Securities and Exchange Commission
================================================================================
Washington, D.C. 20549
Form 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 28, 1997
OR
|_| Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-14374
ATLANTA MARRIOTT MARQUIS LIMITED PARTNERSHIP
--------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1427553
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10400 Fernwood Road
Bethesda, Maryland
20817
- -------------------------------------------------------------------------------
(Address of principal executive offices)
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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<PAGE>
TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Operations
Twelve Weeks Ended March 28, 1997 and March 22, 1996..... 1
Condensed Consolidated Balance Sheet
March 28, 1997 and December 31, 1996..................... 2
Condensed Consolidated Statement of Cash Flows
Twelve Weeks ended March 28, 1997 and March 22, 1996..... 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................ 8
Item 6. Exhibits and Reports on Form 8-K......................... 8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATLANTA MARRIOTT MARQUIS LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per unit amounts)
Twelve Weeks Ended
------------------
March 28, March 22,
1997 1996
------- ------
REVENUES............................................. $10,042 $9,691
------- ------
OPERATING COSTS AND EXPENSES
Interest........................................... 5,595 5,205
Depreciation ...................................... 1,174 1,606
Incentive management fee........................... 998 341
Property taxes and other........................... 707 778
Base management fee................................ 652 644
------- ------
9,126 8,574
------- ------
NET INCOME........................................... $ 916 $1,117
======= ======
ALLOCATION OF NET INCOME
General Partner................................... $ 9 $ 11
Limited Partners................................... 907 1,106
------ ------
$ 916 $1,117
====== ======
NET INCOME PER LIMITED PARTNER UNIT (530 Units)...... $ 1,711 $2,087
======= ======
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
ATLANTA MARRIOTT MARQUIS LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
March 28, December 31,
1997 1996
-------- -----------
(unaudited)
ASSETS
Property and equipment, net .......................... $ 161,240 $ 162,111
Amounts held by Marriott International, Inc. ......... 4,959 3,490
Working capital and supplies held
by Marriott International, Inc. .................... 2,900 2,900
Other assets ......................................... 8,058 7,406
Cash and cash equivalents ............................ 11,057 5,601
--------- ---------
$ 188,214 $ 181,508
========= =========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage note payable .............................. $ 216,055 $ 215,574
Due to Host Marriott Corporation under
Original Debt Service Guarantee and Commitment .. 20,134 20,134
Due to Marriott International, Inc. ................ 4,028 3,030
Accounts payable and accrued expenses .............. 4,620 309
--------- ---------
Total Liabilities ............................... 244,837 239,047
--------- ---------
PARTNERS' DEFICIT
General Partner .................................... (505) (514)
Limited Partners ................................... (56,118) (57,025)
--------- ---------
Total Partners' Deficit ......................... (56,623) (57,539)
--------- ---------
$ 188,214 $ 181,508
========= =========
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
ATLANTA MARRIOTT MARQUIS LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in thousands)
Twelve Weeks Ended
------------------
March 28, March 22,
1997 1996
------- -------
OPERATING ACTIVITIES
Net income ........................................... $ 916 $ 1,117
Noncash items ........................................ 2,799 2,444
Changes in operating accounts ........................ 2,842 2,256
------- -------
Cash provided by operating activities ............. 6,557 5,817
------- -------
INVESTING ACTIVITIES
Additions to property and equipment, net ............. (306) (680)
Change in property improvement fund .................. (795) (395)
------- -------
Cash used in investing activities ................. (1,101) (1,075)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS .................. 5,456 4,742
CASH AND CASH EQUIVALENTS at beginning of period ....... 5,601 1,010
------- -------
CASH AND CASH EQUIVALENTS at end of period.............. $11,057 $ 5,752
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest....................... $ 662 $ 662
======= =======
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
ATLANTA MARRIOTT MARQUIS LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The accompanying condensed consolidated financial statements have been
prepared by the Atlanta Marriott Marquis 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 filed on November 10,
1997 for the fiscal year ended December 31, 1996.
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 28, 1997, and the results of
operations and cash flows for the twelve weeks ended March 28, 1997 and
March 22, 1996. Interim results are not necessarily indicative of fiscal
year performance because of seasonal and short-term variations.
