Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10400 Fernwood Road
Bethesda, Maryland 20817
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301-380-2070
Securities registered pursuant to Section 12(b) of
the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of
the Act:
Units of Limited Partnership Interest
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes ___ 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. Because
of the pendency of 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October 23, 1989 until the application was voluntarily withdrawn on January 27,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.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] (Not Applicable)
Documents Incorporated by Reference
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COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
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TABLE OF CONTENTS
PAGE NO.
PART I
Item 1. Business..........................................................1
Item 2. Properties........................................................7
Item 3. Legal Proceedings.................................................9
Item 4. Submission of Matters to a Vote of Security Holders...............9
PART II
Item 5. Market For The Partnership's Limited Partnership Units
and Related Security Holder Matters..............................10
Item 6. Selected Financial Data..........................................11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................11
Item 8. Financial Statements and Supplementary Data......................17
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.........................................33
PART III
Item 10. Directors and Executive Officers.................................33
Item 11. Management Remuneration and Transactions.........................34
Item 12. Security Ownership of Certain Beneficial Owners and Management...34
Item 13. Certain Relationships and Related Transactions...................34
PART IV
Item 14. Exhibits, Supplemental Financial Statement Schedules
and Reports on Form 8-K..........................................38
<PAGE>
PART I
ITEM 1. BUSINESS
Description of the Partnership
Courtyard by Marriott Limited Partnership, a Delaware limited partnership (the
"Partnership"), was formed on July 15, 1986 to acquire and own 50 Courtyard by
Marriott hotels (the "Hotels") and the respective fee or leasehold interests in
the land on which the Hotels are located. The Hotels are located in 16 states
and contain a total of 7,223 guest rooms as of December 31, 1997. The
Partnership commenced operations on August 20, 1986 and will terminate on
December 31, 2086, unless earlier dissolved.
The sole general partner of the Partnership is CBM One Corporation, a Delaware
corporation (the "General Partner"), a wholly-owned subsidiary of Host Marriott
Corporation ("Host Marriott").
The Partnership is engaged solely in the business of owning and operating hotels
and therefore is engaged in one industry segment. The principal offices of the
Partnership are located at 10400 Fernwood Road, Bethesda, Maryland 20817.
The Hotels are operated as part of the Courtyard by Marriott system, which
includes over 343 hotels worldwide in the moderately-priced segment of the U.S.
lodging industry. The Hotels are managed by Courtyard Management Corporation
(the "Manager"), a wholly-owned subsidiary of Marriott International, Inc.
("MII"). As part of the refinancing in March 1997, the two Operating Agreements
were converted into a single management agreement (the "Management Agreement")
effective January 4, 1997. The initial term of the Management Agreement expires
at the end of 2017. The Manager can extend the Management Agreement for up to
four successive periods of ten years. The Hotels have the right to use the
Courtyard by Marriott name pursuant to the Management Agreement and, if the
Management Agreement is terminated or not renewed, the Partnership would lose
that right for all purposes (except as part of the Partnership's name). See Item
13 "Certain Relationships and Related Transactions."
The objective of the Courtyard by Marriott system, including the Hotels, is to
provide consistently superior lodging at a fair price with an appealing,
friendly and contemporary residential character. Courtyard by Marriott hotels
have fewer guest rooms than traditional, full-service hotels, containing
approximately 150 guest rooms, including approximately 12 suites, as compared to
full-service Marriott hotels which typically contain 350 or more guest rooms.
Each Courtyard by Marriott hotel is designed around a courtyard area containing
a swimming pool (indoor pool in northern climates), walkways, landscaped areas
and a gazebo. Each Hotel generally contains a small lobby, a restaurant with
seating for approximately 50 guests, a lounge, a hydrotherapy pool, a guest
laundry, an exercise room and two small meeting rooms. The hotels do not contain
as much public space and related facilities as full-service hotels.
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Courtyard by Marriott hotels are designed for business and vacation travelers
who desire high quality accommodations at moderate prices. Most of the Hotels
are located in suburban areas near office parks or other commercial activities.
See Item 2 "Properties." Courtyard by Marriott hotels provide large, high
quality guest rooms which contain furnishings comparable in quality to those in
full-service Marriott hotels. Each guest room contains a large, efficient work
desk, remote control television, a television entertainment package, in-room
coffee and tea services and other amenities. Approximately 70% of the guest
rooms contain king-size beds.
Organization of the Partnership
On August 20, 1986, the Partnership began operations and executed a purchase
agreement (the "Purchase Agreement") with Host Marriott to acquire the Hotels,
all related personal property, and the fee or leasehold interests in the land on
which the Hotels are located. On August 20, 1986 (the "Final Closing Date"),
1,150 units of limited partnership interests (the "Units") in the Partnership,
representing a 95% interest in the Partnership, had been sold in a private
placement offering. The offering price per Unit was $100,000, $15,200 payable at
subscription with the balance due in four annual installments through March 31,
1990, or, as an alternative, $88,372 in cash at closing as full payment of the
subscription price. The limited partners paid $23,899,000 as of the Final
Closing Date, representing 1,062 Units purchased on the installment basis and 88
Units paid in full. The limited partners' obligations to make the installment
payments were evidenced by promissory notes (the "Investor Notes") payable to
the Partnership and secured by the Units. On August 20, 1986, the General
Partner made capital contributions consisting of $1,211,000 in cash and land on
which certain of the Hotels are located valued at $4,842,000 for its 5% general
partner interest.
The total purchase price under the Purchase Agreement was $448.2 million. Of
this total, $374.7 million was paid in cash from the proceeds of the mortgage
financing and the initial installment on the sale of the Units with the
remaining $73.5 million paid in the form of a note payable to Host Marriott
(which has since been repaid). Twenty-eight of the Hotels were conveyed to the
Partnership in 1986, twenty-one Hotels in 1987 and the final Hotel in January
1988.
Debt Financing
As of December 31, 1996, the Partnership had a $282.2 million non-recourse
mortgage loan for 49 of the 50 Partnership Hotels (the "49 Hotels Loan"). The 49
Hotels Loan required minimum annual principal payments of $7 million. In
addition, the 49 Hotels Loan required that certain percentages of cash flow be
used to paydown the loan as follows: (i) 100% of available cash flow, as
defined, was used to pay principal until the loan balance was below $300
million, (ii) 80% of available cash flow, as defined, was used to pay principal
if the loan balance was between $250 million and $299 million, and (iii) 75% of
available cash flow, as defined, was used to pay principal, if the loan balance
was $250 million or less. The 49 Hotels Loan would have matured on June 15,
1997; however, the term could have been extended for two one-year terms if
certain performance operating profit levels, as defined, were met. These
performance levels were met for 1995 and 1996. During 1996, the Partnership
repaid $28.4 million of principal on the 49 Hotels Loan. In addition, the
Partnership repaid $8.2 million of principal from fourth quarter 1996
Partnership operations in February 1997. The loan bore interest at LIBOR plus
1.75 percentage points from January 1, 1997 through March 21, 1997 at which time
the loan was paid in full upon refinancing. At March 21, 1997, the 49 Hotels
Loan's interest rate was 7.125%, and the weighted average interest rate was 7.2%
for the period January 1, 1997 through March 21, 1997.
In addition, as of December 31, 1996, the Partnership had $6.3 million of
non-recourse debt related to the Windsor Connecticut Hotel (the "Windsor Loan").
Amortization of the Windsor Loan began in 1992 with a scheduled maturity of
August 15, 1996. In exchange for Host Marriott providing a guaranty of repayment
of the loan balance at maturity, the lender agreed to extend the maturity to
March 31, 1997. The loan bore interest at a floating rate equal to the adjusted
CD rate or LIBOR plus two percentage points. At March 21, 1997, the loan's
interest rate was 7.375%, and the weighted average interest rate was 7.65% for
1997.
On March 21, 1997 (the "Refinancing Date") both the 49 Hotels Loan and the
Windsor Loan were refinanced. The total amount of the debt was increased from
$280.8 million to $325.0 million. The $44.2 million of excess refinancing
proceeds were used to: (i) make a $7 million contribution to the property
improvement fund to cover anticipated shortfalls; (ii) pay approximately $7
million of refinancing costs; and (iii) make a $30.2 million partial return of
capital distribution to the partners. The new loan continues to be non-recourse
and requires monthly payments of interest at a fixed rate of 7.865% and
principal based on a 20-year amortization schedule. The loan has a scheduled
maturity on April 10, 2012; however, the loan maturity can be extended for an
additional five years. During the extended loan term, the loan bears interest at
an Adjusted Rate, as defined, and all cash flow, from Partnership operations
will be used to amortize the principal balance of the loan. As of December 31,
1997, the principal balance of the loan was $320.4 million.
