-----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, Pb3+RwOgWqC7FUgMviKZQbM4ZipzqKiy0Tz8rbAI1Sr+06V3MDca9NR+8E7lQs3I clTDdV1Npk19YkbHcyxXSQ== 0000927356-97-000618.txt : 19970515 0000927356-97-000618.hdr.sgml : 19970515 ACCESSION NUMBER: 0000927356-97-000618 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRCOA HOTEL PARTNERS L P CENTRAL INDEX KEY: 0000812591 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 841042607 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09563 FILM NUMBER: 97605280 BUSINESS ADDRESS: STREET 1: 5775 DTC BLVD STREET 2: STE 300 CITY: ENGLEWOOD STATE: CO ZIP: 80111-3202 BUSINESS PHONE: 3032202000 10-Q 1 FORM 10-Q FOR PERIOD ENDING MARCH 31, 1997 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ______ Commission File Number 1-9563 AIRCOA HOTEL PARTNERS, L.P. (Exact name of registrant as specified in its charter) Delaware 84-1042607 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 5775 DTC Boulevard Suite 300 Englewood, Colorado 80111 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 220-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- There were 5,340,214 Units outstanding of the Registrant's Class A Units, as of April 25, 1997. - ------------------------------------------------------------------------------- AIRCOA HOTEL PARTNERS, L.P. INDEX
Page Number ------ PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets (Unaudited) March 31, 1997 and December 31, 1996 2 - 3 Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 1997 and 1996 4 Consolidated Statement of Partners' Capital (Unaudited) Three Months Ended March 31, 1997 5 Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 1997 and 1996 6 Notes to Consolidated Financial Statements (Unaudited) 7 - 10 Item 2. Management's Discussion and Analysis of 11 - 13 Financial Condition and Results of Operations PART II. OTHER INFORMATION AND SIGNATURES 14
1 PART I. FINANCIAL INFORMATION - ------- --------------------- Item 1. Financial Statements - ------- --------------------- AIRCOA HOTEL PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands)
Assets March 31, 1997 December 31, 1996 - ------ --------------- ------------------ Current assets: Cash and cash equivalents $ 3,041 $ 2,350 Accounts receivable: Trade 3,114 3,305 Inventory 386 373 Prepaid expenses 689 516 -------- -------- Total current assets 7,230 6,544 -------- -------- Property and equipment, at cost: Land and leasehold improvements 9,432 9,427 Buildings and leasehold improvements 68,525 68,499 Furniture, fixtures and equipment 21,038 20,251 -------- -------- 98,995 98,177 Less accumulated depreciation and amortization (36,589) (35,501) -------- -------- Net property and equipment 62,406 62,676 -------- -------- Other assets, including debt issue costs, net of accumulated amortization of $337 in 1996 and $237 in 1995 814 911 -------- -------- $70,450 $70,131 ======== ========
2 AIRCOA HOTEL PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (Continued) (Unaudited) (In Thousands)
Liabilities and Partners' Capital March 31, 1997 December 31, 1996 - --------------------------------- --------------- ------------------ Current liabilities: Current installments of long-term debt $ 1,124 $ 1,122 Trade accounts payable 948 1,284 Payables to affiliates 591 444 Accrued liabilities: Payroll 917 832 Taxes, other than income taxes 807 513 Other 2,651 2,223 Deferred revenue and advance deposits 1,573 1,842 ------- ------- Total current liabilities 8,611 8,260 Long-term debt, excluding current installments 42,222 42,504 Notes payable to affiliates 8,100 8,100 Accrued administration, management fees and interest payable to affiliate 568 506 ------- ------- Total liabilities 59,501 59,370 ------- ------- Partners' capital: General Partner 246 245 Limited Partners: Class A Unitholders 13,436 13,517 Class B Unitholders (deficit) (2,733) (3,001) ------- ------- Total Partners' capital 10,949 10,761 ------- ------- $70,450 $70,131 ======= =======
See accompanying notes to consolidated financial statements. 3 AIRCOA HOTEL PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) (In Thousands, Except Unit Data)
