-----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, ThTKmuUsNt7/ojl64Dj+3ZGb32LKf1bXZ9Xz8K5yBIIVZMcH21SqsgFR/DWuM5Iu 1aFbWHvO5qfg52Yqbu/FDA== 0000950123-97-006784.txt : 19970814 0000950123-97-006784.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950123-97-006784 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESSEX HOSPITALITY ASSOCIATES III LP CENTRAL INDEX KEY: 0000911217 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 161442557 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25902 FILM NUMBER: 97658168 BUSINESS ADDRESS: STREET 1: 100 CORPORATE WOODS CITY: ROCHESTER STATE: NY ZIP: 14623 BUSINESS PHONE: 7162722300 MAIL ADDRESS: STREET 1: 100 CORPORATE WOODS STREET 2: STE 300 CITY: ROCHESTER STATE: NY ZIP: 14623 10QSB 1 FORM 10-QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 33-67848 ESSEX HOSPITALITY ASSOCIATES III L.P. (Exact name of registrant as specified in charter) DELAWARE (State or other jurisdiction of incorporation or organization) 16-1422266 (I.R.S. Employer Identification No.) 100 CORPORATE WOODS ROCHESTER, NEW YORK 14623 (Address of principal executive office) Registrant's telephone number, including area code: (716) 272-2300 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of August 1, 1997 a total of 4,000 Limited Partnership Units were outstanding. 2 PART 1 FINANCIAL INFORMATION Item 1. Financial Statements - -------------------------------------------------------------------------------- Essex Hospitality Associates III L.P. Balance Sheets June 30, 1997 and 1996
1997 1996 ---- ---- Assets Investments in real estate, at cost Land 1,546,151 1,700,151 Land improvements 438,234 438,234 Buildings 7,250,564 7,247,114 Furniture, fixtures and equipment 1,966,558 1,916,671 ---------- ---------- 11,201,507 11,302,170 Less:accumulated depreciation (878,051) (436,133) ---------- ---------- Net investments in real estate 10,323,456 10,866,037 Cash and cash equivalents 61,099 218,478 Restricted cash 55,675 17,115 Deferred costs: Debt issuance costs 1,060,289 1,060,289 Franchise fees 85,500 85,500 Other deferred costs 70,846 70,846 ---------- ---------- Total deferred costs 1,216,635 1,216,635 Less: accumulated amortization (749,613) (490,701) ---------- ---------- 467,022 725,934 Other assets 164,312 154,920 ---------- ---------- Total assets 11,071,564 11,982,484 ---------- ---------- Liabilities and Partners' Capital Accounts payable and accrued expenses 215,947 183,866 Accounts payable - construction 17,500 17,500 Due to affiliate 104,111 -- Mortgage notes payable 10,000,000 10,000,000 ---------- ---------- Total liabilities 10,337,558 10,201,366 ---------- ---------- Commitments (note 5) Partners' capital 742,315 1,812,660 Less notes receivable from partners (8,310) (31,542) ---------- ---------- Total partners' capital 734,005 1,781,118 ---------- ---------- Total liabilities and partners' capital 11,071,564 11,982,484 ========== ==========
See accompanying notes to unaudited financial statements. 3 Essex Hospitality Associates III L.P. Statements of Income For the Quarters Ended June 30, 1997 and 1996
1997 1996 ---- ---- INCOME Rooms 1,068,151 963,990 Other income 55,619 51,551 --------- --------- Total income 1,123,770 1,015,541 EXPENSES Rooms 259,639 228,729 Administrative and general 101,285 98,343 Property taxes 70,870 45,637 Repairs and maintenance 54,388 40,216 Advertising and promotion 50,957 42,598 Management fees 50,731 43,928 Utilities 48,185 52,615 Commissions expenses 38,068 40,808 Franchises fees 32,504 31,208 Partnership management fees 13,461 12,203 Insurance 4,222 2,363 Depreciation & amortization 162,898 146,031 Miscellaneous 12,757 10,484 --------- --------- Total expenses 899,965 795,163 --------- --------- Operating income 223,805 220,378 Interest expense 250,000 250,000 --------- --------- NET INCOME (LOSS) (26,195) (29,622) ========= ========= Net income (loss) - general partners (262) (296) Net income (loss) - limited partners (25,933) (29,326) --------- --------- (26,195) (29,622) ========= ========= Net income (loss) per unit - limited partners (6) (7) ========= =========
See accompanying notes to unaudited financial statements. 4 Essex Hospitality Associates III L.P. Statements of Cash Flows For the Quarters Ended June 30, 1997 and 1996