The refinanced mortgage loan is secured by first mortgages on all 50 of the
Partnership's Hotels, related personal property, and the land on which the
Hotels are located or an assignment of the Partnership's interest under the land
leases. All obligations under the debt guaranties expired with the repayment of
the 49 Hotels Loan and the Windsor Loan. No new guaranties have been provided by
Host Marriott or MII. As additional security, affiliates of MII, as the land
lessors, agreed to continue to subject their ownership interest as well as
receipt of ground rent to debt service on the mortgage loan.
Material Contracts
In connection with the debt refinancing, the Operating Agreements, as defined
below, were terminated as of January 4, 1997 and a new management agreement (the
"Management Agreement") was executed for the management of the 50 Partnership
Hotels.
Operating Agreements
On the Final Closing Date, the Partnership entered into a long-term management
agreement (the "Original Management Agreement") with Courtyard Management
Corporation to operate the Hotels as part of the Courtyard by Marriott hotel
system. Effective January 1, 1994, in connection with the 49 Hotels Loan
agreement, the Original Management Agreement was converted into two long-term
operating agreements (the "Operating Agreement(s)") with the Operator, one for
the 49 Hotels and one for the Windsor Hotel. The Operating Agreements had
initial terms expiring on December 31, 2007 for a majority of the Hotels. The
Operator could renew the term, for one or more of the Hotels, at its option, for
up to five successive terms of 10 years each. The Operating Agreements provided
for annual payments to the Operator of (i) the base management fee equal to 3%
of gross sales from the Hotels, (ii) the Courtyard management fee equal to 3% of
gross sales from the Hotels, and (iii) the incentive management fee equal to 15%
of operating profit, as defined.
The Operating Agreements provided for the establishment of a property
improvement fund to ensure that the physical condition and product quality of
the Hotels were maintained. Under the Operating Agreements, contributions to the
property improvement fund were equal to 5% of gross Hotel sales through 1996.
Management Agreement
As part of the refinancing, the two Operating Agreements were converted into a
single Management Agreement effective January 4, 1997. The initial term of the
Management Agreement expires at the end of 2017. The Manager can extend the
Management Agreement for up to four successive periods of ten years.
The Management Agreement provides for annual payments to the Manager of (i) the
base management fee equal to 3% of gross sales from the Hotels (ii) the
Courtyard management fee equal to 3% of gross sales from the Hotels, and (iii)
the incentive management fee equal to 15% of operating profit, as defined. Under
the Management Agreement, the Manager has agreed to subordinate a portion of the
Courtyard management fee equal to 1% of gross Hotel sales to debt service on the
50 Hotels Loan. In addition, the Partnership paid $4.2 million of deferred
incentive management fees at closing and the Manager agreed to forgive
approximately $15 million of deferred fees leaving a $6.5 million balance of
accrued incentive management fees. Incentive management fees are equal to 15% of
operating profit. Deferred and current year incentive management fees will be
payable from 50% of available cash after the payment of: (i) debt service; (ii)
deferred Courtyard management fees, if any; (iii) deferred the Manager ground
rent, if any; and (iv) a priority return to the Partnership equal to 10% of
cumulative capital less sale and refinancing proceeds. In addition, incentive
management fees paid are capped at 15% of operating profit and no longer
increase to 25% of operating profit once cumulative distributions of refinancing
proceeds equal $60.5 million. Deferred management fees are not payable to the
Manager from sale or refinancing proceeds. Unpaid incentive management fees will
not accrue. During 1997, the Manager earned $8.9 million of incentive management
fees. At December 31, 1997, the accrued incentive management fee balance was
$6.5 million.
The Management Agreement provides for the establishment of a property
improvement fund to ensure that the physical condition and product quality of
the Hotels are maintained. Under the Management Agreement, contributions to the
property improvement fund are 5% of gross Hotel sales through 1998. However,
contributions can be increased to 6% of gross Hotel sales for 1999 and 2000 and
7% thereafter.
Ground Leases
The land on which 31 of the Hotels are located is leased from MII or affiliates
of MII. In addition, two of the Hotels are located on land leased from third
parties. The land leases have remaining terms (including renewal options)
expiring between the years 2058 and 2081. The MII land leases and the third
party land leases provide for rent based on specific percentages (from 2% to
9.75%) of gross sales in certain categories, subject to minimum amounts. The
minimum rentals are adjusted at various anniversary dates throughout the lease
terms, as defined in the agreements. For 1997, the Partnership paid a total of
$7,880,000 in ground rent. See Item 2 "Properties" for a listing of Hotels that
have ground leases.
Competition
The United States lodging industry generally is comprised of two broad segments:
full-service hotels and limited-service hotels. Full-service hotels generally
offer restaurant and lounge facilities and meeting spaces, as well as a wide
range of services, typically including bell service and room service.
Limited-service hotels generally offer accommodations with limited or no
services and amenities. As moderately priced hotels, the Hotels compete
effectively with both full-service and limited-service hotels in their
respective markets by providing streamlined services and amenities exceeding
those provided by typical limited-service hotels at prices that are
significantly lower than those available at full-service hotels.
Significant competitors in the moderately priced lodging segment include Holiday
Inn, Ramada Inn, Sheraton Inn, Hampton Inn and Hilton Inn. The lodging industry
in general, and the moderately priced segment in particular, is highly
competitive, but the degree of competition varies from location to location and
over time. An increase in supply growth began in 1996 with the introduction of a
number of new national brands. For 1998, the outlook continues to be positive.
Courtyards continue to command a premium share of the market in which they are
located in spite of the growth of new chains. It is expected that Courtyard will
continue outperforming both national and local competitors. The brand is
continuing to carefully monitor the introduction of new mid-priced brands
including Wingate Hotels, Hilton Garden Inns, Four Points by Sheraton, Mainstay,
Candlewood, Club Hotels and Clarion.
The Manager believes that by emphasizing management and personnel development
and maintaining a competitive price structure, the Partnership's share of the
market will be maintained or increased. The inclusion of the Hotels within the
nationwide Courtyard by Marriott system provides the benefits of name
recognition, centralized reservations and advertising, system-wide marketing and
promotion, centralized purchasing and training and support services.
Conflicts of Interest
Because Host Marriott, the parent of the General Partner, MII and their
affiliates own and/or operate hotels other than the Partnership Hotels and MII
and its affiliates license others to operate hotels under the various brand
names owned by MII and its affiliates, potential conflicts of interest exist.
With respect to these potential conflicts of interest, Host Marriott, MII and
their affiliates retain a free right to compete with the Partnership's Hotels,
including the right to develop, own, and operate competing hotels now and in the
future in markets in which the Hotels are located, in addition to those existing
hotels which may currently compete directly or indirectly with the Hotels.
Under Delaware law, the General Partner has unlimited liability for the
obligations of the Partnership, unless those obligations are, by contract,
without recourse to the partners of the Partnership. Since the General Partner
is entitled to operate and control the business and operations of the
Partnership, and because certain actions taken by the General Partner or the
Partnership could expose the General Partner or its parent, Host Marriott, to
liability that is not shared by the limited partners (for example, tort
liability and environmental liability), this control could lead to conflicts of
interest. Under Delaware law, the General Partner has a fiduciary duty to the
Partnership and is required to exercise good faith and loyalty in all its
dealings with respect to Partnership affairs.
Policies with Respect to Conflicts of Interest
It is the policy of the General Partner that the Partnership's relationship with
the General Partner, any affiliate of the General Partner, or persons employed
by the General Partner or its affiliates be conducted on terms that are fair to
the Partnership and that are commercially reasonable. Agreements and
relationships involving the General Partner or its affiliates and the
Partnership are on terms consistent with the terms on which the General Partner
or its affiliates have dealt with unrelated parties.
The Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") provides that any agreements, contracts or arrangements between the
Partnership and the General Partner or any of its affiliates, except for
rendering legal, tax, accounting, financial, engineering, and procurement
services to the Partnership by employees of the General Partner or its
affiliates, will be on commercially reasonable terms and will be subject to the
following additional conditions:
(i) the General Partner or any such affiliate must have the ability to
render such services or to sell or lease such goods;
(ii) such agreements, contracts or arrangements must be fair to the
Partnership and reflect commercially reasonable terms and must be
embodied in a written contract which precisely describes the subject
matter thereof and all compensation to be paid therefor;
(iii) no rebates or give-ups may be received by the General Partner or any
such affiliate, nor may the General Partner or any such affiliate
participate in any reciprocal business arrangements which would have
the effect of circumventing any of the provisions of the Partnership
Agreement; and
(iv) no such agreement, contract or arrangement as to which the limited
partners had previously given approval may be amended in such a manner
as to increase the fees or other compensation payable by the
Partnership to the General Partner or any of its affiliates or to
decrease the responsibilities or duties of the General Partner or any
such affiliate in the absence of the consent of the holders of a
majority in interest of the limited partners.
Employees
Neither the General Partner nor the Partnership has any employees. Host Marriott
provides the services of certain employees (including the General Partner's
executive officers) of Host Marriott to the Partnership and the General Partner.
The Partnership and the General Partner anticipate that each of the executive
officers of the General Partner will generally devote a sufficient portion of
his or her time to the business of the Partnership. However, each of such
executive officers also will devote a significant portion of his or her time to
the business of Host Marriott and its other affiliates. No officer or director
of the General Partner or employee of Host Marriott devotes a significant
percentage of time to Partnership matters. To the extent that any officer,
director or employee does devote time to the Partnership, the General Partner or
Host Marriott, as applicable, is entitled to reimbursement for the cost of
providing such services. See Item 11 "Management Remuneration and Transactions"
for information regarding payments made to Host Marriott or its subsidiaries for
the cost of providing administrative services to the Partnership.
Potential Transaction
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 ("CRFLT 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 CRFLT
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
CRFLT Units in connection with the consolidation will be made solely by a final
Prospectus/Consent Solicitation.
ITEM 2. PROPERTIES
Introduction
The properties consisted of 50 Courtyard by Marriott hotels as of December 31,
1997. The Hotels have been in operation for at least nine years. The Hotels
range in age between 10 and 15 years. The Hotels are geographically diversified
among 16 states, and no state has more than nine Hotels.
The lodging industry in general, and the moderately-priced segment in
particular, is highly competitive, but the degree of competition varies from
location to location and over time. On a combined basis, competitive forces
affecting the Hotels are not, in the opinion of the General Partner, more
adverse than the overall competitive forces affecting the lodging industry
generally. See Item 1 "Business--Competition."
<PAGE>
The following table sets forth certain information related to the Hotels.
COURTYARD BY MARRIOTT
LIMITED PARTNERSHIP HOTELS
(50 Courtyard Hotels)
Location Rooms
Alabama
Montgomery (1) 146
Arizona
Phoenix Airport (1) 145
California
Buena Park (1) 145
Fremont (1) 146
Pleasanton 145
Sacramento-Rancho Cordova 144
San Francisco Airport (2) 147
Santa Ana (1) 145
Connecticut
Windsor (1) 149
Florida
Melbourne (1) 146
Miami Airport-West (1) 145
Tallahassee (1) 154
Georgia
Atlanta-Delk Road (1) 146
Atlanta-Executive Park (1) 145
Atlanta-Northlake (2) 128
Atlanta-Peachtree Corners 131
Atlanta-Peachtree Dunwoody 128
Atlanta-Windy Hill 127
Augusta 130
Columbus 139
Savannah 144
Illinois
Naperville (1) 147
Maryland
Hunt Valley (1) 146
Landover 152
Rockville (1) 147
Michigan
Dearborn (1) 147
Southfield 147
Troy 147
Warren 147
North Carolina
Charlotte-Arrowood Road (1) 146
Raleigh-Wake Forest Road 153
New York
Tarrytown 139
Ohio
Cincinnati-Blue Ash (1) 149
Columbus-Dublin (1) 147
Columbus-Worthington (1) 145
Pennsylvania
Valley Forge (1) 150
Tennessee
Brentwood (1) 145
Memphis-Park Avenue East (1) 146
Texas
Arlington 147
Bedford (1) 145
Dallas-Addison (1) 145
Dallas-Las Colinas 147
Dallas-LBJ Northwest (1) 146
San Antonio Airport (1) 145
San Antonio-Medical Center (1) 146
Virginia
Fair Oaks 144
Herndon (1) 146
Hampton (1) 146
Richmond (1) 145
Virginia Beach (1) 146
(1) Land is leased from MII or an affiliate of MII. (2) Land is leased from a
third party.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Marvin Schick and Jack Hirsch, the plaintiffs in a class action lawsuit filed
their complaint on October 16, 1997 in Delaware Chancery court against the
General Partner, the Manager and certain of their respective affiliates,
officers and directors. Plaintiffs are members of an ad hoc committee of the
Partnership's limited partners which has been closely monitoring the affairs of
the Partnership for a number of years. This lawsuit primarily involves
allegations that in 1994 the General Partner agreed to decrease the owner's
priority under the terms of the Management Agreement to the benefit of the
Manager without obtaining the consent of the limited partners. The lawsuit
includes claims against Host Marriott and the General Partner for breach of
contract and breach of fiduciary duty, and against MII and the Manager for
interference with contract and aiding and abetting in the breach of fiduciary
duties. The General Partner believes that the change in the Management Agreement
did not require limited partner approval, because, among other things, it did
not result in an increase in compensation to the Manager. The General Partner
intends to vigorously defend this lawsuit and expects to prevail on the merits.
On February 11, 1998, four individual limited partners in partnerships sponsored
by Host Marriott Corporation ("Host Marriott"), filed a class action lawsuit
against Host Marriott and the general partners of Courtyard by Marriott Limited
Partnership, Courtyard by Marriott II Limited Partnership, Marriott Residence
Inn Limited Partnership, Marriott Residence Inn II Limited Partnership, and
Fairfield Inn by Marriott Limited Partnership (collectively, the
"Partnerships"). The plaintiffs allege that the merger of the Partnerships (the
"Merger") into an umbrella partnership real estate investment trust proposed by
CRF Lodging Company, L.P. in a preliminary registration statement filed with the
Securities and Exchange Commission, dated December 22, 1997, constitutes a
breach of the fiduciary duties owed to the limited partners of the Partnerships
by Host Marriott and the general partners of the Partnerships. In addition, the
plaintiffs allege that the Merger breaches various agreements relating to the
Partnerships. The plaintiffs are seeking, among other things, the following:
certification of a class; injunction relief to prohibit consummation of the
Merger or, in the alternative, recision of the Merger; and damages. Host
Marriott and the general partners of the Partnership believe that these
allegations are totally devoid of merit and they intend to vigorously defend
against such claims. The defendants also maintain this lawsuit is premature
because the Merger has not been, and may not be, consummated as proposed in the
filings.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS
There is currently no established public trading market for the units and it is
not anticipated that a public market for the Units will develop. Transfers of
Units are limited to the first date of each accounting period and may be made
only to accredited investors. All transfers are subject to approval by the
General Partner. As of December 31, 1997, there were 1,196 holders (including
holders of half-units) of record of the 1,150 Units.
In accordance with Sections 4.07 and 4.10 of the Partnership Agreement, cash
available for distribution for any year will be distributed at least annually to
the general and limited partners (the "Partners") of record at the end of each
accounting period during such year as follows:
(i) first, through and including the end of the accounting period during
which the Partners shall have received cumulative distributions of
sales or refinancing proceeds ("Capital Receipts") equal to
$60,526,500, 5% to the General Partner and 95% to the limited partners;
(ii) next, through and including the end of the accounting period during
which the Partners shall have received cumulative distributions of
Capital Receipts equal to $121,053,000, 15% to the General Partner and
85% to the limited partners; and
(iii) thereafter, 30% to the General Partner and 70% to the limited partners.
Cash available for distribution means, with respect to any fiscal period, the
cash revenues of the Partnership from all sources during the fiscal period,
other than Capital Receipts, less (i) all cash expenditures of the Partnership
during such fiscal period, including, without limitation, repayment of all
Partnership indebtedness to the extent required to be paid, but not including
expenditures of Capital Receipts, plus fees for management services and
administrative expenses and (ii) such reserves as may be determined by the
General Partner, in its sole discretion to be necessary to provide for the
foreseeable needs of the Partnership.
