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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 September 6, 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.
(Exact name of registrant as specified in its charter)
Delaware 52-1955662
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(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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<PAGE>
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COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
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TABLE OF CONTENTS
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PAGE NO.
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Consolidated Statement of Operations
Twelve and Thirty-Six Weeks Ended September 6, 1996 and September 8, 1995.........................................1
Condensed Consolidated Balance Sheet
September 6, 1996 and December 31, 1995...........................................................................2
Condensed Consolidated Statement of Cash Flows
Thirty-Six Weeks ended September 6, 1996 and September 8, 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
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands)
Twelve Weeks Ended Thirty-Six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
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REVENUES..............................................$ 31,855 $ 29,477 $ 92,894 $ 86,439
--------------- --------------- --------------- ---------------
OPERATING COSTS AND EXPENSES
Interest........................................ 7,501 6,436 22,433 19,545
Depreciation ................................... 6,397 6,374 19,191 19,136
Ground rent, taxes and other.................... 5,248 5,004 15,283 14,383
Base and Courtyard management fees.............. 3,758 3,533 11,002 10,344
Incentive management fee........................ 2,883 2,530 8,425 7,504
--------------- --------------- --------------- ---------------
25,787 23,877 76,334 70,912
--------------- --------------- --------------- ---------------
NET INCOME BEFORE
MINORITY INTEREST............................... 6,068 5,600 16,560 15,527
MINORITY INTEREST..................................... 3 -- 6 --
--------------- --------------- --------------- ---------------
NET INCOME............................................$ 6,065 $ 5,600 $ 16,554 $ 15,527
=============== =============== =============== ===============
ALLOCATION OF NET INCOME
General Partners................................$ 121 $ 331
Limited Partner................................. 5,944 16,223
--------------- ---------------
$ 6,065 $ 16,554
=============== ===============
See Notes to Condensed Consolidated Financial Statements.
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1
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<TABLE>
<CAPTION>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 6, 1996 and December 31, 1995
(in thousands)
September 6, December 31,
1996 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net............................................................$ 462,273 $ 474,480
Due from Courtyard Management Corporation.............................................. 11,077 7,078
Other assets........................................................................... 47,508 45,225
Cash and cash equivalents.............................................................. 8,427 --
-------------- --------------
$ 529,285 $ 526,783
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Debt...................................................................................$ 403,108 $ 410,200
Management fees due to Courtyard Management Corporation. .............................. 35,382 35,809
Due to Marriott International, Inc. and affiliates..................................... 9,206 9,402
Due to Host Marriott Corporation....................................................... -- 747
Accounts payable and accrued liabilities............................................... 2,275 12,718
-------------- --------------
Total Liabilities................................................................... 449,971 468,876
-------------- --------------
MINORITY INTEREST........................................................................ 6 --
-------------- --------------
449,977 468,876
-------------- --------------
PARTNERS' CAPITAL
General Partners....................................................................... 1,586 --
Limited Partner........................................................................ 77,722 --
Investments in and net advances to Associates.......................................... -- 57,907
-------------- --------------
Total Partners' Capital............................................................. 79,308 57,907
-------------- --------------
$ 529,285 $ 526,783
============== ==============
See Notes to Condensed Consolidated Financial Statements.
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2
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<TABLE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Thirty-Six Weeks Ended
September 6, September 8,
1996 1995
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OPERATING ACTIVITIES
Net income .......................................................................$ 16,554 $ 15,527
Noncash items..................................................................... 19,658 19,452
Changes in operating accounts..................................................... (6,530) (6,896)
--------------- ---------------
Cash provided by operating activities.......................................... 29,682 28,083
--------------- ---------------
INVESTING ACTIVITIES
Additions to property and equipment............................................... (6,984) (4,369)
Change in property improvement funds.............................................. (1,751) (4,162)
--------------- ---------------
Cash used in investing activities.............................................. (8,735) (8,531)
--------------- ---------------
FINANCING ACTIVITIES
Proceeds from issuance of debt ................................................... 410,200 --
Repayments of debt ............................................................... (417,292) --
Investment in and net advances to (from) Associates............................... 16,627 (19,242)
Capital distributions............................................................. (11,780) --
Payment of financing costs........................................................ (10,275) (310)
--------------- ---------------
Cash used in financing activities.............................................. (12,520) (19,552)
--------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... 8,427 --
CASH AND CASH EQUIVALENTS at beginning of period...................................... -- --
--------------- ---------------
CASH AND CASH EQUIVALENTS at end of period............................................$ 8,427 $ --
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for mortgage and other interest.........................................$ 23,653 $ 22,785
=============== ===============
See Notes to Condensed Consolidated Financial Statements.
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3
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COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 6, 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. However, the condensed
consolidated financial statements should be read in conjunction with
Associates' audited consolidated financial statements and notes thereto
for the fiscal year ended December 31, 1995.
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 September 6, 1996, and the results
of operations for the twelve and thirty-six weeks ended September 6, 1996
and September 8, 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 condensed 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 $406.2 million at
that time, for an equal amount of Multiclass Mortgage Pass-through
Certificates, Series 1996-1B ("New Certificates"). The form and terms of
the New Certificates are substantially identical to the form and terms of
the Old Certificates, except that the New Certificates are registered
under the Securities Act of 1933, as amended and their transfers are not
restricted.