1997 1996 ---- ---- Cash flows from operating activities Cash received from customers 1,098,488 1,040,143 Cash paid to suppliers (716,201) (594,195) Interest received 514 591 Interest paid (250,000) (250,000) --------- --------- Net cash provided by operating activities 132,801 196,539 --------- --------- Cash flows from investing activities Increase in restricted cash (38,445) (17,115) Payments for fixed asset additiONS (23,251) (7,278) --------- --------- Net cash used in investing activities (61,696) (24,393) --------- --------- Cash flows from financing activities Partner capital contributions 1,010 1,010 Advances from affiliate 59,155 -- Partner distributions (101,010) (101,010) --------- --------- Net cash used in financing activities (40,845) (100,000) --------- --------- Net increase (decrease) in cash and cash equivalents 30,260 72,146 Cash and cash equivalents - beginning of period 30,839 146,332 --------- --------- Cash and cash equivalents - end of period 61,099 218,478 ========= ========= Reconciliation of net income to net cash flows from operating activities: Net loss (26,195) (29,622) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 162,898 146,031 Changes in: Account payable (1,396) 53,119 Other assets (2,507) 27,011 --------- --------- 132,801 196,539 ========= =========
See accompanying notes to unaudited financial statements. 5 ESSEX HOSPITALITY ASSOCIATES III L.P. (A Delaware Limited Partnership) Notes to Financial Statements June 30, 1997 and 1996 (1) ORGANIZATION Essex Hospitality Associates III L.P. (the Partnership) is a Delaware limited partnership formed on August 2, 1993 for the purpose of purchasing, leasing or subleasing undeveloped land and constructing, owning and operating up to four new Hampton Inn, Homewood Suites or Microtel hotels under franchises or licenses to be obtained from these national lodging chains. The Partnership financed its activities through a public offering of notes and limited partnership units. Microtel Hotels were constructed in Birmingham, Alabama and Chattanooga, Tennessee and began operations in September 1994 and September 1995, respectfully. In April 1995, construction of a Hampton Inn hotel in Rochester, New York was completed and the hotel began operations. The Partnership does not anticipate raising additional capital and, therefore, no additional hotels are expected to be developed. The Partnership's general partners are Essex Partners Inc. (Essex Partners), a subsidiary of Essex Investment Group, Inc. (Essex), and John E. Mooney, President of Essex Partners and Essex. Management of the Partnership and the hotels is the sole responsibility of Essex Partners. The following is a general description of the allocation of income and loss. For a more comprehensive description see the Partnership Agreement. Income from operations will be allocated 99% to the limited partners and 1% to the general partner until the amount allocated to the limited partners equals the cumulative annual return of 8% of their contribution. Any remaining income from operations is allocated 80% to the limited partners and 20% to the general partners. Income on the sale of any or all of the hotels is allocated 99% to the limited partners until each limited partner has been allocated income in an amount equal to $1,000 per Unit owned by the limited partners and 1% to the general partners. Thereafter, income on the sale of any or all the hotels is allocated in the same manner as income from operations. Losses from operations will be allocated 80% to the limited partners and 20% to the general partner in the amounts sufficient to offset all income which was allocated 80% to the limited partners. Thereafter, operating losses are allocated 99% to the limited partners and 1% to the general partners. Loss on the sale of any or all of the hotels will be first allocated in the same manner as losses from operations, except that the allocation of such loss would be made prior to allocations of income from operations. All other losses are allocated 99% to the limited partners and 1% to the general partners. 6 ESSEX HOSPITALITY ASSOCIATES III L.P. ( A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 AND 1996 PAGE 2 (1) ORGANIZATION (CONTINUED) In 1995 and 1996, losses from operations were allocated 99% to the limited partners and 1% to the general partners. Under the Partnership agreement, cash distributions will initially be made 99% to the limited partners and 1% to the general partners. After the limited partners have received a minimum cumulative annual return of 8% of their contribution, additional distributions may then be made 80% to the limited partners and 20% to the general partners. The limited partners have received the minimum cumulative return of 8% due as of December 31, 1996. Under the Partnership's initial offering from 1993 to 1995, limited partnership capital of $3,986,320 was raised, less syndication fees including selling commissions and legal, accounting, printing and other filing costs of $491,473. Cumulative distributions to limited partners through June 30, 1997 were $876,718. Essex Partners and its affiliates received substantial fees in connection with the offering of notes and limited partnership units and development of hotels. Management and