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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 March 28, 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
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(Exact name of registrant as specified in its charter)
Delaware 52-1468081
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10400 Fernwood Road
Bethesda, Maryland
20817
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(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withdrawn on January 27, 1998.
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COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
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<TABLE>
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TABLE OF CONTENTS
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PAGE NO.
PART I - FINANCIAL INFORMATION --------
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Item 1. Financial Statements
Condensed Statement of Operations
Twelve Weeks Ended March 28, 1997 and March 22, 1996......................1
Condensed Balance Sheet
March 28, 1997 and December 31, 1996......................................2
Condensed Statement of Cash Flows
Twelve Weeks ended March 28, 1997 and March 22, 1996......................3
Notes to Condensed Financial Statements......................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................6
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PART II - OTHER INFORMATION
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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)
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<CAPTION>
Twelve Weeks Ended
March 28, March 22,
1997 1996
-------------- --------------
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REVENUES............................................................$ 21,688 $ 18,906
-------------- --------------
OPERATING COSTS AND EXPENSES
Depreciation...................................................... 4,107 4,558
Base and Courtyard management fees................................ 2,607 2,384
Incentive management fees......................................... -- 1,897
Ground rent, taxes and other...................................... 3,597 3,448
-------------- --------------
10,311 12,287
-------------- --------------
OPERATING PROFIT.................................................... 11,377 6,619
Interest expense.................................................. (5,580) (5,395)
Interest income................................................... 84 254
-------------- --------------
INCOME BEFORE EXTRAORDINARY ITEMS................................... 5,881 1,478
EXTRAORDINARY ITEMS
Gain on forgiveness of deferred fees.............................. 14,896 --
Loss on extinguishment of debt.................................... (2,423) --
-------------- --------------
12,473 --
-------------- --------------
NET INCOME..........................................................$ 18,354 $ 1,478
============== ==============
EXTRAORDINARY ITEMS PER LIMITED PARTNER UNIT (1,150 Units)..........$ 10,304 $ --
============== ==============
NET INCOME PER LIMITED PARTNER UNIT (1,150 Units)...................$ 15,162 $ 1,221
============== ==============
</TABLE>
See Notes to Condensed Financial Statements.
1
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COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
March 28, December 31,
1997 1996
-------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net................................................$ 299,339 $ 300,939
Due from Courtyard Management Corporation.................................. 8,370 5,325
Other assets............................................................... 21,481 11,536
Cash and cash equivalents.................................................. 35,000 12,709
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$ 364,190 $ 330,509
============== ===============
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
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Mortgage debt..............................................................$ 325,000 $ 288,975
Due to Marriott International, Inc. and affiliates......................... 19,794 19,848
Due to Host Marriott Corporation........................................... 13,137 12,975
Incentive management fees due to Courtyard Management Corporation.......... 6,500 25,596
Accounts payable and accrued liabilities................................... 856 2,445
-------------- ---------------
Total Liabilities....................................................... 365,287 349,839
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PARTNERS' CAPITAL (DEFICIT)
General Partner............................................................ 1,270 474
Limited Partners........................................................... (2,367) (19,804)
-------------- ---------------
Total Partners' Deficit................................................. (1,097) (19,330)
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$ 364,190 $ 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>
Twelve Weeks Ended
March 28, March 22,
1997 1996
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OPERATING ACTIVITIES
Net income .............................................................$ 18,354 $ 1,478
Extraordinary items..................................................... (12,473) --
-------------- --------------
Income before extraordinary items....................................... 5,881 1,478
Noncash items........................................................... 4,624 6,890
Changes in operating accounts........................................... (9,740) (3,790)
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Cash provided by operating activities................................ 765 4,578
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INVESTING ACTIVITIES
Additions to property and equipment, net................................ (2,507) (4,786)
Change in property improvement funds.................................... (6,529) 2,845
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Cash used in investing activities.................................... (9,036) (1,941)
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FINANCING ACTIVITIES
Proceeds from mortgage debt ............................................ 325,000 --
