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 QUARTERLY PERIOD ENDED MARCH 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-14374
ATLANTA MARRIOTT MARQUIS II LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1427553
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(State of Organization) (I.R.S. Employer Identification Number)
10400 Fernwood Road, Bethesda, MD 20817-1109
- ------------------------------------------ -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 380-2070
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 No (Not Applicable. The Partnership became subject to
Section 13 reporting on November 10, 1997.)
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ATLANTA MARRIOTT MARQUIS II LIMITED PARTNERSHIP
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TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Operations
Twelve Weeks Ended March 27, 1998 and March 28, 1997............1
Condensed Consolidated Balance Sheet
March 27, 1998 and December 31, 1997............................2
Condensed Consolidated Statement of Cash Flows
Twelve Weeks ended March 27, 1998 and March 28, 1997............3
Notes to Condensed Consolidated Financial Statements...............4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................11
Item 6. Exhibits and Reports on Form 8-K...................................12
<PAGE>
8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATLANTA MARRIOTT MARQUIS II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per unit amounts)
<TABLE>
<S> <C> <C>
Twelve Weeks Ended
March 27, March 28,
1998 1997
------------- --------------
REVENUES..........................................................................$ 10,410 $ 10,042
------------- --------------
OPERATING COSTS AND EXPENSES
Depreciation.................................................................. 1,399 1,174
Incentive management fee...................................................... 207 998
Property taxes and other...................................................... 866 854
Base management fee........................................................... 662 652
------------- --------------
3,134 3,678
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OPERATING PROFIT.................................................................. 7,276 6,364
Interest expense.............................................................. (4,676) (5,595)
Interest income............................................................... 114 147
------------- --------------
NET INCOME BEFORE EXTRAORDINARY ITEMS............................................. 2,714 916
EXTRAORDINARY ITEMS
Gain on extinguishment of debt................................................ 19 --
Gain on forgiveness of incentive management fees.............................. 4,155 --
------------- --------------
NET INCOME........................................................................$ 6,888 $ 916
============= ==============
ALLOCATION OF NET INCOME
General Partner...............................................................$ -- $ 9
Class A Limited Partners...................................................... -- 907
Class B Limited Partner....................................................... 6,888 --
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$ 6,888 $ 916
============= ==============
NET INCOME PER CLASS A LIMITED PARTNER UNIT (530 Units)...........................$ -- $ 1,711
============= ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
ATLANTA MARRIOTT MARQUIS II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<S> <C> <C>
March 27, December 31,
1998 1997
(unaudited)
ASSETS
Property and equipment, net...................................................$ 165,090 $ 165,372
Due from Marriott International, Inc.......................................... 8,266 4,425
Property improvement fund..................................................... 2,741 2,756
Deferred financing costs, net of accumulated amortization..................... 3,137 321
Restricted cash reserves...................................................... 24,340 --
Cash and cash equivalents..................................................... 2,743 21,502
------------- ----------------
$ 206,317 $ 194,376
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LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Mortgage debt.................................................................$ 163,743 $ 199,019
Due to Host Marriott Corporation under Original Debt Service
Guarantee and Commitment and Interest Guarantee............................. -- 30,524
Term loan payable to Host Marriott Corporation................................ 20,134 --
Due to Marriott International, Inc............................................ 249 4,198
Accounts payable and accrued expenses......................................... 1,059 12,743
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Total Liabilities........................................................ 185,185 246,484
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PARTNERS' CAPITAL (DEFICIT)
General Partner............................................................... (520) (520)
Class A Limited Partners...................................................... (60,236) (57,588)
Class B Limited Partner....................................................... 81,888 6,000
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Total Partners' Capital (Deficit)............................................. 21,132 (52,108)
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$ 206,317 $ 194,376
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
ATLANTA MARRIOTT MARQUIS II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<S> <C> <C>
Twelve Weeks Ended
March 27, March 28,
1998 1997
------------- --------------
OPERATING ACTIVITIES
Net income....................................................................$ 6,888 $ 916
