SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[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
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(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
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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
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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)
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Twelve Weeks Ended
March 27, March 28,
1998 1997
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HOTEL REVENUES
Rooms .......................................................................$ 13,670 $ 13,460
Food and beverage............................................................ 7,025 6,850
Other ....................................................................... 1,355 1,413
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22,050 21,723
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OPERATING COSTS AND EXPENSES
Property-level costs and expenses
Rooms...................................................................... 2,695 2,728
Food and beverage.......................................................... 4,318 4,134
Other hotel operating expenses............................................. 4,627 4,819
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Total hotel property-level costs and expenses.......................... 11,640 11,681
Depreciation................................................................. 1,399 1,174
Incentive management fee..................................................... 207 998
Property taxes and other..................................................... 866 854
Base management fee.......................................................... 662 652
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14,774 15,359
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OPERATING PROFIT................................................................ 7,276 6,364
Interest expense............................................................. (4,676) (5,595)
Interest income.............................................................. 114 147
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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 --
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NET INCOME......................................................................$ 6,888 $ 916
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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
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NET INCOME PER CLASS A LIMITED PARTNER UNIT (530 Units).........................$ -- $ 1,711
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See notes to condensed consolidated financial statements.
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ATLANTA MARRIOTT MARQUIS II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
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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
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$ 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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See Notes to Condensed Consolidated Financial Statements.
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ATLANTA MARRIOTT MARQUIS II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
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Twelve Weeks Ended
March 27, March 28,
1998 1997
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OPERATING ACTIVITIES
Net income..................................................................$ 6,888 $ 916
Net extraordinary items..................................................... (4,174) --
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Income before extraordinary items........................................... 2,714 916
Noncash items............................................................... 1,399 1,801
Changes in operating accounts............................................... (12,620) 3,840
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Cash (used in) provided by operating activities........................ (8,507) 6,557
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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) --
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Cash used in financing activities...................................... (6,511) --
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(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
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest........................................$ 15,561 $ 662
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See Notes to Condensed Consolidated Financial Statements.
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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, Atlanta Marriott Marquis Limited Partnership's ("AMMLP")
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 1997 incentive management fee expense.
Through December 31, 1997, 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 basis 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.
2. Certain reclassifications were made to the prior year financial statements
to conform to the 1998 presentation.
3. The Partnership's revenues represent gross sales generated by the
Partnership's hotel. Total hotel sales less property-level costs and
expenses equals house profit which reflects the net revenues flowing to the
Partnership as property owner. As discussed below, the Partnership
previously recorded only the house profit generated by the Partnership's
hotel as revenues. The Partnership recorded house profit as revenue in its
first quarter Form 10-Q and is amending that presentation, as discussed
below, in this Form 10-Q/A.
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus on EITF 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements." EITF 97-2 addresses the circumstances in which a
management entity may include the revenues and expenses of a managed entity
in its financial statements.
The Partnership has considered the impact of EITF 97-2 on its financial
statements and has determined that EITF 97-2 requires that the Partnership
include property-level revenues and operating costs and expenses of its
hotel in its statement of operations. The Partnership was required to apply
EITF 97-2 on January 3, 1998 to the modified management agreement with
Marriott International, Inc. The Partnership has given retroactive effect
to the adoption of EITF 97-2 in the accompanying consolidated statement of
operations. The adoption of EITF 97-2 increased both revenues and operating
costs and expenses by $11.6 million and $11.7 million for first quarter
1998 and first quarter 1997, respectively, and had no impact on operating
profit or net income.
4. 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.
5. 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.
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6. Pursuant to the terms of the Mortgage Debt, HMA was required to establish
with the lender a separate reserve account for payments of insurance
premiums and real estate taxes for the mortgaged property as a result of
the credit rating of Marriott International, Inc. Thus, the Partnership has
transferred $1.7 million into the reserve through March 27, 1998.
