Attached files
| file | filename |
|---|---|
| EX-32 - CERTIFICATION REQUIRED UNDER SECTION 906 - CRI HOTEL INCOME PARTNERS L P | exhibit32_033111-chips.htm |
| EX-31 - CERTIFICATION REQUIRED UNDER SECTION 302 - CRI HOTEL INCOME PARTNERS L P | exhibit31_033111-chips.htm |
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2011
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____________ to ____________
Commission file number 33-11096
CRI HOTEL INCOME PARTNERS, L.P.
(Exact Name of Issuer as Specified in its Charter)
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Delaware
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52-1500621
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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11200 Rockville Pike
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Rockville, MD
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20852
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(Address of Principal Executive Offices)
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(ZIP Code)
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(301) 468-9200
(Issuer’s Telephone Number, Including Area Code)
_____________________
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 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 o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o Smaller reporting company x
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
CRI HOTEL INCOME PARTNERS, L.P.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2011
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Page
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Part I
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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Balance Sheets
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- March 31, 2011 and December 31, 2010
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1
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Statements of Operations
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- for the three months ended March 31, 2011 and 2010
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2
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Statement of Changes in Partners’ (Deficit) Capital
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- for the three months ended March 31, 2011 and 2010
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3
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Statements of Cash Flows
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- for the three months ended March 31, 2011 and 2010
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4
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Notes to Financial Statements
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- March 31, 2011 and 2010
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5
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Item 2.
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Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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11
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Item 4.
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Controls and Procedures
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16
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Part II
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OTHER INFORMATION
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Item 5.
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Other Information
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16
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Item 6.
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Exhibits
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17
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Signature
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18
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CRI HOTEL INCOME PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
ASSETS
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March 31,
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December 31,
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|||||||
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2011
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2010
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(Unaudited)
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||||||||
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Property and equipment - at cost:
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Land
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$ | 1,574,490 | $ | 1,574,490 | ||||
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Buildings and site improvements
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14,397,597 | 14,397,597 | ||||||
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Furniture, fixtures and equipment
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4,762,475 | 4,675,002 | ||||||
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Leasehold improvements
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1,508,178 | 1,510,012 | ||||||
| 22,242,740 | 22,157,101 | |||||||
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Less: accumulated depreciation and amortization
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(16,283,063 | ) | (16,099,725 | ) | ||||
| 5,959,677 | 6,057,376 | |||||||
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Hotel operating cash
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265,255 | 149,989 | ||||||
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Working capital reserve
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1,864,905 | 1,844,867 | ||||||
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Receivables and other assets, net of allowance for doubtful accounts
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of $33,718 and $32,133,respectively
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597,107 | 451,817 | ||||||
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Acquisition fees, principally paid to related parties, net of
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||||||||
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accumulated amortization of $814,774 and $807,180, respectively
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205,329 | 212,923 | ||||||
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Property purchase costs, net of
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accumulated amortization of $147,997 and $146,736, respectively
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34,269 | 35,531 | ||||||
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Loan refinancing costs, net of
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accumulated amortization of $163,665 and $152,363, respectively
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161,779 | 173,081 | ||||||
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Total assets
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$ | 9,088,321 | $ | 8,925,584 | ||||
LIABILITIES AND PARTNERS' (DEFICIT) CAPITAL
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Accounts payable and accrued expenses
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$ | 809,197 | $ | 387,851 | ||||
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Hotel trade payables
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216,704 | 263,635 | ||||||
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Mortgages payable
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8,135,340 | 8,159,956 | ||||||
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Total liabilities
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9,161,241 | 8,811,442 | ||||||
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Partners' (deficit) capital:
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General Partner
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(390,243 | ) | (386,502 | ) | ||||
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Beneficial Assignee Certificates (BACs) Series A;
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||||||||
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868,662 BACs issued and outstanding
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317,323 | 500,644 | ||||||
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Total partners' (deficit) capital
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(72,920 | ) | 114,142 | |||||
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Total liabilities and partners' capital
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$ | 9,088,321 | $ | 8,925,584 |
The accompanying notes are an integral part
of these financial statements.