Net extraordinary items....................................................... (4,174) --
-------------- --------------
Income before extraordinary items............................................. 2,714 916
Noncash items................................................................. 1,399 1,801
Changes in operating accounts................................................. (12,620) 3,840
-------------- --------------
Cash (used in) provided by operating activities.......................... (8,507) 6,557
-------------- --------------
INVESTING ACTIVITIES
Working capital provided to Marriott International, Inc....................... (2,639) --
Additions to property and equipment, net...................................... (1,117) (306)
Change in property improvement fund........................................... 15 (795)
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Cash used in investing activities........................................ (3,741) (1,101)
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FINANCING ACTIVITIES
Proceeds from mortgage debt................................................... 164,000 --
Repayment of mortgage debt.................................................... (199,257) --
Capital contributions from General Partner for Class B Limited
Partnership Interest........................................................ 69,000 --
Additions to restricted lender reserves....................................... (24,340) --
Repayments under Original Debt Service Guarantee and Commitment
and Interest Guarantee to Host Marriott Corporation......................... (10,390) --
Payment of deferred financing costs........................................... (2,876) --
Capital distributions......................................................... (2,648) --
-------------- --------------
Cash used in financing activities........................................ (6,511) --
-------------- --------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................................. (18,759) 5,456
CASH AND CASH EQUIVALENTS at beginning of period.................................. 21,502 5,601
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CASH AND CASH EQUIVALENTS at end of period........................................$ 2,743 $ 11,057
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest..........................................$ 15,561 $ 662
============= ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
ATLANTA MARRIOTT MARQUIS II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements have been
prepared by the Atlanta Marriott Marquis 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, 1997.
In the opinion of the Partnership, the accompanying condensed consolidated
unaudited financial statements reflect all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of March 27, 1998, and the results of
operations and cash flows for the twelve weeks ended March 27, 1998 and
March 28, 1997. Interim results are not necessarily indicative of fiscal
year performance because of seasonal and short-term variations.
Through December 31, 1997, for financial reporting purposes the net
income/(loss) of the Partnership were allocated 99% to the limited partners
and 1% to Marriott Marquis Corporation (the "General Partner"), a
wholly-owned subsidiary of Host Marriott Corporation ("Host Marriott"). As
reported in the Partnership's Form 10-K for the fiscal year ended December
31, 1997, AMMLP's partnership agreement was amended as a result of the
Merger to incorporate a revision of AMMLP's allocations and distributions
such that Partnership net income is generally allocated (i) to the General
Partner, until the General Partner has received a 13.5% cumulative
compounded annual return on its Class B invested capital, (ii) to the
General Partner and Class A limited partners, until the General Partner and
the Class A limited partners have received a non-cumulative, non-compounded
annual return of 5% on their initial investment in the Partnership, and
(iii) thereafter, in proportion to total invested capital through
completion of the merger transactions of approximately 41% to limited
partners and 59% to the General Partner. Net losses are generally allocated
in proportion to the partners capital accounts. Significant differences
exist between the net income/(loss) for financial reporting purposes and
the net income/(loss) 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 incentive management fee
expense.
2. Through December 31, 1997, Atlanta Marriott Marquis Limited Partnership
("AMMLP") owned an 80% general partnership interest in Ivy Street Hotel
Limited Partnership ("Ivy") which owned the Atlanta Marriott Marquis
Hotel (the "Hotel"). The Partnership also owned the land (the "Land")
on which the Hotel is located. On December 31, 1997 AMMLP merged
(the "Merger") with and into the Partnership. The Merger of AMMLP and the
Partnership was treated as a reorganization of affiliated entities and
AMMLP's bases in its assets and liabilities were carried over. On January
29, 1998 the Hotel and the Land were conveyed to a special purpose,
bankruptcy remote entity, HMA Realty Limited Partnership ("HMA"). The sole
general partner of HMA with a 1% interest, is HMA-GP, Inc., a wholly-owned
subsidiary of Ivy. The sole limited partner, with a 99% interest, is Ivy.
The Partnership consolidates Ivy and HMA and all significant intercompany
transactions and balances between the Partnership, Ivy and HMA have
been eliminated. In 1990, the Partnership determined that the probability
of collecting the receivable from the minority partner in Ivy was remote.
Thus, the Partnership wrote off this receivable and is now recording 100%
of the income/(loss) of Ivy until excess income allocated to the
Partnership equals the excess losses previously recorded by the
Partnership.
3. Certain reclassifications were made to the prior year financial statements
to conform to the 1998 presentation.
