-----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, PD1b6A366I5KLTtQNiTvhKA4/hFZre3tyZiw9DTXaZm23KnKkzJS+chET0w/fpGe DitZ62TrugKNKlZlBrT0Ug== 0000928385-02-001846.txt : 20020506 0000928385-02-001846.hdr.sgml : 20020506 ACCESSION NUMBER: 0000928385-02-001846 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020322 FILED AS OF DATE: 20020506 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: 02635141 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 March 22, 2002 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 ____. ================================================================================ ================================================================================ Courtyard by Marriott II Limited Partnership ================================================================================
TABLE OF CONTENTS ----------------- Page No. -------- PART I - FINANCIAL INFORMATION (Unaudited) Condensed Consolidated Balance Sheets March 22, 2002 and December 31, 2001 ............................... 1 Condensed Consolidated Statements of Operations Twelve Weeks Ended March 22, 2002 and March 23, 2001 ............... 2 Condensed Consolidated Statements of Cash Flows Twelve Weeks Ended March 22, 2002 and March 23, 2001 ............... 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 ............ 6 PART II - OTHER INFORMATION Legal Proceedings ..................................................... 7
Courtyard by Marriott II Limited Partnership Condensed Consolidated Balance Sheets (in thousands)
March 22, December 31, 2002 2001 ------------- ------------ (Unaudited) ASSETS Property and equipment, net ................................................. $ 413,897 $ 418,885 Deferred financing costs, net of accumulated amortization ................... 9,184 9,547 Due from Courtyard Management Corporation ................................... 8,718 9,117 Other assets ................................................................ 11 -- Property improvement fund ................................................... 33,310 30,513 Restricted cash ............................................................. 24,923 22,535 Cash and cash equivalents ................................................... 3,981 10,489 ------------- ----------- $ 494,024 $ 501,086 ============= =========== LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) LIABILITIES Debt ........................................................................ $ 445,483 $ 448,605 Management fees due to Courtyard Management Corporation ..................... 45,487 43,288 Due to Marriott International, Inc. and affiliates .......................... 8,547 8,574 Accounts payable and accrued liabilities .................................... 9,576 12,389 ------------- ----------- Total Liabilities ..................................................... 509,093 512,856 ------------- ----------- PARTNERS' CAPITAL (DEFICIT) General Partner ............................................................. 9,142 9,307 Limited Partners ............................................................ (24,211) (21,077) ------------- ----------- Total Partners' Deficit ............................................... (15,069) (11,770) ------------- ----------- $ 494,024 $ 501,086 ============= ===========
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 March 22, March 23, 2002 2001 ------------- --------- REVENUES Rooms $ 52,209 $ 63,450 Food and beverage 3,336 3,960 Other 1,330 1,966 ------------- --------- Total revenues 56,875 69,376 ------------- --------- OPERATING COSTS AND EXPENSES Rooms 11,767 13,999 Food and beverage 2,817 3,578 Department costs and expenses 449 450 Selling, administrative and other 14,351 16,792 Depreciation 6,137 6,515 Ground rent, taxes and other 6,358 6,586 Base and Courtyard management fees 3,413 4,163 Incentive management fee 2,199 2,954 ------------- --------- OPERATING PROFIT 9,384 14,339 Interest expense (9,138) (9,526) Interest income 106 331 ------------- --------- NET INCOME $ 352 $ 5,144 ============= ========= ALLOCATION OF NET INCOME General Partner $ 18 $ 257 Limited Partners 334 4,887 ------------- --------- $ 352 $ 5,144 ============= ========= NET INCOME PER LIMITED PARTNER UNIT (1,470 Units) $ 227 $ 3,324 ============= =========
See Notes to Condensed Consolidated Financial Statements. 2 Courtyard by Marriott II Limited Partnership Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands)
Twelve Weeks Ended March 22, March 23, 2002 2001 ------------- -------------- OPERATING ACTIVITIES Net income ............................................ $ 352 $ 5,144 Depreciation expense .................................. 6,137 6,515 Loss on disposition of fixed assets ................... -- 1 Amortization of deferred financing fees ............... 363 363 Changes in operating accounts ......................... (2,651) (10,225) -------------- -------------- Cash provided by operating activities ........... 4,201 1,798 ------------- -------------- INVESTING ACTIVITIES Additions to property and equipment, net .............. (1,149) (879) Change in property improvement funds .................. (2,797) (4,355) ------------- -------------- Cash used in investing activities ............... (3,946) (5,234) ------------- -------------- FINANCING ACTIVITIES Repayments of debt .................................... (3,122) (2,897) Deferred financing costs .............................. -- (66) Change in debt service reserve ........................ 10 138 Capital distributions ................................. (3,651) (6,204) ------------- -------------- Cash used in financing activities ............... (6,763) (9,029) ------------- -------------- DECREASE IN CASH AND CASH EQUIVALENTS .................... (6,508) (12,465) CASH AND CASH EQUIVALENTS at beginning of period ......... 10,489 13,511 ------------- -------------- CASH AND CASH EQUIVALENTS at end of period ............... $ 3,981 $ 1,046 ============= ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for mortgage and other interest ............. $ 11,059 $ 11,263 ============= ==============