In April 1997, the Partnership made a partial return of capital distribution of
$1,513,158 to the General Partner and $28,750,000 to the limited partners
($25,000 per limited partner unit) from excess refinancing proceeds. In
addition, during 1997, the Partnership distributed $484,211 to the General
Partner and $9,200,000 to the limited partners ($8,000 per limited partner unit)
from 1997 operations. In April 1998, the Partnership will distribute an
additional $2,300,000 to the limited partners ($2,000 per limited partner unit)
and $121,053 to the General Partner as the final cash distribution from 1997
operations.
As of December 31, 1997, the Partnership has distributed a total of $3,582,008
to the General Partner and $68,058,150 to the limited partners ($59,181 per
limited partner unit) since inception. Included in the $59,181 of distributions
per limited partner unit was $4,000 per limited partner unit distribution from
excess refinancing proceeds that was distributed to the partners in 1988 and the
$25,000 per limited partner unit from 1997 excess refinancing proceeds.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data presents historical operating information
for the Partnership for each of the five years in the period ended December 31,
1997 presented in accordance with generally accepted accounting principles (in
thousands, except per unit amounts):
<TABLE>
1997 1996 1995 1994 1993
--------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues..................................................$ 95,304 $ 90,300 $ 83,043 $ 76,087 $ 68,780
========= ========== ========== =========== ==========
Net income................................................$ 27,813 $ 13,454 $ 4,988 $ 53,409 $ 1,863
========= ========== ========== =========== ==========
Net income per limited partner unit (1,150 Units)........$ 22,976 $ 11,114 $ 4,120 $ 44,120 $ 1,539
========= ========== ========== =========== ==========
Total assets..............................................$ 331,406 $ 330,509 $ 338,740 $ 349,641 $ 365,337
========= ========== ========== =========== ==========
Total liabilities.........................................$ 362,991 $ 349,839 $ 369,224 $ 385,113 $ 454,218
========= ========== ========== =========== ==========
Cash distributions per limited partner unit (1,150 Units).$ 35,000 $ 2,000 $ -- $ -- $ --
========= ========== ========== ========== ==========
</TABLE>
ITEM 7 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 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 of these forward-looking statements
that may be made to reflect any future events or circumstances.
GENERAL
The following discussion and analysis addresses results of operations for the
fiscal years ended December 31, 1997, 1996 and 1995. Since 1990, Courtyard by
Marriott Limited Partnership ("the Partnership") has owned the 50 hotels (the
"Hotels") which, as of December 31, 1997, contain a total of 7,223 guest rooms.
During the period from 1995 through 1997, Partnership revenues grew from $83.0
million to $95.3 million, while the Partnership's total hotel sales grew from
$170.8 million to $189.6 million. Growth in room sales, and thus hotel sales, is
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. During the period from 1995 through 1997, the Hotels' combined
average room rate increased by $10 to $81, while the combined average occupancy
decreased one percentage point to 80%.
The Partnership's operating costs and expenses are, to a great extent, fixed.
Therefore, the Partnership derives substantial operating leverage from increases
in revenue offset in part by (i) base, Courtyard and incentive management fees
under the Management Agreement, which are each 3% of gross hotel sales, and (ii)
variable ground lease payments.
RESULTS OF OPERATIONS
The following table shows selected combined operating and financial statistics
for the Hotels (in thousands, except combined average occupancy, combined
average daily room rate, revenue per available room ("REVPAR") and number of
rooms:
<TABLE>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Combined average occupancy.............................................. 80.0% 79.2% 81.0%
Combined average daily room rate........................................$ 81.10 $ 76.39 $ 71.23
REVPAR ................................................................$ 64.88 $ 60.50 $ 57.70
Number of rooms......................................................... 7,223 7,223 7,223
Rooms sales.............................................................$170,583 $ 162,126 $ 151,571
Food and beverage sales................................................. 12,470 12,975 12,787
Other sales............................................................. 6,499 6,538 6,441
-------- ---------- -----------
Total hotel sales.................................................. 189,552 181,639 170,799
Direct hotel operating costs and expenses............................... 94,248 91,339 87,756
-------- ----------- ------------
Hotel Revenues..........................................................$ 95,304 $ 90,300 $ 83,043
======== =========== ============
</TABLE>
1997 Compared to 1996:
Revenues. Revenues increased $5.0 million, or 6%, to $95.3 million in 1997 from
$90.3 million in 1996 as a result of strong growth in REVPAR of 7%. Hotel sales
increased $7.9 million, or 4%, to $189.6 million in 1997 also reflecting
improvements in REVPAR for the year. The increase in REVPAR was primarily a
result of a 6% increase in average room rates and a one percentage point
increase in average occupancy.
Operating Costs and Expenses. Operating costs and expenses increased $.3
million, or .6%, to $54.6 million in 1997 from $54.3 million in 1996, primarily
reflecting an increase in base, Courtyard and incentive management fees
associated with rising revenues and operating profit. As a percentage of hotel
revenues, operating costs and expenses represented 57% of revenues for 1997 and
60% in 1996.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased $4.7 million to $40.7
million, or 43% of total revenues, in 1997 from $36 million, or 40% of revenues,
in 1996.
Interest Expense. Interest expense increased $2.5 million to $26.0 million due
to the increased level of debt from $280.8 million to $325.0 million as a result
of the refinancing.
Income Before Extraordinary Items. Income before extraordinary items increased
$1.9 million to $15.3 million, or 16% of revenues, in 1997, from $13.5 million,
or 15% of revenues, in 1996.
Extraordinary Items. The Partnership recognized an extraordinary gain in 1997 of
$14.9 million representing the forgiveness of deferred management fees by the
Manager. This extraordinary gain was combined with a loss on extinguishment of
debt of $2.4 million resulting in a net extraordinary gain of $12.5 million.
Net Income. Net income increased $14.4 million to $27.8 million, or 29% of total
revenues, in 1997 from $13.5 million, or 15% of total revenues, in 1996 due to
improved lodging results and the impact of the net extraordinary gain discussed
above.
1996 Compared to 1995:
Revenues. Revenues increased $7.3 million, or 9%, to $90.3 million in 1996 from
$83 million in 1995 as a result of strong growth in REVPAR of 5%. Hotel sales
increased $10.8 million, or 6%, to $181.6 million in 1996 also reflecting
improvements in REVPAR for the year. The increase in REVPAR was primarily a
result of a 7% increase in average room rates and a two percentage point
decrease in average occupancy. Results were further enhanced by a one percentage
point increase in the house profit margin.
Operating Costs and Expenses. Operating costs and expenses increased $2 million,
or 4%, to $54.3 million in 1996 from $52.3 million in 1995, primarily reflecting
an increase in management fees associated with rising revenues and operating
profit. As a percentage of hotel revenues, operating costs and expenses
represented 60% of revenues for 1996 and 63% in 1995.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased $5.2 million to $36
million, or 40% of total revenues, in 1996 from $30.8 million, or 37% of
revenues, in 1995.
Interest Expense. Interest expense decreased $3.5 million to $23.5 million due
to the impact of lower average interest rates and a decreased level of debt as a
result of principal amortization.
Net Income. Net income increased $8.5 million to $13.5 million, or 15% of total
revenues, in 1996 from $5 million, or 6% of total revenues, in 1995 due to
improved lodging results and the impact of the decrease in interest expense
discussed above.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Principal Sources and Uses of Cash
The Partnership's principal source of cash is cash from operations. Cash
provided by operations was $31.7 million, $42.7 million and $34.7 million for
the years ended 1997, 1996 and 1995, respectively. The decrease from 1996 to
1997 was primarily due to $4.2 million of deferred incentive management fees
paid in 1997 and no deferral of current incentive management fees in 1997.
According to the new management agreement, unpaid incentive management fees will
no longer accrue. The increase in cash from operations from 1995 to 1996 was due
to a 9% increase in revenues.