other fees related to the operation of the hotels and the Partnership are due annually to Essex Partners (see note 6). (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements of the Partnership were prepared on the accrual basis of accounting in conformity with generally accepted accounting principles. Investment in Real Estate Investments in real estate are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Deferred Costs Costs of issuing mortgage notes payable are amortized on a straight-line basis over the term of the notes. Franchise fees paid for the right to own and operate the hotels will be amortized on a straight-line basis over the term of the franchise agreement, beginning when a hotel is placed in service. 7 ESSEX HOSPITALITY ASSOCIATES III L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 AND 1996 PAGE 3 Income Taxes No provision for income taxes has been provided since any liability is the individual responsible of the partners. Recognition of Revenue Revenues are recognized as earned in accordance with contractual arrangements for each transaction. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires the managing general partner to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Reclassification Certain amounts in the prior year's financial statements were reclassified to conform with the current year's presentation. (3) SALE OF LAND In 1996, the Partnership sold land adjacent to the hotel with final settlement in January 1997 of $86,782. A loss of $67,218 was recognized on the transaction. (4) MORTGAGE NOTES PAYABLE Mortgage Notes payable bear interest at 10% per annum and mature December 31, 1998, unless extended by the Partnership to December 31, 1999 upon payment of an extension fee equal to .5% of the principal amount outstanding, or December 31, 2000 upon payment of an extension fee equal to 1% of the principal amount outstanding. The notes are secured by a first mortgage on the hotels and underlying land. 8 ESSEX HOSPITALITY ASSOCIATES III L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 AND 1996 PAGE 4 (5) FRANCHISE, ROYALTY AND MARKETING FEES The Partnership entered into franchise agreements with Microtel Franchise and Development Corporation (MFDC) for the Birmingham, Alabama and Chattanooga, Tennessee sites. Total initial franchise fees paid were $50,500. In addition to the initial fee, the Partnership is required to pay a monthly royalty fee of 2.5% of gross room revenues. The monthly royalty fee increases to 3% of gross room revenues in the event between 50 and 100 Microtel hotels are opened for business and 3.5% in the event 100 or more Microtel hotels are opened. In 1996, the Franchisor established a system of advertising, thus requiring the Partnership to contribute an additional 1% of gross room revenues to pay for the cost of such a system. The franchise agreement also requires the Partnership to maintain certain insurance coverage, to meet certain standards with respect to furniture, fixtures, maintenance and repair, and to refurbish and upgrade the hotel not more than once every 5 years to conform to the Microtel hotel's then-current public image. The term of the agreement is 10 years, with an option to renew for an additional 10 years, subject to compliance with certain conditions. Microtel royalty and advertising fees totaled $17,006 and $14,564 during the second quarter, 1997 and 1996, respectfully. The Partnership has also entered into a license agreement with Promus Corporation (Promus) to operate a Hampton Inn hotel for the Rochester, New York site. An initial franchise fee of $35,000 was paid. In addition to the initial fee, the Partnership is required to pay Promus a monthly royalty fee of 4% of gross room revenues, a monthly marketing/reservation fee of 4% of gross room revenue and a monthly amount equal to any sales tax or similar tax imposed on Hampton Inn on payments received under the license agreement. The Partnership incurred royalty and marketing/reservations fees of $20,357 and $20,807 during the second quarter 1997 and 1996, respectfully. Promus requires the Partnership to establish a capital reserve escrow account based on a percentage of gross revenues generated by the Hampton Inn hotel which will be used for product quality requirements of the hotel. Cumulative funding of the reserve for the first five years of operation increases from 1% to 5% of gross revenues and stabilizes at 5% for the term of the agreement. The capital reserve cash escrow account was $55,675 and $17,115 at June 30, 1997 and 1996, respectively. The franchise agreement impose certain restrictions on the transfer of limited partnership units. MFCD and Promus restrict the sale, pledge or transfer of units in excess of 10% and 25%, respectively, without their consent. 9 ESSEX HOSPITALITY ASSOCIATES III L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 AND 1996 PAGE 5 (6) RELATED PARTY TRANSACTIONS A summary of the compensation, fees and reimbursements to be received by Essex Partners or their affiliates under the terms of the Partnership agreement follows:
