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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 September 12, 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
incorporation or organization) Identification No.)
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
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23, 1989 until the application was voluntarily withdrawn on January 27, 1998.
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Courtyard By Marriott Limited Partnership
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TABLE OF CONTENTS
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PAGE NO.
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Statement of Operations
Twelve and Thirty-Six Weeks Ended September 12, 1997 and September 6, 1996............1
Condensed Balance Sheet
September 12, 1997 and December 31, 1996..............................................2
Condensed Statement of Cash Flows
Thirty-Six Weeks ended September 12, 1997 and September 6, 1996.......................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..........................................................................9
</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 Thirty-Six Weeks Ended
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
------------ ------------ ------------ ------------
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REVENUES ............................................... $ 22,771 $ 22,244 $ 68,961 $ 64,190
------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Depreciation ........................................ 5,292 4,558 13,332 13,675
Base and Courtyard management fees .................. 2,713 2,622 8,105 7,644
Incentive management fees ........................... 2,083 2,359 6,595 6,730
Ground rent, taxes and other ........................ 3,914 3,303 10,167 10,105
------------ ------------ ------------ ------------
14,002 12,842 38,199 38,154
------------ ------------ ------------ ------------
OPERATING PROFIT ....................................... 8,769 9,402 30,762 26,036
Interest expense .................................... (6,121) (5,458) (17,814) (16,213)
Interest income ..................................... 112 278 472 698
------------ ------------ ------------ ------------
INCOME BEFORE
EXTRAORDINARY ITEMS ................................. 2,760 4,222 13,420 10,521
EXTRAORDINARY ITEMS
Gain on forgiveness of deferred fees ................ -- -- 14,896 --
Loss on extinguishment of debt ...................... -- -- (2,423) --
------------ ------------ ------------ ------------
-- -- 12,473 --
------------ ------------ ------------ ------------
NET INCOME ............................................. $ 2,760 $ 4,222 $ 25,893 $ 10,521
============ ============ ============ ============
EXTRAORDINARY ITEMS PER LIMITED
PARTNER UNIT (1,150 Units) .......................... $ -- $ -- $ 10,304 $ --
============ ============ ============ ============
NET INCOME PER LIMITED PARTNER UNIT
(1,150 Units) ....................................... $ 2,280 $ 3,488 $ 21,390 $ 8,691
============ ============ ============ ============
</TABLE>
See Notes to Condensed Financial Statements
1
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COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(in thousands)
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<CAPTION>
September 12, December 31,
1997 1996
------------ -------------
(Unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net............................................... $ 302,585 $ 300,939
Due from Courtyard Management Corporation................................. 5,512 5,325
Other assets.............................................................. 13,432 11,536
Restricted cash........................................................... 1,876 --
Cash and cash equivalents................................................. 8,878 12,709
------------ -------------
$ 332,283 $ 330,509
============ =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Mortgage debt............................................................. $ 322,158 $ 288,975
Due to Marriott International, Inc. and affiliates........................ 19,687 19,848
Due to Host Marriott Corporation.......................................... 13,406 12,975
Incentive management fees due to Courtyard Management Corporation. ....... 5,367 25,596
Accounts payable and accrued liabilities.................................. 2,749 2,445
------------ -------------
Total Liabilities...................................................... 363,367 349,839
------------ -------------
PARTNERS' CAPITAL (DEFICIT)
General Partner........................................................... (229) 474
Limited Partners.......................................................... (30,855) (19,804)
------------ -------------
Total Partners' Deficit................................................ (31,084) (19,330)
------------ -------------
$ 332,283 $ 330,509
============ =============
</TABLE>
See Notes to Condensed Financial Statements
2
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COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
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<CAPTION>
Thirty-Six Weeks Ended
September 12, September 6,
1997 1996
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OPERATING ACTIVITIES
Net income..................................................$ 25,893 $ 10,521
Extraordinary items......................................... (12,473) --
--------------- --------------
Income before extraordinary items........................... 13,420 10,521
Noncash items............................................... 14,264 21,619
Changes in operating accounts............................... (7,253) (4,683)
--------------- --------------
Cash provided by operating activities.................... 20,431 27,457
--------------- --------------
INVESTING ACTIVITIES
Additions to property and equipment, net.................... (14,978) (11,016)
Change in property improvement fund......................... 1,160 4,415
--------------- --------------
Cash used in investing activities........................ (13,818) (6,601)
--------------- --------------
FINANCING ACTIVITIES
Proceeds from mortgage debt ................................ 325,000 --
Repayments of mortgage debt ................................ (291,817) (21,558)
Capital distributions....................................... (37,647) --
Payment of financing costs.................................. (5,980) (6)
--------------- --------------
Cash used in financing activities........................ (10,444) (21,564)
--------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS............................ (3,831) (708)
CASH AND CASH EQUIVALENTS at beginning of period................. 12,709 11,013
--------------- --------------
CASH AND CASH EQUIVALENTS at end of period.......................$ 8,878 $ 10,305
=============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest.............................$ 18,450 $ 16,818
=============== ==============
</TABLE>
See Notes to Condensed Financial Statements
3
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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, difference in the timing of recognition of certain fees and
straight-line rent adjustments.