The Partnership's cash investing activities consist primarily of contributions
to the property improvement fund and capital expenditures for improvements to
existing hotels. Cash used in investing activities was $16.8 million, $9.6
million and $9.4 million for 1997, 1996 and 1995, respectively. As part of the
debt refinancing, contributions to the property improvement fund will remain at
5% of gross Hotel sales through 1998 and may be increased by the Manager to 6%
in 1999 and 2000 and 7% thereafter if the current contribution of 5% of gross
Hotel sales is insufficient to make the replacements, renewals and repairs to
maintain the Hotels in accordance with the Manager's standards for Courtyard by
Marriott hotels. Capital expenditures for hotel improvements were $23.6 million,
$19.1 million and $10.5 million for the years ended December 31, 1997, 1996 and
1995, respectively. The increase in capital expenditures is primarily related to
room renovations and replacements at the Partnership's Hotels.
The Partnership's financing activities primarily consist of capital
distributions to its partners, repayments of debt and payment of financing
costs, as well as the refinancing of the Partnership's mortgage debt. Cash used
in financing activities was $17.7 million, $31.4 million and $25.1 million for
1997, 1996 and 1995, respectively. During 1997 and 1996, the Partnership paid
cash distributions of $40.1 million and $2.3 million, respectively. Cash
distributions in 1997 included $28.8 million to the limited partners ($25,000
per limited partner unit) and $1.5 million to the General Partner as a return on
invested capital paid from refinancing proceeds. No capital distributions were
paid in 1995.
In February 1997, the Partnership repaid $8.2 million in principal on the 49
Hotels Loan with cash flow from 1996 operations. On March 21, 1997, the
Partnership repaid $280.8 million in principal on the 49 Hotels Loan and the
Windsor Loan from the proceeds of the debt refinancing. In addition, from March
22, 1997 through December 31, 1997, the Partnership repaid $4.6 million in
principal on the refinanced debt. During 1996 and 1995, the Partnership repaid
$28.8 million and $25 million in principal on the 49 Hotels Loan and the Windsor
Loan. The Partnership also paid $24.8 million, $22.1 million and $25.5 million
of interest on its mortgage debt in 1997, 1996 and 1995, respectively.
Pursuant to the terms of the 50 Hotels 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 Hotel 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. In March 1997, MII acquired the Renaissance Hotel
Group N.V., adding greater geographic diversity and growth potential to its
lodging portfolio. The assumption of additional debt associated with this
transaction resulted in a single downgrade of MII's long-term senior unsecured
debt effective April 1997. Therefore, the Partnership has transferred $3.9
million into the reserve account as of December 31, 1997. Out of the balance,
approximately $3.2 million of real estate taxes have been paid. 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.
In addition, in connection with the 50 Hotels Loan, the Partnership was also
required to reserve one month's debt service in a separate account. In 1997, the
Partnership transferred $2.8 million into the debt reserve account. The debt
service reserve is also included in restricted cash in the accompanying balance
sheet.
The change in restricted cash includes the debt service reserve of $2.8 million
and the $.7 million remaining in the real estate tax and insurance escrow
account reduced by $.8 million of accrued real estate tax liabilities.
Refinancing
In March 1997, the General Partner 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 financing 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 on April 10, 2012, requires principal
amortization on a 20-year term and carries a fixed interest rate of 7.865%.
The land on which 31 of the Hotels are located is leased from affiliates of MII.
The ground leases have remaining terms (including all renewal options) expiring
between the years 2058 and 2081. The MII ground leases provide for rent based on
specific percentages (from 2% to 9.75%) of certain sales categories, subject to
minimum amounts. The minimum rentals are adjusted at various anniversary dates
throughout the lease terms, as defined in the agreements. The affiliates of MII,
as land lessors, agreed to continue to subordinate their ownership interest as
well as receipt of ground rent to debt service on the 50 Hotels Loan obtained
March 21, 1997.
Property Improvement Fund
The Management Agreement requires annual contributions to a property improvement
fund to ensure that the physical condition and product quality of the Hotels are
maintained. Contributions to this fund are based on a percentage of annual total
hotel sales, currently equal to 5%. The Partnership believes that the 5%
contribution requirement is consistent with industry standards. However, in
accordance with the Management Agreement, contributions to the property
improvement fund may be increased by the Manager to 6% in 1999 and 2000 and 7%
thereafter if the current contribution of 5% of gross Hotel sales is
insufficient to make the replacements, renewals and repairs to maintain the
Hotels in accordance with the Manager's standards for Courtyard by Marriott
hotels. The balance in the fund totaled $1.6 million as of December 31, 1997.
Total capital expenditures for 1997, 1996 and 1995 were $23.6 million, $19.1
million and $7.9 million, respectively.
General
The General Partner believes that cash from hotel operations combined with the
ability to defer 1% of the Courtyard management fee to the Manager and ground
rent payments to MII will provide adequate funds in the short term and long term
for the operational needs of the Partnership.
Competition
The moderately priced lodging segment continues to be highly competitive. An
increase in supply growth continued throughout 1997 with the introduction of a
number of new national brands. For 1998, the outlook continues to be positive.
Courtyards continue to command a premium share of the market in which they are
located in spite of the growth of new chains. It is expected that Courtyard will
continue outperforming both national and local competitors. The brand is
continuing to carefully monitor the introduction of new mid-priced brands
including Wingate Hotels, Hilton Garden Inns, Four Points by Sheraton, Mainstay,
Candlewood, Club Hotels and Clarion.
Inflation
The rate of inflation has been relatively low in the past four years. The
Manager is generally able to pass through increased costs to customers through
higher room rates and prices. In 1997, average rates of Courtyard hotels
exceeded inflationary costs, but lagged the increases of direct competitors who
have been able to realize higher rates due to climbing occupancies. On March 21,
1997, the Partnership refinanced its mortgage debt and fixed its interest costs
thereby eliminating the Partnership's exposure to the impact of inflation on
future interest costs.
Seasonality
Demand, and thus room occupancy, is affected by normally recurring seasonal
patterns. For most of the Hotels, demand is higher in the spring and summer
months (March through October) than during the remainder of the year.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index Page
Courtyard by Marriott Limited Partnership Financial Statements:
Report of Independent Public Accountants............................. 18
Statement of Operations.............................................. 19
Balance Sheet........................................................ 20
Statement of Changes in Partners' Capital (Deficit).................. 21
Statement of Cash Flows.............................................. 22
Notes to Financial Statements........................................ 23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PARTNERS OF COURTYARD BY MARRIOTT LIMITED PARTNERSHIP:
We have audited the accompanying balance sheet of Courtyard by Marriott Limited
Partnership (a Delaware limited partnership) as of December 31, 1997 and 1996,
and the related statements of operations, changes in partners' capital (deficit)
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements and the schedule referred to below are the
responsibility of the General Partner's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Courtyard by Marriott Limited
Partnership as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for the purpose of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements,
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 17, 1998
<PAGE>
STATEMENT OF OPERATIONS
Courtyard by Marriott Limited Partnership
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands, except per Unit amounts)
<TABLE>
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
HOTEL REVENUES (Note 3).......................................................$ 95,304 $ 90,300 $ 83,043
------------ ------------- -------------
OPERATING COSTS AND EXPENSES
Depreciation............................................................. 19,387 19,258 19,753
Base and Courtyard management fees to
Courtyard Management Corporation...................................... 11,373 10,898 10,248
Incentive management fee to Courtyard Management Corporation............. 8,906 9,365 8,615
Ground rent.............................................................. 7,648 7,246 7,066
Property taxes........................................................... 5,278 5,977 5,381
Insurance and other...................................................... 2,029 1,571 1,228
------------ ------------- -------------
Total Operating Costs and Expenses................................. 54,621 54,315 52,291
------------ ------------- -------------
OPERATING PROFIT.............................................................. 40,683 35,985 30,752
Interest expense......................................................... (25,990) (23,529) (27,001)
Interest income.......................................................... 647 998 1,237
------------ ------------- -------------
NET INCOME BEFORE EXTRAORDINARY ITEMS......................................... 15,340 13,454 4,988
EXTRAORDINARY ITEMS
Gain on forgiveness of deferred management fees.......................... 14,896 -- --
Loss on extinguishment of debt........................................... (2,423) -- --
------------ ------------- -------------
NET INCOME....................................................................$ 27,813 $ 13,454 $ 4,988
============ ============= =============
ALLOCATION OF NET INCOME
General Partner..........................................................$ 1,391 $ 673 $ 250
Limited Partners......................................................... 26,422 12,781 4,738
------------ ------------- -------------
$ 27,813 $ 13,454 $ 4,988
============ ============= =============
NET INCOME BEFORE EXTRAORDINARY ITEMS PER
LIMITED PARTNER UNIT (1,150 Units).......................................$ 12,672 $ 11,114 $ 4,120
