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 JUNE 19, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 2-75711
POTOMAC HOTEL LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1240223
--------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
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 |X| No ____.
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<PAGE>
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POTOMAC HOTEL LIMITED PARTNERSHIP
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statement of Operations
Twelve and Twenty-Four Weeks Ended June 19, 1998 and June 20, 1997...........1
Condensed Balance Sheet
June 19, 1998 and December 31, 1997..........................................2
Condensed Statement of Cash Flows
Twenty-Four Weeks ended June 19, 1998 and June 20, 1997......................3
Notes to Condensed 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.............................................11
Item 6. Exhibits and Reports on Form 8-K..............................11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POTOMAC HOTEL LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per Unit amounts)
<TABLE>
Twelve Weeks Ended Twenty-Four Weeks Ended
June 19, June 20, June 19, June 20,
1998 1997 1998 1997
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES
Hotel revenues.................................................$ 12,947 $ 12,134 $ 29,480 $ 28,048
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES
Incentive management fees...................................... 2,303 2,135 5,548 5,195
Depreciation................................................... 1,946 1,263 3,891 2,526
Base management fees........................................... 1,127 1,060 2,370 2,257
Property taxes................................................. 808 795 1,625 1,602
Ground rent, insurance and other............................... 966 1,239 1,969 2,118
----------- ---------- --------- ---------
7,150 6,492 15,403 13,698
----------- ---------- --------- ---------
OPERATING PROFIT.................................................. 5,797 5,642 14,077 14,350
Interest expense............................................... (5,842) (5,645) (11,905) (11,490)
Other revenues................................................. 136 151 257 328
----------- ----------- ----------- -----------
NET INCOME........................................................$ 91 $ 148 $ 2,429 $ 3,188
=========== =========== =========== ===========
ALLOCATION OF NET INCOME
General Partner................................................$ 1 $ 1 $ 25 $ 32
Limited Partners............................................... 90 147 2,404 3,156
----------- ----------- ----------- -----------
$ 91 $ 148 $ 2,429 $ 3,188
=========== =========== =========== ===========
NET INCOME PER LIMITED
PARTNER UNIT (1,800 Units).....................................$ 50 $ 82 $ 1,336 $ 1,753
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
POTOMAC HOTEL LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
June 19, December 31,
1998 1997
(unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net..........................................................$ 153,748 $ 154,253
Due from Marriott International, Inc. and affiliates................................. 10,602 10,173
Other assets......................................................................... 4,834 4,265
Restricted cash...................................................................... 15,893 6,351
Cash and cash equivalents............................................................ 589 3,182
---------------- ---------------
$ 185,666 $ 178,224
================ ===============
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage debt........................................................................$ 168,909 $ 172,667
Due to Host Marriott Corporation and affiliates...................................... 123,819 125,549
Incentive and base management fees due to Marriott International, Inc. .............. 29,793 25,868
Due to Marriott International, Inc. and affiliates................................... 368 398
Accrued interest and other liabilities............................................... 7,470 864
---------------- ---------------
Total Liabilities................................................................. 330,359 325,346
---------------- ---------------
PARTNERS' DEFICIT
General Partner...................................................................... (34,817) (34,842)
Limited Partners..................................................................... (109,876) (112,280)
---------------- ---------------
Total Partners' Deficit........................................................... (144,693) (147,122)
---------------- ---------------
$ 185,666 $ 178,224
================ ===============
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
POTOMAC HOTEL LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
Twenty-Four Weeks Ended
June 19, June 20,
1998 1997
------------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income..........................................................................$ 2,429 $ 3,188
Noncash items....................................................................... 11,251 9,457
Changes in operating accounts....................................................... 4,282 5,398
------------- -------------
Cash provided by operating activities........................................ 17,962 18,043
------------- -------------
INVESTING ACTIVITIES
Additions to property and equipment................................................. (3,404) (3,358)