2nd Qtr. 2nd Qtr. Type of Fee Amount of Fee 1997 1996 - ----------- ------------- ---- ---- Property Management 4.5% of gross operating revenues from 50,731 43,928 Fee the hotels Partnership 1.25% of gross operating revenues 13,461 12,203 Management Fee from the hotels Accounting Fee $675 per month 6,075 6,075 Refinancing Fee 1% of the gross proceeds of any 0 0 refinancing of any or all of the hotels Sales Fee 3% of the gross sale price of any of all 0 0 of hotels $70,267 $62,206 ======= =======
10 Item 2. Management's Discussion and Analysis or Plan of Operation The Partnership was formed on August 2, 1993. In 1995, it completed its public offering of first mortgage notes and limited partnership units, raising $13,986,320. The first Partnership property, a 102-room Microtel hotel in Birmingham, Alabama, opened in September, 1994. The two remaining Partnership properties opened in 1995, a 118-room Hampton Inn in Rochester, New York in April and a 100-room Microtel in Chattanooga in September. The major revenue source for the Partnership's properties is room revenues, which generated 95% of the operating revenues for the Partnership in the second quarter, 1997. Room revenues generated are dependent on a property's average occupancy and average daily rate. Room revenues for the second quarter 1997 were 11% higher than the second quarter, 1996. Room revenues at each of the Partnership's properties increased compared to 1996. The Birmingham Microtel Inn achieved an average occupancy of 71% for the quarter with an average daily rate of $35.45, as compared with an average occupancy of 59% in the second quarter, 1996, and an average daily rate of $35.55. The increase in occupancy produced a $41,000 increase in room revenues. The property's occupancy started to weaken at the end of 1995. A new manager was hired in the spring, 1996, and made several changes. Room rates were reduced and the monthly average occupancy started improve. The housekeeping staff was retrained and property maintenance was improved. The Birmingham Microtel generated approximately 22% of the Partnership's room revenues for the quarter, compared to 20% in the second quarter, 1996. The Hampton Inn achieved an average occupancy of 81% for the quarter, with an average daily rate of $66.34, compared with an average occupancy of 77% for the second quarter 1996 and an average daily rate of $65.09. The increase in occupancy and average daily rate caused room revenues to increase by $34,000. The Managing General Partner believes that the increased occupancy is partly due to the timing of the Easter holiday. Around the holiday, occupancy tends to decrease as business people reduce their travel. Easter was in April in 1996, and in March in 1997. March 1997 occupancy was less than March 1996, but the decrease was made up with increases in April 1997. The Hampton Inn generated around 55% of the Partnership's room revenues for the quarter, compared to 56% for the second quarter, 1996. The average occupancy for the Chattanooga Microtel Inn for the quarter was 78% with an average daily rate of $36.30, compared to the second quarter 1996 when occupancy was 64% with an average daily rate of $39.33. The improvement in occupancy caused room revenues for the quarter to exceed the second quarter 1996 by $30,000. The manager at the Chattanooga Microtel Inn was also replaced in 1996. The new manager hired is from the Chattanooga area and has several years of experience in the hotel industry. The new manager instituted extensive marketing programs to build the awareness of the hotel within the Chattanooga market. Occupancies began to improve in January, 1997. The Chattanooga Microtel Inn generated around 24% of the Partnership's room revenues for the quarter, compared to 24% for the second quarter, 1996. 