============ ============= =============
NET INCOME PER LIMITED PARTNER UNIT (1,150 Units).............................$ 22,976 $ 11,114 $ 4,120
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
BALANCE SHEET
Courtyard by Marriott Limited Partnership
December 31, 1997 and 1996
(in thousands)
<TABLE>
1997 1996
<S> <C> <C>
----------- --------
ASSETS
Property and equipment, net...................................................................$ 305,156 $ 300,939
Deferred financing costs, net of accumulated amortization..................................... 6,295 3,087
Due from Courtyard Management Corporation..................................................... 4,913 5,325
Property improvement fund..................................................................... 1,628 8,449
Restricted cash............................................................................... 7,964 --
Cash and cash equivalents..................................................................... 5,450 12,709
----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
$ 331,406 $ 330,509
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES
Mortgage debt.................................................................................$ 320,407 $ 288,975
Straight-line ground rent due to affiliates of Marriott International, Inc.................... 19,616 19,848
Debt service guaranty and accrued interest payable to Host Marriott Corporation............... 13,594 12,975
Management fees due to Courtyard Management Corporation....................................... 6,476 25,596
Accounts payable and accrued liabilities...................................................... 2,898 2,445
----------- -----------
Total Liabilities.......................................................................... 362,991 349,839
----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
PARTNERS' CAPITAL (DEFICIT)
General Partner
Capital contributions...................................................................... 28,218 28,218
Capital distributions...................................................................... (3,582) (1,464)
Cumulative net losses...................................................................... (24,890) (26,280)
----------- -----------
(254) 474
----------- -----------
Limited Partners
Capital contributions, net of offering costs of $12,912.................................... 100,845 100,845
Investor notes receivable.................................................................. (98) (98)
Capital distributions...................................................................... (68,058) (30,108)
Cumulative net losses...................................................................... (64,020) (90,443)
----------- -----------
(31,331) (19,804)
----------- -----------
Total Partners' Deficit.................................................................... (31,585) (19,330)
----------- -----------
$ 331,406 $ 330,509
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
STATEMENT OF CHANGES IN
PARTNERS' CAPITAL (DEFICIT)
Courtyard by Marriott Limited Partnership
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
General Limited
Partner Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1994......................................................$ (449) $ (35,023) $ (35,472)
Net income................................................................. 250 4,738 4,988
----------- ----------- -----------
Balance, December 31, 1995...................................................... (199) (30,285) (30,484)
Capital distributions...................................................... (2,300) (2,300)
Net income................................................................. 673 12,781 13,454
----------- ----------- -----------
Balance, December 31, 1996...................................................... 474 (19,804) (19,330)
Capital distributions...................................................... (2,118) (37,950) (40,068)
Net income................................................................. 1,390 26,423 27,813
----------- ----------- -----------
Balance, December 31, 1997......................................................$ (254) $ (31,331) $ (31,585)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
Courtyard by Marriott Limited Partnership
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................................................$ 27,813 $ 13,454 $ 4,988
Net extraordinary items...................................................... (12,473) -- --
----------- ----------- -----------
Income before extraordinary items............................................ 15,340 13,454 4,988
Noncash items:
Depreciation.............................................................. 19,387 19,258 19,753
Deferred incentive management fees........................................ -- 9,365 8,615
Amortization of deferred financing costs as interest expense.............. 696 1,126 1,123
Deferred interest on guaranty advances ................................... 619 609 648
Straight-line and deferred ground rent.................................... -- , 192
Changes in operating accounts:
Payment of deferred incentive management fees............................. (4,224) -- --
Due from Courtyard Management Corporation................................. 412 (553) (355)
Straight-line ground rent due to affiliates of
Marriott International, Inc............................................. (232) (268) ,
Accounts payable and accrued liabilities.................................. (313) (303) (263)
----------- ----------- -----------
Cash provided by operations............................................. 31,685 42,688 34,701
----------- ----------- -----------
INVESTING ACTIVITIES
Additions to property and equipment, net..................................... (23,604) (19,080) (7,942)
Change in property improvement fund.......................................... 6,821 9,491 (1,467)
----------- ----------- -----------
Cash used in investing activities....................................... (16,783) (9,589) (9,409)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from mortgage debt.................................................. 325,000 -- --
Payment of mortgage debt..................................................... (293,568) (28,788) (25,081)
Capital distributions........................................................ (40,068) (2,300) ,
Payment of financing costs................................................... (6,327) (315) (54)
Change in restricted cash.................................................... (7,198) -- --
----------- ----------- -----------
Cash used in financing activities....................................... (22,161) (31,403) (25,135)
----------- ----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................................. (7,259) 1,696 157
CASH AND CASH EQUIVALENTS at beginning of year.................................... 12,709 11,013 10,856
----------- ----------- -----------
CASH AND CASH EQUIVALENTS at end of year..........................................$ 5,450 $ 12,709 $ 11,013
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest..............................................$ 24,844 $ 22,122 $ 25,493
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Courtyard by Marriott Limited Partnership
December 31, 1997 and 1996
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Courtyard by Marriott Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed to acquire and own 50 Courtyard by Marriott
hotels (the "Hotels") and the land on which certain of the Hotels are located.
The Partnership's 50 Hotels are located in 16 states in the United States: nine
in Georgia; seven in Texas; six in California; five in Virginia; four in
Michigan and three or fewer in each of the other 11 states. The sole general
partner of the Partnership, with a 5% interest, is CBM One Corporation (the
"General Partner"), a wholly-owned subsidiary of Host Marriott Corporation
("Host Marriott"). The Hotels are operated as part of the Courtyard by Marriott
hotel system by Courtyard Management Corporation (the "Operator" or "Manager"),
a wholly-owned subsidiary of Marriott International, Inc. ("MII").
On August 20, 1986 (the "Closing Date"), 1,150 limited partnership interests
(the "Units"), representing a 95% interest in the Partnership, had been sold
pursuant to a private placement offering at $100,000 per Unit. The General
Partner made capital contributions consisting of $1,211,000 in cash and land on
which certain of the Hotels are located valued at $4,842,000 for its 5% general
partner interest.
On the Closing Date, the Partnership executed a purchase agreement (the
"Purchase Agreement") with Host Marriott to acquire the Hotels and the land on
which certain of the Hotels are located for a total fixed price of $448,184,000.
Of the total purchase price, $374,656,000 was paid in cash from the proceeds of
the mortgage financing and the initial installment on the sale of the Units with
the remaining $73,528,000 evidenced by a note payable to Host Marriott.
Twenty-eight of the Hotels were conveyed to the Partnership in 1986, twenty-one
Hotels in 1987 and the final Hotel in January 1988.
Partnership Allocations and Distributions
Partnership allocations and distributions are generally made as follows:
a. Cash available for distribution will be distributed (i) first, 5% to the
General Partner and 95% to the limited partners until the General Partner
and limited partners (collectively, the "Partners") have received
cumulative distributions of sale or refinancing proceeds ("Capital
Receipts") equal to $60,526,500; (ii) next, 15% to the General Partner and
85% to the limited partners until the Partners have received cumulative
distributions of Capital Receipts equal to $121,053,000; and (iii)
thereafter, 30% to the General Partner and 70% to the limited partners.
b. Capital Receipts, other than from the sale or other disposition of
substantially all of the assets of the Partnership, not retained by the
Partnership will be distributed (i) first, 5% to the General Partner and
95% to the limited partners until the Partners have received cumulative
distributions of Capital Receipts equal to $121,053,000 and (ii)
thereafter, 30% to the General Partner and 70% to the limited partners.
c. Proceeds from the sale of substantially all of the assets of the
Partnership or from a related series of Hotel sales leading to the sale of
substantially all of the assets of the Partnership will be distributed to
the Partners pro-rata in accordance with their capital account balances.
d. Net profits are generally allocated in the same ratio in which cash
available for distribution is distributed. Net losses are generally
allocated to the General Partner. To the extent the General Partner makes
debt service advances to the Partnership and other loans as outlined in the
partnership agreement, the General Partner will be allocated net losses
equal to the amounts advanced.