1997 1996 ----------- ----------- Revenue: Rooms $ 7,433 $ 7,317 Food and beverage 2,877 3,017 Other property operations 1,959 2,034 ---------- ---------- 12,269 12,368 ---------- ---------- Costs and operating expenses: Rooms 1,946 1,886 Food and beverage 2,019 2,187 Other property operations 920 961 Administrative and general 1,519 1,215 Marketing 1,047 1,134 Energy 598 617 Property maintenance 608 573 Rent, taxes and insurance 694 683 Management fees 488 492 Depreciation and amortization 1,088 1,053 ---------- ---------- 10,927 10,801 ---------- ---------- Operating income 1,342 1,567 Interest expense, including amortization of debt costs (1,154) (1,195) ---------- ---------- Net income $ 188 $ 372 ========== ========== Class A Unitholders: Income (loss) per limited partnership unit $(.02) $.02 ========== ========== Weighted average number of units outstanding 5,340,214 5,340,214 ========== ========== Class B Unitholders: Income per limited partnership unit $.28 $.29 ========== ========== Weighted average number of units outstanding: 950,000 950,000 ========== ==========
See accompanying notes to consolidated financial statements. 4 AIRCOA HOTEL PARTNERS, L.P. CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL THREE MONTHS ENDED MARCH 31, 1997 (Unaudited) (In Thousands, Except Unit Data)
Limited Partners' Capital (Deficit) -------------------------------------------- Class A Unitholders Class B Unitholders Total General --------------------- --------------------- Partners' Partner Units Capital Units Deficit Capital ------- --------- ----------- --------- ----------- ---------- Balances at December 31, 1996 $245 5,340,214 $13,517 950,000 $(3,001) $10,761 Net income 1 -- (81) -- 268 188 ---- --------- ------- ------- ------- ------- Balances at March 31, 1997 $246 5,340,214 $13,436 950,000 $(2,733) $10,949 ==== ========= ======= ======= ======= =======
See accompanying notes to consolidated financial statements. 5 AIRCOA HOTEL PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Unaudited) (In Thousands)
1997 1996 -------- ------- Cash flows from operating activities: Cash received from customers $11,833 $11,305 Cash paid to suppliers and vendors (6,118) (6,528) Cash paid to employees (3,081) (3,110) Interest paid (1,017) (488) Other cash receipts, net 172 349 ------- ------- Net cash provided by operating activities 1,789 1,528 ------- ------- Cash flows from investing activities - capital expenditures (818) (204) ------- ------- Cash flows from financing activities - principal payments on long-term debt (280) (270) ------- ------- Increase in cash and cash equivalents 691 1,054 Cash and cash equivalents at beginning of period 2,350 2,116 ------- ------- Cash and cash equivalents at end of period $ 3,041 $ 3,170 ======= =======
See accompanying notes to consolidated financial statements. 6 AIRCOA HOTEL PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (Unaudited) (1) BASIS OF PRESENTATION AIRCOA Hotel Partners, L.P., a Delaware limited partnership (the "Partnership") was organized in December 1986 to acquire, own and operate hotel and resort properties. The Partnership owns and operates six hotel and resort properties (the "Properties") through operating partnerships (the "Operating Partnerships") which were acquired in 1986. The Partnership holds a 99% limited partner interest in each of the six Operating Partnerships which hold title to the Properties and through which the Partnership conducts all of its operations. AHS, a wholly owned subsidiary of Richfield Hospitality Services, Inc. ("Richfield"), is also the 1% General Partner of each of the Operating Partnerships. Richfield operates the Properties for the Partnership under certain management agreements. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and disclosures necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, these financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results of operations and financial position for the interim periods presented. These interim financial statements should be read in conjunction with the Annual Report on Form 10-K for the period ended December 31, 1996. Operating results for the three months ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. (2) MERGER WITH AFFILIATE The Partnership received in December 1996, a written proposal from an affiliate, Regal Hotel Management, Inc. ("RHM"), to commence discussions with respect to the possible purchase of all of the Class A and Class B units not currently owned by RHM or its affiliates for $2.35 per Class A Unit and $16.80 per Class B Unit. The General Partner of the Partnership referred consideration of RHM's proposal to a special committee comprised of the independent members of the Partnership's Advisory Committee. Pursuant to negotiations, RHM agreed to increase the merger consideration to $3.10 per Class A Unit and $20.00 per Class B Unit. The special committee determined that such increased merger consideration is fair to, and in the best interests of, unaffiliated unitholders of the Partnership and recommended approval of the merger transaction by the Board of Directors of the Partnership's General Partner. The General