Annual Report · Form 10-K
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3: EX-99 Miscellaneous Exhibit 10± 43K
EX-99 · Miscellaneous Exhibit
EXHIBIT 99(g)
GROWTH HOTEL INVESTORS COMBINED FUND NO 1.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997, 1996 and 1995
GROWTH HOTEL INVESTORS COMBINED FUND NO 1.
December 31, 1997
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Statement of Net Liabilities in Liquidation - December 31, 1997
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations - Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Partners' Capital (Deficit)/Net Liabilities in
Liquidation - Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1.
To the Partners
Growth Hotel Investors Combined Fund No. 1,
Greenville, South Carolina
Independent Auditors' Report
We have audited the accompanying consolidated statement of net liabilities in
liquidation and the consolidated balance sheet of Growth Hotel Investors
Combined Fund No. 1 (the "Partnership"), as of December 31, 1997 and 1996,
respectively, and the related consolidated statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Growth
Hotel Investors Combined Fund No. 1, as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Imowitz Koenig & Co., LLP
Certified Public Accountants
New York, N.Y.
March 30, 1998
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
STATEMENT OF NET LIABILITIES IN LIQUIDATION
(in thousands)
December 31, 1997
Assets
Cash and cash equivalents $ 153
Liabilities
Accounts payable 195
Estimated costs during the period
of liquidation 26
221
Net Liabilities in liquidation $ (68)
See Accompanying Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
CONSOLIDATED BALANCE SHEET
(in thousands)
YEAR ENDED DECEMBER 31, 1996
Assets
Cash and cash equivalents $ 2,228
Restricted cash 3
Deferred costs and other assets 1,108
Investment properties
Land 10,369
Buildings and related personal property 79,891
90,260
Less accumulated depreciation (31,400)
58,860
Total assets $ 62,199
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 1,337
Due to an affiliate of the joint venture
partner 827
Notes payable 40,185
Total liabilities 42,349
Minority interest in consolidated joint venture (5,268)
Partners' Equity:
GHI 7,767
GHI II 17,351
Total partners' equity 25,118
Total liabilities and partners' equity $ 62,199
See Accompanying Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
YEARS ENDED DECEMBER 31,
1997 1996 1995
Revenues:
Hotel operations $ 18,222 $ 38,154 $ 36,934
Gain on sale of investment properties 58,044 -- --
Interest income 398 173 222
Total revenues 76,664 38,327 37,156
Expenses (including $2,714, $5,602 and
$5,545 paid to an affiliate of the joint
venture partner in 1997, 1996, and 1995)
Hotel operations 12,515 24,274 22,811
Interest 1,926 4,227 4,139
Depreciation 2,283 4,088 3,751
General and administrative 230 269 9
Total expenses 16,954 32,858 30,710
Income before minority interest in
joint venture's operations 59,710 5,469 6,446
Minority interest in joint venture's operations 455 393 (76)
Net income $ 60,165 $ 5,862 $ 6,370
See Accompanying Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)/NET
LIABILITIES IN LIQUIDATION
(in thousands)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Growth Growth
Hotel Hotel
Investors Investors II Total
Balance - December 31, 1994 $ 8,487 $ 18,872 $ 27,359
Net income 2,021 4,349 6,370
Cash distributions (2,355) (5,067) (7,422)
Balance - December 31, 1995 8,153 18,154 26,307
Net income 1,851 4,011 5,862
Cash distributions (2,237) (4,814) (7,051)
Balance - December 31, 1996 7,767 17,351 25,118
Net income 18,440 41,725 60,165
Cash distributions (26,207) (59,154) (85,361)
Balance - December 31, 1997 $ -- $ (78) (78)
Adjustment to liquidation basis 10
Net liabilities in liquidation $ (68)
See Accompanying Notes to Consolidated Financial Statements
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
· Download Table
YEARS ENDED DECEMBER 31,
1997 1996 1995
Cash flows from operating activities:
Net income $ 60,165 $ 5,862 $ 6,370
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,297 4,201 3,916
Minority interest in joint venture's operations (455) (393) 76
Gain on sale of investment properties (58,044) -- --
Change in operating assets and liabilities:
Deferred costs and other assets 482 (122) (20)
Accounts payable, other liabilities and due
to an affiliate of the joint venture partner (736) (144) 412
Net cash provided by operating activities 3,709 9,404 10,754
Cash flows from investing activities:
Net proceeds from sale of investment properties 114,230 -- --
Additions to real estate (2,721) (2,860) (3,154)
Restricted cash decrease 3 567 1,418