<PAGE>
e. In general, gain recognized by the Partnership will be allocated, with
respect to any year, in the following order of priority: (i) to all
Partners whose capital accounts have negative balances until such negative
balances are brought to zero; (ii) to all Partners up to the amount
necessary to bring their respective capital account balances to an amount
equal to their invested capital, as defined; and (iii) thereafter, 30% to
the General Partner and 70% to the limited partners.
Gain arising from the sale or other disposition (or from a related series
of sales or dispositions) of substantially all of the assets of the
Partnership will be allocated (i) to the limited partners in an amount
equal to the excess, if any, of (1) the sum of 15% times the weighted
average of the limited partners' invested capital each year, over (2) the
sum of distributions to the limited partners of Capital Receipts and cash
available for distribution each year; (ii) next, to the General Partner
until it has been allocated an amount equal to 30/70 times the amount
allocated to the limited partners under clause (i); and (iii) thereafter,
30% to the General Partner and 70% to the limited partners.
f. For financial reporting purposes, profits and losses are allocated among
the Partners based on their stated interests in cash available for
distribution.
Potential Transaction
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 ("CRFLT 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 CRFLT
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
CRFLT Units in connection with the consolidation will be made solely by a final
Prospectus/Consent Solicitation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership records are maintained on the accrual basis of accounting, and
its fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenues and Expenses
Hotel revenues represent house profit of the Partnership's Hotels since the
Partnership has delegated substantially all of the operating decisions related
to the generation of house profit of the Hotels to the Manager. House profit
reflects Hotel operating results which flow to the Partnership as property owner
and represents Hotel sales less property-level expenses, excluding depreciation,
Courtyard, base and incentive management fees, real and personal property taxes,
ground and equipment rent, insurance and certain other costs, which are
disclosed separately in the statement of operations.
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF 97-2, "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.
The Partnership is assessing the impact of EITF 97-2 on its policy of excluding
the property-level revenues and operating expenses of its hotels from its
statements of operations (see Note 3). If the Partnership concludes that EITF
97-2 should be applied to its hotels, it would include operating results of
those managed operations in its financial statements. Application of EITF 97-2
to financial statements as of and for the year ended December 31, 1997 would
have increased both revenues and operating expenses by approximately $94.2
million and would have had no impact on operating profit or net income.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
Building and improvements 40 years
Leasehold improvements 40 years
Furniture and equipment 4-10 years
All property and equipment is pledged to secure the mortgage debt described in
Note 6.
The Partnership assesses impairment of its real estate properties based on
whether estimated undiscounted future cash flows from such properties will be
less than their net book value. If a property is impaired, its basis is adjusted
to fair market value.
Deferred Financing Costs
Deferred financing costs represent the costs incurred in connection with
obtaining the mortgage debt (see Note 6) and are amortized, using the
straight-line method which approximates the effective interest rate method, over
the term of the loan. During 1997, the Partnership paid $6,327,000 in financing
costs related to refinancing the Partnership's mortgage debt as discussed in
Note 6. In connection with the refinancing, $2,423,000 of unamortized deferred
financing fees related to the 49 Hotels and Windsor Loans were written off in
1997 and recorded in the financial statements as an extraordinary loss.
Refinancing costs as of December 31, 1997 and 1996 were $6,642,000 and
$6,107,000, respectively. Accumulated amortization of financing costs as of
December 31, 1997 and 1996 totaled $347,000 and $3,019,000, respectively.
Ground Rent
The land leases with affiliates of MII (see Note 7) include scheduled increases
in minimum rents per property. These scheduled rent increases, which are
included in minimum lease payments, are being recognized by the Partnership on a
straight-line basis over the 95 year term of the leases. The adjustment included
in ground rent expense to reflect minimum lease payments on a straight-line
basis was $(232,000) for 1997 and 1996 and $166,000 for 1995.
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes, but rather, allocates its profits and losses to the individual Partners.
Significant differences exist between the net income for financial reporting
purposes and the net income as reported in the Partnership's tax return. 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 recognition of certain fees and straight-line rent
adjustments. As a result of these differences, the excess of the tax basis in
net Partnership liabilities over the net Partnership liabilities reported in the
accompanying financial statements is $45,080,000 and $20,483,000 as of December
31, 1997 and 1996, respectively.
<PAGE>
Statement of Financial Accounting Standards
In 1996, the Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Adoption of SFAS No. 121 did not have an
effect on its financial statements.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
Reclassifications
Certain reclassifications were made to the 1995 and 1996 financial statements to
conform to the 1997 presentation.
NOTE 3. HOTEL REVENUES
Hotel revenues consist of Hotel operating results for the three years ended
December 31 as follows (in thousands):
<TABLE>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
HOTEL SALES
Rooms.........................................................................$ 170,583 $ 162,126 $ 151,571
Food and beverage............................................................. 12,470 12,975 12,787
Other......................................................................... 6,499 6,538 6,441
----------- ----------- -----------
189,552 181,639 170,799
----------- ----------- -----------
HOTEL EXPENSES
Departmental direct costs
Rooms..................................................................... 36,539 36,059 34,244
Food and beverage......................................................... 10,966 11,165 10,726
Other hotel operating expenses................................................ 46,743 44,115 42,786
----------- ----------- -----------
94,248 91,339 87,756
----------- ----------- -----------
HOTEL REVENUES....................................................................$ 95,304 $ 90,300 $ 83,043
=========== =========== ===========
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
1997 1996
----------- --------
<S> <C> <C>
Land ..........................................................................................$ 30,797 $ 30,797
Leasehold improvements.......................................................................... 201,413 199,595
Building and improvements....................................................................... 142,447 133,728
Furniture and equipment......................................................................... 157,936 144,869
----------- -----------
532,593 508,989
Less accumulated depreciation................................................................... (227,437) (208,050)
----------- -----------
$ 305,156 $ 300,939
=========== ===========
</TABLE>
<PAGE>
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The fair
values of financial instruments not included in this table are estimated to be
equal to their carrying amounts (in thousands):
<TABLE>
As of December 31, 1997 As of December 31, 1996
---------------------------- --------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Mortgage debt..............................................$ 320,407 $ 320,000 $ 288,975 $ 288,975
Management fees due to Courtyard
Management Corporation.................................$ 6,476 $ 4,300 $ 25,596 $ 7,777
Debt service guaranty and accrued interest payable
to Host Marriott Corporation...........................$ 13,594 $ 1,200 $ 12,975 $ 9,918
</TABLE>
The estimated fair value of mortgage debt obligations is based on the expected
future debt service payments discounted at estimated market rates, adjusted for
the presence of the debt service guaranties. Management fees due to the Manager
and debt service guaranty payable to Host Marriott Corporation including accrued
interest are valued based on the expected future payments from operating cash
flow discounted at risk adjusted rates.
NOTE 6. DEBT
The 49 Hotels Loan and the Windsor Loan, as discussed below, were refinanced on
March 21, 1997 and the lenders were repaid in full.
49 Hotels Loan
On June 15, 1988, the Partnership restructured the 49 hotels loan (the "Original
49 Hotels Loan") of $373,149,000 with a group of banks (the "Lenders"). The
Original 49 Hotels Loan matured on June 15, 1993 with the entire $373,149,000
balance due. The Partnership did not have sufficient cash to repay the Original
49 Hotels Loan at maturity and defaulted on the loan.
On April 18, 1994, the Partnership entered into a restated loan agreement (the
"49 Hotels Loan") with a group of banks (the "Lenders") for the 49 Hotels. The
49 Hotels Loan bore interest at floating rates at the Partnership's option equal
to the following:
Time Period Interest Rate
----------- -------------
Closing through
June 15, 1996
(1) LIBOR plus 1.5 percentage points or the higher of (2)
.5 percentage points plus (a) prime, or (b) .5
percentage points plus (i) the three week average 3-month
CD rate or (ii) the federal funds rate
June 16, 1996
through June 15, 1997
(1) LIBOR plus 1.75 percentage points or the higher of (2)
.75 percentage points plus (a) prime, or (b) .5 percentage
points plus (i) the three week average 3-month CD rate or
(ii) the federal funds rate
The 49 Hotels Loan required minimum annual principal payments of $7,000,000.