Partner's Board of Directors approved RHM's revised proposal on May 2, 1997. The acquisition would be made by means of a merger of a subsidiary limited partnership owned by RHM into the Partnership. The completion of the merger and the resulting acquisition of interests of unaffiliated unitholders is subject to the approval of the merger by unitholders owning a majority interest of the Partnership's units at a special meeting. Presently, RHM and its affiliates own 71% of the Class A Units and 93.6% of the Class B Units. RHM and its affiliates have agreed to vote in favor of the merger thus assuring its approval. Although no date has been set for the special meeting, it is presently expected that the meeting will be held, and the merger will be consummated, during the third quarter of 1997. In conjunction with approval of the merger transaction, the General Partner has amended the Partnership Agreement in order to defer the mandatory conversion of Class B Units into Class A Units. The amendment provides that the 250,000 Class B Units scheduled to convert into additional Class A Units during 1997 will convert on the earliest to occur of (i) any termination of the definitive merger agreement; (ii) the record date for any vote of the Class A Unitholders, (other 7 than the vote on merger), (iii) the record date for any distribution by the Partnership to holders of Class A Units and (iv) September 30, 1997. In 1997, in accordance with the Partnership Agreement, the number of Class A Units to be received upon conversion of a Class B Unit will be determined by dividing $20.00 by the average of the closing prices of Class A Units for the five trading days ending on May 30, 1997. In light of the likelihood of completion of the merger, the General Partner adopted this amendment in order to avoid administrative and other issues arising from the issuance of additional Class A Units pursuant to the conversion. (3) LONG-TERM DEBT The Partnership has a first mortgage loan and a $1,000,000 revolving credit line. The first mortgage loan bears interest at the Eurodollar rate plus 2% (7.5 % at March 31, 1997). Re-payment of the first mortgage loan is based on a twenty-year amortization with a maturity date in June 2000. Payments under this loan consist of monthly installments of $90,000 plus interest on the unpaid balance. The revolving credit line is renewable annually at the option of the lender. no amounts have been drawn on the line at March 31, 1997. Long term debt is summarized as follows (in thousands):
March 31, December 31, 1997 1996 ---------- ------------- Mortgage loan $43,110 $43,380 Capital lease obligation 236 246 ------- ------- $43,346 $43,626 Less current installments (1,124) (1,122) ------- ------- Long-term debt, excluding current installments $42,222 $42,504 ======= =======
The first mortgage loan and revolving credit line contain various covenants including: minimum debt service ratios, restrictions on additional indebtedness, limitations on annual cash distributions to Class A Unitholders, limitations on the payment of principal on the affiliate notes payable, prepayment premium during the first two years, deferral of management fees payable to Richfield if minimum debt service ratios are not achieved, maintenance of a capital expenditure reserve account equal to 5% of gross revenue and a maximum loan-to-value ratio of 65% based on the aggregate appraised values of the Properties. The first mortgage loan and revolving credit line are subject to certain limited guarantees of an affiliate of the General Partner. The first mortgage loan also requires the Bank's approval of any dilution in the present ownership interests of affiliates of the General Partner in the Partnership. The Partnership pays an annual guarantee fee calculated at .5% of the outstanding loan balance at June 8th of each year to an affiliate of the General Partner for the limited guarantee of the first mortgage loan and the revolving credit line. (4) NOTES PAYABLE TO AFFILIATES The Partnership has notes payable of $8,100,000 to AHS that are subordinate to the first mortgage loan. Notes payable to AHS consist of notes payable of $6,000,000 and a note payable of $2,100,000. The notes payable totaling $6,000,000 accrue interest at 12% per annum, payable monthly, and mature on June 8, 2000. The note payable for $2,100,000 accrues interest at 12% per annum, with interest and principal due on June 8, 2000. The notes payable to AHS are convertible into Class A Units of the Partnership at $16.60 per unit. In addition, these notes stipulate that 25% of any excess cash flow, as defined in the first mortgage loan, will be applied against the principal of the notes outstanding. 