0000928385-01-502155.txt : 20011026
0000928385-01-502155.hdr.sgml : 20011026
ACCESSION NUMBER: 0000928385-01-502155
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010907
FILED AS OF DATE: 20011022
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: 1763444
BUSINESS ADDRESS:
STREET 1: 10400 FERNWOOD RD DEPT 908
STREET 2: HOST MARRIOT CORP ASSET MANAGEMENT
CITY: BETHESDA
STATE: MD
ZIP: 20817
BUSINESS PHONE: 3013802070
MAIL ADDRESS:
STREET 1: 10400 FERNWOOD RD DEPT 908
STREET 2: HOST MARRIOT CORP ASSET MANAGEMENT
CITY: BETHESDA
STATE: MD
ZIP: 20817
10-Q
1
d10q.txt
FORM 10-Q
================================================================================
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
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 7, 2001 Commission File No. 0-16728
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
10400 Fernwood Road
Bethesda, MD 20817-1109
(301) 380-9000
Delaware 52-1533559
-------------------------------- -------------------------------------------
(State of Organization) (I.R.S. Employer Identification Number)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of Class)
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 ____.
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================================================================================
Courtyard by Marriott II Limited Partnership
================================================================================
TABLE OF CONTENTS
-----------------
Page No.
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PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets
September 7, 2001 and December 31, 2000................................................. 1
Condensed Consolidated Statements of Operations
Twelve and Thirty-six Weeks Ended September 7, 2001 and September 8, 2000............... 2
Condensed Consolidated Statements of Cash Flows
Thirty-six Weeks Ended September 7, 2001 and September 8, 2000.......................... 3
Notes to Condensed Consolidated Financial Statements..................................... 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................... 5
Quantitative and Qualitative Disclosures about Market Risk............................... 7
PART II - OTHER INFORMATION
Legal Proceedings........................................................................ 7
Courtyard by Marriott II Limited Partnership
Condensed Consolidated Balance Sheets
(in thousands)
September 7, December 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
Property and equipment, net................................ $ 423,152 $ 439,098
Deferred financing costs, net of accumulated amortization.. 10,031 11,119
Due from Courtyard Management Corporation.................. 6,546 8,453
Other assets............................................... 8 2
Property improvement fund.................................. 29,424 18,912
Restricted cash............................................ 28,757 18,415
Cash and cash equivalents.................................. 5,891 13,511
------------ ------------
$ 503,809 $ 509,510
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Debt....................................................... $ 454,732 $ 466,539
Management fees due to Courtyard Management Corporation.... 38,858 31,417
Due to Marriott International, Inc. and affiliates......... 8,611 8,693
Accounts payable and accrued liabilities................... 7,732 12,106
------------ ------------
Total Liabilities....................................... 509,933 518,755
------------ ------------
PARTNERS' CAPITAL (DEFICIT)
General Partner............................................ 9,589 9,409
Limited Partners........................................... (15,713) (18,654)
------------ ------------
Total Partners' Deficit................................. (6,124) (9,245)
------------ ------------
$ 503,809 $ 509,510
============ ============
See Notes to Condensed Consolidated Financial Statements.
