<PAGE>
================================================================================
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 June 20, 1997
OR
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-15736
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1468081
- ------------------------------- ------------------------------------
(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
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). On August 25, 1992, the
Registrant filed an application for relief from the reporting requirements of
the Securities Exchange Act of 1934 pursuant to Section 12(h) thereof. Pursuant
to a grant of the relief requested in such application, the Registrant was not
required to, and did not make, any filings pursuant to the Securities Exchange
Act of 1934 from October 23, 1989 until the application was voluntarily
withdrawn on January 27, 1998.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
Courtyard By Marriott Limited Partnership
================================================================================
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE NO.
PART I - FINANCIAL INFORMATION --------
<S> <C> <C>
Item 1. Financial Statements
Condensed Statement of Operations
Twelve and Twenty-Four Weeks Ended June 20, 1997 and June 14, 1996..................1
Condensed Balance Sheet
June 20, 1997 and December 31, 1996.................................................2
Condensed Statement of Cash Flows
Twelve and Twenty-Four Weeks ended June 20, 1997 and June 14, 1996..................3
Notes to Condensed Financial Statements................................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................6
<CAPTION>
PART II - OTHER INFORMATION
<S> <C> <C>
Item 1. Legal Proceedings........................................................................8
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands except per Unit amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
June 20, June 14, June 20, June 14,
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES................................................$ 24,502 $ 23,040 $ 46,190 $ 41,946
------------- ------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Depreciation ........................................ 3,933 4,559 8,040 9,117
Incentive management fee............................. 4,512 2,474 4,512 4,371
Base and Courtyard management fees................... 2,785 2,638 5,392 5,022
Ground rent, taxes and other......................... 2,656 3,354 6,253 6,802
------------- ------------ ------------ ------------
13,886 13,025 24,197 25,312
------------- ------------ ------------ ------------
OPERATING PROFIT........................................ 10,616 10,015 21,993 16,634
Interest expense..................................... (6,113) (5,360) (11,693) (10,755)
Interest income...................................... 276 166 360 420
------------- ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEMS....................... 4,779 4,821 10,660 6,299
EXTRAORDINARY ITEMS
Gain on forgiveness of deferred fees................. -- -- 14,896 --
Loss on extinguishment of debt....................... -- -- (2,423) --
------------- ------------ ------------ ------------
-- -- 12,473 --
------------- ------------ ------------ ------------
NET INCOME..............................................$ 4,779 $ 4,821 $ 23,133 $ 6,299
============= ============ ============ ============
EXTRAORDINARY ITEMS PER LIMITED
PARTNER UNIT (1,150 Units)...........................$ -- -- $ 10,304 $ --
============= ============ ============ ============
NET INCOME PER LIMITED PARTNER UNIT
(1,150 Units)........................................$ 3,948 $ 3,983 $ 19,110 $ 5,204
============= ============ ============ ============
</TABLE>
See Notes to Condensed Financial Statements.
1
<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 20, December 31,
1997 1996
-------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net................................................$ 300,646 $ 300,939
Due from Courtyard Management Corporation.................................. 9,244 5,325
Other assets............................................................... 18,327 11,536
Cash and cash equivalents.................................................. 10,051 12,709
-------------- ----------------
$ 338,268 $ 330,509
============== ================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Debt.......................................................................$ 323,874 $ 288,975
Due to Marriott International, Inc. and affiliates......................... 19,741 19,848
Due to Host Marriott Corporation........................................... 13,297 12,975
Incentive management fees due to Courtyard Management Corporation.......... 6,500 25,596
Accounts payable and accrued liabilities................................... 1,437 2,445
-------------- ----------------
Total Liabilities....................................................... 364,849 349,839
-------------- ----------------
PARTNERS' CAPITAL (DEFICIT)
General Partner............................................................ (3) 474
Limited Partners........................................................... (26,578) (19,804)
-------------- ----------------
Total Partners' Deficit................................................. (26,581) (19,330)
-------------- ----------------
$ 338,268 $ 330,509
============== ================
</TABLE>
See Notes to Condensed Financial Statements.