Change in property improvement funds................................................ (678) (1,005)
Working capital received from Marriott International, Inc. and affiliates, net...... -- 168
------------- -------------
Cash used in investing activities............................................ (4,082) (4,195)
------------- -------------
FINANCING ACTIVITIES
Change in restricted cash........................................................... (9,542) (10,490)
Repayments to Host Marriott Corporation and affiliates, net......................... (4,649) (5,419)
Principal repayments on mortgage debt............................................... (3,758) (2,171)
Repayments to affiliates of Marriott International, Inc............................. (28) (22)
Collection of amounts due from Marriott International, Inc.......................... 1,504 --
------------- -------------
Cash used in financing activities............................................ (16,473) (18,102)
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS................................................... (2,593) (4,254)
CASH AND CASH EQUIVALENTS at beginning of period........................................ 3,182 5,228
------------- -------------
CASH AND CASH EQUIVALENTS at end of period..............................................$ 589 $ 974
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest...........................................$ 2,162 $ 2,080
============= =============
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
POTOMAC HOTEL LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed financial statements have been prepared by
Potomac Hotel 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 financial statements should be read in
conjunction with the Partnership's 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 unaudited condensed
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of the
Partnership as of June 19, 1998; the results of operations for the twelve and
twenty-four weeks ended June 19, 1998 and June 20, 1997; and the statement of
cash flows for the twenty-four weeks ended June 19, 1998, and June 20, 1997.
Interim results are not necessarily indicative of fiscal year performance
because of seasonal and short-term variations.
For financial reporting purposes, the Partnership's net income is allocated
99% to the limited partners and 1% to Host Marriott Corporation ("Host Marriott"
or "General Partner"). Significant differences exist between the net income for
financial reporting purposes and the net income for Federal income tax reporting
purposes. These differences are due primarily to the use for tax purposes of
differing useful lives and accelerated depreciation methods, differing tax bases
in contributed capital, and differing timings in the recognition of management
fee expense.
2. Certain reclassifications were made to the prior quarter financial
statements to conform to the current quarter presentation.
3. Hotel revenues represent house profit of the Partnership's hotels since the
Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the hotels to the manager.
House profit reflects hotel operating results which flow to the Partnership
as property owner and represents gross hotel sales less property-level
expenses, excluding depreciation, base and incentive management fees,
property taxes, ground rent, insurance, and certain other costs, which are
disclosed separately in the condensed statement of operations.
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 is addressing the impact of EITF 97-2 on its policy of excluding
property-level revenues and operating expenses of the Hotels from its condensed
statement of operations. If the Partnership concludes that EITF 97-2 should be
applied to the Hotels, it would include operating results of those managed
operations in its condensed financial statements. Application of EITF 97-2 to
the condensed financial statements as of and for the twelve and twenty-four
weeks ended June 19, 1998, would have increased both revenues and operating
expenses by approximately $24.6 million and $49.5 million, respectively, and
would have had no impact on net income.
Hotel revenues consist of the following hotel operating results (in
thousands):
<TABLE>
Twelve Weeks Ended Twenty-Four Weeks Ended
June 19, June 20, June 19, June 20,
1998 1997 1998 1997
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
HOTEL SALES
Rooms.......................................$ 23,751 $ 22,404 $ 51,015 $ 48,339
Food and beverage........................... 11,043 10,263 22,137 21,190
Other....................................... 2,769 2,657 5,841 5,704
------------ ------------ ------------ -------------
37,563 35,324 78,993 75,233
------------ ------------ ------------ -------------
HOTEL EXPENSES
Departmental Direct Costs
Rooms................................... 5,806 5,518 11,780 11,098
Food and beverage....................... 8,199 7,711 16,292 15,840
Other hotel operating expenses.............. 10,611 9,961 21,441 20,247
------------ ------------ ------------ -------------
24,616 23,190 49,513 47,185
------------ ------------ ------------ -------------
HOTEL REVENUES................................$ 12,947 $ 12,134 $ 29,480 $ 28,048
============ ============ ============ =============
</TABLE>
<PAGE>
4. Host Marriott, the General Partner of the Partnership, announced on April 17,
1998, 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 Operating Partnership in exchange for their current limited
partnership interests. 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.