1
Courtyard by Marriott II Limited Partnership
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except Unit and Per Unit Amounts)
Twelve Weeks Ended Thirty-six Weeks Ended
September 7, September 8, September 7, September 8,
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUES
Hotel revenues
Rooms.................................................. $ 60,547 $ 65,704 $ 189,037 $ 193,565
Food and beverage...................................... 3,632 4,100 11,550 12,613
Other.................................................. 2,082 2,108 5,997 6,907
------------ ------------ ------------ ------------
Total hotel revenues................................ 66,261 71,912 206,584 213,085
------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Hotel property-level costs and expenses
Rooms.................................................. 13,605 14,762 41,668 43,181
Food and beverage...................................... 3,306 3,752 10,462 11,073
Other department costs and expenses.................... 417 696 1,531 1,657
Selling, administrative and other...................... 15,752 17,270 48,994 50,190
------------ ------------ ------------ ------------
Total hotel property-level costs and expenses....... 33,080 36,480 102,655 106,101
Depreciation............................................ 6,443 6,543 19,488 19,756
Ground rent, taxes and other............................ 6,270 6,448 19,559 20,664
Base and Courtyard management fees...................... 3,976 4,315 12,395 12,785
Incentive management fee................................ 2,854 3,251 9,043 9,942
------------ ------------ ------------ ------------
Total operating costs and expenses.................. 52,623 57,037 163,140 169,248
------------ ------------ ------------ ------------
OPERATING PROFIT......................................... 13,638 14,875 43,444 43,837
Interest expense........................................ (9,458) (9,734) (28,566) (29,531)
Interest income......................................... 416 524 1,117 1,304
------------ ------------ ------------ ------------
NET INCOME............................................... $ 4,596 $ 5,665 $ 15,995 $ 15,610
============ ============ ============ ============
ALLOCATION OF NET INCOME
General Partner......................................... $ 230 $ 283 $ 800 $ 780
Limited Partners........................................ 4,366 5,382 15,195 14,830
------------ ------------ ------------ ------------
$ 4,596 $ 5,665 $ 15,995 $ 15,610
============ ============ ============ ============
NET INCOME PER LIMITED PARTNER UNIT
(1,470 Units)........................................... $ 2,970 $ 3,661 $ 10,337 $ 10,088
============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
2
Courtyard by Marriott II Limited Partnership
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Thirty-six Weeks Ended
September 7, September 8,
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net income........................................ $ 15,995 $ 15,610
Depreciation expense.............................. 19,488 19,756
(Gain) /loss on disposition of fixed assets....... (4) 17
Change in prepaid expenses........................ (6) 5
Amortization of deferred financing fees........... 1,088 1,088
Changes in operating accounts..................... (5,450) (4,310)
------------ ------------
Cash provided by operating activities......... 31,111 32,166
------------ ------------
INVESTING ACTIVITIES
Additions to property and equipment, net.......... (3,538) (8,699)
Change in property improvement funds.............. (10,512) (11,394)
------------ ------------
Cash used in investing activities............. (14,050) (20,093)
------------ ------------
FINANCING ACTIVITIES
Repayments of debt................................ (11,807) (10,956)
Capital distributions............................. (12,874) (7,351)
------------ ------------
Cash used in financing activities............. (24,681) (18,307)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS.............. (7,620) (6,234)
CASH AND CASH EQUIVALENTS at beginning of period... 13,511 23,341
------------ ------------
CASH AND CASH EQUIVALENTS at end of period......... $ 5,891 $ 17,107
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest......... $ 31,162 $ 31,930
============ ============
See Notes to Condensed Consolidated Financial Statements.
3
Courtyard by Marriott II Limited Partnership
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Courtyard by Marriott II Limited Partnership (the "Partnership"), a Delaware
limited partnership, owns 70 Courtyard by Marriott hotels (the "Hotels") located
in 29 states within the contiguous United States. The hotels are operated under
a management agreement by a subsidiary of Marriott International (the
"Manager").
2. Summary of Significant Accounting Policies
The accompanying unaudited, condensed consolidated financial statements have
been prepared by the Partnership. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
accounting principles generally accepted in the United States 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 unaudited, 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
year ended December 31, 2000.
In the opinion of the Partnership, the accompanying unaudited, condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of the Partnership as of September 7, 2001, the
results of its operations for the twelve and thirty-six weeks ended September 7,
2001 and September 8, 2000 and cash flows for the thirty-six weeks ended
September 7, 2001 and September 8, 2000. Interim results are not necessarily
indicative of full year performance because of seasonal and short-term
variations.
Certain reclassifications were made to the prior year financial statements to
conform to the 2001 presentation.
For financial reporting purposes, the net income of the Partnership is allocated
95% to the limited partners and 5% to CBM Two LLC (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 Federal income tax purposes of
accelerated depreciation methods, shorter depreciable lives for certain assets,
differences in the timing of the recognition of certain fees and straight-line
rent adjustments.
