CRI HOTEL INCOME PARTNERS L P - FORM 10-Q

Attached files

file	filename
EX-32 - CERTIFICATION REQUIRED UNDER SECTION 906 - CRI HOTEL INCOME PARTNERS L P	exhibit32_093009-chip.htm
EX-31 - CERTIFICATION REQUIRED UNDER SECTION 302 - CRI HOTEL INCOME PARTNERS L P	exhibit31_093009-chip.htm

--------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------------------

FORM 10-Q

---------------------------

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2009

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Transition Period From to

COMMISSION FILE NUMBER 33-11096

---------------------------

CRI HOTEL INCOME PARTNERS, L.P.

Delaware 52-1500621
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

11200 Rockville Pike, Rockville, Maryland 20852
(Address of principal executive offices) (Zip Code)

' (301) 468-9200
(Registrant's telephone number, including area code)

None
(Former name, former address and former fiscal year,
if changed since last report)

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 |_|

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 |_| Accelerated filer |_|
Non-accelerated filer |_| 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 |_| No |X|

--------------------------------------------------------------------------------

CRI HOTEL INCOME PARTNERS, L.P.

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2009

Page
----

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Balance Sheets
- September 30, 2009 and December 31, 2008.................... 1

Statements of Operations
- for the three and nine months ended September 30, 2009
and 2008.................................................... 2

Statement of Changes in Partners' (Deficit) Capital
- for the nine months ended September 30, 2009................ 3

Statements of Cash Flows
- for the nine months ended September 30, 2009 and 2008....... 4

Notes to Financial Statements
- September 30, 2009 and 2008................................. 5

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 12

Item 4. Controls and Procedures......................................... 18

Part II. OTHER INFORMATION

Item 5. Other Information............................................... 19

Item 6. Exhibits........................................................ 19

Signature................................................................ 20

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

CRI HOTEL INCOME PARTNERS, L.P.

BALANCE SHEETS

ASSETS

September 30, December 31,
2009 2008
------------ ------------
(Unaudited)

Property and equipment - at cost:
Land ............................................................................ $ 1,574,490 $ 1,574,490
Buildings and site improvements ................................................. 14,395,423 14,382,485
Furniture, fixtures and equipment ............................................... 4,355,529 4,214,546
Leasehold improvements .......................................................... 1,431,234 1,431,234
------------ ------------

21,756,676 21,602,755
Less: accumulated depreciation and amortization ................................. (15,170,869) (14,542,003)
------------ ------------

6,585,807 7,060,752

Hotel operating cash .............................................................. 430,242 156,805
Working capital reserve ........................................................... 1,791,064 2,333,266
Receivables and other assets, net of allowance for doubtful accounts
of $38,142 and $37,215,respectively ............................................. 390,892 406,899
Acquisition fees, principally paid to related parties,
net of accumulated amortization of $766,604 and $740,175, respectively .......... 253,499 279,928
Property purchase costs,
net of accumulated amortization of $139,690 and $134,870, respectively .......... 42,577 47,397
Loan refinancing costs,
net of accumulated amortization of $165,592 and $97,148, respectively ........... 119,208 173,152
------------ ------------

Total assets .................................................................. $ 9,613,289 $ 10,458,199
============ ============

LIABILITIES AND PARTNERS' CAPITAL

Accounts payable and accrued expenses ............................................. $ 590,716 $ 524,350
Hotel trade payables .............................................................. 250,146 274,258
Mortgage payable .................................................................. 7,248,694 7,341,231
------------ ------------

Total liabilities ............................................................. 8,089,556 8,139,839
------------ ------------

Partners' (deficit) capital:
General Partner ................................................................. (358,311) (342,418)
Beneficial Assignee Certificates (BACs) Series A;
868,662 BACs issued and outstanding ........................................... 1,882,044 2,660,778
------------ ------------

Total partners' capital ....................................................... 1,523,733 2,318,360
------------ ------------

Total liabilities and partners' capital ....................................... $ 9,613,289 $ 10,458,199
============ ============

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.