8 AIRCOA HOTEL PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (Unaudited) (5) PARTNERSHIP UNITS AND ALLOCATIONS LIMITED PARTNERSHIP UNITS The Class A Units entitle each Unitholder to a limited partnership interest in a percentage of the profits and losses, tax allocations and distributions of the Partnership, as described below. The Class B Units entitle each Unitholder to a limited partnership interest which is subordinate to the Class A Units, in certain circumstances. The Class B Units are redeemable by the Partnership or convertible into Class A Units, in certain circumstances. The Class B Units do not receive distributions until the Class A Unitholders receive defined Minimum Annual Distributions. Beginning in 1997, in accordance with the terms of the Partnership Agreement, and each year thereafter through 2001, a minimum of 250,000 Class B Units are required to be converted into Class A Units annually through 2001 at a redemption value of $20.00 per Class B Unit, by issuing Class A Units valued at the then current market price of the Class A Units. As discussed above in Note 2, the Partnership Agreement was amended to defer the 1997 conversion of Class B Units. CASH DISTRIBUTIONS The Partnership Agreement provides for periodic distribution of distributable cash flow, as defined, to the partners at the discretion of the General Partner. Distributable cash flow is generally defined as cash flow from operations of the hotel properties. Such cash is allocated and distributed (net of AHS' 1% general partnership interest in the Operating Partnerships) 99% to the Class A Unitholders and 1% to the General Partner until the Class A Unitholders have received defined Minimum Annual Distributions. At March 31, 1997, the cumulative unpaid Minimum Annual Distribution per Class A Unit significantly exceeds the Partnerships' net asset value per unit based on the December 31, 1996 appraised values of the hotel properties. According to the first mortgage loan, the maximum annual amount that the Partnership may distribute to the Class A Unitholders is equal to 50% of excess cash flow as defined in the mortgage loan agreement. However, if the debt service coverage ratio, as defined in the mortgage loan agreement, is greater than 1.50, then the Partnership may distribute up to 75% of such excess cash flow. In addition, the Partnership may not make any distributions to the Class A Unitholders if there are any amounts which are due and payable under the mortgage loan agreement which are unpaid. 9 AIRCOA HOTEL PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (Unaudited) (6) RELATED PARTY TRANSACTIONS The following amounts resulting from transactions with affiliates are included in the accompanying consolidated statements of operations (in thousands):
For the three months ended March 31, ---------------------- 1997 1996 ---- ---- Partnership administration fees $ 52 $ 43 ===== ===== Management fees $ 488 $ 492 ===== ===== Allocated data processing cost $ 11 $ 23 ===== ===== Allocated insurance expenses $334 $358 ===== ===== Interest expense $ 243 $ 243 ===== ===== Lease income $ 61 $ 46 ===== ===== License fees $ 123 $ 94 ===== =====
The properties are obligated to reimburse an affiliate for payroll, professional fees, and certain out-of-pocket expenses incurred by the affiliate on their behalf. Affiliates are also paid purchasing and design fees in connection with renovations of the hotels and purchases of furnishings, equipment and supplies. (7) INCOME TAXES No current provision or benefit for income taxes is included in the accompanying consolidated financial statements since the taxable income or loss of the Partnership is included in the tax returns of the individual partners of the Partnership. The Partnership's only significant temporary difference is an excess of the tax basis over the book basis of the Partnership's hotels of approximately $4,900,000 which gives rise to a net deferred tax asset of approximately $1,960,000. The Partnership has established a 100% valuation allowance on these net deferred tax assets. Current federal income tax regulations will subject the Partnership to corporate taxation beginning in 1998. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- RESULTS OF OPERATIONS Partnership revenue for the first three months of 1997 decreased $99,000 or .8% as compared to the first three months of 1996. Average occupancy and daily room rates for the portfolio of 1,586 rooms are summarized as follows:
Three months ended March 31, ----------------- 1997 1996 -------- ------- Average occupancy 72.7% 75.9% Average daily room rates $72.01 $66.45