2
<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Twenty-Four Weeks Ended
June 20, June 14,
1997 1996
-------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................................$ 23,133 $ 6,299
Extraordinary items............................................. (12,473) --
-------------- ---------------
Income before extraordinary items............................... 10,660 $ 6,299
Noncash items................................................... 8,789 14,284
Changes in operating accounts................................... (9,234) (4,777)
-------------- ---------------
Cash provided by operating activities........................ 10,215 15,806
-------------- ---------------
INVESTING ACTIVITIES
Additions to property and equipment, net........................ (7,747) (8,452)
Change in property improvement funds............................ (3,752) 4,261
-------------- ---------------
Cash used in investing activities............................ (11,499) (4,191)
-------------- ---------------
FINANCING ACTIVITIES
Proceeds from mortgage debt .................................... 325,000 --
Repayments of mortgage debt .................................... (290,101) (13,727)
Capital distributions........................................... (30,384) --
Payment of financing costs...................................... (5,889) --
-------------- ---------------
Cash used in financing activities............................ (1,374) (13,727)
-------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS................................ (2,658) (2,112)
CASH AND CASH EQUIVALENTS at beginning of period..................... 12,709 11,013
-------------- ---------------
CASH AND CASH EQUIVALENTS at end of period...........................$ 10,051 $ 8,901
============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest.................................$ 11,945 $ 11,292
============== ===============
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed financial statements have been prepared by the
Courtyard By Marriott 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 Annual
Report for the fiscal year ended December 31, 1996. Interim results are not
necessarily indicative of fiscal year performance because of seasonal and
short-term variations.
For financial reporting purposes, the net income of the Partnership is
allocated 95% to the Limited Partners and 5% to the General Partner.
Significant differences exist between the net income for financial
reporting purposes and the net income 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 certain fees
and straight-line rent adjustments.
2. Revenues consist of Hotel operating results as follows (in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
June 20, June 14, June 20, June 14,
1997 1996 1997 1996
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
HOTEL SALES
Rooms..................................$ 41,793 $ 39,104 $ 80,694 $ 74,366
Food and beverage...................... 3,055 3,184 6,078 6,124
Other.................................. 1,576 1,682 3,100 3,209
------------ ------------- ------------- ------------
46,424 43,970 89,872 83,699
------------ ------------- ------------- ------------
HOTEL EXPENSES
Departmental direct costs
Rooms.............................. 8,704 8,391 16,958 16,325
Food and beverage.................. 2,614 2,605 5,114 5,156
Other.................................. 10,604 9,934 21,610 20,272
------------ ------------- ------------- ------------
21,922 20,930 43,682 41,753
------------ ------------- ------------- ------------
REVENUES...................................$ 24,502 $ 23,040 $ 46,190 $ 41,946
============ ============= ============= ============
</TABLE>
3. On March 21, 1997, the Partnership completed a refinancing of both the 49
Hotels and Hartford Hotel mortgage loan. The total amount of the debt was
increased from $280.8 million to $325 million. The net proceeds from the
refinancing was used to (i) repay the 49 Hotels and Hartford Hotel mortgage
loans of $280.8 million; (ii) make a $7 million contribution to the
property improvement fund to cover anticipated shortfalls; (iii) reserve $7
million to pay financing costs; and (iv) make a $30.2 million partial
return of capital distribution to the partners.
The remaining balance of $2.4 million in financing costs related to the 49
Hotels and Hartford Hotel mortgage loans were written-off in connection
with the refinancing and has been reflected as an extraordinary loss on the
statement of operations.
4. The General Partner has undertaken, on behalf of the Partnership, to
pursue, subject to further approval of the partners, a potential
transaction (the "Consolidation") in which (i) subsidiaries of CRF Lodging
Company, L.P. (the "Company"), a newly formed Delaware limited partnership,
would merge with and into the Partnership and up to five other limited
partnerships, with the Partnership and the other limited partnerships being
the surviving entities (each, a "Merger" and collectively, the "Mergers"),
subject to the satisfaction or waiver of certain conditions, (ii) CRF
Lodging Trust ("CRFLT"), a Maryland real estate investment trust, the sole
general partner of the Company, would offer its common shares of beneficial
interest, par value $0.01 per share (the "Common Shares") to investors in
an underwritten public offering and would invest the proceeds of such
offering in the Company in exchange for units of limited partnership
interests in the Company ("Units") and (iii) the Partnership would enter
into a Lease for the operation of its Hotels pursuant to which a Lessee
would pay rent to the Partnership based upon the greater of a fixed dollar
amount of base rent or specified percentages of gross sales, as specified
in the Lease. If the partners approve the transaction and other conditions
are satisfied, the partners of the Partnership would receive Units in the
Merger in exchange for their interests in the Partnership.
