-----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, PW6MyGJ2LtIy0GnGVhRg94yFSbnkRuXOcPLJ3KlhDmU2oU1yfMuucYF/yV9TQTUZ ZfsmApGxUjzjffYObsFt6Q== 0000832179-97-000010.txt : 19971027 0000832179-97-000010.hdr.sgml : 19971027 ACCESSION NUMBER: 0000832179-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970912 FILED AS OF DATE: 19971024 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: SEC FILE NUMBER: 000-16728 FILM NUMBER: 97700508 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 8 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended September 12, 1997 OR 0 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 of 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 Thirty-Six Weeks Ended September 12, 1997 and September 6, 1996..1 Condensed Consolidated Balance Sheet September 12, 1997 and December 31, 1996.....................................2 Condensed Consolidated Statement of Cash Flows Thirty-Six Weeks ended September 12, 1997 and September 6, 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 10 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 Thirty-Six Weeks Ended September 12, September 6, September 12, September 6, 1997 1996 1997 1996 -------------- ------------ -------------- --------- REVENUES Hotel revenues........................................$ 33,456 $ 31,855 $ 101,428 $ 92,894 Interest income and other............................. 833 708 1,989 1,756 ------------- ------------ -------------- ------------- 34,289 32,563 103,417 94,650 ------- ---------- -------------- --------- OPERATING COSTS AND EXPENSES Interest.............................................. 10,511 10,832 32,259 32,070 Depreciation ......................................... 6,307 6,397 18,901 19,191 Ground rent, taxes and other.......................... 5,938 5,848 17,464 16,771 Base and Courtyard management fees.................... 3,937 3,758 11,721 11,002 Incentive management fee.............................. 3,062 2,883 9,447 8,425 ------------- ------------ -------------- ------------- 29,755 29,718 89,792 87,459 ------- ---------- ---------- --------- NET INCOME...............................................$ 4,534 $ 2,845 $ 13,625 $ 7,191 ============= ============ ============== ============= ALLOCATION OF NET INCOME General Partner.......................................$ 227 $ 142 $ 681 $ 359 Limited Partners...................................... 4,307 2,703 12,944 6,832 ------------- ------------ -------------- ------------- $ 4,534 $ 2,845 $ 13,625 $ 7,191 ============== ============ ============== ============= NET INCOME PER LIMITED PARTNER UNIT (1,470 Units)....................................$ 2,930 $ 1,839 $ 8,805 $ 4,647 ============= ============ ============== ============= See Notes to Condensed Consolidated Financial Statements
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP CONDENSED CONSOLIDATED BALANCE SHEET (In thousands) September 12, December 31, 1997 1996 (Unaudited) ASSETS Property and equipment, net...........................................................$ 458,154 $ 458,687 Due from Courtyard Management Corporation............................................. 10,308 13,315 Other assets.......................................................................... 45,394 54,052 Restricted cash....................................................................... 14,168 6,848 Cash and cash equivalents............................................................. 11,893 14,197 -------------- ---------------- $ 539,917 $ 547,099 ============== ================ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) LIABILITIES Debt..................................................................................$ 517,499 $ 526,253 Management fees due to Courtyard Management Corporation. ............................. 33,782 36,442 Due to Marriott International, Inc. and affiliates.................................... 9,140 9,169 Accounts payable and accrued liabilities.............................................. 9,351 7,176 -------------- ---------------- Total Liabilities.................................................................. 569,772 579,040 -------------- ---------------- PARTNERS' CAPITAL (DEFICIT) General Partner....................................................................... 6,468 5,787 Limited Partners...................................................................... (36,323) (37,728) -------------- ---------------- Total Partners' Deficit............................................................ (29,855) (31,941) -------------- ---------------- $ 539,917 $ 547,099 ============== ================ See Notes to Condensed Consolidated Financial Statements
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Thirty-Six Weeks Ended September 12, September 6, 1997 1996 (in thousands) OPERATING ACTIVITIES Net income ........................................................................$ 13,625 $ 7,191 Noncash items...................................................................... 17,329 20,425 Changes in operating accounts...................................................... (15) (6,095) --------------- -------------- Cash provided by operating activities........................................... 30,939 21,521 --------------- -------------- INVESTING ACTIVITIES Additions to property and equipment................................................ (18,368) (6,984) Change in property improvement funds............................................... 7,542 (1,751) --------------- -------------- Cash used in investing activities............................................... (10,826) (8,735) --------------- -------------- FINANCING ACTIVITIES Capital distributions.............................................................. (11,539) (3,308) Repayments of debt ................................................................ (8,754) (538,192) Change in reserve accounts......................................................... (2,124) (164) Proceeds from debt ................................................................ -- 537,600 Payment of financing costs......................................................... -- (15,466) Repayment of advances from Host Marriott Corporation............................... -- (6,489) --------------- -------------- Cash used in financing activities............................................... (22,417) (26,019) --------------- -------------- DECREASE IN CASH AND CASH EQUIVALENTS................................................... (2,304) (13,233) CASH AND CASH EQUIVALENTS at beginning of period........................................ 14,197 27,708 --------------- -------------- CASH AND CASH EQUIVALENTS at end of period..............................................$ 11,893 $ 14,475 =============== ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for mortgage and other interest..........................................$ 34,158 $ 32,203 =============== ============== See Notes to Condensed Consolidated Financial Statements