The decrease in the Partnership's properties revenue for the first three months of 1997 as compared to the first three months of 1996 was primarily a result of decreased food and beverage revenue offset by increased room revenue. Food and beverage revenue is influenced, in part, by occupancy levels at each of the properties. For the first three months of 1997, occupancy levels at the Partnership's properties decreased by 4.2% as compared to the first three months of 1996 which contributed to a decrease in food and beverage revenue of 4.6% during the same periods. Rooms revenue is a function of occupancy levels as well as average daily room rates. For the first three months of 1997, rooms revenue increased by 1.6% over the first three months of 1996, due to an increase in average daily rates of 8.4% offset in part by a decrease in occupancy levels of 4.2% for the same periods. Net rooms margin (rooms revenue less rooms expenses) increased $56,000 or 1.0% for the first three months of 1997 as compared to the first three months of 1996, as revenue increased by $116,000 or 1.6% while expenses increased by $60,000 or 3.2%. The increase in net rooms margin was primarily due to an increase at Lakeside offset by a decrease at University. The increase in net rooms margin at Lakeside was generated through an increase in average daily room rates, primarily in the wholesale market segment. The decrease at University was primarily due to decreased occupancy levels that were offset in part by increased average daily room rates. These changes were a result of decreased rooms sold in the group market segment, which has historically provided higher occupancy levels at lower average daily room rates. Net food and beverage margin (food and beverage revenue less food and beverage expenses) increased $28,000 or 3.4% for the first three months of 1997 as compared to the first three months of 1996, as revenue decreased $140,000 or 4.6%, while expenses decreased $168,000 or 7.7%. The increase in net food and beverage margin was primarily due to an increase at McCormick exceeding a decrease at Buffalo. The increase in net food and beverage margin at McCormick was primarily due to the addition of a catering pavilion at the property during 1996, which increased banquet revenue, and reductions in payroll costs. The decrease in net food and beverage margin at Buffalo was primarily due to changes in the segment mix of the properties' guests to include more contract business, which typically does not use the hotel's food and beverage outlets as much as other segments. Additionally, Buffalo experienced increased food and payroll costs. Revenue from other property operations decreased $75,000 or 3.7% for the first three months of 1997 as compared to the first three months of 1996. This decrease was primarily a result of a decrease in occupancy levels at the Partnership's properties during the first three months of 1997. Operating income for the first three months of 1997 decreased $225,000 or 14.4% compared to the first three months of 1996 as revenue decreased $99,000 or .8% and operating costs increased $126,000 or 1.2%. The increase in operating costs is primarily due to increased professional and legal fees, offset in part by decreased operating costs at the Partnership's properties. The increased professional and legal fees are associated with the merger transaction discussed below in the "Other Matters" section. 11 Interest expense decreased $41,000 or 3.4% for the first three months of 1997 as compared to the first three months of 1996 as a result of a slight decrease in the average interest rate (inclusive of amortization of debt issue costs) from 9.13% to 8.94% and lower average debt levels. Cash flow from operations differs from net income of the Partnership due to the effects of depreciation, amortization and accruals as reflected in the consolidated statements of cash flows. Net income/(loss) per Class A Unit and the net income per Class B Unit reflect allocations of the net income as required by the Partnership Agreement. