Net income $ 2,830,485 $ 129,950 ============ ============= Net income per interest: Income from discontinued operations $ 24.76 $ 19.82 Gain on disposal of discontinued operations 405.11 -0- --------- ---------- Net income per interest $ 429.87 $ 19.82 ======== ========
See accompanying notes to financial statements. 12 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statements of Partners' Capital Years Ended December 31, 1998 and 1997
General Partner Cumulative Cumulative Capital Net Income Cash Contributions (Loss) Distributions Total 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) Net income, year ended December 31, 1998 -0- 294,247 -0- 294,247 Cash distributions ($775.79 per interest) -0- -0- (14,531) (14,531) ---------- ----------- ---------- ---------- Balance, December 31, 1998 $31,210 $192,461 $(223,671) $ -0- ========== =========== ========== ==========
See accompanying notes to financial statements. 13
Limited Partners Cumulative Cumulative Total Capital Net Income Cash Partners' Contributions (Loss) Distributions Total Capital $5,117,287 $(1,033,025) $(1,761,708) $2,322,554 $2,051,343 -0- 116,955 -0- 116,955 129,950 -0- -0- (193,500) (193,500) (215,000) __________ ___________ ___________ _________ ________ 5,117,287 (916,070) (1,955,208) 2,246,009 1,966,293 -0- 2,536,238 -0- 2,536,238 2,830,485 -0- -0- (4,577,141) (4,577,141) (4,591,672) ___________ ___________ ___________ ___________ __________ $5,117,287 $1,620,168 $(6,532,349) $ 205,106 $ 205,106 ========== ========== ============ =========== ==========
14 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Statements of Cash Flows Years Ended December 31, 1998 and 1997
Cash flows from operating activities: Net income $2,830,485 $ 129,950 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 102,627 196,975 Gain on disposal of discontinued operations (2,668,165) -0- Post-measurement date expenses paid (54,576) -0- Expenses pro rated in escrow 3,210 -0- (Increase) decrease in: Accounts receivable 14,255 24,542 Operating supplies, net of effects of sale 627 529 Prepaid expenses 36,150 (13,728) Due from affiliate (15,234) 4,848 Increase (decrease) in: Accounts payable (24,136) (17,680) Accrued expenses (17,030) 3,850 Due to affiliate (28,629) 17,189 Guest deposits (26,344) 26,344 Deferred rent liability, net of effects of sale (14,835) (29,673) ---------- --------- Net cash provided by operating activities 138,405 343,146 ---------- --------- Cash flows from investing activities: Sale of motel and related assets 4,647,699 -0- Costs related to sale of motel and related assets (22,211) -0- Investment property expenditures (44,772) (27,185) ---------- --------- Net cash provided by (used in) investing activities 4,580,716 (27,185) ---------- --------- Cash flows from financing activities: Cash distributions to partners (4,591,672) (215,000) Payments of long-term debt (18,116) (29,830) ----------- --------- Net cash used in financing activities (4,609,788) (244,830) ----------- --------- Net increase in cash and cash equivalents 109,333 71,131 Cash and cash equivalents, beginning of year 146,672 75,541 ----------- --------- Cash and cash equivalents, end of year $256,005 $146,672 =========== ========= Supplemental disclosure of cash flow information: Interest paid $(8,688) $(18,696) ========== =========
See accompanying notes to financial statements. 15 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements Years Ended December 31, 1998 and 1997 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 866 limited partners which collectively own a 90% interest. The purpose of the Partnership was to construct, own, and operate a 122- room "suites only" motel in San Diego, California under a franchise agreement with Choice International. The motel was opened in September 1988. On July 2, 1998, the Partnership sold its motel property and related assets to Piyal, LLC (the Purchaser) for $5,000,000 in cash. The sale was approved by limited partners holding a majority of the Partnership's limited partnership interests pursuant to a Consent Solicitation Statement dated June 18, 1998. The Partnership paid a liquidating distribution to the limited partners of $4,446,371 ($753.62 per interest) on July 21, 1998. The Partnership retained some cash to cover its remaining liabilities and any unexpected claims. Any amount not needed for this purpose will be distributed to the partners when management determines that all liabilities and potential claims have been paid or provided for at which time management intends to cause the Partnership to be dissolved. The liquidation and dissolution of the Partnership was approved by limited partners holding a majority of the Partnership's limited partnership interests pursuant to a Consent Solicitation Statement dated June 18, 1998. The following is a summary of the Partnership's significant accounting policies: Discontinued Operations All of the Partnership's operations are related to the motel business which was sold on July 2, 1998. Accordingly, all of the revenues and expenses of the Partnership prior to the sale have been presented as discontinued operations in the accompanying statements of operations. Gain on disposal of discontinued operations is net of estimated expenses of $120,709 to administer the affairs of the Partnership until its final liquidation and termination. Approximately $54,576 of the estimated expenses were incurred in 1998. This estimate could change in the next year due to unforeseen circumstances. 16 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. Franchise Fees Franchise fees are amortized over the 20-year life of the franchise agreement which expires in 2008. Advertising Advertising costs are expensed as incurred. Advertising expense was $56,709 for the year ended December 31, 1998 and $113,658 for the year ended December 31, 1997. 