Net cash provided by (used in) investing activities 111,512 (2,293) (1,736)
Cash flows from financing activities:
Notes payable principal payments (273) (651) (525)
Due to affiliate (818) -- --
Repayment of notes payable (39,911) -- --
Joint venture partner contributions
(distributions) 9,067 (838) (367)
Cash distributions to partners (85,361) (7,051) (7,422)
Net cash used in financing activities (117,296) (8,540) (8,314)
(Decrease) Increase in Cash and Cash Equivalents (2,075) (1,429) 704
Cash and cash equivalents at beginning of year 2,228 3,657 2,953
Cash and cash equivalents at end of year $ 153 $ 2,228 $ 3,657
Supplemental disclosure of cash flow information:
Interest paid in cash during the year $ 1,926 $ 4,218 $ 3,716
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
GROWTH HOTEL INVESTORS COMBINED FUND NO. 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Growth Hotel Investors, Combined Fund No. 1, (the "Partnership"), is a general
partnership organized in 1986 under the laws of the State of California to
acquire a majority interest in a joint venture, Hampton/GHI Associates No. 1,
which was formed to acquire, manage and ultimately sell eighteen hotels which
were franchised by Hampton Inns, Inc. ("Hampton"), a wholly owned subsidiary of
Promus Hotels, Inc. ("Promus"). The properties owned by the joint venture were
located in Alabama, Arkansas, Georgia, Michigan, North Carolina, South Carolina,
Tennessee and Texas.
The general partners are Growth Hotel Investors ("GHI") and Growth Hotel
Investors II ("GHI II"); both are California limited partnerships which are
affiliated through their general partners.
On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into an
agreement to merge its national residential property management operations, and
its controlling interest in Insignia Properties Trust, with Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust. The closing, which is anticipated to happen in the third quarter of
1998, is subject to customary conditions, including government approvals and the
approval of Insignia's shareholders. If the closing occurs, AIMCO will then
control the General Partners of the Partnership. It is anticipated, however,
that the Partnership will be liquidated prior to the consummation of the AIMCO
transaction. In any event, it is not anticipated that this transaction will
have a material effect on the Partnership.
Cash is distributed first to the Partnership as a priority return on its
invested capital prior to any distributions to Hampton. Income before
depreciation and amortization is allocated between the Partnership and Hampton
in the same ratio as their respective cash distributions. Depreciation and
amortization are allocated on the basis of residual interests except for the
expenses related to acquisition and loan fees paid by the Partnership which are
allocated 100 percent to the Partnership. The residual interests in Hampton/GHI
Associates No. 1 are 80 percent for the Partnership and 20 percent for Hampton.
Except for Mountain Brook, all of the Partnership's properties were sold on June
24, 1997 to an unrelated third party, Equity Inns Partnership LP ("Equity
Inns"), a Tennessee Limited Partnership. Mountain Brook was sold on August 1,
1997 to Equity Inns.
As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its financial statements at December 31,
1997 to the liquidation basis of accounting. Consequently, assets have been
valued at their estimated net realizable value and liabilities are presented at
their estimated settlement amounts, including estimated costs associated with
carrying out the liquidation. The valuation of assets and liabilities
necessarily requires many estimates and assumptions and there are substantial
uncertainties in carrying out the liquidation. The actual realization of assets
and settlement of liabilities could be higher or lower than amounts indicated
and is based upon the Managing General Partner's estimates as of the date of the
financial statements.
The statement of net liabilities in liquidation as of December 31, 1997,
includes approximately $26,000 of costs, net of income, that the Managing
General Partner estimates will be incurred during the period of liquidation,
based on the assumption that the liquidation process will be completed in 1998.
These costs include anticipated legal fees and administrative expenses, net of
estimated interest income from cash balances. Because the realization of assets
and the settlement of liabilities is based on the Managing General Partner's
best estimates, the liquidation period may be shorter than projected or it may
be extended beyond the projected period.