Additionally, HMA was required to establish the following reserves which
are classified as restricted cash reserves in the accompanying condensed
consolidated balance sheet and are held by the agent of the lender
including:
o $3.6 million debt service reserve -- This reserve is equal to three
months of debt service.
o $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.
o $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.
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 Atlanta Marriott Marquis II Limited 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. The Operating Partnership units would be
redeemable by the limited partner for freely traded Host Marriott shares
(or the cash equivalent thereof) at any time after one year from the
closing of the merger. In connection with the REIT conversion, the
Operating Partnership filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission on June 2, 1998. Limited Partners will
be able to vote on this Partnership's participation in the merger later
this year through a consent solicitation.
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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 represent sales generated by the Partnership's hotel. Total hotel sales
less property-level costs and expenses equals house profit which reflects the
net revenues flowing to the Partnership as property owner. As discussed below,
the Partnership previously recorded only the house profit generated by the
Partnership's hotel as revenues.
The Partnership adopted EITF 97-2 which requires that the Partnership include
property-level revenues and operating costs and expenses in the statement of
operations. The Partnership has given retroactive effect to the adoption of EITF
97-2 in the accompanying statement of operations.
Revenues. Partnership revenues for the first quarter of 1998 increased 2% 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. REVPAR, or revenue per available room, represents the combination of
the average daily room rate charged and the average daily occupancy achieved and
is a commonly used indicator of hotel performance (although it is not a GAAP, or
generally accepted accounting principles, measure of revenue). The increase in
room revenues is due to a 1% increase in REVPAR. 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. In addition, 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 4%, or $585,000, to $14.8 million primarily due to
decreases in hotel property-level costs and expenses and incentive management
fees. For the first quarter of 1998, hotel property-level costs and expenses
decreased $41,000 to $11.6 million when compared to the same period in 1997
primarily because of lower occupancy levels and lower sales at the hotel. 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 67% and 71% 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 33% in the first quarter 1998 and 29% in the first quarter
1997.
Interest Expense. In the first quarter of 1998, interest expense decreased 16%,
or $919,000, to $4.7 million primarily due to the refinancing of the mortgage
debt on February 2, 1998. On that date, 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, was
used to pay the $199 million maturing mortgage debt. The Mortgage Debt bears
interest at a fixed rate of 7.4% and requires monthly principal and interest
payments based on a 25-year amortization schedule. 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.
Extraordinary Items. 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 forgiven by the Manager. During the first quarter 1998, the
Partnership recorded an extraordinary gain in conjunction with the write off. In
addition, the Partnership recorded a $19,000 extraordinary gain on
extinguishment of debt during the first quarter 1998.
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.
Mortgage Debt
On February 2, 1998, the mortgage debt was successfully refinanced with a third
party lender. The Partnership's debt now consists of a $164 million mortgage
loan, which is nonrecourse to HMA, which bears interest at a fixed rate of 7.4%
for a 12-year term. The mortgage loan requires payments of principal and
interest based upon a 25-year amortization schedule. As part of the refinancing,
HMA was required to establish certain reserves which are classified as
restricted cash reserves 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, HMA advanced an additional $2.6 million to the Manager for working
capital needs and used the remaining cash to pay transaction costs associated
with the refinancing.
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.
<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 Limited Partnership II ("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, filed a similar and
separate lawsuit, styled Howard H. 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, judgments, expenses, and fees.
On March 16, 1998, limited partners in several partnerships sponsored by Host
Marriott, filed a lawsuit, styled Robert M. Haas, Sr. and Irwin Randolph Joint
Tenants, et al. v. Marriott International, Inc., et al., Case No. CI-04092, in
the 57th Judicial District Court of Bexar County, Texas 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/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATLANTA MARRIOTT MARQUIS II
LIMITED PARTNERSHIP
By: MARRIOTT MARQUIS CORPORATION
General Partner
October 2, 1998 By: /s/ Earla L. Stowe
------------------
Earla L. Stowe
Vice President and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT 10-Q/A 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
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