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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 Quarter ended June 14, 1996
OR
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 333-2336-01
COURTYARD II ASSOCIATES, L.P.
-----------------------------
Delaware 52-1955662
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10400 Fernwood Road
Bethesda, Maryland
20817
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(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 No Not Applicable
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COURTYARD II ASSOCIATES L.P. AND SUBSIDIARIES
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TABLE OF CONTENTS
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PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Operations
Twelve and Twenty-Four Weeks Ended June 14, 1996
and June 16, 1995.................................................1
Condensed Consolidated Balance Sheet June 14, 1996
and December 31, 1995.............................................2
Condensed Consolidated Statement of Cash Flows
Twelve and Twenty-Four Weeks ended June 14, 1996
and June 16, 1995.................................................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...................................................8
Item 5. Other Information...................................................8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
REVENUES................... $ 33,050 $ 30,070 $ 61,039 $ 56,962
--------- --------- --------- ---------
OPERATING COSTS AND
EXPENSES
Interest.................. 7,524 6,756 14,932 13,110
Depreciation.............. 6,397 6,384 12,794 12,762
Ground rent, taxes and
other.................... 5,081 4,593 10,035 9,379
Base and Courtyard
management fees.......... 3,770 3,527 7,244 6,811
Incentive management fee.. 3,107 2,689 5,542 4,974
--------- --------- --------- ---------
25,879 23,949 50,547 47,036
--------- --------- --------- ---------
NET INCOME BEFORE
MINORITY INTEREST......... 7,171 6,121 10,492 9,926
MINORITY INTEREST.......... 3 -- 3 --
--------- --------- --------- ---------
NET INCOME................. $ 7,168 $ 6,121 $ 10,489 $ 9,926
========= ========= ========= =========
ALLOCATION OF NET INCOME
General Partners.......... $ 144 $ 210
Limited Partner........... 7,024 10,279
--------- ---------
$ 7,168 $ 10,489
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 14, 1996 and December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
June 14, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net................ $ 466,377 $ 474,480
Due from Courtyard Management Corporation.. 11,097 7,078
Other assets............................... 46,573 45,225
Cash and cash equivalents.................. 10,799 --
----------- -----------
$ 534,846 $ 526,783
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Debt.........................................$ 406,164 $ 410,200
Management fees due to Courtyard
Management Corporation...................... 35,515 35,809
Due to Marriott International, Inc.
and affiliates.............................. 9,233 9,402
Due to Host Marriott Corporation............. -- 747
Accounts payable and accrued liabilities..... 3,742 12,718
----------- -----------
Total Liabilities........................... 454,654 468,876
----------- -----------
MINORITY INTEREST............................. 3 --
----------- -----------
454,657 468,876
----------- -----------
PARTNERS' CAPITAL
General Partners............................. 1,604 --
Limited Partner.............................. 78,585 --
Investments in and net advances to
Associates.................................. -- 57,907
----------- -----------
Total Partners' Capital..................... 80,189 57,907
----------- -----------
$ 534,846 $ 526,783
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Four Weeks Ended
June 14, June 16,
1996 1995
---------- ----------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income...................................$ 10,489 $ 9,926
Noncash items................................ 13,138 12,973
Changes in operating accounts................ (4,952) (6,764)
---------- ----------
Cash provided by operating activities....... 18,675 16,135
---------- ----------
INVESTING ACTIVITIES
Additions to property and equipment.......... (4,691) (2,854)
Change in property improvement funds......... (490) (2,172)
---------- ----------
Cash used in investing activities........... (5,181) (5,026)
---------- ----------
FINANCING ACTIVITIES
Proceeds from debt........................... 410,200 --
Repayments of debt........................... (414,236) --
Investment in and net advances to
(from) Associates........................... 17,586 (10,877)
Capital distributions........................ (5,793) --
Payment of financing costs................... (10,452) (232)
---------- ----------
Cash used in financing activities........... (2,695) (11,109)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 10,799 --
CASH AND CASH EQUIVALENTS at beginning
of period................................... -- --
---------- ----------
CASH AND CASH EQUIVALENTS at end of period....$ 10,799 $ --
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for mortgage and other interest....$ 15,769 $ 15,672
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 14, 1996
(Unaudited)
1. The accompanying condensed consolidated financial statements have been
prepared by Courtyard II Associates L.P. (the "Associates") 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.