Principles of Consolidation
The consolidated financial statements include the accounts of the Partnership
and its majority owned joint venture. All significant intercompany transactions
and balances have been eliminated. Losses in excess of capital contributions
were allocated to the minority interest. Pursuant to the terms of the
Hampton/GHI Joint Venture Agreement, Hampton was obligated to contribute to
Hampton/GHI an amount equal to the deficit of its tax capital account, which
amount was in excess of the amount to be distributed to Hampton. As a result,
the Partnership set aside as a reserve the amount which otherwise would have
been distributed to Hampton. Hampton/GHI received such payment from Hampton for
its deficit restoration obligation on November 5, 1997 in the amount of
approximately $9,067,000.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Advertising
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $983,111, $1,995,000
and $1,911,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Investment Properties
Investment properties are stated at cost. Acquisition fees are capitalized as a
cost of real estate. The Partnership records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity, when
purchased, of three months or less to be cash equivalents. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Depreciation
Depreciation is computed using the straight-line method based on estimated
useful lives ranging from 5 to 39 years.
Deferred Costs
Deferred costs represent financing costs, franchise fees and land lease cost.
Financing costs were deferred and amortized, as interest expense, over the life
of the related loans, which ranged from eight to ten years, or expensed, if
financing was not obtained. Franchise fees paid in connection with the
acquisition of the hotels were deferred and amortized over the lives of the
franchise agreements, which were twenty years. Land lease costs paid in
connection with the acquisition of certain hotels were deferred and amortized
over the lives of the lease agreements, which were twenty years. At December 31,
1996, accumulated amortization of deferred costs totaled $350,000. The fully
amortized costs were written off during 1996. Net deferred costs of $403,000
for 1996, are included in deferred costs and other assets. In connection with
the sale of properties during 1997, all remaining deferred cost balances were
written off.
Net Income Allocation
Net income is allocated between GHI and GHI II based on the ratio of each
partner's capital contribution to the Partnership.
Income Taxes
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
Reclassifications:
Certain reclassifications have been made to the 1996 and 1995 balances to
conform to the 1997 presentation.
NOTE B - RELATED PARTY TRANSACTIONS
The Partnership has agreements with an affiliate of its joint venture partner,
which provide for the management and operation of the joint venture properties
and services provided under each property's franchise agreement. Fees paid
pursuant to these agreements are generally based on a percentage of gross
revenues from operations of the property and were $2,714,000, $5,602,000 and
$5,545,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE C - RESTRICTED CASH
Restricted cash at December 31, 1996, represents funds provided for and
maintained by certain properties, pursuant to the related notes payable
agreements, to meet future capital requirements and debt service payments.
NOTE D - NOTES PAYABLE
Properties and improvements were pledged as collateral for the related notes
payable. The notes carried interest at rates ranging from 7.63 percent to 10
percent. The mortgages encumbered sixteen of the eighteen hotels that were owned
by the joint venture and were cross collateralized. Amortization of deferred
financing costs totaled $103,000 for the year ended December 31, 1996, and
$124,000 for the year ended December 31, 1995. The notes were payable monthly
and matured beginning in July 1997, through August 1997.
The mortgages encumbering the Partnership's Hampton Inn-Mountain Brook and
Hampton Inn-Northlake properties in the amounts of approximately $2,543,000 and
$2,366,000, respectively, matured on August 1, 1996. The Managing General
Partner obtained an extension for these loans until August 1, 1997. The
mortgage encumbering the remaining properties in the Combined Fund in the amount
of approximately $35,276,000 matured on December 1, 1996. The Managing General
Partner obtained an extension for these loans until July 1, 1997. Upon the sale
of the investment properties, as discussed in Note E, the mortgages were paid
off.
NOTE E - SALE OF PROPERTIES
On June 24, 1997, the Partnership sold 17 of its 18 investment properties,
Hampton Inn-Memphis-I-40, Hampton Inn-Columbia West, Hampton Inn-Spartanburg,
Hampton Inn-Little Rock, Hampton Inn-Amarillo, Hampton Inn-Greenville, Hampton
Inn-Charleston, Hampton Inn-Memphis-Poplar, Hampton Inn-Greensboro, Hampton Inn-
Birmingham, Hampton Inn-Atlanta, Hampton Inn-Chapel Hill, Hampton Inn-Dallas,
Hampton Inn-Nashville, Hampton Inn-San Antonio, Hampton Inn-Madison Heights,
Hampton Inn-Northlake for a purchase price of approximately $107,576,000. The
investment properties were sold to an unrelated third party, Equity Inns
Partnership, L.P., a Tennessee limited partnership. The properties were sold in
accordance with the settlement of the class action lawsuit brought in connection
with the tender offer made by Devon Associates (see Note H - Tender Offers).