STATEMENTS OF OPERATIONS

(Unaudited)

For the three months ended For the nine months ended
September 30, September 30,
-------------------------- --------------------------
2009 2008 2009 2008
----------- ----------- ----------- -----------

Revenue:
Rooms ................................ $ 1,977,044 $ 2,549,994 $ 6,013,359 $ 7,855,867
Rental and other ..................... 54,668 65,821 144,795 197,707
Telephone ............................ 7,139 10,044 18,617 31,996
Food and beverage .................... 3,560 11,462 14,837 32,910
----------- ----------- ----------- -----------

2,042,411 2,637,321 6,191,608 8,118,480
----------- ----------- ----------- -----------

Departmental expenses:
Rooms ................................ (636,770) (720,643) (1,838,111) (2,134,473)
Rental and other ..................... (12,008) (15,940) (34,575) (53,063)
Telephone ............................ (16,103) (17,574) (45,432) (53,520)
Food and beverage .................... (4,342) (8,861) (13,882) (23,783)
----------- ----------- ----------- -----------

(669,223) (763,018) (1,932,000) (2,264,839)
----------- ----------- ----------- -----------

Gross operating income ................. 1,373,188 1,874,303 4,259,608 5,853,641
----------- ----------- ----------- -----------

Unallocated operating income (expenses):
Interest and other income ............ 7,867 19,768 28,317 70,414
General and administrative ........... (301,150) (304,282) (940,790) (1,137,416)
Depreciation and amortization ........ (226,840) (241,408) (728,558) (743,409)
Marketing ............................ (189,092) (229,176) (564,209) (686,078)
Energy ............................... (170,835) (182,620) (513,356) (537,883)
Property operations and maintenance .. (161,103) (176,274) (471,442) (541,377)
Property taxes ....................... (132,777) (167,475) (417,530) (438,219)
Building lease ....................... (97,777) (116,327) (402,018) (536,335)
Management fees ...................... (76,242) (92,564) (235,807) (284,889)
Professional fees .................... (66,050) (58,226) (177,385) (220,302)
Base asset management fee ............ (23,438) (23,438) (70,313) (70,313)
----------- ----------- ----------- -----------

(1,437,437) (1,572,022) (4,493,091) (5,125,807)
----------- ----------- ----------- -----------

Operating (loss) income ................ (64,249) 302,281 (233,483) 727,834

Interest expense ....................... (188,254) (191,284) (561,144) (475,046)
----------- ----------- ----------- -----------

Net (loss) income ...................... $ (252,503) $ 110,997 $ (794,627) $ 252,788
=========== =========== =========== ===========

Net (loss) income allocated to
General Partner (2%) ................. $ (5,050) $ 2,220 $ (15,893) $ 5,056
=========== =========== =========== ===========

Net (loss) income allocated to
BAC Holders (98%) .................... $ (247,453) $ 108,777 $ (778,734) $ 247,732
=========== =========== =========== ===========

Net (loss) income per BAC,
based on 868,662 BACs outstanding .... $ (.28) $ .13 $ (.90) $ .29
=========== =========== =========== ===========

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.

STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL

(Unaudited)

Beneficial
Assignee
General Certificate
Partner Holders Total
------------ ----------- ----------

Partners' (deficit) capital, January 1, 2009 .. $ (342,418) $ 2,660,778 $ 2,318,360

Net loss .................................... (15,893) (778,734) (794,627)
----------- ----------- -----------

Partners' (deficit) capital, September 30, 2009 $ (358,311) $ 1,882,044 $ 1,523,733
=========== =========== ===========

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.

STATEMENTS OF CASH FLOWS

(Unaudited)

For the nine months ended
September 30,
--------------------------
2009 2008
------------ -----------

Cash flows from operating activities:
Net (loss) income .......................................................... $ (794,627) $ 252,788

Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization ............................................ 728,559 743,409

Changes in assets and liabilities:
Decrease (increase) in receivables and other assets, net ............... 16,007 (92,461)
Increase in accounts payable and accrued expenses ...................... 66,366 116,608
Decrease in hotel trade payables ....................................... (24,112) (22,538)
----------- -----------

Net cash (used in) provided by operating activities .................. (7,807) 997,806
----------- -----------

Cash flows from investing activities:
Additions to property and equipment ........................................ (153,921) (481,792)
Net withdrawals from (deposits to) working capital reserve ................. 542,202 (559,121)
Net withdrawals from capital improvements
and real estate tax reserves held by servicer ............................ -- 315,585
----------- -----------

Net cash provided by (used in) investing activities .................. 388,281 (725,328)
----------- -----------

