-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TWOIKBKEB4zHw6K5QtarMWgEGg9/sX6tQUuNmAO/H+agLMjIgBPB9vSjkV2UcYnU fsiDJ34AByBLTM9Vfl/XTw== 0000832179-97-000008.txt : 19970805 0000832179-97-000008.hdr.sgml : 19970805 ACCESSION NUMBER: 0000832179-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970620 FILED AS OF DATE: 19970804 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP /DE/ CENTRAL INDEX KEY: 0000832179 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 521533559 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16728 FILM NUMBER: 97650586 BUSINESS ADDRESS: STREET 1: 10400 FERNWOOD RD DEPT 908 STREET 2: C/O HOST MARRIOT CORP ASSET MANAGEMENT CITY: BETHESDA STATE: MD ZIP: 20817 BUSINESS PHONE: 3013809000 MAIL ADDRESS: STREET 1: 10400 FERNWOOD RD DEPT 908 STREET 2: C/O HOST MARRIOT CORP ASSET MANAGEMENT CITY: BETHESDA STATE: MD ZIP: 20817 10-Q 1 FORM 10-Q -------------------------------------------------------------------- Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q o Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended June 20, 1997 OR Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 0-16728 COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 52-1533559 - --------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10400 Fernwood Road Bethesda, Maryland 20817 - ------------------------------------------------------------------------------ (Address of principal executive offices) Registrant's telephone number, including area code: 301-380-2070 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 and (2) has been subject to such filing requirements for the past 90 days. Yes _x/_ No ____ ------------------------------------------------------------------------- ------------------------------------------------------------------------ ---------------------------------------------------------------------- Courtyard By Marriott II Limited Partnership ---------------------------------------------------------------------- ------------------------------------------------------------------ TABLE OF CONTENTS PAGE NO. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statement of Operations Twelve and Twenty-Four Weeks Ended June 20, 1997 and June 14, 1996...... 1 Condensed Consolidated Balance Sheet June 20, 1997 and December 31, 1996...................................... 2 Condensed Consolidated Statement of Cash Flows Twelve and Twenty-Four Weeks ended June 20, 1997 and June 14, 1996....... 3 Notes to Condensed Consolidated Financial Statements............ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 6 PART II - OTHER INFORMATION Item 1. Legal Proceedings................................................. 9 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (in thousands, except per unit amounts) Twelve Weeks Ended Twenty-Four Weeks Ended June 20, June 14, June 20, June 14, 1997 1996 1997 1996 ------------- ------------ ------------ -------- REVENUES Hotel revenues................................$ 35,295 $ 33,050 $ 67,972 $ 61,039 Interest income and other..................... 678 457 1,156 1,048 ------------- ------------ ------------ ------------ ......................................... 35,973 33,507 69,128 62,087 ------------- ------------ ------------ ------------ OPERATING COSTS AND EXPENSES Interest................... ................... 10,349 10,863 21,748 21,238 Depreciation .................................. 6,297 6,397 12,594 12,794 Ground rent, taxes and other................... 5,591 5,510 11,526 10,923 Base and Courtyard management fees............................... 3,992 3,770 7,784 7,244 Incentive management fee....................... 3,382 3,107 6,385 5,542 ------------- ------------ ------------ ------------ .......................................... 29,611 29,647 60,037 57,741 - --------------------------------------------------------------- ------------ ------------ ------------ NET INCOME........................................$ 6,362 $ 3,860 $ 9,091 $ 4,346 ============= ============ ============ ============ ALLOCATION OF NET INCOME General Partner......... ......................$ 318 $ 193 $ 454 $ 217 Limited Partners............................... 6,044 3,667 8,637 4,129 ------------- ------------ ------------ ------------ ..........................................$ 6,362 $ 3,860 $ 9,091 $ 4,346 - --------------------------------------------------============= ============ ============ ============ NET INCOME PER LIMITED PARTNER UNIT (1,470 Units)........................$ 4,112 $ 2,494 $ 5,876 $ 2,808 ============= ============ ============ ============ See Notes to Condensed Consolidated Financial Statements. 1
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP CONDENSED CONSOLIDATED BALANCE SHEET (In thousands) June 20, December 31, 1997 1996 (Unaudited) ASSETS Property and equipment, net.......................$ 458,355 $ 458,687 Due from Courtyard Management Corporation.... .... 10,910 13,315 Other assets...................................... 48,062 54,052 Restricted cash................................... 13,664 6,848 Cash and cash equivalents......................... 19,750 14,197 -------------- ---------------- ...............................................$ 550,741 $ 547,099 ============== ================ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) LIABILITIES Debt............................................ $ 520,833 $ 526,253 Management fees due to Courtyard Management Corporation. ........................ 34,402 36,442 Due to Marriott International, Inc. and affiliates................................. 9,114 9,169 Accounts payable and accrued liabilities.......... 13,284 7,176 -------------- ---------------- Total Liabilities.............................. 577,633 579,040 -------------- ---------------- PARTNERS' CAPITAL (DEFICIT) General Partner................................... 6,241 5,787 Limited Partners.................................. (33,133) (37,728) -------------- ---------------- Total Partners' Deficit........................ (26,892) (31,941) -------------- ---------------- ................................................$ 550,741 $ 547,099 ============== ================ See Notes to Condensed Consolidated Financial Statements. 2