4. Revenues represent house profit of the Hotel since HMA has delegated
substantially all of the operating decisions related to the generation of
house profit of the Hotel to Marriott International, Inc. (the "Manager").
House profit reflects hotel operating results which flow to HMA as property
owner and represents gross hotel sales less property-level expenses,
excluding depreciation, base and incentive management fees, property taxes
and certain other costs, which are disclosed separately in the condensed
consolidated statement of operations.
Partnership revenues generated by the Hotel for 1998 and 1997 consist of
(in thousands):
<TABLE>
<S> <C> <C>
Twelve Weeks Ended
March 27, March 28,
1998 1997
--------------- ----------------
HOTEL SALES
Rooms..................................................................$ 13,670 $ 13,460
Food and beverage...................................................... 7,025 6,850
Other operating departments............................................ 1,355 1,413
--------------- ----------------
22,050 21,723
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HOTEL EXPENSES
Departmental direct costs
Rooms............................................................... 2,695 2,728
Food and beverage................................................... 4,318 4,134
Other hotel operating expenses........................................ 4,627 4,819
--------------- ----------------
11,640 11,681
--------------- ----------------
REVENUES...................................................................$ 10,410 $ 10,042
=============== ================
</TABLE>
5. On February 2, 1998 HMA obtained new 12-year first mortgage financing of
$164 million which, together with $35 million from the additional $69
million capital contributed by the General Partner, were used to pay the
maturing mortgage debt. The Mortgage Debt is nonrecourse to HMA, bears
interest at a fixed rate of 7.4% and requires monthly payments of principal
and interest calculated to fully amortize the loan over 25 years resulting
in annual debt service of $14.1 million for 1998 and $14.4 million annually
until the end of the 12-year term.
6. To facilitate the refinancing, effective January 3, 1998, a new management
agreement was entered into by HMA and the Manager. The new management
agreement expires on July 1, 2010 and is renewable at the Manager's
option for five additional 10-year terms. Pursuant to the terms of
the new management agreement, no incentive management fees are payable
to the Manager with respect to the first $29.7 million of operating
profit (the "Owner's Priority"). Thereafter, the Manager will receive
20% of the profit in excess of such Owner's Priority. As part of the new
management agreement, all accrued incentive management fees totaling
$4.2 million were waived by the Manager. The Partnership recorded an
extraordinary gain in conjunction with the write-off in the accompanying
condensed consolidated financial statements.
7. On April 17, 1998, Host Marriott, parent company of the General Partner of
the Partnership, announced that its Board of Directors has authorized the
company to reorganize its business operations to qualify as a real estate
investment trust ("REIT") to become effective as of January 1, 1999. As
part of the REIT conversion, Host Marriott expects to form a new operating
partnership (the "Operating Partnership") and limited partners in certain
Host Marriott full-service hotel partnerships and joint ventures, including
the Partnership, are expected to be given an opportunity to receive, on a
tax-deferred basis, Operating Partnership units in the new Operating
Partnership in exchange for their current partnership interest.
<PAGE>
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. 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.
RESULTS OF OPERATIONS
Revenues. Partnership revenues for the first quarter of 1998 increased 4% when
compared to the first quarter of 1997 primarily due to a 2%, or $210,000,
increase in room revenues and a 3%, or $175,000, increase in food and beverage
revenues. The increase in room revenues is due to a 1% increase in REVPAR.
Revpar, or revenue per available room, represents the combination of the
average daily occupancy acheived and is a commonly used indicator of hotel
performance (although it is not a GAAP, or generally accepted accounting
principles measure of revenue). REVPAR increased due to a 6% increase in average
room rate to approximately $135 partially offset by a 3.2 percentage point
decrease in average occupancy to the low-70's. The increase in average room rate
is due to a shift in group mix to higher-rated group business. The decreases in
average occupancy is primarily due to the impact of additional supply added to
the Atlanta suburbs. The number of city-wide conventions was down slightly
from the same period in the prior year.
Hotel management is focused on booking short term corporate business to
compensate for the decline in convention business roomnights. In addition, hotel
management will continue to employ aggressive pricing strategies to maximize
average room rate. The first half of the rooms refurbishment at the Hotel was
completed in 1997 and the refurbishment of the remaining 711 rooms and 16 suites
will begin in mid-June and is expected to be completed by the end of 1998.