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the first three months of 1997 was $1,789,000, an increase of $261,000 as compared with the same period in 1996. The increase is primarily attributable to the increase in cash received from customers of $528,000 and the decrease in cash paid to suppliers and vendors of $410,000 offset by an increase in interest paid of $529,000. Cash used in investing activities increased $614,000 in the first three months of 1997 compared to the first three months of 1996. The increase primarily reflects capital expenditures at McCormick. Cash used in financing activities increased $10,000 in the first three months of 1997 compared to the first three months of 1996. The Partnership had indebtedness at March 31, 1997 of $51,446,000 as compared to $51,726,000 at December 31, 1996. At March 31, 1997, the Partnership had a working capital deficit of $1,381,000 compared to a working capital deficit of $1,716,000 at December 31, 1996. The Partnership's working capital requirements, debt service obligations and capital expenditures are expected to be satisfied through a combination of operating cash flows and draws on its revolving line of credit. The Partnership has capital improvements of approximately $4,600,000 planned in 1997, of which approximately $800,000 of improvements were made through March 31, 1997. These improvements will be primarily funded from hotel operations. The market value of the Partnership's properties differs significantly from the historical cost of the properties as reflected in the Partnership's balance sheet at March 31, 1997. As indicated under Item 2 in the Partnership's 1996 Form 10-K, the aggregate appraised value of the hotel properties at December 31, 1996 was $87,300,000. The December 1996 appraised value may not be representative of the appraised value which will be obtained as of December 31, 1997 and is not necessarily indicative of the ability of the Partnership to consummate a sale of the properties or the actual sale price to be realized from the sale of the properties. However, the appraised value does represent the appraiser's opinion of the most probable price for which the hotel properties should sell in a competitive market. PARTNERSHIP DISTRIBUTIONS AND UNIT CONVERSIONS The Partnership Agreement provides for periodic distribution of distributable cash flow, as defined, to the partners subject to any applicable restrictions and the discretion of the General Partner. The Partnership has not made any distributions since 1990. Prior to making future distributions, the Partnership will comply with its capital expenditure requirements as specified in its mortgage loan agreement and maintain sufficient working capital balances. The Partnership currently has a Minimum Annual Distribution requirement of $2.16 per Class A Unit. At March 31, 1997, the cumulative unpaid Minimum Annual Distribution per Class A Unit significantly exceeds the Partnership's net asset value per unit based on the December 31, 1996 appraised values of the hotel properties. At this time, it is unlikely that there will be any funds available for distribution to the Class A Unitholders in 1997. Beginning in 1997, in accordance with the terms of the Partnership Agreement, and each year thereafter through 2001, a minimum of 250,000 Class B Units are required to be converted at a redemption value of $20.00 per Class B Unit, by issuing Class A Units valued at the current market price of a Class A Unit. As discussed below in the "Other Matters" section, the Partnership Agreement was amended to defer the 1997 conversion of Class B Units. Based on current market prices of the Class A Units, such required conversion is expected to result in substantial dilution to the preconversion Class A Unitholders. For example, based on the average closing month-end market price of Class A Units during the first quarter of 1997 of approximately $2.04, 12 the conversion of 250,000 Class B Units in the first year of the required conversion period would result in an approximate 31% dilution to the Class A Unitholders upon conversion. The conversion of all 950,000 Class B Units would result in an approximate 64% dilution to the preconversion Class A Unitholders at the $2.04 per unit market price. In addition, using the same per unit market price for a Class A Unit of $2.04, affiliate ownership of Class A Units would increase to approximately 80% and 89% upon conversion of the first 250,000 Class B Units and conversion of all 950,000 Class B Units, respectively, changes in the market price of Class A Units do not result in proportional changes in dilution. The market price of the Partnership's Class A Units is subject to fluctuations and there is no assurance that such prices upon conversion will approximate the average per unit market price in the first quarter of 1997. Pursuant to the Partnership Agreement, the Class A Units to be issued upon conversion of the Class B Units must be identical to the Class A Units existing prior to the conversion date. The General Partner has, on the advice of counsel, determined that Class B Units convert into identical Class A Units because there are elective procedures, which