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, a Delaware limited partnership, owns 70 Courtyard by Marriott 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, 2001. 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 March 22, 2002, and the results of its operations and cash flows for the twelve weeks ended March 22, 2002 and March 23, 2001. 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 2002 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. 3. Insurance Due to the changes in the insurance markets arising prior to September 11, 2001 and the effects of the terrorist attacks on September 11, 2001, it has become more difficult and more expensive to obtain insurance. The partnership's property insurance policy reached the end of its term on April 1, 2002 and the carrier has notified the partnership that it does not intend to renew the existing policy when it expires at the end of the extension period on May 7, 2002. For the period from April 1, 2002 to May 7, 2002 a carrier that is rated A+ by A.M. Best provides the partnership's insurance. This carrier is not rated by Standard & Poors as required by the mortgage debt and the partnership has notified the lender accordingly. The Manager is in the process of renewing the partnership's property insurance coverage and intends as part of that process to attempt to obtain coverage from a carrier or carriers that are appropriately rated by S&P. If the partnership is unable to obtain insurance that complies with the debt covenants or if the partnership is unable to amend the loan documents it could have a material adverse effect on the partnership's business. 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. RESULTS OF OPERATIONS Revenues. Total revenues for the first quarter of 2002 decreased $12.5 million, or 18% to $56.9 million compared to the same period in 2001. This includes a decline in rooms' revenues of $11.2 million, or 18%, to $52.2 million for the first quarter of 2002 when compared to the same period in 2001. The decrease is due to a decrease in revenue per available room ("RevPAR") of 18%, or $12.95, which reflects a decrease in occupancy of 8.7 percentage points and a decrease in room rates of 7%, or $6.70. The results reflect the continued demand weakness in the lodging industry. Additionally, lower room rates at full service hotels have caused increased competition for the limited service segment. Property level costs and expenses. Property level costs and expenses, which includes rooms, food and beverage, department costs and expenses and selling, administration, and other expenses, declined $5.4 million, or 16%, for the first quarter of 2002 when compared to the same period in 2001. The decrease is primarily due to a decline in controllable expenses as a result of cost-cutting efforts implemented at the hotels in response to the decrease in occupancy. These efforts include a reduction in wages at the properties of $2.1 million. For the first quarters of 2002 and 2001, property-level costs represented 52% and 50% of hotel revenues, respectively. Base and Courtyard management fees. Base and Courtyard management fees declined $.8 million, or 18%, for the first quarter of 2002 when compared to the first quarter of 2001. The decrease in management fees, which are calculated as a percentage of total hotel revenues, is consistent with the decline in hotel revenues. Incentive Management Fees. Incentive management fees have decreased by $.8 million, or 26%, for the first quarter of 2002 when compared to the same period in 2001 as a result of decreased hotel revenues. Operating Profit. For the first quarter of 2002, operating profit decreased $5.0 million, or 35%, to $9.4 million compared to the first quarter of 2001. Operating profit represented 16.5% and 20.7% of revenues for the first quarters of 2002 and 2001, respectively. Interest Expense. Interest expense decreased $.4 million, or 4% for the first quarter of 2002, when compared to the same period in 2001 as a result of principal amortization on the debt. Net Income. Net income decreased $4.8 million to $.4 million for the first quarter of 2002 when compared to the first quarter of 2001 as a result of the items discussed above. 5 COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Cash provided by operations for the first quarter of 2002 was $4.2 million compared to $1.8 million for the first quarter of 2001. The increase in cash provided by operations is due to a decrease in cash deposited into the restricted cash reserves, which was partially offset by a decrease in operating cash as a result of declining operations at the hotels. Cash used in investing activities was $3.9 million and $5.2 million for the first quarters of 2002 and 2001, respectively. Cash used in investing activities for the first quarter of 2002 includes capital expenditures of $1.1 million, primarily related to renovations and replacements of furniture, fixtures and equipment at the partnership's hotels as compared to $.9 million in the first quarter of 2001. The property improvement fund increased $2.8 million for the first quarter of 2002 as compared to an increase of $4.4 million for the comparable period in 2001. Contributions to the property improvement fund were $3.7 million and $4.5 million for the first quarters of 2002 and 2001, respectively. Cash used in financing activities was $6.8 million and $9.0 million for first quarter 2002 and 2001, respectively. The partnership repaid $3.1 million and $2.9 million, respectively, of principal on the commercial mortgage-backed securities during the first quarters of 2002 and 2001. Cash used in financing activities included $3.7 million of cash distributions to the limited partners during the first quarter of 2002 as compared to $6.2 million during the first quarter of 2001. 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 March 22, 2002, all of the partnership's debt is fixed rate. 6 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 May 6, 2002 By: /s/ Mathew J. Whelan ---------------------------------- Mathew J. Whelan Vice President (Chief Accounting Officer) 8 -----END PRIVACY-ENHANCED MESSAGE-----