Operating Costs and Expenses. In the first quarter of 1998, operating costs and
expenses decreased by $544,000 to $3.1 million primarily due to a decrease in
incentive management fees. In 1998, $207,000 of incentive management fees were
earned as compared to $998,000 earned in 1997. The decrease in incentive
management fees earned is due to an increase in Owner's Priority. Pursuant to
the new management agreement, effective January 3, 1998 no incentive management
fees are payable to the Manager with respect to the first $29.7 million of
operating profit. Thereafter, the Manager will receive 20% of the profit in
excess of such figure. As a percentage of revenues, operating costs and expenses
represented 30% and 37% of revenues for first quarter 1998 and first quarter
1997, respectively.
Operating Profit. In the first quarter of 1998, operating profit increased
$912,000 to $7.3 million primarily due to the changes in revenues and operating
costs and expenses discussed above. As a percentage of total revenues, operating
profit represented 70% in the first quarter 1998 and 63% in the first quarter
1997.
Interest Expense. In the first quarter of 1998, interest expense decreased
$919,000 to $4.7 million primarily due to the refinancing of the Mortgage Debt
on February 2, 1998. On that date, the Partnership refinanced $164 million. The
Mortgage Debt bears interest at a fixed rate of 7.4% and requires monthly
payments of principal and interest. The prior mortgage debt bore interest at a
fixed rate of 10.3%.
Net Income Before Extraordinary Items. In the first quarter of 1998, net income
before extraordinary items increased $1.8 million to $2.7 million primarily due
to increased Hotel revenues and decreases in incentive management fees earned
and interest expense.
Gain on Forgiveness of Incentive Management Fees. Pursuant to the terms of the
new management agreement, all unpaid incentive management fees accrued through
December 31, 1997 amounting to $4.2 million were waived by the Manager. The
Partnership recorded an extraordinary gain in conjunction with the write off.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have been historically funded through loan
agreements with independent financial institutions. As a result of the
successful refinancing of the Partnership's mortgage debt, the General Partner
believes that the Partnership will have sufficient capital resources to conduct
its operations in the ordinary course of business.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is cash from Hotel operations. Its
principal uses of cash are to pay debt service payments on the Partnership's
mortgage debt, to make guarantee repayments, to fund the property improvement
fund and to make cash distributions to the partners. Additionally, in 1998 the
Partnership received cash through an equity infusion by the General Partner and
utilized cash to pay financing costs incurred in connection with the refinancing
of the Partnership's mortgage debt and to establish reserves required by the
lender.
Total cash used in operating activities was $8.5 million for the twelve weeks
ended March 27, 1998 as compared to total cash provided by operations of $6.6
million for the twelve weeks ended March 28, 1997. In the first quarter 1998, a
combined total of $15.5 million was paid on the mortgage debt on the scheduled
January 11, 1998 debt service date and on the February 2, 1998 refinancing date.
In the first quarter of 1997, $662,000 was paid on the mortgage debt on January
11, 1997 as the accrued interest due through December 31, 1996 was prepaid on
that date.
Cash used in investing activities was $3.7 million for the twelve weeks ended
March 27, 1998 as compared to $1.1 million for the twelve weeks ended March 28,
1997. The increase in cash used in investing activities is primarily due to an
advance of $2.6 million to the Manager for working capital needs. Cash used in
financing activities was $6.5 million for the twelve weeks ended March 27, 1998.
For the twelve weeks ended March 28, 1998 no cash was provided by or used in
financing activities. The increase in cash used in financing activities is
primarily the result of the restructuring and refinancing transactions. During
the quarter, the Partnership acquired new mortgage debt financing of $164
million and received the remaining $69 million of the $75 million equity
infusion from the General Partner. These proceeds were used as follows: to repay
the $199.3 million of mortgage debt; to repay $10.4 million of the debt service
guarantee and related interest outstanding under the Host Marriott interest
guarantee; to establish $22.5 million of reserves required by the lender; and,
to pay financing costs of $2.9 million. Subsequent to the initial establishment,
an additional $1.8 million has been contributed to the lender reserves pursuant
to the loan agreement. The Partnership made a cash distribution in February 1998
to the Class A limited partners of $2.7 million, or $5,000 per limited partner
unit from 1997 operations.