<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 and as such may
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance or achievements of Potomac Hotel Limited
Partnership (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. These risks are detailed from
time to time in the Partnership's filings with the Securities and Exchange
Commission. 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
The following chart summarizes REVPAR and the percentage change in REVPAR for
each Partnership Hotel:
<TABLE>
Twelve Weeks Ended Twenty-Four Weeks Ended
June 19, June 20, % June 19, June 20, %
1998 1997 Change 1998 1997 Change
----------- ----------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Mountain Shadows $ 118 $ 107 10% $ 139 $ 137 2%
Tampa Westshore 93 85 9% 106 98 8%
Miami Biscayne Bay 74 74 -- 100 94 6%
Seattle 101 92 10% 96 87 10%
Greensboro 95 88 8% 89 83 7%
Houston Medical Center 88 77 14% 88 80 10%
Raleigh Crabtree 86 82 5% 84 80 5%
Albuquerque 73 73 -- 68 73 (7)%
Combined Average $ 89 $ 83 7% $ 96 $ 90 7%
</TABLE>
Hotel Revenues: Hotel revenues increased 7% to $12.9 million for the second
quarter of 1998 and 5% to $29.5 million for the year-to-date 1998, when compared
to the same periods in 1997. The increases in revenues are primarily due to the
increases in REVPAR at seven of the eight Hotels for the twenty-four weeks ended
June 19,1998. 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). For the
twenty-four weeks ended June 19, 1998, the combined average room rate increased
7% to $118, while the combined average occupancy decreased one percentage point
to 81%, when compared to the same period in 1997. For the twelve weeks ended
June 19, 1998, the combined average room rate increased 6% to $110 from $104 and
the combined average occupancy increased one percentage point to 81%, when
compared to the same period in 1997.
Operating Costs and Expenses: Operating costs and expenses increased 10% to $7.2
million for the second quarter of 1998 and 12% to $15.4 million for the
year-to-date 1998, when compared to the same periods of 1997. The principal
components of this category are:
<PAGE>
Management Fees: Incentive management fees and base management fees are
calculated generally as a percentage of Hotel sales or Hotel revenues.
The increases in these expenses for second quarter 1998 were directly
related to the increases in Hotel sales and Hotel revenues for second
quarter 1998.
Depreciation: Depreciation expense increased in the second quarter of 1998
due to property and equipment additions as well as a change in the estimated
useful lives of certain assets.
Operating Profit: Operating profit increased 3% to $5.8 million for the second
quarter of 1998 and decreased 2% to $14.1 million for the twenty-four weeks
ended June 19, 1998, when compared to the same periods in 1997. The decrease in
year-to-date operating profit was attributable to the increase in operating
costs and expenses which was partially offset by the increase in revenues.
Interest Expense: Interest expense increased 3% to $5.8 million for the second
quarter of 1998 and increased 4% to $11.9 million for the twenty-four weeks
ended June 19, 1998, when compared to the same periods in 1997. The weighted
average interest rate on the Bank Loan was 8.3% for the twenty-four weeks ended
June 19,1998, as compared to 7.4% for the comparable period in 1997.
Net Income: Net income decreased 39% to $91,000 for the second quarter of 1998
and decreased 24% to $2.4 million for the twenty-four weeks ended June 19, 1998,
when compared to the same periods in 1997 due to the increases in operating
costs and expenses and interest expense.