A preliminary Prospectus/Consent Solicitation was filed as part of a
Registration Statement on Form S-4 with the Securities and Exchange
Commission and which describes the potential transaction in greater detail.
Any offer of Units in connection with the Consolidation will be made solely
by a final Prospectus/Consent Solicitation.
4
<PAGE>
In connection with this refinancing, a new management agreement was
negotiated with Courtyard Management Corporation (the "Manager"). Under the
new agreement, the Partnership paid $4.2 million of deferred management
fees at closing and the Manager agreed to forgive $14.9 million of deferred
fees leaving a $6.5 million balance of accrued incentive management fees.
The forgiveness of deferred fees of $14.9 million has been reflected as an
extraordinary gain on the statement of operations.
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. 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
First Two Quarters 1997 Compared to First Two Quarters 1996
Revenues. Revenues (hotel sales less direct hotel operating costs and expenses)
for the first two quarters 1997 increased $4.2 million to $46.2 million, a 10%
increase when compared to the first two quarters 1996. The Partnership's
revenues and operating profit were impacted by improved lodging results. The
increase was driven primarily by growth in revenue per available room
("REVPAR"). REVPAR is a commonly used indicator of market performance for hotels
which represents the combination of daily room charged and the average daily
occupancy achieved. REVPAR does not include food and beverage or other ancillary
revenues generated by the property. For the first two quarters of 1997, hotel
sales increased $6.2 million to $89.9 million, a 7% increase compared to the
first two quarters 1996.
REVPAR increased 9% to $67 for the first two quarters 1997 when compared to the
first two quarters 1996. This is primarily due to the increase in combined
average room rate of $5 to $81 year-to-date and the increase of the combined
average occupancy of two percentage points to 82% year-to-date. Due to the
continued high occupancy of these properties, the Partnership expects future
increases in REVPAR to be driven by room rate increases, rather than changes in
occupancy. However, there can be no assurance that REVPAR will continue to
increase in the future.
Operating Costs and Expenses. The Partnership's operating costs and expenses
decreased 4% from $25.3 million for the first two quarters 1996 to $24.2 million
for the first two quarters 1997 primarily due to a decrease in depreciation
expense. As a percentage of revenues, hotel operating costs and expenses were
52% and 60% for the first two quarters 1997 and first two quarters 1996,
respectively.
Operating Profit. As a result of changes in revenues and operating costs and
expenses discussed above, operating profit increased for the first two quarters
1997 by $5.4 million to $22 million, or 48% of revenues from $16.6 million, or
40% of revenues, for the first two quarters 1996.
Interest Expense. Interest expense increased $938,000, or 9%, to $11.7 million
for the first two quarters 1997 over the first two quarters 1996 due to the
refinancing of the mortgage debt from a short term loan at variable rates to a
long term loan at a higher fixed rate and an increase of the loan balance to
$325 million.
6
<PAGE>
Income before Extraordinary Items. Income before extraordinary items increased
by $4.4 million to $10.7 million for the first two quarters 1997 when compared
to the first two quarters 1996.
Extraordinary Items. The Partnership recognized a net extraordinary gain in the
first quarter 1997 of $12.5 million representing the forgiveness of deferred
management fees by Marriott International, Inc. partially offset by an
extraordinary loss on the early extinguishment of debt.
Net Income. Net income for the first two quarters 1997 increased $16.8 million
to $23.1 million, or 50% of revenues when compared to net income of $6.3
million, or 15% of revenues, for the first two quarters 1996 as a result of the
items discussed above.