Repayments of mortgage debt ............................................ (288,975) (7,971)
Payment of financing costs.............................................. (5,342) --
Capital distributions................................................... (121) --
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Cash provided by (used in) financing activities...................... 30,562 (7,971)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... 22,291 (5,334)
CASH AND CASH EQUIVALENTS at beginning of period.......................... 12,709 11,013
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CASH AND CASH EQUIVALENTS at end of period................................$ 35,000 $ 5,679
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest.........................................$ 7,625 $ 5,743
============== ==============
</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:
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Twelve Weeks Ended
March 28, March 22,
1997 1996
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(in thousands)
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HOTEL SALES
Rooms.............................................$ 38,901 $ 35,262
Food and beverage................................. 3,023 2,940
Other............................................. 1,524 1,527
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43,448 39,729
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HOTEL EXPENSES
Departmental direct costs
Rooms.......................................... 8,254 7,934
Food and beverage.............................. 2,500 2,551
Other hotel operating expenses.................... 11,006 10,338
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21,760 20,823
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REVENUES.............................................$ 21,688 $ 18,906
============== ==============
</TABLE>
3. On March 21, 1997, the Partnership completed a refinancing of both the 49
Hotels and Hartford Hotel mortgage loans. 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 was fully 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
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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
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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
Revenues. Revenues (hotel sales less direct hotel operating costs and expenses)
increased $2.8 million, or 15%, to $21.7 million for first quarter 1997, when
compared to first quarter 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.
Hotel sales increased $3.7 million, or 9%, to $43.4 million in the first quarter
of 1997 when compared to first quarter 1996, reflecting the improvements in
REVPAR for the quarter.
REVPAR for first quarter 1997 increased 8% to $64 compared to first quarter
1996, primarily due to the increase in combined average room rate of $5, or 7%,
to $80 and the increase of the combined average occupancy of two percentage
points to 80%. Results were further enhanced by a two percentage point increase
in the house profit margin. 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 $2 million, or 16%, to $10.3 million for the first quarter of 1997
compared to first quarter 1996, primarily due to a decrease in incentive
management fees. No incentive management fees were earned in first quarter 1997
due to the refinancing and amendments to the management agreement.
Operating Profit. As a result of changes in revenues and operating costs and
expenses discussed above, operating profit increased by $4.8 million to $11.4
million for the first quarter of 1997 compared to the first quarter of 1996.
Income Before Extraordinary Items. Income before extraordinary items increased
by $4.4 million to $5.9 million, or 27% of revenues, for the first quarter of
1997 compared to $1.5 million, or 8% of revenues, for the first quarter of 1996.
Extraordinary Items. The Partnership recognized a net extraordinary gain in the
first quarter of 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.
6
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Net Income. Net income for the first quarter of 1997 increased $16.9 million to
$18.4 million, or 85% of revenues, compared to net income of $1.5 million, or 8%
of revenues, for the first quarter of 1996 as a result of the items discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $765,000 and $4.6 million for the first quarter
1997 and first quarter 1996, respectively. The large decrease in cash provided
by operations was due to the payment of $4.2 million of deferred management fees
in conjunction with the refinancing.
Cash used in investing activities was $9 million and $1.9 million for the first
quarter 1997 and first quarter 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.
During the first quarter 1997, $30.6 million was provided by financing
activities and during the first quarter of 1996, $8 million was used for
financing activities. 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.
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 (subsequent to quarter end) 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
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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
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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
condition or results of operations of the Partnership.
8
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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
9
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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
<CURRENCY> U.S. DOLLAR
<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> 35,000
<SECURITIES> 0
<RECEIVABLES> 8,370
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,481
<PP&E> 511,496
<DEPRECIATION> (212,157)
<TOTAL-ASSETS> 364,190
<CURRENT-LIABILITIES> 27,150
<BONDS> 338,137
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 364,190
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<TOTAL-REVENUES> 21,688
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<OTHER-EXPENSES> 10,227
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<INTEREST-EXPENSE> 5,580
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<EXTRAORDINARY> 12,473
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<NET-INCOME> 18,354
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</TABLE>