Cash flows from financing activities:
Payment of principal on mortgage payable ................................... (92,537) --
Loan refinancing costs ..................................................... (14,500) (270,300)
Decrease in deposits ....................................................... -- 18,000
Payoff mortgage ............................................................ -- (7,273,441)
Refinance mortgage ......................................................... -- 7,372,262
----------- -----------

Net cash used in financing activities ................................ (107,037) (153,479)
----------- -----------

Net increase in hotel operating cash and cash and cash equivalents ........... 273,437 118,999

Hotel operating cash and cash and cash equivalents, beginning of period ...... 156,805 576,809
----------- -----------

Hotel operating cash and cash and cash equivalents, end of period ............ $ 430,242 $ 695,808
=========== ===========

Supplemental disclosure of cash flow information:
Cash paid during the period for interest ................................... $ 561,144 $ 475,046
=========== ===========

The accompanying notes are an integral part
of these financial statements.

-4-

CRI HOTEL INCOME PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 2009 and 2008

(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 September
30, 2009, and the results of its operations for the three and nine month periods
ended September 30, 2009 and 2008 and its cash flows for the nine month periods
ended September 30, 2009 and 2008. The results of operations for the interim
periods ended September 30, 2009, 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, 2008.

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. NEW ACCOUNTING PRONOUNCEMENTS

On July 1, 2009, the Partnership adopted Financial Accounting Standards
Board Accounting Standards Codification ("ASC"), which establishes the ASC as
the source of authoritative accounting principles to be applied in preparation
of financial statements in conformity with US GAAP. The adoption of this
standard did not have a material impact on the financial position, results of
operations or cash flows.

On January 1, 2009, the Partnership adopted the new accounting standard
which requires adoption of the fair value standards in the ASC for nonfinancial
assets and nonfinancial liabilities. The adoption did not have a material impact
on the financial position, results of operations or cash flows.

During the quarter ended June 30, 2009, the Partnership adopted the new
accounting standard which requires disclosure regarding the fair value of
financial instruments for interim reporting periods as well as in annual
financial statements.

The ASC establishes a hierarchy for inputs used in measuring fair value as
follows:

1. Level 1 Inputs -- quoted prices in active markets for identical assets
of liabilities.
2. Level 2 Inputs -- observable inputs other than quoted prices in active
markets for identical assets and liabilities.
3. Level 3 Inputs -- unobservable inputs.

-5-

CRI HOTEL INCOME PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 2009 and 2008

(Unaudited)

2. NEW ACCOUNTING PRONOUNCEMENTS - Continued

In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level within which the fair value measurement is categorized is
based on the lowest level input that is significant to the fair value
measurement.

Except as disclosed in Note 6, the carrying amount of our financial
instruments approximates their fair value.

The ASC establishes general standards of accounting and disclosure of
events that occur after the balance sheet date but before the Partnership issues
financial statements or has them available to issue. The ASC defines (i) the
period after the balance sheet date during which a reporting entity's management
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements, (ii) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements, and (iii) the disclosures an entity should
make about events or transactions that occurred after the balance sheet date.
The guidance became effective for periods ending after June 15, 2009. Subsequent
events have been evaluated through November 13, 2009, which is the issue date of
the financial statements. The adoption of the guidance did not have a material
impact on the financial position, results of operations or cash flows.

3. 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.

4. WORKING CAPITAL RESERVE

The working capital reserve of $1,791,064 and $2,333,266 as of September
30, 2009 and December 31, 2008, 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.

-6-

CRI HOTEL INCOME PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 2009 and 2008

(Unaudited)

5. CAPITAL IMPROVEMENTS AND REAL ESTATE TAX RESERVES HELD BY SERVICER

In addition to the monthly loan installments under its former mortgage
loan, as discussed below, the Partnership also made monthly payments which were
escrowed for capital improvements and estimated annual real estate taxes. This
loan was refinanced on May 6, 2008. The Partnership was reimbursed by the former
servicer in June 2008 for the remaining balances in the escrowed capital
improvement and real estate tax accounts. Under the new mortgages, the
Partnership will pay directly for real estate taxes and capital improvements.

During the nine month period ended September 30, 2008, the Partnership made
escrow deposits aggregating $77,458 for capital improvements, and $130,622 for
estimated annual real estate taxes. The Partnership was reimbursed by the former
servicer in June 2008 for the remaining balances in the escrowed capital
improvement reserve and real estate tax reserve.