4
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3. Revenues represent house profit which is hotel sales less hotel-level
expenses, excluding certain operating costs and expenses such as
depreciation, base, Courtyard and incentive management fees, real and
personal property taxes, ground and equipment rent, insurance and certain
other costs. Revenues consist of the following for the twelve and
thirty-six weeks ended (in thousands):
<TABLE>
Twelve Weeks Ended Thirty-Six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
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<CAPTION>
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HOTEL SALES
Rooms........................................$ 56,164 $ 52,604 $ 163,859 $ 153,771
Food and beverage............................ 4,084 4,067 12,613 12,244
Other........................................ 2,391 2,207 6,893 6,379
-------------- -------------- -------------- --------------
62,639 58,878 183,365 172,394
-------------- -------------- -------------- --------------
HOTEL EXPENSES
Departmental direct costs
Rooms..................................... 11,778 11,610 34,782 33,457
Food and beverage......................... 3,755 3,453 11,082 10,296
Other........................................ 15,251 14,338 44,607 42,202
-------------- -------------- -------------- --------------
30,784 29,401 90,471 85,955
-------------- -------------- -------------- --------------
REVENUES.........................................$ 31,855 $ 29,477 $ 92,894 $ 86,439
============== ============== ============== ==============
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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
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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 third quarter of 1996,
Associates utilized 1996 cash flow after debt service to make an interim
distribution totalling $6 million.
Year-to-date distributions totaled $11.8 million.
Cash provided by operations for the thirty-six weeks ended September 6, 1996,
and September 8, 1995, was $29.7 million and $28.1 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.
Associates believe 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 for the operational and capital needs of Associates.
RESULTS OF OPERATIONS
Revenues (hotel sales less direct hotel operating costs and expenses) increased
by $2.4 million and $6.5 million, respectively, for the twelve and thirty-six
weeks ended September 6, 1996. This represents an 8.1% and a 7.5% increase,
respectively, for the quarter and year-to-date when compared to the comparable
periods 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 thirty-six weeks ended September 6, 1996, hotel sales
increased $3.8 million and $11 million, respectively. This represents a 6.4%
increase for the quarter and 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 $6.01 to
$77.37 for the quarter and $5.07 to $76.87 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 third quarter 1996 decreased by 1.1
percentage points to 83.6% while the combined average occupancy for the
thirty-six weeks ended September 6, 1996 remained stable at 82%. For the
thirty-six weeks ended on September 6, 1996, 48 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 6, 1996, was $64.68 and $62.88, respectively. REVPAR for
the third quarter 1996 increased 7.0% as compared to the third quarter 1995
while year-to-date 1996 REVPAR increased 6.5% as compared to the comparable
period in 1995.
6
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Direct hotel operating costs and expenses increased from $86 million for the
thirty-six weeks ended September 8, 1995 to $90.5 million for the comparable
period in 1996. For the third quarter 1996, these expenses increased $1.4
million as compared to third quarter 1995. As a percentage of total hotel sales,
these costs and expenses decreased slightly to 49.3% for the thirty-six weeks
ended September 6, 1996 as compared to 49.9% for the comparable period in 1995.
Interest expense increased by 14.8% to $22.4 million for the thirty-six weeks
ended September 6, 1996, from $19.5 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 thirty-six weeks ended September 6, 1996 was 7.8%
as compared to 6.8% for the thirty-six weeks ended 1995.
Ground rent, taxes and other increased 6.3% primarily due to an increase in
equipment rent during the thirty-six weeks ended September 6, 1996.
The increase in base and Courtyard management fees of 6.4%, from $10.3 million
for the period ended September 8, 1995 to $11 million for the same period in
1996 is due to the improved combined hotel sales for the 70 Hotels.
During the thirty-six weeks ended September 6, 1996, $8.4 million of incentive
management fees were earned by the Manager as compared to $7.5 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 thirty-six weeks ended September 6, 1996, Associates had net income of
$16.6 million, an increase of $1.1 million from net income of $15.5 million for
the same period in 1995. This increase was primarily due to higher revenues
offset by higher interest expense.
7
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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
Earla L. Stowe was appointed to Vice President and Chief Accounting Officer of
Courtyard II Associates Management Corporation on October 8, 1996. Ms. Stowe
joined Host Marriott Corporation in 1982 and held various positions in the tax
department until 1988. She joined the Partnership Services department as an
accountant in 1988 and in 1989 she became an Assistant Manager--Partnership
Services. She was promoted to Manager--Partnership Services in 1991 and to
Director--Asset Management in June 1996.
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
October 18, 1996 By: /s/ Earla Stowe
---------------------------------------
Earla Stowe
Vice President and Chief Accounting Officer
9
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<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CIK> 0001010684
<NAME> COURTYARD II ASSOCIATES LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-06-1996
<EXCHANGE-RATE> 1.000
<CASH> 8,427
<SECURITIES> 47,508 <F1>
<RECEIVABLES> 11,077
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 67,012
<PP&E> 681,250
<DEPRECIATION> (218,977)
<TOTAL-ASSETS> 529,285
<CURRENT-LIABILITIES> 2,281
<BONDS> 447,696
0
0
<COMMON> 0
<OTHER-SE> 79,308 <F2>
<TOTAL-LIABILITY-AND-EQUITY> 529,285
<SALES> 0
<TOTAL-REVENUES> 92,894
<CGS> 0
<TOTAL-COSTS> 53,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,433
<INCOME-PRETAX> 16,554
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,554
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,554
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> THIS REPRESENTS OTHER ASSETS.
<F2> THIS REPRESENTS PARTNERS' CAPITAL.
</FN>
</TABLE>