Associates believes the disclosures made are adequate to make the
information presented not misleading. In the opinion of Associates, the
accompanying unaudited condensed consolidated financial statements reflect
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position of Associates as of June 14, 1996
and December 31, 1995, and the results of operations for the twelve and
twenty-four weeks ended June 14, 1996 and June 16, 1995. 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 Associates is allocated
98% to the limited partner, Courtyard by Marriott II Limited Partnership
(the "Partnership") and 1% to each general partner, the Partnership and
Courtyard II Associates Management Corporation (the "Managing General
Partner").
The consolidated financial statements of Associates present the financial
position, results of operations and cash flows of Associates as if it were
a separate subsidiary of the Partnership for all periods presented. The
Partnership's historical basis in the assets and liabilities contributed to
Associates have been carried over. Intercompany transactions and balances
between Associates and its subsidiaries have been eliminated. Changes in
Investment in and Net Advances to Associates for all periods presented
prior to January 24, 1996 represent the net income of Associates net of
cash transferred to the Partnership. There are no terms of settlement or
interest charges associated with the Investment in and Net Advances to
Associates' balance.
2. On January 24, 1996, Associates' wholly owned subsidiary, CBM Funding
Corporation ("Funding"), consummated the offering of $410,200,000 of
Multiclass Mortgage Pass-Through Certificates, Series 1996-1A (the "Old
Certificates"), the net proceeds of which were used to fund a mortgage loan
to Associates, which used such funds to repay certain obligations of the
Partnership. The accompanying consolidated financial statements for
periods prior to consummation of the offering on January 24, 1996 present
the pushed-down effects of the debt which was repaid with the proceeds of
the offering.
In connection with this refinancing, the Partnership and the Managing
General Partner entered into two contribution agreements. One agreement
with Associates for 69 of the 70 Partnership hotels and another agreement
with CBM Associates II LLC ("Deerfield LLC") for the remaining one hotel
located in Deerfield, Illinois. On January 24, 1996, the Partnership
contributed net assets of $76.9 million to Associates. Additionally, on
behalf of Associates, the Partnership contributed net assets of $8.4
million to Deerfield LLC.
On June 30, 1996, Funding completed an exchange offer of its Old
Certificates with an outstanding principal balance of $406.2 million at
that time, for an equal amount of Multiclass Mortgage Pass-through
Certificates, Series 1996-1B ("New Certificates"). The form and terms of
the New Certificates are substantially identical to the form and terms of
the Old Certificates, except that the New Certificates are registered under
the Securities Act of 1933, as amended and their transfers are not
restricted.
4
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3. 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):
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
HOTEL SALES
Rooms.................... $ 56,119 $ 52,497 $ 107,695 $ 101,167
Food and beverage........ 4,380 4,198 8,529 8,177
Other.................... 2,328 2,088 4,502 4,172
--------- --------- --------- ----------
62,827 58,783 120,726 113,516
--------- --------- --------- ----------
HOTEL EXPENSES
Departmental direct costs
Rooms................... 11,624 11,208 23,004 21,847
Food and beverage....... 3,765 3,491 7,327 6,843
Other.................... 14,388 14,014 29,356 27,864
--------- --------- --------- ----------
29,777 28,713 59,687 56,554
--------- --------- --------- ----------
REVENUES................... $ 33,050 $ 30,070 $ 61,039 $ 56,962
========= ========= ========= ==========
</TABLE>
4. In the first quarter of 1996, Associates adopted Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Adoption of SFAS No. 121 did not have any effect on its condensed
consolidated financial statements.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Principal Sources and Uses of Cash
Associates 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 its partners. During the second quarter of 1996,
Associates utilized 1996 cash flow after debt service to make an interim cash
distribution totalling $5.8 million.
Cash provided by operations for the twenty-four weeks ended June 14, 1996, and
June 16, 1995, was $18.7 million and $16.1 million, respectively. The increase
in cash from operations is primarily the result of variations in the timing of
interest payments as a result of the debt offering on January 24, 1996 as well
as improved combined hotel operating results.
Debt Refinancing
On January 24, 1996, Associates' wholly owned subsidiary, CBM Funding
Corporation ("Funding"), consummated the offering of $410,200,000 of Multiclass
Mortgage Pass-Through Certificates (the "Certificates"), the net proceeds of
which were used to fund a mortgage loan to Associates, which used such funds to
repay certain obligations of the Partnership.
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 for the
operational and capital needs of Associates.