6. 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,
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 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

-7-

CRI HOTEL INCOME PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 2009 and 2008

(Unaudited)

6. MORTGAGES PAYABLE - Continued

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. The Partnership
has been advised that the VIC Program process will likely take from nine months
to eighteen months.

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

The new loan with Remediation Capital bears interest at the rate of 14% per
annum and matured on May 6, 2009. On May 5, 2009, the loan was extended to
mature November 5, 2009. The Partnership has one option, at its sole discretion,
to extend the loan for six months. It is contemplated that this loan will be
refinanced after the environmental issues at the University hotel have been
resolved.

The Partnership made installments of principal and interest aggregating
$653,681 and $583,020 for the nine month periods ended September 30, 2009 and
2008. The Partnership's balance on the loan was $7,248,694 and $7,341,231 as of
September 30, 2009 and December 31, 2008, respectively.

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. DISTRIBUTION TO BAC HOLDERS

The Partnership did not declare a distribution in 2008 or the first, second
and third quarters of 2009.

-8-

CRI HOTEL INCOME PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 2009 and 2008

(Unaudited)

8. COMMITMENTS

a. Hotel Management Agreements
---------------------------

The hotels had been operated by Bryanston Group, Inc. d/b/a Buckhead
Hotel Management Company, Inc. (Buckhead), formerly known as Days Inns
Management Company, Inc., under the nationally recognized franchise name of
Days Inns. The Partnership entered into new management contracts with Oak
Hotels, Inc., which will continue to be operated as Days Inns. The new
contracts will expire December 31, 2016, with the exception of Scottsdale,
which is coterminous with the land lease on which that hotel is located.
The agreements provide for a base management fee of 3.5% of gross revenues
from operations for the University hotel, Plymouth hotel, Rosewater hotel
and Clearwater hotel and 4.5% for the Scottsdale hotel.

b. Lease Agreements
----------------

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 negotiated and executed a short term extension
through December 31, 2010 until the ground lessor decides to re-develop the
property. As of February 1, 2009, annual lease payments are equal to the
greater of $480,000 or 22% of total room revenue and 2.5% of food and
beverage revenue. Minimum lease payments of $40,000 are payable monthly
with a quarterly analysis of the actual amount due. For the three month
periods ended September 30, 2009 and 2008, lease payments were $97,777 and
$116,327, respectively. For the nine month periods ended September 30, 2009
and 2008, lease payments were $402,018 and $536,335, respectively.

c. License Agreements
------------------

The five License Agreements pursuant to which the hotels are operated
as Days Inns have recently been assigned from the current licensee (and
former management agent), Buckhead, to the Partnership as Licensee.

d. Legal Proceedings
-----------------

On September 2, 2008, a complaint was filed against CRI Hotel Income
Partners, L.P., in the Circuit Court of the Sixth Judicial Circuit, in and
for Pinellas County, Florida. The Plaintiffs claimed damages of $15,000,
exclusive of interest and cost as a result of being bitten by bed bugs
while staying at the Days Inn Clearwater on or about July 16, 2008. The
complaint was submitted to Wausau Insurance Company, Claim
#PX415-008254-01. On January 21, 2009, the defense counsel retained by
Wausau requested that the plaintiff make a demand for settlement of this
lawsuit so as to avoid protracted litigation. A response is expected in
2009 to the request. Discovery continues and the defense counsel is
handling the matter. Any damages will be covered by Wausau under the
hotel's insurance policy.

-9-

CRI HOTEL INCOME PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 2009 and 2008

(Unaudited)

9. 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. Gross rental income pursuant to the lease agreement with
Vicorp, which is included in interest and other income in the accompanying
statement of operations, was $12,712 for 2008. 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. It has filed a
proof of claim for its permitted damages in Vicorp's bankruptcy case.

On June 22, 2009, the Partnership executed a ten year lease with the Tea
House Restaurant to replace the old tenant at Baker's Square. The lease has two
options to renew for five years each. The base rent for years one through five
is $100,700. Rent commences on the first to occur of (i) 180 days subsequent to
the possession date which occurred on June 22, 2009 or (ii) the opening of the
premises for business to the general public.