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 September 12, 1997, and the results of operations for the twelve and thirty-six weeks ended September 12, 1997 and September 6, 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 thirty-six weeks ended (in thousands): Twelve Weeks Ended Thirty-Six Weeks Ended September 12, September 6, September 12, September 6, 1997 1996 1997 1996 -------------- ------------- -------------- --------- HOTEL SALES Rooms..............................$ 59,503 $ 56,164 $ 176,228 $ 163,859 Food and beverage.................. 3,966 4,084 12,325 12,613 Other.............................. 2,147 2,391 6,789 6,893 -------------- ------------- -------------- ------------- 65,616 62,639 195,342 183,365 -------------- --------- --------------- ----------- HOTEL EXPENSES Departmental direct costs Rooms.......................... 12,777 11,778 36,786 34,782 Food and beverage.............. 3,572 3,755 10,597 11,082 Other.............................. 15,811 15,251 46,531 44,607 -------------- ------------- -------------- ------------- 32,160 30,784 93,914 90,471 -------------- ------------- -------------- ------------- REVENUES...............................$ 33,456 $ 31,855 $ 101,428 $ 92,894 ============== ============= ============== =============
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 has transferred $7.3 million into the reserve account from the Manager's existing tax and insurance reserve account as of September 12, 1997. Out of this balance, approximately $2.0 million of real estate taxes have been paid. 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 condensed consolidated balance sheet. 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 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 thirty-six weeks ended September 12, 1997, and September 6, 1996, was $30.9 million and $21.5 million, respectively. The increase is primarily due to improved operations. Cash used in investing activities was $10.8 million and $8.7 million for the first three quarters of 1997 and 1996, respectively. Cash used in investing activities for 1997 includes capital expenditures of $18.4 million primarily related to room renovations and replacements at the Partnership's hotels. Cash used in financing activities was $22.4 million and $26.0 million for the thirty-six weeks ended September 12, 1997, and September 6, 1996, respectively. Cash used in financing activities in the first three quarters of 1997 includes $11.5 million of cash distributions to limited partners, $8.8 million of principal repayments on the debt, and $2.1 million transferred to reserve accounts. During the three quarters of 1997, the Partnership paid $34.2 million of interest and $8.8 million of principal on the commercial mortgage backed securities as compared to $32.2 million of interest and $7.1 million of principal on the commercial mortgage backed securities during the same period in 1996. 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. In August of 1997, the Partnership made a cash distribution of $7.5 million or $5,100 per limited partner unit from cash flow after debt service from the first half of 1997. Pursuant to the terms of the Certificate/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 has transferred $7.3 million into the reserve account as of September 12, 1997. Out of this balance, approximately $2.0 million of real estate taxes have been paid. 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 condensed consolidated balance sheet. The General Partner believes that cash from hotel operations and the property improvement fund 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 $1.6 million and $8.5 million, respectively, for the twelve and thirty-six weeks ended September 12, 1997. This represents a 5.0% and 9.2% 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 thirty-six weeks ended September 12, 1997, hotel sales increased $3.0 million and $12.0 million, respectively. This represents a 4.8% increase for the quarter and a 6.5% 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 $5.20 to $82.57 for the quarter and $5.57 to $82.44 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 third quarter 1997 decreased slightly by 0.6 percentage points to 83.0% while the combined average occupancy for the thirty-six weeks ended September 12, 1997 increased slightly by 0.3 percentage points to 82.1%. The decrease in occupancy during the quarter is mainly due to increased competition and aggressive rate increases in some markets. For the thirty-six weeks ended on September 12, 1997, 50 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 thirty-six weeks ended September 12, 1997, was $68.53 and $67.68, respectively. REVPAR for the third quarter 1997 increased 6% as compared to the third quarter 1996 while year-to-date 1997 REVPAR increased 7.6% as compared to the comparable period in 1996. Direct hotel operating costs and expenses increased from $90.5 million for the thirty-six weeks ended September 6, 1996 to $93.9 million for the comparable period in 1997. For the third quarter 1997, these expenses increased $1.4 million as compared to third quarter 1996. However, as a percentage of total hotel sales, these costs and expenses decreased to 48.1% in the first three quarters of 1997 as compared to 49.3% 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 8.0% and 12.9%, respectively, for the thirty-six weeks ended on September 12, 1997, as compared to the same period in 1996. Interest Expense. Interest expense increased slightly by 0.6% to $32.3 million for the thirty-six weeks ended September 12, 1997 from $32.1 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 third quarter 1997, interest expense decreased $0.3 million as compared to the third quarter 1996. The decrease in interest expense for the quarter is due to amortization of the Mortgage Loan. The weighted average interest rate for the thirty-six weeks ended September 12, 1997 was 8.5% as compared to 8.4% for the comparable period in 1996. Base and Courtyard Management Fees. The increase in base and Courtyard management fees of 6.5%, from $11.0 million for the thirty-six weeks ended September 6, 1996 to $11.7 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 4.1% during the thirty-six weeks ended September 12, 1997. However, as a percentage of total hotel sales, ground rent remained stable at 4.5% while property tax expense decreased slightly from 3.8% to 3.6%. During the thirty-six weeks ended September 12, 1997, $9.4 million of incentive management fees were earned and paid as compared to $8.4 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 thirty-six weeks ended September 12, 1997, the Partnership had net income of $13.6 million, an increase of $6.4 million, from net income of $7.2 million for the comparable period in 1996. This increase was primarily due to higher revenues as discussed above, offset by increases in management fees. 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. 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 October 23, 1997 By: /s/ Earla L. Stowe ------------------ Earla L. Stowe Vice President and Chief Accounting Officer EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD 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 9-MOS DEC-31-1997 JAN-01-1997 SEP-12-1997 1,000 26,061 45,394 10,308 0 0 81,763 703,903 (245,749) 539,917 9,351 560,421 0 0 0 (29,855) 539,917 0 103,417 0 57,533 0 0 32,259 13,625 0 13,625 0 0 0 13,625 0 0 THIS REPRESENTS OTHER ASSETS. THIS REPRESENTS PARTNERS DEFICIT.
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