The General Partner believes that cash from Hotel operations and the reserves
established in conjunction with the refinancing will continue to meet the short
and long-term operational needs of the Partnership.
Capital Expenditures
The Partnership is required to maintain the Hotel in good repair and condition.
The new management agreement provides for the establishment of a property
improvement fund to cover the cost of non-routine repairs and maintenance and
renewals and replacements to the Hotel's property and equipment. Contributions
to the fund are 5% of Hotel gross sales.
In 1997, the Hotel completed a $7.0 million refurbishment of approximately half
its guest rooms which included the replacement of the carpeting, bedspreads,
upholstery, drapes and other similar items and also the dressers, chairs, beds
and other furniture. The refurbishment of the remaining 711 rooms and 16 suites
will begin in mid-1998. This portion of the refurbishment will be funded from a
reserve which was established by the Partnership with the lender on February 2,
1998. The facade repair project which entails a repair of the entire facade of
the building is underway. The project is expected to cost $9.0 million and will
be funded by the Partnership from a reserve which was also established with the
lender in conjunction with the refinancing on the Maturity Date. The project is
expected to be completed by mid-1999.
The General Partner believes the property improvement fund and the capital
reserves established in conjunction with the refinancing will be adequate for
the future capital repairs and replacement needs of the Hotel.
Mortgage Debt
On the Maturity Date, the following transactions occurred:
HMA obtained new 12-year first mortgage financing of $164 million (the
"Mortgage Debt") which, together with $35 million from the additional $69
million capital contributed by the General Partner were used to pay the
maturing mortgage debt. The Mortgage Debt is nonrecourse to HMA, bears
interest at a fixed rate of 7.4% and requires monthly payments of principal
and interest calculated to fully amortize the loan over 25 years resulting
in annual debt service of $14.1 million for 1998 and $14.4 million annually
until the end of the 12-year term.
<PAGE>
Host Marriott waived its existing right to priority repayment of the $20.1
million in prior non-interest bearing interest guarantee advances to Ivy
and restructured such advances as a loan with a 15 year term (interest only
for the first five years) bearing interest at a rate of 9% per annum (the
"Term Loan"). Payments are due monthly in arrears from cash available after
payment of debt service on the Mortgage Debt. Upon a sale of the Hotel, the
Term Loan will accelerate and become due and payable.
The outstanding amount of the interest guarantee of $10.4 million and
related interest was repaid to Host Marriott.
The $30 million principal guarantee provided by Host Marriott was
eliminated.
The Partnership distributed funds to Class A limited partners of
approximately $5,000 per New Unit. This distribution represented the excess
of the Partnership's reserve after payment of a majority of the transaction
costs related to the mortgage debt refinancing.
As part of the refinancing, HMA was required to establish certain reserves
which are classified as restricted cash reserve in the accompanying
condensed consolidated balance sheet and are held by an agent of the lender
including:
$3.6 million debt service reserve--This reserve is equal to three months
of debt service.
$10.1 million deferred maintenance and capital expenditure reserve--This
reserve will be expended for capital expenditures for repairs to the facade
of the Hotel as well as various renewals and replacements and site
improvements.
$7.5 million rooms refurbishment reserve--This reserve will be expended to
refurbish the remaining 711 rooms and 16 suites at the Hotel which have not
already been refurbished.
$1.3 million tax and insurance reserve--This reserve will be used to pay
real estate tax and insurance premiums for the Hotel.
In addition, during the quarter HMA advanced an additional $2,639,000 to the
Manager for working capital needs and used the remaining cash to pay transaction
costs associated with the refinancing.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership and the Partnership Hotel 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
condition or results of operations of the Partnership.
On December 12, 1997, Hiram and Ruth Sturm, limited partners in Atlanta Marriott
Marquis Limited Partnership ("AMMLP"), filed a class-action lawsuit, styled
Hiram and Ruth Sturm v. Marriott Marquis Corporation, et al., Case No.