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 amount allocated to limited partners pursuant to the partnership agreement divided by 5,900 limited partner interests outstanding throughout the year. 17 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 1. THE PARTNERSHIP AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 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 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. The franchise agreement was terminated in connection with the sale of the motel. 18 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 4. LONG-TERM DEBT The Partnership had a note payable which was 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 was secured by a trust deed on the Partnership's motel. The fair value of long-term debt approximated its carrying amount based on borrowing rates available to the Partnership for loans with similar terms. The note, which had a balance of $188,965 as of July 2, 1998, was paid in full in connection with the sale of the motel. Note 5. LEASE The Partnership leased 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 were still subject to annual increases based on the increase in the Consumer Price Index, but the maximum annual increase was 5% and there is no minimum annual increase. Consequently, rent expense was 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 was credited to income on a straight-line basis over the remaining term of the lease. The Partnership was required to pay real estate taxes, insurance, and maintenance for the leased land and improvements thereon. The lease was assumed by the Purchaser in connection with the sale of the motel. The deferred rent liability, which had a balance of $1,439,082 as of July 2, 1998, was eliminated and is included in the gain on disposal of discontinued operations. 19 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 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, 1998 and 1997 are as follows:
1998 1997 Management fees $64,230 $122,243 Reimbursement for partnership administration expenses 36,953 37,547 Salaries and other allocated expenses 49,105 113,263 ----------- ----------- $150,288 $273,053 =========== ===========
In addition, all motel staff are employed by GMS. The Partnership reimbursed GMS $234,146 in 1998 and $375,625 in 1997, including a one percent processing fee, for the wages of these employees. 20 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 7. NET INCOME PER INTEREST
1998 1997 Income from discontinued operations $162,320 129,950 Less amount allocated to general partner (16,232) (12,995) ----------- --------- Income from discontinued operations allocated to limited partners 146,088 116,955 Limited partner interests outstanding throughout the year 5,900 5,900 ---------- ---------- Income from discontinued operations per interest $24.76 $19.82 ========== ========== Gain on disposal of discontinued operations $2,668,165 $ - Less amount allocated to general partner (278,015) - ----------- --------- Gain on disposal of discontinued operations allocated to limited partners 2,390,150 - Limited partner interests outstanding throughout the year 5,900 - ----------- --------- Gain on disposal of discontinued operations per interest $ 405.11 $ -- ========= ========
21 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 Note 8. SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Net cash provided by the sale of motel and related assets in 1998 was as follows:
Sale price $5,000,000 Less payments directly from escrow account: Long-term debt (188,965) Sale commission (150,000) Net pro rations and other closing costs (13,336) ------------ $4,647,699 ============
22 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 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, 1998 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, 51, 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, 39, 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, 54, 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. 23 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 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, 1998 and 1997 are as follows:
1998 1997 Management fees $64,230 $122,243 Reimbursement for partnership administration expenses 36,953 37,547 Salaries and other allocated expenses 49,105 113,263 ---------- ---------- $150,288 $273,053 ========== ==========
In addition, all motel employees are paid by GMS. The Partnership reimbursed GMS $234,146 in 1998 and $375,625 in 1997, including a one percent processing fee, for the wages of these employees. 24 MISSION VALLEY COMFORT SUITES LTD., A California Limited Partnership Notes to Financial Statements (Continued) Years Ended December 31, 1998 and 1997 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 1998 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. 25 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. (REGISTRANT) MISSION VALLEY COMFORT SUITES LTD. A California Limited Partnership By: GHG Hospitality, Inc. Corporate General Partner (SIGNATURE) /s/ J. Mark Grosvenor (NAME AND TITLE) J. MARK GROSVENOR, President and Director of GHG (DATE) March 26, 1999 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. (REGISTRANT) MISSION VALLEY COMFORT SUITES, LTD. A California Limited Partnership By: GHG Hospitality, Inc. Corporate General Partner (SIGNATURE) /s/ J. Mark Grosvenor (NAME AND TITLE) J. MARK GROSVENOR, President and Director of GHG (DATE) March 26, 1999 (SIGNATURE) /s/ Stephen D. Burchett (NAME AND TITLE) STEPHEN D. BURCHETT, Vice President of GHG (DATE) March 26, 1999 (SIGNATURE) /s/ Sylvia Mellor Clark (NAME AND TITLE) SYLVIA MELLOR CLARK, Controller of GHG (DATE) March 26, 1999 26 EX-27 2
5 12-MOS DEC-31-1998 DEC-31-1998 256,005 0 0 0 0 271,239 0 0 271,239 66,133 0 0 0 0 0 271,239 0 0 0 0 0 0 0 0 0 0 2,830,485 0 0 2,830,485 429.87 429.87
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