4
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology, such as
"believes," "expects," "may," "will," "should," "estimates," or "anticipates,"
or the negative thereof or other variations thereof or comparable terminology.
All forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual transactions, results, performance
or achievements to be materially different from any future transactions,
results, performance or achievements expressed or implied by such forward-
looking statements. Although we believe the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, we can give no
assurance that our expectations will be attained or that any deviations will not
be material. We disclaim any obligations or undertaking to publicly release any
updates or revisions to any forward-looking statement contained in this
quarterly report on Form 10-Q to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
RECENT EVENTS
As a result of the September 11, 2001 terrorist attacks, which occurred
subsequent to the third quarter, occupancy levels have declined significantly
during the first four-weeks of the fourth quarter. However, we do not believe
that this four-week period will be representative of the remainder of the
quarter. We expect operations to recover somewhat, but remain significantly
below third quarter 2001 and fourth quarter 2000 levels. As a result, we have
been actively working with the Manager on a number of initiatives to reverse
this trend. The Manager has become more focused on marketing and advertising and
has targeted specific industry groups that are likely to benefit from the
changed economic environment such as the defense industry and government
agencies. We have implemented a number of cost saving initiatives to reflect the
reduced volume at the properties, including consolidating or reducing hours of
operations and reducing labor costs. Many of these initiatives had been in place
at varying degrees prior to September 11th due to the slower economy and have
subsequently been accelerated. We believe that while the near term outlook for
the hotel operations will continue to be difficult, we anticipate a gradual
return to normal business levels.
RESULTS OF OPERATIONS
Hotel Revenues. Total hotel revenues for the twelve weeks ended September 7,
2001 decreased $5.7 million, or 8% to $66.3 million compared to the same period
in 2000. For the thirty-six weeks ended September 7, 2001, total hotel revenues
decreased $6.5 million, or 3%, to $206.6 million compared to the thirty-six
weeks ended September 8, 2000. The decrease in total hotel revenues was driven
by a decrease in occupancy. Occupancy at the hotels decreased 6.7 percentage
points for the quarter and 4.7 percentage points year-to-date. Year-to-date,
the decrease in occupancy has been offset by a $3.59 increase in average room
rate. Room rates for the quarter decreased $0.50 when compared to 2000, as the
Manager has begun to lower rates to improve occupancy. The results reflect a
continued weakness in the economy through the end of the 3rd quarter. We expect
a significant decrease in results during the 4th quarter of 2001 as a result of
the September 11, 2001 terrorist attacks on the World Trade Center in New York
and the Pentagon and their subsequent negative impact on the hospitality
industry.
Rooms' revenues decreased $5.2 million, or 8%, to $60.5 million for the third
quarter of 2001 when compared to 2000. Year-to-date room revenues decreased
$4.5 million, or 2%, to $189.0 million. The decrease year-to-date is
5
due to a decrease in Revenue per available room ("REVPAR") of $1.74. The
decrease in REVPAR is due to a decrease in occupancy of 6.7 percentage points,
which was offset by the $3.59 increase in the average room rate year-to-date
discussed above. For the quarter, REVPAR decreased $5.94 due to the decreases in
both the average room rate and occupancy discussed above.
Operating costs and expenses. Operating costs and expenses decreased $6.1
million, or 4%, to $163.1 million through the third quarter of 2001, and $4.4
million, or 8%, to $52.6 million for the third quarter of 2001 when compared to
the same periods in 2000, primarily due to a decrease in property-level
expenses. Also, incentive management fees have decreased by $899,000 year-to-
date as a result of decreased hotel revenues, and ground rent, taxes and other
have decreased $1.1 million primarily as a result of decreased litigation costs
due to a lawsuit that was resolved in 2000. Operating costs and expenses
represented 79% of revenues for the thirty-six weeks ended September 7, 2001 and
September 8, 2000. For the quarters ended September 7, 2001 and September 8,
2000, operating costs and expenses represented 79% and 77% of hotel revenues,
respectively.