are standard practice for publicly- traded partnerships, that make Class A Units received upon conversion fungible for tax purposes with all pre-existing Class A Units. OTHER MATTERS The Partnership received in December 1996, a written proposal from an affiliate, Regal Hotel Management, Inc. ("RHM"), to commence discussions with respect to the possible purchase of all of the Class A and Class B Units not currently owned by RHM or its affiliates for $2.35 per Class A Unit and $16.80 per Class B Unit. The General Partner of the Partnership referred consideration of RHM's proposal to a special committee comprised of the independent members of the Partnership's Advisory Committee. Pursuant to negotiations, RHM agreed to increase the merger consideration to $3.10 per Class A Unit and $20.00 per class B Unit. The special committee determined that such increased merger consideration is fair to, and in the best interests of, unaffiliated unitholders of the Partnership and recommended approval of the merger transaction by the Board of Directors of the Partnership's General Partner. The General Partner's Board of Directors approved RHM's revised proposal on May 2, 1997. The acquisition would be made by means of a merger of a subsidiary limited partnership owned by RHM into the Partnership. The completion of the merger and the resulting acquisition of interests of unaffiliated unitholders is subject to the approval of the merger by unitholders owning a majority interest of the Partnership's units at a special meeting. RHM and its affiliates own 71% of the Class A Units and 93.6% of the Class B Units. RHM and its affiliates have agreed to vote in favor of the merger thus assuring its approval. Although no date has been set for the special meeting, it is presently expected that the meeting will be held, and the merger will be consummated, during the third quarter of 1997. In conjunction with approval of the merger transaction, the General Partner has amended the Partnership Agreement in order to defer the mandatory conversion of Class B Units into Class A Units. The amendment provides that the 250,000 Class B Units scheduled to convert into additional Class A Units during 1997 will convert on the earliest to occur of (i) any termination of the definitive merger agreement; (ii) the record date for any vote of the Class A Unitholders, (other than the vote on merger), (iii) the record date for any distribution by the Partnership to holders of Class A Units and (iv) September 30, 1997. In 1997, in accordance with the Partnership Agreement, the number of Class A Units to be received upon conversion of a Class B Unit will be determined by dividing $20.00 by the average of the closing prices of Class A Units for the five trading days ending on May 30, 1997. In light of the likelihood of completion of the merger, the General Partner adopted this amendment in order to avoid administrative and other issues arising from the issuance of additional Class A Units pursuant to the conversion. 13 PART II. OTHER INFORMATION - -------- ----------------- Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- A) Exhibits (3.6) Amendment No. 1 To Third Amended and Restated Agreement of Limited Partnership of AIRCOA Hotel Partners, L.P. B) Reports on Form 8-K Form 8-K filed with the Securities and Exchange Commission on May 7, 1997 announcing AIRCOA Hotel Partners, L.P.'S agreement to merger transaction. 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. AIRCOA HOTEL PARTNERS, L.P. BY: AIRCOA Hospitality Services, Inc., General Partner DATE: May 14, 1997 BY: /S/ DOUGLAS M. PASQUALE ----------------- -------------------------- Douglas M. Pasquale President and Director (Principal Executive and Financial Officer) BY: /S/ DAVID C. RIDGLEY -------------------- David C. Ridgley Senior Vice President and Chief Accounting Officer (Duly Authorized Officer) 14 EX-3.6 2 AMD #1 TO 3RD AMENDED AGREEMNT OF LTD. PARTNERSHIP EXHIBIT 3.6 AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIRCOA HOTEL PARTNERS, L.P. THIS AMENDMENT NO. 1 (the "Amendment") to the Third Amended and Restated Agreement of Limited Partnership of AIRCOA Hotel Partners, L.P. (the "Partnership), dated as of July 30, 1987 (the "Partnership Agreement"), between AIRCOA Hospitality Services, Inc. (f.k.a. Associated Inns & Restaurants Company of America) (the "General Partner"), ABI, Ltd. and all of the additional Persons who have become limited partners under the Partnership Agreement pursuant to the terms thereof, is made and entered into effective as of May 2, 1997. RECITALS: A. Pursuant to a Merger Agreement dated as of the date hereof, Regal Merger