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Twenty-Four Weeks Ended June 20, June 14, 1997 1996 (in thousands) OPERATING ACTIVITIES Net income ....................................$ 9,091 $ 4,346 Noncash items.................................. 11,280 13,663 Changes in operating accounts.................. 8,480 (1,473) -------------- --------------- Cash provided by operating activities..... 28,851 16,536 -------------- --------------- INVESTING ACTIVITIES Additions to property and equipment........... (12,262) (4,691) Change in property improvement funds........... 5,242 (490) -------------- --------------- Cash used in investing activities........... (7,020) (5,181) -------------- --------------- FINANCING ACTIVITIES Change in reserve accounts..................... (6,816) (282) Repayments of debt ............................ (5,420) (535,136) Capital distributions........................... (4,042) (3,308) Proceeds from debt ............................. -- 537,600 Payment of financing costs.......................... -- (14,323) Repayment of advances from Host Marriott Corporation -- (6,489) --------- --------------- Cash used in financing activities... ........ (16,278) (21,938) -------------- --------------- INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS..... 5,553 (10,583) CASH AND CASH EQUIVALENTS at beginning of period..... 14,197 27,708 -------------- --------------- CASH AND CASH EQUIVALENTS at end of period.......... $ 19,750 $ 17,125 ============== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for mortgage and other interest..... $ 19,673 $ 17,200 ============== =============== See Notes to Condensed Consolidated Financial Statements. 3
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The accompanying condensed consolidated financial statements have been prepared by the Courtyard By Marriott II Limited Partnership (the "Partnership") without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted from the accompanying statements. The Partnership believes the disclosures made are adequate to make the information presented not misleading. However, the condensed consolidated financial statements should be read in conjunction with the Partnership's consolidated financial statements and notes thereto included in the Partnership's Form 10-K for the fiscal year ended December 31, 1996. In the opinion of the Partnership, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of June 20, 1997 and December 31, 1996, and the results of operations for the twelve and twenty-four weeks ended June 20, 1997 and June 14, 1996. Interim results are not necessarily indicative of fiscal year performance because of seasonal and short-term variations. For financial reporting purposes, the net income of the Partnership is allocated 95% to the Limited Partners and 5% to CBM Two Corporation (the "General Partner"). Significant differences exist between the net income for financial reporting purposes and the net income reported for Federal income tax purposes. These differences are due primarily to the use for income tax purposes of accelerated depreciation methods, shorter depreciable lives for the assets, differences in the timing of the recognition of certain fees and straight-line rent adjustments. Certain reclassifications were made to the prior year financial statements to conform to the 1997 presentation. 2. Revenues represent house profit which is hotel sales less hotel-level expenses, excluding certain operating costs and expenses such as depreciation, base, Courtyard and incentive management fees, real and personal property taxes, ground and equipment rent, insurance and certain other costs. Revenues consist of the following for the twelve and twenty-four weeks ended (in thousands): Twelve Weeks Ended Twenty-Four Weeks Ended June 20, June 14, June 20, June 14, 1997 1996 1997 1996 ------------ ------------- ------------- -------- HOTEL SALES Rooms........................... $ 59,969 $ 56,119 $ 116,725 $ 107,695 Food and beverage................ 4,248 4,380 8,359 8,529 Other............................ 2,305 2,328 4,642 4,502 ----------- ------------- ------------- ------------ .............................. 66,522 62,827 129,726 120,726 - ------------------------------------------------------ ------------- ------------ HOTEL EXPENSES Departmental direct costs Rooms......................... 12,369 11,624 24,009 23,004 Food and beverage.............. 3,591 3,765 7,025 7,327 Other.............................. 15,267 14,388 30,720 29,356 ---------- ------------- ------------- ------------ ............................... 31,227 29,777 61,754 59,687 - ------------------------------------------------------ ------------- ------------ REVENUES............................... 35,295 $ 33,050 $ 67,972 $ 61,039 ========== ============= ============= ============ 4