Individual hotel operating results are discussed below:
On a year-to-date basis, second quarter 1998 revenues at the Mountain Shadows
Resort decreased 2% to $5.3 million when compared to the same period of 1997 due
to the decline in food and beverage revenues. Second quarter 1998 revenues at
the Resort increased 12% to $1.9 million when compared to the same period in
1997 due to the 10% improvement in REVPAR. In second quarter 1998, the average
room rate increased 4% to $140, and the average occupancy increased four
percentage points to 84%. These increases were the result of an increase in
transient business during this quarter. In the upcoming months, the Hotel plans
to increase its marketing efforts by distributing a newsletter in the fall and
circulating mailers during the holiday season.
Revenues for the Tampa Westshore Hotel increased 4% to $2.9 million for the
twenty-four weeks ended June 19, 1998, due to a 9% increase in room sales which
was offset by a 3% decrease in food and beverage sales. REVPAR improved 8% to
$106 due to an increase of 12% in the average room rate to $128 which was offset
by a four percentage point decrease in occupancy when compared to the first
twenty-four weeks in 1997. Second quarter revenues increased 10% to $1.1 million
from $1.0 million. REVPAR for the second quarter 1998 improved 9% as the average
room rate increased 11% and average occupancy decreased one percentage point to
78% when compared to the same period in 1997. The slight decrease in average
occupancy is related to the customer's sensitivity to increases in average room
rates. The Hotel recently completed the renovation of the Champions lounge and
has installed new health club equipment for the guests. The Hotel is also
utilizing focus groups in order to continue to increase guest satisfaction and
employing aggressive pricing strategies in order to gain group business.
For the twenty-four weeks ended June 19,1998, revenues at the Miami Biscayne Bay
Hotel increased 9% to $6.1 million when compared to the same period in 1997.
This increase was due a 6% increase in REVPAR to $100 coupled with a 15%
increase in food and beverage revenues due to strong catering sales. Second
quarter revenues decreased $100,000 to $1.8 million due to decreased food and
beverage revenues during the quarter. REVPAR remained steady at $74 for the
second quarter 1998. The Hotel added two new airline contracts and started to
focus on the Latin American markets to increase its occupancy for the remainder
of 1998.
Year-to-date 1998 revenues at the Seattle Sea-Tac Hotel increased 17% to $4.8
million when compared to the same period in 1997. REVPAR increased 10% to $96
due to a four percentage point increase in average occupancy to 80% and a 6%
increase in the average room rate to $120. Additionally, year-to-date 1998 food
and beverage revenues increased 22% to $1.4 million. During 1998, the Hotel
implemented revenue-maximizing strategies, such as requiring large groups to
purchase one catered meal per day, and recent renovations at the Yukon Landing
Restaurant and Snoqualmie Ballroom have helped increase restaurant and banquet
business. Second quarter 1998 revenues increased 13% to $2.6 million when
compared to the same period in 1997 due to a 10% increase in REVPAR to $101. The
increase in REVPAR was primarily due to a 7% increase in the average room rate
to $125 and a two percentage point increase in average occupancy to 81%. During
1998, the Hotel obtained business from several new groups and also experienced
greater success with weekend promotions resulting in increased revenues.
The Greensboro Hotel experienced a 9% increase in 1998 year-to-date revenues to
$2.4 million over the same period in 1997 due to increases in room revenues and
food and beverage revenues. Room revenues at the Hotel increased 6% to $3.4
million when compared to the same period in 1997 due to a 7% increase in REVPAR
to $89. The increase in REVPAR was due to a 7% increase in the average room rate
to $111 with average occupancy remaining stable at 80%. Food and beverage
revenues increased 38% to $518,000 over the same period of last year due to the
significant increases in the Hotel's catering business. During the second
quarter of 1998, revenues at the Hotel remained stable at $1.3 million. Although
REVPAR for the quarter increased 8% due to a 7% increase in the average room
rate and a one percentage point increase in the average occupancy, revenues
remained unchanged due to an increase in repairs and maintenance expenses at the
Hotel during the second quarter of 1998.