2. The Partnership owns an 80% general partnership interest in Ivy Street
Hotel Limited Partnership ("Ivy") which owns and operates the Atlanta
Marriott Marquis Hotel (the "Hotel"). The Partnership consolidates Ivy and
all significant intercompany transactions and balances between the
Partnership and Ivy 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/(losses) of Ivy until
such excess income allocated to the Partnership equals the excess losses
previously recorded by the Partnership.
3. For financial reporting purposes, the net income/(losses) of the
Partnership is allocated 99% to the limited partners and 1% to Marriott
Marquis Corporation (the "General Partner"), a wholly-owned subsidiary of
Host Marriott Corporation. Significant differences exist between the net
income/(losses) for financial reporting purposes and the net
income/(losses) 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 and
the treatment of the minority interest receivable.
4. Hotel revenues represent house profit of the Hotel since Ivy 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 Ivy as property
owner and represents gross hotel sales less property-level expenses,
excluding depreciation and amoritzation, 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 1997 and 1996 consist of
(in thousands):
Twelve Weeks Ended
------------------
March 28, March 22,
1997 1996
-------- --------
HOTEL SALES
Rooms..................................... $13,460 $14,043
Food and beverage ........................ 6,850 6,074
Other .................................... 1,413 1,352
------- -------
21,723 21,469
------- -------
HOTEL EXPENSES
Departmental direct costs
Rooms .................................. 2,728 2,910
Food and beverage ...................... 4,134 4,260
Other .................................... 4,819 4,608
------- -------
11,681 11,778
------- -------
REVENUES..................................... $10,042 $ 9,691
======= =======
4
<PAGE>
5. Pursuant to the terms of the Management Agreement, the Manager is obligated
to transfer, not less than once each accounting period, all funds derived
from the operation of the Hotel after all Hotel operating expenses. Such
amounts from the Manager are owned by Ivy.
6. Certain reclassifications were made to the prior year financial statements
to conform to the 1997 presentation.
Subsequent Event
On July 10, 1997 (the "Extension Date"), the Partnership and Ivy entered into a
letter agreement (the "Letter Agreement") which effectively extends the maturity
of the Mortgage Debt until February 2, 1998 (the "New Maturity Date"). On the
Extension Date, the Partnership and Ivy were required to pay $17,590,000
representing the Deferred Interest on the Mortgage Debt in addition to the
scheduled interest payment due of $10,119,000. As a result, the Mortgage Debt
balance outstanding was reduced to $199,000,000. The payment of the Deferred
Interest was funded from $7,200,000 of Ivy cash reserves and $10,390,000 drawn
pursuant to a Host Marriott interest guarantee (the "Interest Guarantee"). Host
Marriott had agreed to advance up to $50,000,000 to cover interest and principal
shortfalls. Should cash flow from operations be insufficient to fund fully
interest due, $20,000,000 was available under the Interest Guarantee through
loan maturity. The remaining $30,000,000 was available under the Principal
Guarantee. Prior to the payment of Deferred Interest in the amount of
$10,390,000 on July 10, 1997, there were no amounts outstanding under either
the Principal Guarantee or the Interest Guarantee. In conjunction with the
extension, Host Marriott reaffirmed its obligations pursuant to these guarantees
through the New Maturity Date. The Principal Guarantee is available at maturity
or in case of a sale, refinancing or acceleration of the principal amount of the
underlying Notes resulting from an Event of Default, as defined. To the extent
the Interest Guarantee is not used, it becomes available as a Principal
Guarantee. The General Partner estimates that a sale of the Hotel would generate
sufficient proceeds to repay the maturing Mortgage Debt, outstanding advances
from Host Marriott and cover transaction costs; therefore, no advances under the
guarantees would be required.
During the term of the Letter Agreement, the Mortgage Debt continues to be
nonrecourse, and will accrue interest at 12.3% per annum with interest payments
due on January 10 and February 2, 1998. Additionally, all funds remitted by the
Manager during the term of the extension will be held by the Partnership for the
benefit of the lender. In conjunction with the Letter Agreement, Ivy paid an
extension fee of $500,000 as well as approximately $410,000 in costs and
expenses related to the transaction. It is expected that cash flow from
operations will provide adequate funds to meet the scheduled interest payments.