97-CV-3706, in the U.S. District Court for the Northern District of Georgia
against Marriott Marquis Corporation ("MMC"), its directors, and Host Marriott,
regarding the merger of AMMLP into a new partnership (the "Merger"), Atlanta
Marriott Marquis II Limited Partnership ("AMMLP-II"). MMC, formerly the general
partner of AMMLP, is the sole general partner of AMMLP-II. AMMLP-II owns an 80%
interest in Ivy Street Hotel Limited Partnership ("Ivy"), a Georgia limited
partnership. The other general and limited partners of Ivy are not affiliated
with Host Marriott. A wholly-owned bankruptcy remote subsidiary of Ivy owns the
Atlanta Marriott Marquis Hotel.
The Sturms allege, among other things, that the defendants misled the limited
partners in order to induce them to approve the Merger, violated securities
regulations by filing a prospectus with the SEC that contained false statements,
violated Federal roll-up regulations and Sections 14 and 20 of the Exchange Act,
breached their fiduciary duties, and breached the partnership agreement. The
plaintiffs sought to enjoin, or in the alternative rescind, the Merger and
damages. Howard H. Poorvu, another limited partner of AMMLP, sought similar
relief and filed a separate lawsuit, styled Poorvu v. Marriott Marquis
Corporation, et al., Civil Action No. 16095-NC, on December 19, 1997, in
Delaware State Chancery Court. The Merger took place on December 31, 1997, and
the refinancing of the first mortgage debt closed on January 10, 1998. The
defendants filed answers to the Delaware complaint on January 16, 1998, and
moved to dismiss the Georgia complaint on March 6, 1998. Although AMMLP and
AMMLP-II have not been named as defendants in the lawsuits, their partnership
agreements include an indemnity provision which requires them, under certain
circumstances, to indemnify the general partners against losses, judgements,
expenses, and fees.
On March 16, 1998, limited partners in several partnerships sponsored by Host
Marriott, filed a lawsuit against Marriott International, Inc. ("Marriott
International"), Host Marriott, various of their subsidiaries, J.W. Marriott,
Jr., Stephen Rushmore, and Hospitality Valuation Services, Inc. (collectively,
the "Defendants"). The lawsuit relates to the following limited partnerships:
Courtyard by Marriott Limited Partnership, Courtyard by Marriott II Limited
Partnership, Marriott Residence Inn Limited Partnership, Marriott Residence Inn
II Limited Partnership, Fairfield Inn by Marriott Limited Partnership, Desert
Springs Marriott Limited Partnership, and Atlanta Marriott Marquis Limited
Partnership (collectively, the "Partnerships"). The plaintiffs allege that the
Defendants conspired to sell hotels to the Partnerships for inflated prices and
that they charged the Partnerships excessive management fees to operate the
Partnerships' hotels. The plaintiffs further allege that the Defendants
committed fraud, breached fiduciary duties, and violated the provisions of
various contracts. The plaintiffs are seeking unspecified damages. The
Defendants, which do not include the Partnerships, believe that there is no
truth to the plaintiffs' allegations and that the lawsuit is totally devoid of
merit. The Defendants intend to vigorously defend against the claims asserted in
the lawsuit. Although the Partnerships have not been named as Defendants in the
lawsuit, the partnership agreements relating to the Partnerships include an
indemnity provision which requires the Partnerships, under certain
circumstances, to indemnify the general partners against losses, judgments,
expenses, and fees.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None.
b. Reports on Form 8-K
A form 8-K was filed with the Securities and Exchange Commission on May 8, 1998.
In this filing, Item 5 - Other Events discloses the announcement by Host
Marriott that Host Marriott's Board of Directors has authorized Host Marriott to
reorganize its business operations to qualify as a real estate investment trust,
effective as of January 1, 1999. A copy of the press release was included as an
Item 7 - Exhibit in this Form 8-K filing.
<PAGE>
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.
ATLANTA MARRIOTT MARQUIS II
LIMITED PARTNERSHIP
By: MARRIOTT MARQUIS CORPORATION
General Partner
May 11, 1998 By:
Patricia K. Brady
Vice President and Chief Accounting Officer
<PAGE>
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.
ATLANTA MARRIOTT MARQUIS II
LIMITED PARTNERSHIP
By: MARRIOTT MARQUIS CORPORATION
General Partner
May 11, 1998 By: /s/ Patricia K. Brady
----------------------
Patricia K. Brady
Vice President and Chief Accounting Officer
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<LEGEND>
(THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001048447
<NAME> ATLANTA MARRIOTT MARQUIS II LIMITED PARTNERSHIP
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0
0
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