- 1 -
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CRI HOTEL INCOME PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the three months ended
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||||||||
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March 31,
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||||||||
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2011
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2010
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Revenue:
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Rooms
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$ | 2,186,766 | $ | 2,069,141 | ||||
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Rental and other
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87,028 | 49,923 | ||||||
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Telephone
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6,460 | 6,409 | ||||||
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Food and beverage
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6,590 | 5,141 | ||||||
| 2,286,844 | 2,130,614 | |||||||
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Departmental expenses:
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Rooms
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(619,027 | ) | (585,832 | ) | ||||
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Rental and other
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(8,798 | ) | (10,185 | ) | ||||
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Telephone
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(15,443 | ) | (14,180 | ) | ||||
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Food and beverage
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(3,242 | ) | (3,703 | ) | ||||
| (646,510 | ) | (613,900 | ) | |||||
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Gross operating income
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1,640,334 | 1,516,714 | ||||||
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Unallocated operating income (expenses):
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||||||||
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Interest and other income
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8,138 | 8,819 | ||||||
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General and administrative
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(300,966 | ) | (331,149 | ) | ||||
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Depreciation and amortization
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(205,331 | ) | (237,880 | ) | ||||
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Building lease
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(215,110 | ) | (185,581 | ) | ||||
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Marketing
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(180,165 | ) | (172,085 | ) | ||||
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Energy
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(182,828 | ) | (167,092 | ) | ||||
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Property operations and maintenance
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(137,132 | ) | (145,850 | ) | ||||
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Property taxes
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(171,606 | ) | (138,162 | ) | ||||
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Management fees
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(89,782 | ) | (83,256 | ) | ||||
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Professional fees
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(166,682 | ) | (184,075 | ) | ||||
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Base asset management fee
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(23,438 | ) | (23,438 | ) | ||||
| (1,664,902 | ) | (1,659,749 | ) | |||||
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Operating loss
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(24,568 | ) | (143,035 | ) | ||||
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Interest expense
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(162,494 | ) | (183,111 | ) | ||||
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Net loss
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$ | (187,062 | ) | $ | (326,146 | ) | ||
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Net loss allocated to General Partner (2%)
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$ | (3,741 | ) | $ | (6,523 | ) | ||
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Net loss allocated to BAC Holders (98%)
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$ | (183,321 | ) | $ | (319,623 | ) | ||
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Net loss per BAC, based on 868,662 BACs outstanding
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$ | (0.21 | ) | $ | (0.37 | ) | ||
The accompanying notes are an integral part
of these financial statements.
- 2 -
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CRI HOTEL INCOME PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ (DEFICIT) CAPITAL
(Unaudited)
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Beneficial
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Assignee
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||||||||||||
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General
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Certificate
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Partner
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Holders
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Total
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Partners' (deficit) capital, January 1, 2011
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$ | (386,502 | ) | $ | 500,644 | $ | 114,142 | |||||
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Net loss
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(3,741 | ) | (183,321 | ) | (187,062 | ) | ||||||
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Partners' (deficit) capital, March 31, 2011
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$ | (390,243 | ) | $ | 317,323 | $ | (72,920 | ) | ||||
The accompanying notes are an integral part
of these financial statements.
- 3 -
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CRI HOTEL INCOME PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For the three months ended
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||||||||
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March 31,
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||||||||
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2011
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2010
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Cash flows from operating activities:
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Net loss
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$ | (187,062 | ) | $ | (326,146 | ) | ||
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Adjustments to reconcile net income to net cash
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provided (used in) by operating activities:
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Depreciation and amortization
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205,331 | 237,880 | ||||||
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Changes in assets and liabilities:
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Increase in receivables and other assets, net
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(145.290 | ) | (217,640 | ) | ||||
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Increase in accounts payable and accrued expenses
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421,346 | 348,781 | ||||||
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Decrease in hotel trade payables
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(46,931 | ) | (123,316 | ) | ||||
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Net cash provided by (used in) operating activities
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247,394 | (80,441 | ) | |||||
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Cash flows from investing activities:
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Net additions to property and equipment
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(87,474 | ) | (16,596 | ) | ||||
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Net (additions) withdrawals from working capital reserve
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(20,038 | ) | 293,559 | |||||
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Net cash (used in) provided by investing activities
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(107,512 | ) | 276,963 | |||||
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Cash flows from financing activities:
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Payment of principal on mortgages payable
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(24,616 | ) | (33,654 | ) | ||||
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Net cash used in financing activities
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(24,616 | ) | (33,654 | ) | ||||
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Net increase in hotel operating cash and cash
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||||||||
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and cash equivalents
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115,266 | 162,868 | ||||||
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Hotel operating cash and cash and cash equivalents, beginning of period
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149,989 | 110,395 | ||||||
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Hotel operating cash and cash and cash equivalents, end of period
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$ | 265,255 | $ | 273,263 | ||||
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Supplemental disclosure of cash flow information:
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||||||||
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Cash paid during the period for interest
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$ | 162,494 | $ | 183,111 | ||||
The accompanying notes are an integral part
of these financial statements.
- 4 -
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 and 2010
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of CRICO Hotel Associates I, L.P. (the “General Partner”), the accompanying unaudited financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position of CRI Hotel Income Partners, L. P. (the “Partnership”) as of March 31, 2011, and the results of its operations and its cash flows for the three month periods ended March 31, 2011 and 2010. The results of operations for the interim period ended March 31, 2011, are not necessarily indicative of the results to be expected for the full year.