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 expires on September 30, 2010. The lease provides one option to extend the
lease for an additional period of five years. Gross base rental income pursuant
to the lease agreement with India Palace and the former lease with Happy Chef,
which is included in interest and other income in the accompanying statements of
operations, was $7,500 and $22,500 for each of the three and nine month periods
ended September 30, 2009 and 2008, respectively.

10. RELATED PARTY TRANSACTIONS

In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the General Partner or its affiliates for their direct
expenses in connection with managing the Partnership. The Partnership paid
$46,167 and $145,218 for the three and nine month periods ended September 30,
2009, respectively and $17,167 and $186,124 for the three and nine month periods
ended September 30, 2008, respectively. Such reimbursed expenses are included in
general and administrative expenses in the accompanying statements of
operations.

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 and
$70,313 for each of the three and nine month periods ended September 30, 2009
and 2008.

C.R.I., Inc., the general partner of the General Partner, has contracted
with Capitol Hotel Group, Inc. (CHG), to perform certain asset management
services related to the oversight of the operations and management of the
hotels. The Chairman and President of C.R.I., Inc., are the Chairman and
President, respectively, of, and holders of 100% of the equity interest in, CHG.

-10-

CRI HOTEL INCOME PARTNERS, L.P.

NOTES TO FINANCIAL STATEMENTS

September 30, 2009 and 2008

(Unaudited)

11. 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.

12. CASH CONCENTRATION RISK

Financial instruments that potentially subject the Partnership to
concentrations of risk consist primarily of cash. The Partnership maintains
fourteen cash accounts. As of September 30, 2009, the uninsured portion of the
cash balance was $0.

Number of ank Balance Insured Uninsured
Bank Accounts 09/30/09 09/30/09 09/30/09
---------------------- -------- ----------- ---------- ----------

Bank of America, N.A. 7 $ 210,437 $ 210,437 $0

SunTrust Bank 2 $1,791,064 $1,791,064 $0

Wells Fargo 5 $ 19,323 $ 19,323 $0

# # #

-11-

Part I. FINANCIAL INFORMATION
Item 2. Management's 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 lower occupancies, which had a negative impact at all
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.

New Accounting Pronouncements
-----------------------------

Distributions
-------------

The Partnership did not declare a distribution in 2008 or the first, second
and third quarters of 2009.

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 $2.5 million from the working capital reserve to the
hotels for such capital improvements.

-12-

Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued

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 nine month period ended September 30, 2009, 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,
accounts payable and accrued expenses, and hotel trade payables. Accounts
payable and accrued expenses and hotel trade payables at September 30, 2009
totaled $840,862, which represents a $42,254 increase from December 31, 2008.
Accounts payable and accrued expenses increased primarily due to increased real
estate taxes payable, partially offset by lower accrued audit fees and lower
accrued environmental study costs. Hotel trade payables decreased primarily due
to timing of payment compared to fourth quarter 2008.

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 negotiated and executed a short term extension through December 31,
2010 until the ground lessor decides to re-develop the property. There is no
assurance that the lease will be renewed. Operating (loss) income for the
Scottsdale hotel was $(93,153) and $57,113 for the three and nine month periods
ended September 30, 2009.

Financing
---------

-13-

Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued

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. The Partnership
has been advised that the VIC Program process will likely take from nine months
to eighteen months.

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

Capital Improvements and Real Estate Tax Reserves Held by Servicer
------------------------------------------------------------------

-14-

Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued

Working Capital Reserve
-----------------------

Results of Operations - Partnership
-----------------------------------

The Partnership recognized net loss for the three month period ended
September 30, 2009, compared to net income at September 30, 2008 primarily due
to decreased rooms revenue, partially offset by lower rooms expense both as a
result of lower occupancy.

The Partnership recognized net loss for the nine month period ended
September 30, 2009, compared to net income in 2008 primarily due to decreased
rooms revenue, as a result of lower occupancy, partially offset by decreases in
rooms expense, general and administrative expenses, marketing expense, property
and maintenance expenses and building lease expense. Rooms expense decreased due
to lower occupancy. General and administrative expenses decreased primarily due
to the forbearance fee paid in 2008, lower reimbursed payroll costs and lower
occupancy. Marketing expense decreased due to lower payroll expense and lower
frequent guest program expense. Property operations and maintenance expenses
decreased due to less repair needed due to lower occupancy. Building lease
expense decreased due to lower revenues at the Scottsdale Days Inn.