The General Partner is continuing its efforts to refinance the Mortgage Debt
upon or prior to the New Maturity Date.
5
<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.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have been historically funded through loan
agreements with independent financial institutions. The General Partner believes
that the Partnership's ability to continue to conduct its operations in the
ordinary course of business is contingent upon the General Partner's ability to
successfully refinance the Partnership's Mortgage Debt.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is cash from operations. Its
principal uses of cash are to pay debt service payments on the Partnership's
Mortgage Debt, to make guarantee repayments and to fund the property improvement
fund.
Cash provided by operations was $6.6 million and $5.8 million for the twelve
weeks ended March 28, 1997 and March 22, 1996, respectively. The increase is
primarily attributable to an increase in Hotel revenues. The Partnership paid
$662,000 of interest expense on the mortgage debt for the twelve weeks ended
March 28, 1997 and March 22, 1996, respectively. Contributions to the property
improvement fund were $1.0 million for the twelve weeks ended March 28, 1997 and
March 22, 1996, respectively.
As previously reported, in 1996 the General Partner established a reserve in
anticipation of a potential principal paydown and the costs which will be
incurred to refinance the Mortgage Debt. Though these refinancing costs are not
currently estimable, based on the General Partner's experiences with other
partnerships, such costs are expected to be substantial. These costs are
expected to include lender property appraisals, legal expenses, bank fees,
environmental studies and other transaction costs. The initial reserve was
funded from 1996 cash available after payment of debt service which would have
otherwise been distributable to the partners. The Partnership will continue to
reserve all available cash for the refinancing. Furthermore, in 1996 Ivy
reserved all cash flow in its excess of ground rent for refinancing costs and
owner funded capital needs. As of March 28, 1997, the total reserved equaled
$10.7 million which is included in cash and cash equivalents in the accompanying
balance sheet.
As a result of the establishment of these reserves, the Partnership will not
make a cash distribution from 1996 operations to the partners. In addition, cash
distributions for 1997 and thereafter will be dependent upon the outcome of the
debt refinancing.
Capital Expenditures
The Partnership is required to maintain the Hotel in good repair and condition.
The 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. Currently, the funds available in the
property improvement fund are sufficient for the scheduled $7.0 million rooms
refurbishment for approximately half of the Hotel's rooms which will begin in
August. The General Partner expects that the funds for the refurbishment of the
remaining rooms will be provided for in conjunction with the refinancing of the
Mortgage Debt or will be provided for with future years' contributions to the
property improvement fund.
6
<PAGE>
The General Partner believes that cash from Hotel operations, the interest and
principal guarantee, and the availability of funds from the refinancing and
capital reserves will provide adequate funds in the short-term to meet the
operational needs of the Partnership. The General Partner anticipates that the
debt maturing in July will be successfully refinanced with a new third-party
lender.
Mortgage Debt
Cash flow from 1996 operations provided the Partnership with adequate funds to
meet its scheduled interest payment of $10.1 million due on January 10, 1997.
The interest payment was made in two separate installments: one in the amount of
$9.5 million made at year end 1996 and the other on January 10, 1997 in the
amount of $662,000. The Partnership's $199 million Mortgage Debt accrues
interest at 10.3% and is payable semiannually at a cash payment rate of 10.17%.
The difference between the cash payment rate and the accrual rate ("Deferred
Interest") is added to the balance of the Mortgage Debt. Deferred Interest added
to the Mortgage Debt totaled $17.5 million and $16.5 million at March 29, 1997
and December 31, 1996, respectively. The next interest payment is due on July
10, 1997 and is expected to be fully funded from operating cash flow.
The Partnership's Mortgage Debt matures on July 10, 1997 with approximately $217
million due at that time. We are continuing our efforts to refinance the
Mortgage Debt upon maturity and expect to enter into a commitment with a new
third-party lender during the upcoming weeks. Based upon our experience with
recent partnership refinancings and the current capital markets, it is expected
that the refinanced Mortgage Debt will require significant amortization of
principal in addition to interest; the Partnership's debt service payments are
currently for interest only. We anticipate the refinanced term will be for
approximately seven to fifteen years with an interest rate of Treasuries plus
2-3% and require principal amortization over a 20- or 25-year schedule. In
addition, it is likely that the refinanced Mortgage Debt will be split into two
tranches: one "senior" tranche which would be secured by the assets of the Hotel
and a "junior" tranche which would be secured only by Partnership equity and,
therefore, carry a significantly higher interest rate. Alternatives being
considered for the funding of the "junior" tranche include either a preferred
equity infusion or a participating loan. The combination of these two factors is
expected to result in a refinanced loan for which debt service will exceed that
of the existing Mortgage Debt. There can be no assurance that a successful
refinancing will be achieved. Failure to refinance the Mortgage Debt could lead
to a foreclosure of the Hotel.