3. Pursuant to the terms of the Certificates/Mortgage Loan, the Partnership is required to establish with the lender a separate escrow account for payments of insurance premiums and real estate taxes for each mortgaged property if the credit rating of Marriott International, Inc. is downgraded by Standard and Poor's Rating Services. The Manager, Courtyard Management Corporation, is a wholly-owned subsidiary of Marriott International, Inc. On April 1, 1997, Marriott International, Inc.'s credit rating was downgraded and the Partnership subsequently transferred $4.2 million into the escrow reserve from the Manager's existing tax and insurance reserve account. During the second quarter of 1997, an additional $600,000 was transferred into the reserve account resulting in an ending escrow balance of $4.8 million. The escrow reserve is included in restricted cash and the resulting tax and insurance liability is included in accounts payable and accrued liabilities in the accompanying balance sheet. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain matters discussed herein are forward-looking statements within the meaning of the Private Litigation Reform Act of 1995 and as such may involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Partnership to be different from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the Partnership believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. These risks are detailed from time to time in the Partnership's filings with the Securities and Exchange Commission. The Partnership undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. CAPITAL RESOURCES AND LIQUIDITY Principal Sources and Uses of Cash The Partnership's principal source of cash is cash from operations. Its principal uses of cash are to make debt service payments, fund the property improvement fund and to make distributions to limited partners. Cash provided by operations for the twenty-four weeks ended June 20, 1997, and June 14, 1996, was $28.9 million and $16.5 million, respectively. The increase is due to improved operations and an increase in accrued expenses. Pursuant to the terms of the Certificates/Mortgage Loan, the Partnership is required to establish with the lender a seperate escrow account for payments of insurance premiums and real estate taxes for each mortgaged property if the credit rating of Marriott International, Inc. is downgraded by Standard and Poor's Rating Services. The Manager, Courtyard Management Corporation, is a wholly-owned subsidiary of Marriott International, Inc. On April 1, 1997, Marriott International, Inc.'s credit rating was downgraded and the Partnership subsequently transferred $4.2 million into the escrow reserve from the Manager's existing tax and insurance reserve account. During the second quarter of 1997, an additional $600,000 was transferred into the reserve account resulting in an ending escrow balance of $4.2 million. The escrow reserve is included in restricted cash and the resulting tax and insurance liability is included in accounts payable and accrued liabilities in the accompanying balance sheet. Cash used in investing activities was $7.0 million for the first two quarters of 1997 and $5.2 million for the first two quarters of 1996. Cash used in investing activities for 1997 includes capital expenditures of $12.3 million, primarily related to renovations and replacements at the Partnership's hotels. Cash used in financing activities was $16.3 million for the first two quarters of 1997, while cash from financing activities was $21.9 million for the first two quarters of 1996. Cash used in financing activities for the first half of 1997 includes $5.4 million of principal repayments on the debt, $4.0 million of cash distributions to limited partners and $6.8 million transferred to reserve accounts. The Partnership reserved an additional $6.8 million during the first two quarters of 1997. During the first quarter of 1997, $2 million was transferred to a Working Capital Reserve and during the second quarter of 1997, $4.8 million was deposited into the real estate tax and insurance premium escrow reserve. During the twenty-four weeks ended June 20, 1997, the Partnership paid $19.7 million of interest and $5.4 million of principal on the commercial mortgage backed securities as compared to $17.2 million of interest and $4 million of principal on the commercial mortgage backed securities during the same period in 1996. 6 In April of 1997, the Partnership utilized 1996 cash flow after debt service to make a final cash distribution totaling $4 million or $2,750 per limited partner unit, bringing the total distribution from 1996 operations to $11 million or $7,500 per limited partner unit. The General Partner believes that cash from hotel operations combined with the ability to defer certain management fees to the Manager and ground rent payments to Marriott International, Inc. and affiliates will provide adequate funds in the short term and long term to meet the operational and capital needs of the Partnership. RESULTS OF OPERATIONS Revenues (hotel sales less direct hotel operating costs and expenses) increased by $2.2 million and $6.9 million, respectively, for the twelve and twenty-four weeks ended June 20, 1997. This represents a 6.8% and an 11.4% increase, respectively, for the quarter and year-to-date when compared to the comparable periods in 1996. The increase in revenue was achieved primarily through an increase in hotel sales offset by an increase in hotel operating costs and expenses. For the twelve and twenty-four