The accompanying unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) and with the instructions to Form10-Q. Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in conformity with US GAAP have been condensed or omitted pursuant to such instructions. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's annual report on Form 10-K at December 31, 2010.
The Partnership and the chief operating decision maker consider the hotels’ operations as a single homogeneous business activity as it relates to achieving their objectives of cash flow growth and capital appreciation. The chief operating decision maker reviews cash flow and operating results in the aggregate in order to determine the appropriate level of cash available, if any, for distribution to the investors in the Partnership. Accordingly, the Partnership considers itself to operate in a single reportable segment.
2. LONG-LIVED ASSETS
The Partnership reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If an asset were determined to be impaired, its basis would be adjusted to fair value through the recognition of an impairment loss.
3. WORKING CAPITAL RESERVE
The working capital reserve of $1,864,905 and $1,844,867 as of March 31, 2011 and December 31, 2010, respectively, represents all cash and cash equivalents maintained as working capital for the Partnership. In accordance with the terms of the Partnership Agreement, the working capital reserve may be increased or reduced by the General Partner as it deems appropriate. The General Partner at its own discretion may use the working capital reserve for operations or to reduce the amount of existing debt.
- 5 -
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 and 2010
(Unaudited)
4. MORTGAGES PAYABLE
On December 19, 1997, the Partnership refinanced with Citicorp Real Estate, Inc. (Citicorp) the Zero Coupon Notes which were originally issued in connection with the Partnership's acquisition of the hotels. The loan matured January 1, 2009. On that date, a balloon payment in the amount of $7,273,441 became due. The General Partner was unable to refinance the Partnership’s mortgage debt prior to its maturity. Although the loan was in default, the special servicer agreed to a forbearance agreement for a period of 180 days for payment of a fee in the amount of $72,734, plus continued monthly payments of principal, interest (at the pre-default rate) and tax and capital improvements escrows.
On May 6, 2008, the Partnership closed three loans with General Electric Credit Corporation (GE) in the aggregate amount of $5,000,000 to refinance the Plymouth and Roseville hotels in Minnesota and the Clearwater hotel in Florida. Proceeds from the GE loans were used to partially payoff the loan obligation to Citicorp. The GE loans are cross-collateralized by the three hotels. The GE loans bear interest at the rate of 6.79% per annum and mature on January 1, 2016 with scheduled balloon payments due as set forth below:
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Plymouth
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$ 887,269
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Roseville
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$2,083,122
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Clearwater
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$ 887,269
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On May 6, 2008, the Partnership closed a loan with Remediation Capital Funding, LLC (Remediation Capital ) in the amount of $2,900,000, of which $500,000 was held by the Lender pending resolution of the environmental matter further discussed below. The loan was secured by the University hotel in Minnesota. Proceeds from the loan were used to partially payoff a loan obligation to Citicorp. The proceeds from this loan together with the GE loans resulted in a full payoff of the Citicorp obligation.
On November 9, 2010, CRI Hotel Income of Minnesota, LLC (CRI Hotel of Minnesota), was formed for the purpose of creating a single purpose entity to own the University hotel for refinancing purposes with Franklin National Bank of Minneapolis (Franklin Bank). CRI Hotel of Minnesota is a wholly-owned subsidiary of CRI Hotel Income Partners, L.P and accordingly will at times hereinafter be referred to with the Partnership as the Partnership. On December 17, 2010, CRI Hotel of Minnesota entered into a loan with Franklin Bank for the purpose of refinancing the loan with Remediation Capital, which was maturing on December 31, 2010. Franklin Bank issued a loan secured by the University hotel to CRI Hotel of Minnesota in the principal amount of $3,500,000 for a term of three (3) years with an interest rate of seven percent (7%) per year. An environmental escrow reserve in the amount of $350,000 was established which will be released upon resolution of the environmental matter further discussed below. The loan with Remediation Capital was paid off on December 17, 2010 and the $500,000 environmental escrow held by Remediation Capital was credited against the payoff on December 17, 2010. On December 22, 2010, the Partnership filed an 8-K stating that the Partnership had entered into the loan agreement with Franklin Bank which constituted a material definitive agreement for SEC purposes.
- 6 -
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 and 2010
(Unaudited)
4. MORTGAGES PAYABLE - Continued
The Partnership made installments of principal and interest for all loans aggregating $187,110 and $216,766 for the three months ended March 31, 2011 and 2010. The Partnership’s aggregate balance on the loans was $8,135,340 and $8,159,956 as of March 31, 2011 and December 31, 2010, respectively.