RESULTS OF OPERATIONS
Partnership revenues for the first quarter of 1997 increased 4% when compared to
the first quarter of 1996 primarily due to a 50%, or $902,000, increase in food
and beverage revenues partially offset by a 4%, or $401,000, decline in room
revenues. The increase in food and beverage revenues is due to an increase in
banquet sales as the Hotel hosted a number of groups that heavily utilized the
Hotel's catering facilities. The decrease in room revenues is due to a 4%
decrease in REVPAR, or revenue per available room. REVPAR decreased due to a 2.6
percentage point decrease in average occupancy to the mid-70's combined with a
1% decrease in average room rate to approximately $130. The decreases in average
occupancy and average room rate are due to a decline in demand throughout the
Atlanta market.
Hotel management is optimistic about the remainder of the year. Presently, Hotel
management is working to form an alliance with Hyatt and Hilton. Their intention
is that with three hotels working together, the hotels can accommodate larger
conventions and therefore stimulate business activity at all three properties.
The concept has been successful in Boston and Hotel management is optimistic
that similar results will be achieved in Atlanta. In addition, the mayor of
Atlanta has introduced the Renaissance Program which is expected to continue the
momentum of economic and community development started by the Olympics. Plans
include an investment in downtown housing that is expected to bring Atlanta to
life after dark. The goal is to make downtown Atlanta a 24-hour city with
restaurants, shops, sports and entertainment facilities.
Depreciation. Depreciation decreased $432,000, or 27%, in 1997 when compared to
1996 due to a portion of the Hotel's furniture and equipment becoming fully
depreciated in 1996.
Incentive Management Fees. In 1997, $998,000 of incentive management fees were
earned as compared to $341,000 earned in 1996. The increase in incentive
management fees earned was the result of improved Hotel operating results
resulting in certain cash flow priorities having been met.
7
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Partnership, Ivy nor the Hotel are presently subject to any material
litigation nor, to the General Partner's knowledge is any material litigation
threatened against the Partnership or the Hotel, other than routine litigation
and administrative proceedings arising in the ordinary course of business, some
of which are expected to be covered by liability insurance and which,
collectively, are not expected to have a material adverse effect on the
business, financial conditions, or results of operations of the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
27 - Financial Data Schedule
b. Reports on Form 8-K - None.
8
<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
LIMITED PARTNERSHIP
By: MARRIOTT MARQUIS CORPORATION
General Partner
November 10, 1997 By: /s/ Patricia K. Brady
--------------------------------------------
Patricia K. Brady
Vice President and Chief Accounting Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
First Quarter 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000770809
<NAME> Atlanta Marriott Marquis Limited Partnership
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-28-1997
<EXCHANGE-RATE> 1.00
<CASH> 11,057
<SECURITIES> 8,058<F1>
<RECEIVABLES> 7,859<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,974
<PP&E> 229,662
<DEPRECIATION> (68,422)
<TOTAL-ASSETS> 188,214
<CURRENT-LIABILITIES> 8,648<F3>
<BONDS> 236,189<F4>
0
0
<COMMON> 0
<OTHER-SE> (56,623)
<TOTAL-LIABILITY-AND-EQUITY> 188,214
<SALES> 0
<TOTAL-REVENUES> 10,042
<CGS> 0
<TOTAL-COSTS> 3,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,595
<INCOME-PRETAX> 916
<INCOME-TAX> 0
<INCOME-CONTINUING> 916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 916
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>This is other assets.
<F2>This includes amounts held by MII and working capital and supplies held by
MII.
<F3>This includes due to MII and accounts payable and accrued expenses.
<F4>This includes mortgage note payable and due to HMC.
</FN>
</TABLE>