Revenues at the Houston Medical Center Hotel increased 18% to $3.3 million for
year-to-date 1998 when compared to the same period in 1997. The Hotel increased
its sales 7% while reducing its direct operating expenses by 2%. The increase in
sales was due to a 10% increase in REVPAR to $88 which was attributable to a 14%
increase in the average room rate to $109 offset by a two percentage point
decline in average occupancy to 81%. Direct operating expenses decreased as the
Hotel used stricter cost containment measures in its food and beverage
department. For the second quarter of 1998, revenues increased 33% to $1.6
million due primarily to a 14% increase in REVPAR. The average room rate for the
second quarter of 1998 increased 13% to $110, and the average occupancy
increased one percentage point to 80%. In order to address the decline in
year-to-date average occupancy, the Hotel is planning several new promotions.
These promotions include using amusement park affiliations to garner weekend and
Labor Day business and using local media to obtain weekend restaurant business.
The Hotel is undergoing a rooms renovation that will replace the bedspreads,
drapery, upholstery, carpet, and furniture in all the guest rooms.
The Raleigh Crabtree Valley Hotel reported a 4% increase in 1998 year-to-date
revenues to $2.7 million due to a 5% increase in REVPAR to $84. The average room
rate increased 6% to $102 while average occupancy decreased one percentage point
to 82% when compared to same period of last year. The Hotel increased its
corporate room rate by $10 in 1998, which primarily led to the increase in the
average room rate. Revenues for the second quarter of 1998 increased 7% to $1.5
million. Although average occupancy fell two percentage points to 84% for the
quarter, REVPAR increased 5% to $86 due to a 7% increase in the average room
rate to $102. In order to better serve its guests, the Hotel opened a business
center in May 1998. To improve the Hotel's average occupancy, the Hotel is
continuing its partnership with the North Carolina State University as the
preferred hotel of Wolfpack sporting events.
<PAGE>
Revenues for the first twenty-four weeks of 1998 at the Albuquerque Hotel
decreased 20% to $2 million due to a 7% decrease in REVPAR to $68 and a 36%
decline in food and beverage revenues when compared to the same period in 1997.
The decrease in REVPAR was due to a 5% decrease in the average room rate to $91
and a one percentage point decrease in occupancy to 75%. Second quarter revenues
decreased $100,000 or 8% to $1.2 million when compared to the same period in
1997 due to decreases in food and beverage revenues. The Hotel is trying to
increase business on weekends through the "Can't Beat Friday" discounted rate
promotion. In order to increase food and beverage sales, a director of catering
was hired, and a restaurant and bar renovation is planned for early 1999.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions, Host Marriott Corporation
("Host Marriott") and its affiliates or Marriott International, Inc. ("MII") and
its affiliates. The general partner believes that the Partnership will have
sufficient capital resources and liquidity to continue to conduct its business
in the ordinary course.
Principal Sources and Uses of Cash
The Partnership reported a decrease in cash and cash equivalents of $2.6 million
during the twenty-four weeks ended June 19, 1998. This decrease was due to the
use of cash for investing and financing activities partially offset by cash
provided by operating activities.
The Partnership's principal source of cash is cash from operations. Total cash
provided by operations remained steady at $18.0 million, for the twenty-four
weeks ended June 19, 1998, when compared to the twenty-four weeks ended June 20,
1997.
The Partnership's principal uses of cash are to (i) pay for capital expenditures
and to fund the property improvement funds, (ii) make deposits to restricted
cash accounts, (iii) pay debt service on the Partnership's mortgage debt, and
(iv) pay amounts owed to Host Marriott and MII.
Cash used in investing activities was $4.1 million for the twenty-four weeks
ended June 19, 1998, and $4.2 million for the twenty-four weeks ended June 20,
1997. Cash used in investing activities for the twenty-four weeks ended June 19,
1998, included capital expenditures of $3.4 million primarily related to
furniture, fixtures, and equipment renewals and replacements at the Hotels.