The Phase I environmental study of the University hotel required by GE revealed excess levels of three chemicals deemed hazardous in the groundwater on the property. The contamination is not due to acts or omissions of the hotel. Simultaneously with its refinancing efforts, the Partnership engaged a consultant to enroll the University property in the Minnesota Pollution Control Agency's (“MCPA”) Voluntary Investigation and Cleanup ("VIC") Program and deal with the contamination at the site. The Partnership's goal is to obtain a No Action Letter with a Covenant Not to Sue, at which point it should be able to obtain financing on the property again. NOVA, the Partnership’s consultant, has prepared and submitted an additional Phase I study in accordance with the guidelines established by the MPCA-VIC Program along with the application and proposed scope of work for the required Phase II study. On July 16, 2008, the MPCA approved the work plan for the Phase II study with samples of soil and ground water scheduled to begin collection for analysis August 11, 2008. On January 28, 2009, NOVA completed the Phase II study. Based on the results of the solvent, petroleum, and RCRA metal impacts above action or guidance levels that were detected in the soil, soil vapor and groundwater samples collected at the site, with the exception of the petroleum impacts, the compounds detected at the site appear to be associated with regional up gradient off-site areas of contamination located to the northeast and possibly to the north of the site. It does not appear that the historical uses of the site are the source of the solvent, soil vapor and groundwater impacts detected at the site. NOVA has submitted these results and requests that the MPCA issue an Off-Site Determination letter and No Further Action letter for the site. After reviewing NOVA’s report the MPCA requested additional investigation to further evaluate the source of the chlorinated solvent contamination and the corresponding risk of the vapor intrusion into the site buildings. NOVA is currently collecting samples and will prepare a supplemental investigation report summarizing the findings. Nova submitted the report dated March 14, 2011 to MCPA. MCPA has agreed with NOVA’s recommendations to install a soil vapor extraction system and sparging system to reduce the soil vapor and indoor air contaminant concentrations and produce a complete cleanup of the soil and groundwater at the site.
Considerable judgment is necessary to estimate the fair value of financial instruments. Due to current limitations on credit availability and market conditions, the estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. We estimate the fair value of our mortgages payable using discounted cash flow analysis, unobservable inputs, and other internally developed estimates that incorporate market-based assumptions to range from $3,500,000 to $4,000,000 for the Plymouth hotel, Roseville hotel and Clearwater hotel; and approximately $2,400,000 for the University hotel loan based on unobservable inputs.
- 7 -
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 and 2010
(Unaudited)
5. DISTRIBUTIONS TO BAC HOLDERS
The Partnership did not make a distribution in the first quarter of 2011 or in 2010 .
6. COMMITMENTS
a. Hotel Management Agreements
The Partnership entered into management contracts with Oak Hotels, Inc., for the management of the hotels. The management contracts expire December 31, 2016, with the exception of Scottsdale which is coterminous with the land lease on which the hotel is located. The agreements provide for a base management fee of 3.5% of gross revenues from operations with the exception of Scottsdale which provides for a base management fee of 4.5% of gross revenues from operations.
b. Lease Agreements
The Partnership owns a leasehold interest in the Scottsdale Days Inn. The Partnership has executed an extension of the lease through December 31, 2011. The lease payments are based a percentage rent equal to (i) 22% of gross room revenue up to $3,300,000 and 30% of gross room revenue in excess of $3,300,000, and (ii) 2.5% of restaurant sales, with a minimum base rent of $500,000. There is no assurance that the lease will be renewed. Operating income for the Scottsdale hotel was $772,420 and $693,904 for the three months ended March 31, 2011 and 2010, respectively.
c. License Agreements
The five License Agreements pursuant to which the hotels are operated as Days Inns were assigned from the current licensee and former management agent (Bryanston Group, Inc. d/b/a Buckhead Hotel Management Company, Inc.) to the Partnership as Licensee. The business terms remained identical.
d. Legal Proceedings
There are no material pending legal proceedings to which the Partnership is a party.
7. GROUND LEASE AGREEMENTS
The Partnership had leased a portion of the Minneapolis Days Inn property to Vicorp Restaurants, Inc. (Vicorp), which operated a Baker's Square restaurant on the property. As of March 2008, Vicorp failed to pay the monthly rent due. On April 3, 2008, Vicorp declared bankruptcy. It rejected the lease as an executory contract as of that date. The Partnership has filed a proof of claim for its permitted damages in Vicorp’s bankruptcy case. Gross rental income pursuant to the lease agreement with Vicorp, which is included in interest and other income in the accompanying statements of operations, was $0 for each of the three months ended March 31, 2011 and 2010, respectively.