weeks ended June 20, 1997, hotel sales increased $3.7 million and $9.0 million, respectively. This represents a 5.9% increase for the quarter and a 7.5% increase year-to-date as compared to the comparable periods in 1996. The increase in sales was achieved primarily through an increase in the combined average room rate. The combined average room rate increased $5.57 to $82.84 for the quarter and $5.77 to $82.38 year-to-date as compared to the comparable periods in 1996. The increase in average room rate is primarily due to aggressive weekday pricing. Combined average occupancy for the second quarter 1997 decreased slightly by 0.2 percentage points to 83.4% while the combined average occupancy for the twenty-four weeks ended June 20, 1997 increased slightly by 0.6 percentage points to 81.6%. The slight decrease in occupancy during the quarter is mainly due to increased competition and aggressive rate increases in some markets. For the twenty-four weeks ended on June 20, 1997, 47 of the Partnership's 70 Hotels posted occupancy rates exceeding 80%. REVPAR, or revenue per available room, represents the combination of the combined average daily room rate charged and the combined average occupancy achieved. REVPAR for the twelve and twenty-four weeks ended June 20, 1997, was $69.09 and $67.22, respectively. REVPAR for the second quarter 1997 increased 7% as compared to the second quarter 1996 while year-to-date 1997 REVPAR increased 8.3% as compared to the comparable period in 1996. Direct hotel operating costs and expenses increased from $59.7 million for the twenty-four weeks ended June 14, 1996 to $61.8 million for the comparable period in 1997. For the second quarter 1997, these expenses increased $1.4 million as compared to the second quarter 1996. However, as a percentage of total hotel sales, these costs and expenses decreased to 47.6% in the first half of 1997 as compared to 49.4% for the comparable period in 1996. This resulted in higher room and food and beverage profit margins. Room profit and food and beverage profit increased by 9.5% and 11%, respectively, for the twenty-four weeks ended on June 20, 1997, as compared to the same period in 1996. Interest Expense. Interest expense increased slightly by 2.4% to $21.7 million for the twenty-four weeks ended June 20, 1997 from $21.2 million for the comparable period in 1996. The increase in the year-to-date interest is due to the refinancing of the mortgage debt at fixed rates which are higher than the variable interest rates which were in effect through January 24, 1996. For the second quarter 1997, interest expense decreased $0.5 million as compared to the second quarter 1996. The decrease in interest expense for the quarter is due to principal amortization of the Mortgage Loan. The weighted average interest rate for the first half of 1997 was 8.6% as compared to 8.4% for the first half of 1996. 7 Base and Courtyard Management Fees. The increase in base and Courtyard management fees of 7.5%, from $7.2 million for the twenty-four weeks ended June 14, 1996 to $7.8 million for the comparable period in 1997 is due to the improved combined hotel sales for the 70 Hotels. Ground Rent, Taxes and Other. Ground rent, taxes and other increased by 5.5% primarily due to increases in ground rent and property tax expenses during the first half 1997. However, as a percentage of total hotel sales, ground rent remained stable at 4.5% while property tax expense decreased slightly from 3.6% to 3.5%. During the twenty-four weeks ended June 20, 1997, $6.4 million of incentive management fees were earned as compared to $5.5 million earned in the comparable period in 1996. The increase in incentive management fees earned was the result of improved combined hotel operating results. For the twenty-four weeks ended June 20, 1997, the Partnership had net income of $9.1 million, an increase of $4.8 million, from net income of $4.3 million for the comparable period in 1996. This increase was primarily due to higher revenues as discussed above, offset by increases in interest expense and management fees. 8 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Certain Limited Partners of the Partnership have filed a lawsuit in Texas state court against the General Partner, the Manager and certain of their respective affiliates, officers and directors. These partners have alleged that the General Partner and the Manager have improperly operated the business affairs of the Partnership and its hotels. The General Partner believes that all of these claims are without foundation and intends to vigorously defend against them. The Partnership and the Hotels are involved in routine litigation and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and which collectively are not expected to have a material adverse effect on the business, financial conditions or results of operations of the Partnership. 9 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP By: CBM TWO CORPORATION General Partner August 4, 1997 By: /s/ Earla L. Stowe Earla L. Stowe Vice President and Chief Accounting Officer 10 EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000832179 COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP 1,000 US DOLLAR 6-MOS DEC-31-1997 JAN-01-1997 JUN-20-1997 1,000 33,414 48,062 10,910 0 0 92,386 697,797 (239,442) 550,741 13,284 564,349 0 0 0 (26,892) 550,741 0 69,128 0 38,289 0 0 21,748 9,091 0 9,091 0 0 0 9,091 0 0 THIS REPRESENTS OTHER ASSETS. THIS REPRESENTS PARTNERS DEFICIT.
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