The Partnership's final property, the Hampton Inn-Mountain Brook, was sold on
August 1, 1997 for a sales price of $8,758,000.
The aggregate sale price for all the properties was approximately $116,334,000.
The Partnership received net proceeds, after satisfaction of outstanding
indebtedness and closing costs, from the sale of its investment properties of
approximately $74,312,000. The Partnership made distributions of approximately
$85,361,000 to its partners from proceeds of the sale and operations. It is
anticipated that the Partnership will be dissolved during 1998 and the remaining
funds will be distributed to the partners.
In connection with the sale of the Partnership's properties, the Partnership's
joint venture partner, Hampton Inns, Inc. ("Hampton"), was to be distributed a
portion of the net sale proceeds. However, pursuant to the terms of the
Hampton/GHI Joint Venture Agreement, Hampton was obligated to contribute to
Hampton/GHI an amount equal to the deficit of its tax capital account, which
amount was in excess of the amount to be distributed to Hampton. As a result,
the Partnership set aside as a reserve the amount which otherwise would have
been distributed to Hampton. Hampton/GHI received such payment from Hampton for
its deficit restoration obligation on November 5, 1997 in the amount of
approximately $9,067,000.
The Partnership recognized a gain of approximately $58,044,000 due to the sale
of the properties in which the Partnership had a controlling interest.
NOTE F - ADJUSTMENT TO LIQUIDATION BASIS OF ACCOUNTING
At December 31, 1997, in accordance with the liquidation basis of accounting,
assets were adjusted to their estimated net realizable value and liabilities
were adjusted to their estimated settlement amount and include all estimated
costs associated with carrying out the liquidation. The net adjustment required
to convert to the liquidation basis of accounting was a decrease in net
liabilities of approximately $10,000. The adjustments are summarized as follows:
(Increase) Decrease
in Net Liabilities
(in thousands)
Adjustment to record estimated costs associated
with the liquidation (Note A) $ (26)
Adjustment of other assets and liabilities 36
Net decrease in net liabilities $ 10
Reconciliation of Investment Properties and Accumulated Depreciation:
Year Ended December 31,
1997 1996 1995
Investment Properties (in thousands)
Balance at beginning of year $ 90,260 $ 87,400 $ 94,793
Property improvements 2,721 2,860 3,154
Sale of investment properties (92,981) -- --
Retirement of assets -- -- (10,547)
Balance at end of year $ -- $ 90,260 $ 87,400
Accumulated Depreciation
Balance at beginning of year $ 31,400 $ 27,313 $ 34,108
Additions charged to expense 2,283 4,087 3,752
Sale of investment properties (33,683) -- --
Retirement of assets $ -- -- (10,547)
Balance at end of year $ -- $ 31,400 $ 27,313
The aggregate cost of the real estate for Federal income tax purposed at
December 31, 1996 and 1995, respectively is approximately $100,824,000 and
$97,964,000, respectively. The accumulated depreciation taken for Federal
income tax purposes at December 31, 1996 and 1995, is approximately $47,821,000
and $43,650,000, respectively.
NOTE H - TENDER OFFERS
On February 15, 1996, Devon Associates ("Devon") offered to purchase up to
21,000 and 15,000 limited partnership outstanding units (the "Units") of GHI II,
and GHI, respectively. Devon Associates acquired 17,302 and 13,401 units, with
respect to these offers, respectively. The offer for the partnerships Units was
at a purchase price of $750 and $705, respectively, per unit, net to the seller
in cash, without interest, upon the terms and conditions set forth in the offer
to purchase. Certain beneficial owners of Devon are affiliated with the general
partners of GHI II and GHI. In addition, an affiliate of Insignia is both a
shareholder in the general partner of Cayuga Associates, LP, the controlling
general partner in Devon, and a limited partner in Devon.
Dates Referenced Herein and Documents Incorporated By Reference
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