- 8 -
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 and 2010
(Unaudited)
7. GROUND LEASE AGREEMENTS - Continued
On June 22, 2009, the Partnership executed a ten year lease with Asian Mill, Inc., doing business as the Tea House Restaurant, to replace the Vicorp lease. The lease has two options to renew for five years each. The base rent for years one through five is $100,700. Rent commenced on April 19, 2010 upon the opening of the premises for business to the general public. Revenue for the Tea House Restaurant is being recognized using the straight-line method as of possession date. Gross rental income pursuant to the lease agreement with Tea House, which is included in interest and other income in the accompanying statements of operations, was $24,462 for each of the three months ended March 31, 2011 and 2010, respectively.
The Partnership leases an adjacent building on the Roseville Days Inn property to India Palace, Inc., which operates a restaurant on the property. The lease expired on September 30, 2010. The tenant has exercised its right to extend the lease for five years through September 30, 2015. The Partnership and the tenant are negotiating a possible further extension through September 30, 2020. Gross base rental income pursuant to the lease agreement with India Palace, which is included in interest and other income in the accompanying statements of operations, was $7,500 for each of the three month periods ended March 31, 2011 and 2010, respectively.
8. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership is obligated to reimburse the Managing General Partner or its affiliates for certain direct expenses and payroll expenses in connection with managing the Partnership. Payroll expenses are reimbursed at a factor of 1.75 times base salary. For the three month periods ended March 31, 2011 and 2010, the Partnership paid $46,142 and $34,244, respectively, to the Managing General Partner or its affiliates as direct reimbursement of expenses incurred on behalf of the Partnership. In addition, certain employees of the Managing General partner provided legal and tax accounting servicers to the Partnership. These are reimbursed comparable to third party service charges. For the three month periods ended March 31, 2011 and 2010, the Partnership paid $43,484 and $17,137, respectively to the Managing General Partner or its affiliates for these services. Such reimbursed expenses are included in the accompanying statements of operations as general and administrative expenses.
In accordance with the terms of the Partnership Agreement, the Partnership is obligated to pay the General Partner or its affiliates an annual base asset management fee (Management Fee), equal to 0.50% of the weighted average balance of the adjusted partnership investment during the period, as defined in the Partnership Agreement. The Partnership paid a Management Fee of $23,438 for each of the three month periods ended March 31, 2011 and 2010.
- 9 -
CRI HOTEL INCOME PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011 and 2010
(Unaudited)
9. DEPRECIATION AND AMORTIZATION
Depreciation is based on the estimated useful lives of depreciable assets using the straight-line method. Salvage value has been incorporated relating to the Scottsdale hotel. The estimated lives used in determining depreciation follow.
Type of asset Estimated life
Building and site improvements 10-30 years
Furniture, fixtures and equipment 7 years
Leasehold improvements Shorter of estimated life (usually 7 years) or
remaining lease term
Property purchase cost and acquisition fees are being amortized over a thirty-year period using the straight-line method, except for the Scottsdale hotel which is being amortized over the remaining lease term. Loan refinancing costs are being amortized over the life of the loans using the straight-line method, which approximates the effective interest method.
10. CASH CONCENTRATION RISK
Financial instruments that potentially subject the Partnership to concentrations of risk consist primarily of cash. The Partnership maintains fifteen cash accounts. As of March 31, 2011, the uninsured portion of the cash balance was $0.
|
Number of
|
Bank Balance
|
Insured
|
Uninsured
|
|
|
Bank
|
Accounts
|
03/31/11
|
03/31/11
|
03/31/11
|
|
Bank of America, N.A.
|
6
|
$418,764
|
$418,764
|
$0
|
|
Wells Fargo
|
2
|
$9,293
|
$9,293
|
$0
|
|
Franklin Bank
|
5
|
$956,667
|
$956,667
|
$0
|
|
Eagle Bank
|
3
|
$735,337
|
$735,337
|
$0
|
11. CONTRACT OF SALE FOR CLEARWATER DAYS INN
The Partnership entered into a Purchase and Sale Agreement dated as of May 17, 2011 and made effective as of May 26, 2011 with Catamaran Properties LLC, a Florida limited liability company, for the sale of the real and personal property of the Clearwater Days Inn for a sale price of Two Million Four Hundred Thousand Dollars ($2,400,000).
The sale of the property is expected to occur on or about July 18, 2011. There is no assurance that the purchaser will be able to purchase the property on the terms set forth in the Purchase and Sale Agreement or at all. Closing of the purchase and sale is subject to customary conditions. On June 2, 2011, the Partnership filed a Form 8-K with the SEC related to this purchase and sale agreement and has included a copy of the Purchase and Sale Agreement as an Exhibit to the filing.
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| Part I. | FINANCIAL INFORMATION |
| Item 2. | Managements Discussion and Analysis |
| of Financial Condition and Results of Operations |
CRI Hotel Income Partners, L.P.'s (the Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations section is based on the financial statements, and contains information that may be considered forward looking, including statements regarding the effect of governmental regulations. Actual results may differ materially from those described in the forward looking statements and will be affected by a variety of factors including seasonality with respect to the hotel industry, national and local economic conditions, the general level of interest rates, governmental regulations affecting the Partnership and interpretations of those regulations, the competitive environment in which the Partnership operates, and the availability of working capital.