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 and nine month
periods ended September 30, 2009 and 2008, follows.

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.

-15-

Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued

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 and nine month periods ended
September 30, 2009 and 2008, follow.

Gross Operating Income Gross Operating Income
for the three month periods for the nine month periods
ended September 30, ended September 30,
----------------------------- ----------------------------
Hotel Location 2009 2008 2009 2008
-------------- ---------- ---------- ---------- ----------

Clearwater, FL $ 77,075 $ 94,881 $ 432,542 $ 588,905
Minneapolis, MN 568,252 690,242 1,438,213 1,739,836
Plymouth, MN 170,318 308,931 419,810 707,500
Roseville, MN 254,637 406,560 582,444 885,593
Scottsdale, AZ 302,906 373,689 1,386,599 1,931,807
---------- ---------- ---------- ----------
Total $1,373,188 $1,874,303 $4,259,608 $5,853,641
========== ========== ========== ==========

Operating (Loss) Income Operating (Loss) Income
for the three month periods for the nine month periods
ended September 30, ended September 30,
----------------------------- ----------------------------
2009 2008 2009 2008
---------- ---------- ----------- ----------

Clearwater, Fl $ (80,084) $ (76,097) $ (84,905) $ 10,445
Minneapolis, MN 328,354 429,902 752,298 995,283
Plymouth, MN 36,390 151,521 32,090 267,623
Roseville, MN 109,869 230,811 172,522 427,866
Scottsdale, AZ (93,153) (81,980) 57,113 342,456
Depreciation and partnership
operating expenses (365,625) (351,876) (1,162,601) (1,315,839)
---------- ---------- ---------- -----------
Total $ (64,249) $ 302,281 $ (233,483) $ 727,834
========== ========== ========== ===========

Average Occupancy Average Occupancy
for the three month periods for the nine month periods
ended September 30, ended September 30,
--------------------------- ---------------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------

Clearwater, Fl 35% 36% 43% 52%
Minneapolis, MN 79% 86% 71% 82%
Plymouth, MN 64% 76% 53% 72%
Roseville, MN 65% 83% 54% 72%
Scottsdale, AZ 67% 76% 65% 76%

-16-

Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued

Three Month Period Ended September 30, 2009
-------------------------------------------

Clearwater, Florida: Gross operating income decreased and operating loss
increased for the three month period ended September 30, 2009, compared to 2008
primarily due to decreased rooms revenue and increased repair and maintenance
expenses, partially offset by decreases in rooms expense, telephone expense,
rental and other expense, general and administrative expenses, marketing
expense, energy expense, management fees, insurance expense and property tax
expense. Occupancy decreased due to the sluggish economy and a significant
decrease in the housing and construction markets.

Minneapolis, Minnesota: Gross operating income and operating income for the
three month period ended September 30, 2009, decreased from 2008 primarily due
to decreases in rooms revenue and rental and other revenue and increased
insurance expense, partially offset by increased telephone revenue and decreases
in rooms expense, rental and other expense, general and administrative expenses,
marketing expense, energy expense, repair and maintenance expenses, management
fees and property tax expense. Occupancy decreased due to market demand with the
largest shortfall in the transient market, offset by increases in hotel direct
business, mainly due to the new University of Minnesota football stadium.

Plymouth, Minnesota: Gross operating income and operating income for the three
month period ended September 30, 2009, decreased compared to 2008 primarily due
to decreases in rooms revenue, telephone revenue and rental and other revenue
and increases in telephone expense, insurance expense and property tax expense,
partially offset by decreases in rooms expense, rental and other expense,
general and administrative expenses, marketing expense, energy expense, repair
and maintenance expenses and management fees. Occupancy decreased due to the
economy and lack of production from some long term corporate groups, and the
room nights generated by the Republican National Convention in 2008.

Roseville, Minnesota: Gross operating income and operating income for the three
month period ended September 30, 2009, decreased compared to 2008 primarily due
to decreases in rooms revenue, telephone revenue and rental and other revenue
and increases in telephone expense, insurance expense and property tax expense,
partially offset by decreases in rooms expense, rental and other expense,
general and administrative expenses, energy expense, repair and maintenance
expenses and management fees. Occupancy decreased due to the sluggish economy
and sharp decline in walk in business and the room nights generated by the
Republican National Convention in 2008.