Second Quarter 1997 Compared to Second Quarter 1996
Revenues. Revenues increased $1.5 million for second quarter 1997, a 6% increase
when compared to second quarter 1996, due to the increase in REVPAR as described
below.
REVPAR for second quarter 1997 increased 7% to $69 when compared to the same
period in 1996 primarily due to the increase in combined average room rate of $5
to $82 for the second quarter 1997 and the increase of the combined average
occupancy of one percentage point to 84% over the same period in 1996.
Operating Costs and Expenses. The Partnership's operating costs and expenses
increased $1 million, or 7%, to $13.9 million for second quarter 1997 when
compared to the same period in 1996 primarily due to increases in incentive
management fees.
Operating Profit. As a result of changes in revenues and operating costs and
expenses discussed above, operating profit increased for second quarter 1997 by
$600,000, or 6%, to $10.6 million, when compared to the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $10.2 million and $15.8 million for the first
two quarters 1997 and the first two quarters 1996, respectively. The large
decrease in cash provided by operations was due to the payment of $4.2 million
of deferred management fees in connection with the refinancing.
Cash used in investing activities was $11.5 million and $4.2 million for the
first two quarters 1997 and the first two quarters 1996, respectively. The
Partnership's cash investing activities consists primarily of contributions to
the property improvement fund and capital expenditures for improvements to
existing hotels. As part of the debt refinancing, contributions to the property
improvement fund will remain at 5% of gross hotel sales through 1998 and can be
increased to 6% in 1999 and 2000 and 7% thereafter.
Cash used in financing activities was $1.4 million and $13.7 million for the
first two quarters 1997 and the first two quarters 1996, respectively. In the
first quarter 1997, the Partnership received refinancing proceeds in excess of
repayments of the mortgage debt providing cash to the Partnership which was
offset by the cash used to pay refinancing costs and return of capital
distributions made to the partners.
In March 1997, the Partnership refinanced all of its outstanding mortgage debt.
The total amount of debt increased from $280.8 million to $325 million. The
$44.2 million of excess refinancing proceeds were used to make a $7 million
contribution to the property improvement fund, a $30.2 million partial return of
capital distribution to the partners and to pay $7 million of refinancing costs.
The new non-recourse loan matures in April 2012, requires principal amortization
on a 20-year term and carries a fixed interest rate of 7.865%.
7
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Marvin Schick, et. al. v. Host Marriott Corporation, et. al. In the
-----------------------------------------------------------
Chancery Court for New Castle County, Delaware; C.A. No. 15991. The plaintiffs,
two members of an ad hoc committee of Courtyard by Marriott Limited Partners,
recently filed this purported class action lawsuit against Host, Marriott
International and others, alleging breach of fiduciary duty, breach of contract,
tortious interference and aiding and abetting liability in connection with the
refinancings of Courtyard by Marriott's debt. Among other things, the plaintiffs
contend that certain changes to Courtyard by Marriott's Management Agreement
could not be made without the consent of a majority vote of the Courtyard by
Marriott Limited Partners. The defendants (which do not include Courtyard by
Marriott) believe that the lawsuit is without merit and, if current discussions
fail to resolve the dispute, intend to vigorously defend the suit.
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
conditions or results of operations of the Partnership.
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.
COURTYARD BY MARRIOTT
LIMITED PARTNERSHIP
By: CBM ONE CORPORATION
General Partner
January 27, 1998 By: /s/ Earla L. Stowe
-----------------------------------------
Earla L. Stowe
Vice President and Chief Accounting
Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000813807
<NAME> COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-20-1997
<EXCHANGE-RATE> 1.00
<CASH> 10,051
<SECURITIES> 0
<RECEIVABLES> 9,244
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,327
<PP&E> 516,736
<DEPRECIATION> (216,090)
<TOTAL-ASSETS> 338,268
<CURRENT-LIABILITIES> 27,678
<BONDS> 337,171
0
0
<COMMON> 0
<OTHER-SE> (26,581)
<TOTAL-LIABILITY-AND-EQUITY> 338,268
<SALES> 0
<TOTAL-REVENUES> 46,190
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,693
<INCOME-PRETAX> 10,660
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 12,473
<CHANGES> 0
<NET-INCOME> 23,133
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