Travel and the Economy
The hotel industry is continuing to feel the effects of a sagging economy with decreased demand and average rates, which had a negative impact at four of the five hotels owned by the Partnership. The Partnership’s ability to pay operating expenses and current liabilities, and to pay distributions to BAC holders, is primarily dependent upon the performance of the underlying hotels. The General Partner is currently unable to estimate the impact the future state of the economy could have on the Partnership’s operations, liquidity, or capital resources.
Distributions
The Partnership did not make a distribution in the first quarter of 2011 or in 2010.
Financial Condition/Liquidity
The Partnership expects that the hotels in the aggregate will generate sufficient cash flow to achieve a positive cash flow after operating expenses. In addition to the periodic replacement of fixed assets, the General Partner determined several years ago that certain capital improvements were needed to enhance the marketability of the hotels. Since 1997, the Partnership funded a total of approximately $2.6 million from the working capital reserve to the hotels for such capital improvements.
The Partnership's liquidity and future results of operations are primarily dependent upon the performance of the underlying hotels. Hotel operations may be materially affected by changing market conditions and by seasonality caused by variables such as vacations, holidays and climate. The General Partner continues to work closely with the hotels’ manager to institute an aggressive marketing campaign and stricter cost-cutting and cost-control measures in an effort to maintain liquidity at the hotels.
For the three month period ended March 31, 2011, existing cash resources were adequate to support operating and financing requirements. The Partnership anticipates that future cash flows from the hotels’ operations and existing cash resources, in the aggregate, will be sufficient to pay operating expenses, hotel trade payable, accounts payable and accrued expenses. Accrued expenses increased from December 31, 2010 largely due to the accrual of expenses for real estate taxes, land lease rent, sales, occupancy and use taxes and other operating expenses that are a function of occupancy and revenue.
- 11 -
| Part I. | FINANCIAL INFORMATION |
| Item 2. | Managements Discussion and Analysis |
| of Financial Condition and Results of Operations - Continued |
The Partnership assumed an existing lease agreement from Days Inns of America, Inc. in connection with the acquisition of the leasehold interest in the Scottsdale Days Inn. The assumption transfers the rights to operate the property on the lease's existing terms over the remaining life of the lease. In October 2002, the lease was extended to expire on December 31, 2008. The Partnership has negotiated and executed a third short term extension through December 31, 2011 until the ground lessor decides to re-develop the property. There is no assurance that the lease will be renewed. Operating income for the Scottsdale hotel was $772,420 for the three month period ended March 31, 2011.
Financing
On December 19, 1997, the Partnership refinanced with Citicorp Real Estate, Inc. (Citicorp) the Zero Coupon Notes which were originally issued in connection with the Partnership's acquisition of the hotels. The loan matured January 1, 2008. On that date, a balloon payment in the amount of $7,273,441 became due. The General Partner was unable to refinance the Partnership’s mortgage debt prior to its maturity. Although the loan was in default, the special servicer agreed to a forbearance agreement for a period of 180 days for payment of a fee in the amount of $72,734, plus continued monthly payments of principal, interest (at the pre-default rate) and tax and capital improvements escrows.
On May 6, 2008, the Partnership closed three loans from General Electric Credit Corporation (“GE”) in the aggregate amount of $5,000,000 to refinance the Plymouth and Roseville hotels in Minnesota and the Clearwater hotel in Florida. The three loans are cross-collateralized by the three hotels. The Partnership used the loan proceeds together with the proceeds of a loan from Remediation Capital Funding, LLC in the amount of $2,900,000, of which $500,000 is held by the Lender pending resolution of the environmental matter further discussed below, secured by the University hotel in Minnesota, to pay off the existing debt in full.