Limited Partnership, a Delaware limited partnership ("Regal"), will be merged with and into the Partnership, and as a result of such merger (the "Merger"), inter alia, (i) the separate existence of Regal will cease and the Partnership shall be the surviving partnership; (ii) each Class A Limited Partnership Unit of the Partnership (other than the Class A Limited Partnership Units owned by Regal Hotels International Holdings Limited ("Regal Holdings") or any direct or indirect subsidiary of Regal Holdings) shall be converted into a right to receive $3.10 in cash; (iii) each Class B Limited Partnership Unit of the Partnership (other than the Class B Limited Partnership Units owned by Regal Holdings or any direct or indirect subsidiary of Regal Holdings) shall be converted into a right to receive $20.00 in cash; and (iv) each Class A Limited Partnership Unit and each Class B Limited Partnership Unit in the Partnership owned by Regal Holdings or any direct or indirect subsidiary of Regal Holdings shall remain a unit of limited partnership interest in the Partnership. B. It is anticipated that the Merger will be completed no later than June 30, 1997. C. Pursuant to Section 21.2 of the Partnership Agreement, certain Class B Units are to automatically convert, at the conversion rate provided for pursuant to the Partnership Agreement, into Class A Units identical to the Class A Units issued pursuant to the Initial Public Offering on or about May 30, 1997 (the "1997 Conversion Date"). 2 D. The General Partner has determined that there would be no material benefit to the holders of any of the Class A Units or Class B Units to complete the conversion for Class B Units to Class A Units pursuant to Section 21.2 of the Partnership Agreement, and that no holders of Class A Units or Class B Units would be adversely affected in any material respect by deferring the 1997 Conversion Date to a date no later than June 30, 1997 subject to the conditions set forth in this Amendment. E. The General Partner has determined that it is in the best interests of the Partnership and the Limited Partners to amend the Partnership Agreement to so defer the 1997 Conversion Date. F. The General Partner has obtained a Tax, Legality and Liability Opinion with respect to such amendment as required pursuant to Section 17.1(b). NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations contained herein, the parties hereto agree as follows: AGREEMENT: 1. The following provision is hereby added to Section 21.2 of the Partnership Agreement, immediately following the existing text: Notwithstanding anything to the contrary in this Agreement, the date of such automatic conversion of Class B Units to Class A Units in 1997 shall be deferred to the earliest to occur of (i) the date of termination of the Agreement and Plan of Merger dated as of May 2, 1997, among the Partnership, the General Partner, Regal Hotel Management, Inc. and Regal Merger Limited Partnership (the "Merger Agreement") pursuant to Article VIII thereof; (ii) September 30, 1997; (iii) the record date established for any vote of the Limited Partners (other than any vote required in connection with the transactions contemplated in the Merger Agreement); or (iv) the record date for any distribution by the Partnership to the holders of Class A Units; provided, however, that the number of Class A Units to be -------- ------- received upon the conversion of a Class B Unit on such deferred conversion date will be determined by dividing $20.00 per Class B Unit by the Unit Price of the Class A Units as of May 30, 1997. 2. Except as expressly modified by the provisions of this Amendment, the Partnership Agreement and all of the terms, provisions and conditions thereof shall for all purposes remain unchanged, and in full force and effect, and are approved, ratified and confirmed, and from and after the date hereof all references to the Partnership Agreement in any other agreement to which any of the undersigned are parties shall mean the Partnership Agreement as amended hereby. 3. Capitalized terms used herein and not otherwise defined have the meanings set forth in the Partnership Agreement. 3 IN WITNESS WHEREOF, this Amendment is executed effective as of the date and year set forth in the Preamble hereof. GENERAL PARTNER: AIRCOA HOSPITALITY SERVICES, INC., a Delaware corporation By: /s/ Douglas M. Pasquale _________________________________ Name: Douglas M. Pasquale Title: President and Director By: /s/ David C. Ridgley _________________________________ Name: David C. Ridgley Title: Senior Vice President and Chief Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----