RESULTS OF OPERATIONS
Revenues (hotel sales less direct hotel operating costs and expenses) increased
by $3 million and $4.1 million, respectively, for the twelve and twenty-four
weeks ended June 14, 1996. This represents a 10% and a 7.2% increase,
respectively, for the quarter and year-to-date when compared to the comparable
period in 1995. The increase in revenues 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 14, 1996, hotel sales increased
$4 million and $7.2 million, respectively. This represents a 6.9% increase for
the quarter and a 6.4% increase year-to-date as compared to the comparable
periods in 1995. The increase in sales was achieved primarily through an
increase in the combined average room rate. The combined average room rate
increased $4.93 to $77.27 for the quarter and $4.58 to $76.61 year-to-date as
compared to the comparable periods in 1995. The increase in average room rates
was due to the elimination of lower room rated business.
Combined average occupancy for the second quarter 1996 remained stable at 84%
while the combined average occupancy for the twenty-four weeks ended June 14,
1996 remained stable at 81%. For the twenty-four weeks ended on June 14, 1996,
40 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 14, 1996, was $64.91 and
$62.05, respectively. REVPAR for the second quarter 1996 increased 6.6% as
compared to the second quarter 1995 while year-to-date 1996 REVPAR increased
6.5% as compared to the comparable period in 1995.
6
<PAGE>
Direct hotel operating costs and expenses increased from $56.6 million for the
twenty-four weeks ended June 16, 1995 to $59.7 million for the comparable period
in 1996. For the second quarter 1996, these expenses increased $1 million as
compared to second quarter 1995. As a percentage of total hotel sales, these
costs and expenses decreased slightly to 49.4% in the first half of 1996 as
compared to 49.8% for the comparable period in 1995.
Interest expense increased by 13.9% to $14.9 million for the twenty-four weeks
ended June 14, 1996, from $13.1 million for the comparable period in 1995. The
increase is due to the refinancing of the Partnership's debt at fixed rates
which are higher than the prior year's variable interest rates. The weighted
average interest rate for the first half of 1996 was 7.8% as compared to 5.4%
for first half of 1995.
Ground rent, taxes and other increased 8% primarily due to an increase in
equipment rent during the twenty-four weeks ended June 14, 1996.
The increase in base and Courtyard management fees to 6.4%, from $6.8 million
for the first half of 1995 to $7.2 million for the same period in 1996 is due to
the improved combined hotel sales for the 70 Hotels.
During the twenty-four weeks ended June 14, 1996, $5.5 million of incentive
management fees were earned by the Manager as compared to $5.0 million earned
during the comparable period in 1995. The increase in incentive management fees
earned was the result of improved combined hotel operating results.
For the twenty-four weeks ended June 14, 1996, Associates had net income of
$10.5 million, an increase of $3.3 million from net income of $7.2 million for
the same period in 1995. This increase was primarily due to higher revenues.
7
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership and the Partnership 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.
ITEM 5. OTHER INFORMATION
On June 30, 1996, CBM Funding Corporation, a subsidiary of Associates, completed
an exchange offer of its Multiclass Mortgage Pass-Through Certificates, Series
1996-1A with an outstanding principal balance of $406.2 million at that time,
("Old Certificates") for an equal amount of its Multiclass Mortgage Pass-Through
Certificates, Series 1996-1B ("New Certificates"). The form and terms of the
New Certificates are substantially identical to the form and terms of the Old
Certificates, except that the New Certificates are registered under the
Securities Act of 1933, as amended and their transfers are not restricted.
8
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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 II ASSOCIATES, L.P.
By: Courtyard II Associates
Management Corporation,
as Managing General Partner
July 26, 1996 By: /s/Bruce F. Stemerman
-----------------------------------
Bruce F. Stemerman
President, Chief Accounting Officer
and Director
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-14-1996
<CASH> 10,799
<SECURITIES> 46,573<F1>
<RECEIVABLES> 11,097
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,469
<PP&E> 678,957
<DEPRECIATION> (212,580)
<TOTAL-ASSETS> 534,846
<CURRENT-LIABILITIES> 3,745
<BONDS> 450,912
0
0
<COMMON> 0
<OTHER-SE> 80,189<F2>
<TOTAL-LIABILITY-AND-EQUITY> 534,846
<SALES> 0
<TOTAL-REVENUES> 61,039
<CGS> 0
<TOTAL-COSTS> 35,618
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,932
<INCOME-PRETAX> 10,489
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,489
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,489
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THIS REPRESENTS OTHER ASSETS.
<F2>THIS REPRESENTS PARTNERS' CAPITAL.
</FN>
</TABLE>