The three new GE loans bear interest at the rate of 6.79% per annum and mature on January 1, 2016 with balloon payments due as set forth below:
Plymouth $887,269
Roseville $2,083,122
Clearwater $887,269
- 12 -
| Part I. | FINANCIAL INFORMATION |
| Item 2. | Managements Discussion and Analysis |
| of Financial Condition and Results of Operations - Continued |
The Phase I environmental study of the University hotel required by GE revealed excess levels of three chemicals deemed hazardous in the groundwater on the property. The contamination is not due to acts or omissions of the hotel. Simultaneously with its refinancing efforts, the Partnership engaged a consultant to enroll the University property in the Minnesota Pollution Control Agency's (“MCPA”) Voluntary Investigation and Cleanup ("VIC") Program and deal with the contamination at the site. The Partnership's goal is to obtain a No Action Letter with a Covenant Not to Sue, at which point it should be able to obtain financing on the property again. NOVA, the Partnership’s consultant has prepared and submitted an additional Phase I study in accordance with the guidelines established by the MPCA-VIC Program along with the application and proposed scope of work for the required Phase II study. On July 16, 2008, the MPCA approved the work plan for the Phase II study with samples of soil and ground water scheduled to begin collection for analysis August 11, 2008. On January 28, 2009, NOVA completed the Phase II study. Based on the results of the solvent, petroleum, and RCRA metal impacts above action or guidance levels that were detected in the soil, soil vapor and groundwater samples collected at the site, with the exception of the petroleum impacts, the compounds detected at the site appear to be associated with regional up gradient off-site areas of contamination located to the northeast and possibly to the north of the site. It does not appear that the historical uses of the site are the source of the solvent, soil vapor and groundwater impacts detected at the site. NOVA has submitted these results and requests that the MPCA issue an Off-Site Determination letter and No Further Action letter for the site. After reviewing NOVA’s report the MPCA requested additional investigation to further evaluate the source of the chlorinated solvent contamination and the corresponding risk of the vapor intrusion into the site buildings. NOVA is currently collecting samples and will prepare a supplemental investigation report summarizing the findings. Nova submitted the report dated March 14, 2011 to MCPA. MCPA has agreed with NOVA’s recommendations to install a soil vapor extraction system and sparging system to reduce the soil vapor and indoor air contaminant concentrations and produce a complete cleanup of the soil and groundwater at the site.
Working Capital Reserve
The working capital reserve of $1,864,905 and $1,844,867 as of March 31, 2011 and December 31, 2010, respectively, represents all cash and cash equivalents maintained as working capital for the Partnership. In accordance with the terms of the Partnership Agreement, the working capital reserve may be increased or reduced by the General Partner as it deems appropriate. The General Partner at its own discretion may use the working capital reserve for operations or to reduce the amount of existing debt.
Results of Operations - Partnership
The Partnership’s net loss for the three month period ended March 31, 2011 decreased compared to March 31, 2010 primarily due to increased room revenue due to an average 6 percent increase in room rates. In addition, professional fees decreased due to decreased audit fees. The higher room revenue and lower professional fees were partially offset by an increase in energy costs and property taxes.
The General Partner is not able to predict the future trend of hotel gross operating income, especially rooms revenue as it is affected by occupancy and average daily rate. The General Partner continues to work closely with the hotels’ manager to contain any increase in unallocated operating expenses.
An analysis of each hotel's operating results for the three month periods ended March 31, 2011 and 2010, follows.
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| Part I. | FINANCIAL INFORMATION |
| Item 2. | Managements Discussion and Analysis |
| of Financial Condition and Results of Operations - Continued |
Results of Operations -- Hotels
Operating statistics
The hotels' results of operations are affected by changing market conditions and by seasonality caused by variables such as vacations, holidays and climate. Based on the hotels' operating budgets and historical trends, the following months should provide the highest net cash flow to the Partnership from each of the hotels.
|
Hotel Location
|
Peak Months
|
||
|
Clearwater, FL
|
January through April
|
||
|
Minneapolis, MN
|
March through November
|
||
|
Plymouth, MN
|
April through October
|
||
|
Roseville, MN
|
April through October
|
||
|
Scottsdale, AZ
|
January through April; and October and November
|
The hotels’ results of operations set forth below may not be consistent with longer-term historical trends.
The Partnership's statements of operations include operating results for each of the hotels as summarized below. Gross Operating Income represents total revenue from rooms, rental and other, telephone, and food and beverage, less the related departmental expenses. Operating Income represents Gross Operating Income less unallocated operating income and expenses. The results of operations and average occupancy for the hotels for the three month periods ended March 31, 2011 and 2010, follow.