Scottsdale, Arizona: Gross operating income decreased and operating loss
increased for the three month period ended September 30, 2009, compared to 2008
primarily due to decreases in rooms revenue, food and beverage revenue and
telephone revenue and increases in energy expense, management fees, insurance
expense and property tax expense, partially offset by increased rental and other
revenue and decreases in rooms expense, food and beverage expense, telephone
expense, rental and other expense, general and administrative expenses,
marketing expenses and repair and maintenance expenses. Occupancy decreased due
to the sluggish economy and the absence of demand in the Scottsdale market.

Nine month Periods Ended September 30, 2009
-------------------------------------------

Clearwater, Florida: Gross operating income decreased and operating loss was
recognized for the nine month period ended September 30, 2009, compared to 2008
primarily due to decreases in rooms revenue, telephone revenue and rental and
other revenue and increases in energy expense and repair and maintenance
expenses, partially offset by decreases in rooms expense, telephone expense,
rental and other expense, general and administrative expenses, marketing

-17-

Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued

expense, management fees, insurance expense and property tax expense. Occupancy
decreased due to the sluggish economy and a significant decrease in the housing
and construction markets and by third party intermediary discount packages
through Priceline, Hotwire, Travelocity and Orbitz.

Minneapolis, Minnesota: Gross operating income and operating income for the nine
month period ended September 30, 2009, decreased compared to 2008 primarily due
to decreases in rooms revenue, telephone revenue and rental and other revenue
and increases in telephone expense and insurance expense, partially offset by
decreases in rooms expense, rental and other expense, general and administrative
expenses, marketing expense, energy expense, repair and maintenance expenses,
management fees and property tax expense. Occupancy decreased due to market
demand with the largest shortfall in the transient market, the University of
Minnesota visitor rate, and the demand generated by the Republican National
Convention in 2008.

Plymouth, Minnesota: Gross operating income and operating income for the nine
month period ended September 30, 2009, decreased compared to 2008 primarily due
to decreases in rooms revenue, telephone revenue and rental and other revenue
and increases in insurance expense and property tax expense, partially offset by
decreases in rooms expense, telephone expense, rental and other expense, general
and administrative expenses, marketing expense, energy expense, repair and
maintenance expenses and management fees. Occupancy decreased due to the economy
and lack of production from some long term corporate groups, and the demand
generated by the Republican National Convention in 2008.

Roseville, Minnesota: Gross operating income and operating income for the nine
month period ended September 30, 2009, deceased from 2008 primarily due to
decreases in rooms revenue, telephone revenue and rental and other revenue and
increases in telephone expense, insurance expense and property tax expense,
partially offset by decreases in rooms expense, rental and other expense,
general and administrative expenses, marketing expense, energy expense, repair
and maintenance expenses and management fees. Occupancy decreased due to the
sluggish economy and sharp decline in walk in business, and the demand generated
by the Republican National Convention in 2008.

Scottsdale, Arizona: Gross operating income and operating income for the nine
month period ended September 30, 2009, decreased from 2008 primarily due to
decreases in rooms revenue, food and beverage revenue, telephone revenue and
rental and other revenue and increases in insurance expense and property tax
expense, partially offset by decreases in rooms expense, food and beverage
expense, telephone expense, rental and other expense, general and administrative
expenses, marketing expenses, energy expense, repair and maintenance expenses
and management fees. Occupancy decreased due to the sluggish economy and the
absence of demand in the Scottsdale market.

Item 4. Controls and Procedures

In October 2009, 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

-18-

Part I. FINANCIAL INFORMATION
Item 4. Controls and Procedures - Continued

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 September 30, 2009, 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 5. Other Information

a. There has not been any information required to be disclosed in a report on
Form 8-K during the quarter ended September 30, 2009, but not reported,
whether or not otherwise required by this Form 10-Q at September 30, 2009.

b. There is no established market for the purchase and sale of BACs, although
various informal secondary market services exist. Due to the limited
markets, however, investors may be unable to sell or otherwise dispose of
their BACs.

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.

-19-

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.
------------------------------------------
its General Partner

November 13, 2009 by: /s/ H. William Willoughby
----------------- ------------------------------------
DATE H. William Willoughby,
Director, President, Secretary,
Principal Financial Officer and
Principal Accounting Officer

-20-

Attached files

CRI HOTEL INCOME PARTNERS L P Reports

Also read