2. Revenues consist of Hotel operating results as follows (in thousands):
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Twelve Weeks Ended Thirty-Six Weeks Ended
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
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HOTEL SALES
Rooms..............................$ 40,878 $ 39,195 $ 121,572 $ 113,561
Food and beverage.................. 2,808 2,929 8,886 9,053
Other.............................. 1,524 1,581 4,624 4,790
-------------- ------------- -------------- -------------
45,210 43,705 135,082 127,404
-------------- ------------- -------------- -------------
HOTEL EXPENSES
Departmental direct costs
Rooms.......................... 8,875 8,457 25,833 24,782
Food and beverage.............. 2,542 2,537 7,656 7,693
Other hotel operating expenses..... 11,022 10,467 32,632 30,739
-------------- ------------- -------------- -------------
22,439 21,461 66,121 63,214
-------------- ------------- -------------- -------------
REVENUES...............................$ 22,771 $ 22,244 $ 68,961 $ 64,190
============== ============= ============== =============
</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. In connection with this
refinancing, the Partnership recognized a net extraordinary gain of $12.5
million related to the forgiveness of $14.9 million in deferred fees from
the Manager and the write-off of $2.4 million of the financing costs
related to the original debt.
4. Pursuant to the terms of the refinanced loan, the Partnership is required
to establish with the lender a separate escrow account for payments of
insurance premiums and real estate taxes for each mortgaged property if the
credit rating of Marriott International, Inc. is downgraded by Standard and
Poor's Rating Services. The Manager, Courtyard Management Corporation, is a
wholly-owned subsidiary of Marriott International, Inc. On April 1, 1997,
Marriott International, Inc.'s credit rating was downgraded and on July 21,
1997 the Partnership subsequently transferred $1.9 million into the escrow
reserve from the Manager's existing tax and insurance reserve account.
During the third quarter of 1997, an additional $543,000 was transferred
into and
5. 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
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$591,000 in real estate taxes were paid out of the reserve account
resulting in an ending escrow balance of $1.9 million. The escrow reserve
is included in restricted cash and the resulting tax and insurance
liability is included in accounts payable and accrued liabilities in the
accompanying balance sheet.
5
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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. 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 Three Quarters 1997 Compared to First Three Quarters 1996
Revenues. Revenues for the first three quarters 1997 increased $4.8 million, or
7%, to $69 million when compared to the same period of 1996. The Partnership's
revenues and operating profit were impacted primarily 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 rate charged and the
average daily occupancy achieved. REVPAR does not include food and beverage or
other ancillary revenues generated by the property. Hotel sales increased $7.7
million, or 6%, to $135.1 million in the first three quarters 1997 reflecting
the improvements in REVPAR for the period.
REVPAR increased 8% for the first three quarters 1997 due primarily to an
increase in average room rates of 5% to $81, while average occupancy increased
one percentage point to 82% over the same period in 1996. Results were further
enhanced by a one percentage point increase in the house profit margin. Due to
the continued high occupancy of these properties, the Partnership expects future
increase 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
remained unchanged at $38.2 million for the first three quarters 1997 and the
first three quarters 1996. As a percentage of revenues, hotel operating costs
and expenses were 55% and 60% of revenues for the first three quarters 1997 and
the first three quarters 1996, respectively.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased by $4.8 million to $30.8
million, or 45% of revenues, for the first three quarters 1997 from $26 million,
or 40% of revenues, for the first three quarters 1996.
Interest Expense. Interest expense increased $1.6 million, or 10%, to $17.8
million for the first three quarters 1997 over the first three quarters 1996 due
to the refinancing of mortgage debt from a short term loan at variable rates to
a long term loan at a higher fixed rate and an increase in the balance of the
loan to $325 million.
6
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Income Before Extraordinary Items. Income before extraordinary item increased
$2.9 million to $13.4 million, or 19% of revenues, for the first three quarters
1997 compared to $10.5 million, or 16% of revenues, for the first three quarters
1996.
Extraordinary Items. The Partnership recognized a net extraordinary gain in 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 three quarters 1997 increased $15.4 million
to $25.9 million, or 38% of revenues, compared to net income of $10.5 million,
or 16% of revenues, for the first three quarters 1996 as a result of the items
discussed above.
Third Quarter 1997 Compared to Third Quarter 1996
Revenues. Revenues for the third quarter 1997 increased 2% to $22.8 million due
to the increase in REVPAR as described below.
REVPAR for the third quarter 1997 increased 3% to $67 primarily due to the
increase in combined average room rate of $3, or 4%, to $81 while the combined
average occupancy remained stable at 83%. 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
increased $1.2 million, or 9%, to $14 million for third quarter 1997 primarily
due to the increase in depreciation in third quarter 1997 when compared to third
quarter 1996.
Operating Profit. As a result of changes in revenues and operating costs and
expenses discussed above, operating profit decreased by $633,000, or 7%, to $8.8
million for third quarter 1997.
Net Income. Net income for third quarter 1997 decreased $1.5 million to $2.8
million, or 12% of revenues, compared to net income of $4.2 million, or 19% of
revenues, for third quarter 1996 as a result of the decrease in operating profit
as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Principal Sources and Uses of Cash
Cash provided by operations was $20.4 million and $27.5 million for the first
three quarters 1997 and first three quarters 1996, respectively. The large
decrease in cash provided by operations was due to the payment of $4.2 million
of deferred fees in connection with the refinancing.
Cash used in investing activities was $13.8 million and $6.6 million for the
first three quarters 1997 and the first three 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.
7
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Cash used in financing activities was $10.4 million and $21.6 million for the
first three quarters 1997 and first three quarters 1996, respectively. The
Partnership's cash financing activities primarily consisted of capital
distributions to partners, repayments of debt and payment of financing costs, as
well as the refinancing of certain debts of the partnership.
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%.
8
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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.
9
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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
10
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<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
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-12-1997
<EXCHANGE-RATE> 1.00
<CASH> 8,878
<SECURITIES> 0
<RECEIVABLES> 5,512
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<CURRENT-ASSETS> 15,308
<PP&E> 523,967
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<BONDS> 335,564
0
0
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</TABLE>