|
Gross Operating Income
|
||||||||
|
for the three months ended
|
||||||||
|
March 31,
|
||||||||
|
Hotel Location
|
2011
|
2010
|
||||||
|
Clearwater, FL
|
$ | 196,507 | $ | 212,378 | ||||
|
Minneapolis, MN
|
453,650 | 383,047 | ||||||
|
Plymouth, MN
|
76,911 | 97,020 | ||||||
|
Roseville, MN
|
140,846 | 130,365 | ||||||
|
Scottsdale, AZ
|
772,420 | 693,904 | ||||||
|
Total
|
$ | 1,640,334 | $ | 1,516,714 | ||||
|
Operating Income (Loss)
|
||||||||
|
for the three months ended
|
||||||||
|
March 31,
|
||||||||
|
Hotel Location
|
2011
|
2010
|
||||||
|
Clearwater, FL
|
$ | 50,824 | $ | 47,427 | ||||
|
Minneapolis, MN
|
130,864 | 161,026 | ||||||
|
Plymouth, MN
|
(68,882 | ) | (34,976 | ) | ||||
|
Roseville, MN
|
(5,055 | ) | (4,265 | ) | ||||
|
Scottsdale, AZ
|
256,839 | 217,535 | ||||||
|
Depreciation and net partnership
|
||||||||
|
operating expenses
|
(389,156 | ) | (529,782 | ) | ||||
|
Total
|
$ | (24,568 | ) | $ | (143,035 | ) | ||
- 14 -
| Part I. | FINANCIAL INFORMATION |
| Item 2. | Managements Discussion and Analysis |
| of Financial Condition and Results of Operations - Continued |
|
Average Occupancy
|
||||||||
|
for the three months ended
|
||||||||
|
March 31,
|
||||||||
|
Hotel Location
|
2011
|
2010
|
||||||
|
Clearwater, FL
|
52 | % | 59 | % | ||||
|
Minneapolis, MN
|
71 | % | 65 | % | ||||
|
Plymouth, MN
|
40 | % | 43 | % | ||||
|
Roseville, MN
|
50 | % | 48 | % | ||||
|
Scottsdale, AZ
|
70 | % | 70 | % | ||||
Clearwater, Florida: Gross operating income for the three month period ended March 31, 2011 decreased from 2010 primarily due to an average reduction of over 4 percent in the average room rate charged due to nationwide discounts and a decrease of 7 percent in occupancy rate. These decreases were partially offset by reduced departmental and operating expenses.
Minneapolis, Minnesota: Gross operating income for the three month period ended March 31, 2011 increased from 2010 primarily due to a an increase in occupancy of 6 percent and an increase in rental income.
Plymouth, Minnesota: Gross operating income decreased and a larger operating loss was recognized for the three month period ended March 31, 2011 compared to 2010 primarily due to a 3 percent decrease in occupancy. Departmental expenses were fairly stable between quarters but operational expenses increased.
Roseville, Minnesota: Gross operating income increased for the three month period ended March 31, 2011 compared to 2010 primarily due to a higher occupancy but the increase was matched by an increase in operational expense. Occupancy increased by 2 percent primarily due to franchise generated rooms.
Scottsdale, Arizona: Gross operating income for the three month period ended March 31, 2011 increased from 2010 primarily due to a higher average room rate charged. The increase in income occurred despite increased operating costs and an increase in land lease payments.
- 15 -
| Part I. | FINANCIAL INFORMATION |
| Item 4. | Controls and Procedures |
In February 2010, representatives of the Managing General Partner of the Partnership carried out an evaluation of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures, pursuant to Exchange Act Rules 13a-15 and 15d-15. The Managing General Partner does not expect that the Partnership’s disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of March 31, 2011, our disclosure controls and procedures were effective to ensure that (i) the information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended, was recorded, processed, summarized or reported within the time periods specified in the SEC’s rules and forms and (ii) such information was accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. In addition, there have been no significant changes in the Partnership’s internal controls over financial reporting that occurred during the Partnership’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal controls over financial reporting.
| Part II. | OTHER INFORMATION |
| Item 4. | Other Information |
|
a.
|
There has not been any information required to be disclosed in a report on Form 8-K during the quarter ended March 31, 2011, but not reported, whether or not otherwise required by this Form 10-Q at March 31, 2011.
|
|
b.
|
There is no established market for the purchase and sale of BACs, although various informal secondary market services may exist. Due to the limited markets, investors may be unable to sell or otherwise dispose of their BACs.
|
|
c.
|
In addition, certain transfers of BACs in the Partnership may not exceed two percent of the total interests in the Partnership’s capital or profits during any one taxable year to avoid the Partnership being deemed a publicly traded partnership.
|
- 16 -
| Part II. | OTHER INFORMATION |
| Item 6. | Exhibits |
|
Exhibit No.
|
Description
|
|
10.1
|
Form of Management Agreement dated March 1, 2008, between Registrant and Oak Hotels, Inc. for the University, Plymouth and Roseville hotels, April 1, 2008 for the Clearwater Hotel and July 1, 2008 for the Scottsdale Hotel.
|
|
31.1
|
Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
All other items are not applicable.
- 17 -
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CRI HOTEL INCOME PARTNERS, L.P.
|
||
|
(Registrant)
|
||
|
by: CRICO Hotel Associates I, L.P.
|
||
|
General Partner
|
||
|
by: C.R.I., Inc.
|
||
|
Managing General Partner
|
||
|
July 8, 2011
|
by: /s/ H. William Willoughby
|
|
|
DATE
|
H. William Willoughby
|
|
|
Director, President, Secretary,
|
||
|
Principal Financial Officer and
|
||
|
Principal Account Officer
|
- 18 -