11 Operating income for the second quarter increased $3,000 over the second quarter 1996, to $224,000. Interest expense remained at $250,000, since the partnership's mortgages require payments of interest only at a fixed rate of 10%. The Partnership's net loss for the quarter was $26,000 compared to a net loss of $30,000 in the second quarter, 1996. The Partnership generated $133,000 from operations, compared to$197,000 in the second quarter, 1996. Investing activities required cash of $62,000 in the second quarter 1997, which was composed of asset replacements of $23,000 and an increase in the Hampton Inn restricted cash account of $39,000. In 1996, investing activities required cash of $24,000 in the second quarter, which was composed of asset replacements of $7,000 and an increase in the Hampton Inn restricted cash account of $17,000. The funding required for the restricted cash account increased because the amount required for the capital reserve account for Hampton Inn increased from 1% of previous twelve months' room revenues to 2%. Financing activities used $41,000 in cash in the second quarter, 1997. Significant financing activities for the second quarter 1997 included the payment of $100,000 in limited partner distributions and the receipt of $59,000 in advances from the Managing General Partner. The advances from the Managing General Partner are expected to be repaid in the third quarter. The second quarter 1996 financing activities were primarily composed of the payment of $100,000 in limited partner distributions. The Partnership generated $30,000 in cash in the second quarter, 1997, which was $42,000 lower than the second quarter 1996. Total assets decreased $911,000 in 1997 due primarily to the $701,000 increase in depreciation and amortization and a $119,000 decrease in cash. Total liabilities increased $136,000 from an increase in accounts payable and accrued expenses and in due to affiliate. Partners' equity decreased $1,047,000 from two factors, the payment of $400,000 in distributions to limited partners and the net losses of $647,000 generated between July 1, 1996 and June 30, 1997. CAPITAL RESOURCES AND LIQUIDITY The Partnership expects to obtain sufficient liquidity from operations to fund all operating costs. In addition to operations, the Partnership will require liquidity to provide for repayment of outstanding debt. The Partnership's first mortgage notes in the principal amount of $10,000,000 mature on December 31, 1998. The Managing General Partner would prefer to replace the notes with conventional financing from a bank or other institutional lender. The Managing General Partner believes the environment for conventional financing for hotels has improved such that there is reasonable probability that the Partnership would be able to obtain sufficient conventional financing to replace its first mortgage notes. However, if conventional financing is not available, the Partnership can extend the maturity date of the first mortgage notes for up to two years upon payment of extension fees. The Microtel franchise agreements require the Partnership to refurbish and upgrade its Microtel Inn hotels not more than every five years. The upgrade would include replacing soft goods such as bedspreads and drapes, new carpeting, equipment such the front desk system, telephone system and the key system. The Partnership is replacing soft goods as needed and expects it will satisfy the Microtel franchisor's requirements without any major additional expenditures. The front desk system, telephone system and key system at the Partnership's properties were new at the time the properties were constructed and are expected to meet Franchisor specifications for the next several years. Equipment such as televisions and heating and cooling units are expected to have a life of 12 between five and ten years and can replaced as required. Not all units will need to be replaced in the same year, so that management expects that the expenditures can be spread over several years. The Hampton Inn license agreement requires the Partnership to establish a capital reserve escrow account based on a percentage of gross revenues generated by the Hampton Inn hotel which will be used for product quality requirements of the hotel. Cumulative funding of the reserve for the first five years increases from 1% to 5% of gross revenues and stabilizes at 5% for the term of the agreement. The Partnership expects to fund the reserve from cash from operations, and the reserve should be sufficient to fund major capital improvements as required. At June 30, 1997, the capital reserve escrow account was $55,675. 13 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits None b. Reports on Form 8-K None 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. ESSEX HOSPITALITY ASSOCIATES III L.P. Registrant Dated: August 14, 1997 /s/ Lorrie L. LoFaso ------------------------------------------- Essex Hospitality Associates III L.P. Essex Partners Inc. Lorrie L. LoFaso Vice President and Chief Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 0000911217 ESSEX HOSPITALITY ASSOCIATES III L.P. 1,000 3-MOS DEC-31-1997 JUN-30-1997 61 0 0 0 0 0 11,202 878 11,072 0 10,000 0 0 0 734 11,072 1,124 1,124 0 0 900 0 250 (26) 0 (26) 0 0 0 (26) (6) (6) UNCLASSIFIED BALANCE SHEET USED EQUITY IS PARTNERS' CAPITAL ENTITY IS A PARTNERSHIP, EPS IS LOSS PER LIMITED PARTNERSHIP UNIT
-----END PRIVACY-ENHANCED MESSAGE-----