The Partnership's hotel property-level costs and expenses decreased $3.4
million, or 3%, to $102.7 million year-to-date as of September 7, 2001, and
decreased $3.4 million, or 9%, to $33.1 million for the third quarter of 2001
when compared to the same periods in 2000. The decrease is due to a $2.2
million decrease in controllable expenses as a result of decreased occupancy and
a decrease of general and administrative expenses due to cost-cutting measures
implemented at the Hotels. This was partially offset by a $1.0 million increase
in utility costs due to the inflation of energy costs. As a percentage of hotel
revenues, property-level costs and expenses represented approximately 50% as of
September 7, 2001 and September 8, 2000, year-to-date. For the third quarters
of 2001 and 2000, property-level costs represented 50% and 51% of hotel
revenues, respectively.
Operating Profit. Operating profit decreased $393,000 year-to-date to $43.4
million when compared to the same period in 2000. For the third quarter of
2001, operating profit decreased $1.2 million, or 8%, to $13.6 million compared
to third quarter 2000. Operating profit represented 21% of revenues for both
the third quarter 2001 and 2000. Year-to-date, operating profit represented 21%
of hotel revenues for both 2001 and 2000.
Interest Expense. Interest expense decreased $276,000, or 3% and $965,000, or
3% for the quarters ending September 7, 2001 and year-to-date through September
7, 2001, respectively, when compared to the same periods in 2000 as a result of
principal amortization on the debt.
Net Income. Net income increased by $385,000 year-to-date to $16.0 million over
prior year, and third quarter 2001 net income decreased by $1.1 million when
compared to third quarter 2000 as a result of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions. The General Partner
believes that cash from hotel operations will be sufficient to make the required
debt service payments, to fund the current capital expenditures needs of the
hotels as well as to make cash distributions to the limited partners.
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.
6
Cash provided by operations for year-to-date 2001 was $31.1 million compared to
$32.2 million for year-to-date 2000. The decrease in cash provided by
operations is primarily due to increased cash deposited into the restricted cash
accounts to fund management fees and debt service due during 2001, which was
partially offset by decreased payments required for deferred incentive
management fees.
Cash used in investing activities was $14.1 million and $20.1 million for the
thirty-six weeks ended September 7, 2001 and September 8, 2000, respectively.
Cash used in investing activities for 2001 includes capital expenditures of $3.5
million, primarily related to renovations and replacements of furniture,
fixtures and equipment at the Partnership's hotels as compared to $8.7 million
in 2000. The property improvement fund increased $10.5 million for the thirty-
six weeks ended September 7, 2001 as compared to an increase of $11.4 million
for the comparable period in 2000. Contributions to the property improvement
fund were $13.4 million and $10.7 million for the thirty-six weeks ended
September 7, 2001 and 2000, respectively. During the first three quarters of
2000, the Partnership funded an additional $10.7 million to the property
improvement fund for capital expenditures at the properties.
Cash used in financing activities was $24.7 million and $18.3 million through
September 7, 2001 and September 8, 2000, respectively. The Partnership repaid
$11.8 million and $11.0 million, respectively, of principal on the commercial
mortgage-backed securities. Cash used in financing activities included $12.9
million of cash distributions to limited partners through September 7, 2001 as
compared to $7.4 million of distributions as of September 8, 2000.
Distributions for 2001 are made on a monthly basis, instead of a quarterly basis
as in prior years; therefore, partners have received distributions for the first
through the eighth period of 2001 as of September 7, 2001. As of September 8,
2000, the partners had only been distributed cash from first and second quarter
operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership does not have significant market risk with respect to interest
rates, foreign currency exchanges or other market rate or price risks, and the
Partnership does not hold any financial instruments for trading purposes. As of
September 7, 2001, all of the Partnership's debt is fixed rate.
PART II. OTHER INFORMATION
LEGAL PROCEEDINGS
The Partnership is 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 condition or results of
operations of the Partnership.
7
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 LLC
General Partner
October 22, 2001 By: /s/ Mathew J. Whelan
----------------------------------
Mathew J. Whelan
Vice President
8