Cash used in financing activities was $16.5 million and $18.1 million for the
twenty-four weeks ended June 19, 1998, and June 20, 1997, respectively. Cash
used in financing activities for the twenty-four weeks ended June 19, 1998,
included repayments to Host Marriott and affiliates of $4.6 million and
repayments on the Partnership's mortgage debt of $3.8 million.
No cash was distributed to the partners during the twenty-four weeks ended June
19, 1998, or June 20, 1997.
Capital Expenditures
It is anticipated that shortfalls in the property improvement fund for the six
hotels financed with the Bank Loan, as defined below, will occur in 1999. The
General Partner is currently working to resolve the expected shortfalls.
<PAGE>
Debt
The Partnership's financing needs are funded through loan agreements with (i)
The Mitsui Trust and Banking Company, (ii) Host Marriott and its affiliates, and
(iii) MII and its affiliates.
Total Partnership interest expense increased 4% to $11.9 million for the
twenty-four weeks ended June 19, 1998, when compared to the same period in 1997
primarily due to increased interest expense on the mortgage loan (the "Bank
Loan"). The weighted average interest rate on the Bank Loan was 8.3% for the
twenty-four weeks ended June 19, 1998, as compared to 7.4% for the comparable
period in 1997.
On June 22, 1998, the Partnership made the required Bank Loan principal payment
of $3.0 million. Thus, as of June 22, 1998, the Bank Loan principal balance is
$165.9 million.
The Bank Loan was scheduled to mature on December 22, 1998; however, an
additional one-year extension was available. As required under the Bank Loan,
the Partnership provided notice of its intent to extend the loan along with
adequate debt service coverage tests to extend the Bank Loan maturity to
December 22, 1999.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership and the 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
condition, or results of operations of the Partnership.
On July 15, 1998, one limited partner in the Partnership filed a class action
lawsuit styled Michael C. deBerardinis v. Host Marriott Corporation, Civil
Action No. WMN 98-2263, in the United States District Court for the District of
Maryland, against Host Marriott Corporation ("Host Marriott"). The plaintiff
alleges that Host Marriott misled the limited partners in order to induce them
into approving the sale of one of the Partnership's hotels, violated the
securities regulations by issuing a false and misleading consent solicitation,
and breached fiduciary duties and the partnership agreement. The complaint seeks
unspecified damages. Host Marriott has not yet been served with the complaint
but intends to vigorously defend against the claims asserted in the lawsuit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None.
(b) Reports on Form 8-K
May 8, 1998 -- In this filing, Item 5 - Other Events discloses
the announcement by Host Marriott, the General Partner of the
Partnership, 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.
June 19, 1998 -- In this filing, Item 5 - Other Events discloses
that the General Partner sent the limited partners of the
Partnership a letter to inform them of the proposed
reorganization of Host Marriott's business operations to qualify
as a real estate investment trust and provide them with the
estimated exchange value per Partnership unit. A copy of the
letter 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.
POTOMAC HOTEL LIMITED PARTNERSHIP
By: HOST MARRIOTT CORPORATION
General Partner
By: /s/ Donald D. Olinger
Donald D. Olinger
Senior Vice President and
Corporate Controller
(Principal Accounting Officer)
July 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIALS INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000357226
<NAME> POTOMAC HOTEL LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-19-1998
<EXCHANGE-RATE> 1.00
<CASH> 16,482
<SECURITIES> 4,834 <F1>
<RECEIVABLES> 10,602
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,918
<PP&E> 235,204
<DEPRECIATION> (81,456)
<TOTAL-ASSETS> 185,666
<CURRENT-LIABILITIES> 7,470
<BONDS> 322,889
0
0
<COMMON> 0
<OTHER-SE> (144,693)
<TOTAL-LIABILITY-AND-EQUITY> 185,666
<SALES> 0
<TOTAL-REVENUES> 29,737
<CGS> 0
<TOTAL-COSTS> 15,403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,905
<INCOME-PRETAX> 2,429
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,429
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>This is other assets.
</FN>
</TABLE>