Additionally, while the loan balance was above $300,000,000, 100% of Available
Cash Flow (equal to operating profit, as defined, less the sum of (1) interest
expense, (2) the $7,000,000 annual principal payment, (3) partnership
administrative expenses of up to $250,000, as adjusted annually for the consumer
price index, and (4) ground rent payments to MII) was used to pay additional
principal on the 49 Hotels Loan. While the loan balance was between $250,000,000
and $299,999,999, 80% of Available Cash Flow was used to pay additional
principal on the 49 Hotels Loan and once the loan balance was less than
$250,000,000, 75% of Available Cash Flow would have been used to pay additional
principal on the loan. For 1996 and 1995, the Partnership paid $28,416,000 and
$24,584,000, respectively, in principal payments on the 49 Hotels Loan leaving a
balance of $282,686,000 at December 31, 1996. For the period January 1, 1997 to
March 21, 1997, the weighted average interest rate on the 49 Hotels Loan was
7.2%. The weighted average interest rate on the 49 Hotels Loan was 7.08% in 1996
and 7.62% in 1995. The interest rate on the 49 Hotels Loan was 7.25% at December
31, 1996. The 49 Hotels Loan would have matured on June 15, 1997; however, the
term could have been extended for two one-year periods if certain operating
profit levels, as defined, were met.
As security for the 49 Hotels Loan, the Lenders had a mortgage on the
Partnership's fee or leasehold interest in each of the Hotels, except the
Windsor, Connecticut Hotel (the "Windsor Hotel"). In addition, all of the
Lenders had a security interest in certain personal property associated with
each Hotel and granted a security interest in the Partnership's rights under the
operating agreement (see Note 8) and Purchase Agreement. Thirty of the 49 hotels
covered by the 49 Hotels Loan lease land (see Note 7) from affiliates of MII.
These affiliates agreed to subject their ownership interests as well as
subordinate their receipt of ground rent to the payment of debt service on the
49 Hotels Loan. Deferred ground rent payable to affiliates of MII bore interest
at two percentage points under the base rate announced by Citibank, N.A.
Deferred ground rent and related accrued interest could not be repaid until the
49 Hotels Loan balance was less than $300,000,000. There was no deferred ground
rent related to the 49 Hotels Loan during 1997 and 1996.
Windsor Hotel Loan
On February 9, 1988, the Partnership entered into a loan agreement to provide
non-recourse mortgage debt of $8,274,000 (the "Windsor Loan") to pay
approximately 80% of the purchase price of the Windsor Hotel. The Windsor Loan
bore interest at a floating rate equal to the adjusted CD rate or LIBOR plus 2.0
percentage points. The Windsor Loan matured on August 15, 1996 with the
remaining principal balance of $6,289,000 plus accrued interest due at that
time. In exchange for Host Marriott providing a guaranty of repayment of the
loan at maturity, the lender agreed to extend the Windsor Loan maturity to March
31, 1997. The Partnership agreed to continue to pay interest on the Windsor Loan
at LIBOR plus 200 basis points until the earlier of repayment or March 31, 1997.
No principal amortization on the Windsor Loan was required until maturity.
During 1996, the Partnership repaid $372,000 of principal on the Windsor Loan.
For the period January 1, 1997 to March 21, 1997, the weighted average interest
rate on the Windsor Loan was 7.65%. The weighted average interest rate on the
loan was 7.46% and 8.23% for 1996 and 1995, respectively. The interest rate on
the Windsor Loan was 7.50% on December 31, 1996.
As security for the Windsor Loan, the bank had a mortgage on the Partnership's
leasehold interest in the Windsor Hotel. Additionally, the bank had a security
interest in the Partnership's interest in the personal property associated with
the Windsor Hotel and a security interest in the Partnership's rights under the
operating agreement and Purchase Agreement.
The Windsor Hotel land is also leased from an affiliate of MII, which agreed to
subject their ownership interest as well as their receipt of ground rent to the
payment of debt service on the Windsor Loan. Deferred ground rent payable to the
affiliate of MII bore interest at two percentage points under the base rate
announced by Citibank, N.A. Deferred ground rent and accrued interest related to
the Windsor Loan was repaid with available funds from the Windsor Hotel after
payment of debt service. The deferred ground rent as of December 31, 1995 in the
amount of $36,000 was paid in 1996. As of December 31, 1996, there was no
deferred ground rent related to the Windsor Hotel.
49 Hotels Loan Guaranties
Host Marriott provided additional security to the Lenders in the form of a debt
guaranty (the "Debt Service Guaranty") of aggregate interest and principal of up
to $40 million. Host Marriott's performance under the Debt Service Guaranty was
backed by a $40 million guaranty of aggregate principal and interest from MII
(the "Backup Guaranty"). Payments by Host Marriott under the Debt Service
Guaranty or MII under the Backup Guaranty would have been treated as advances to
the Partnership and bore interest at the base rate announced by The First
National Bank of Chicago. The Debt Service Guaranty replaced the original
guaranty of $37.3 million under the Original 49 Hotels Loan. No amounts were
advanced under the Debt Service Guaranty or the Backup Guaranty covering the 49
Hotels Loan. As of December 31, 1997 and 1996, $7,341,000 had been advanced by
the General Partner under the Original 49 Hotels Debt Service Guaranty. The
weighted average interest rate on the Original 49 Hotel Loan guaranty advances
was 8.4%, 8.3% and 8.8% for 1997, 1996 and 1995, respectively. The interest rate
at December 31, 1997 was 8.5% and 8.25% at December 31, 1996. Accrued interest
on the guaranty advance as of December 31, 1997 and 1996, was $6,253,000 and
$5,634,000, respectively.
MII provided two additional guaranties to the Lenders: the debt and tenant
change guaranty (the "Debt and Tenant Change Guaranty") and the Marriott
International Guaranty (the "MII Guaranty").
The Debt and Tenant Change Guaranty provided that in the event of nonpayment of
principal and interest when due or upon loan maturity, MII would have advanced
amounts, as defined, in addition to amounts advanced under the Backup Guaranty
for principal and interest. No amounts were advanced pursuant to the Debt and
Tenant Change Guaranty.
Upon the refinancing of the Partnership's debt, Host Marriott and MII were
released from these guaranties.
Windsor Loan Guaranty
Host Marriott directly or through the General Partner provided additional
security to the Windsor Loan lenders in the form of a debt service guaranty of
aggregate interest and principal on the Windsor Loan of up to $706,000. Payments
by Host Marriott or the General Partner under the debt service guaranty were
treated as advances to the Partnership and bore interest at the base rate
announced by The First National Bank of Chicago. No amounts were advanced under
the Windsor Loan guaranty. However, in exchange for Host Marriott providing a
guaranty of repayment of the loan at maturity, the lender agreed to extend the
Windsor Loan maturity to March 31, 1997.
Upon the refinancing of the Partnership's debt, Host Marriott and MII were
released from this guaranty.
50 Hotels Loan
On March 21, 1997 (the "Refinancing Date") both the 49 Hotels Loan and the
Windsor Loan were refinanced with a new loan covering all 50 Hotels (the "50
Hotels Loan"). The total amount of the debt was increased from $280.8 million to
$325.0 million. The $44.2 million of excess refinancing proceeds were used to:
(i) make a $7 million contribution to the property improvement fund to cover
anticipated shortfalls; (ii) pay approximately $7 million of refinancing costs;
and (iii) make a $30.2 million partial return of capital distribution to the
partners. The new loan continues to be non-recourse and requires monthly
payments of interest at a fixed rate of 7.865% and principal based on a 20 year
amortization schedule. The loan has a scheduled maturity on April 10, 2012;
however, the loan maturity can be extended for an additional five years. During
the extended loan term, the loan bears interest at an adjusted rate, as defined,
and all cash flow from Partnership operations is used to amortize the principal
balance of the loan.
Debt maturities under the refinanced loan are as follows (in thousands):
1998 $ 7,356
1999 7,955
2000 8,604
2001 9,306
2002 10,065
Thereafter 277,121
--------------
$ 320,407
==============
The refinanced mortgage loan is secured by first mortgages on all of the Hotels,
related personal property, and the land on which they are located or an
assignment of the Partnership's interest under the land leases. No new debt
guaranties have been provided by Host Marriott or MII.
Pursuant to the terms of the 50 Hotels 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 Hotel 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 MII.
In March 1997, MII acquired the Renaissance Hotel Group N.V., adding greater
geographic diversity and growth potential to its lodging portfolio. The
assumption of additional debt associated with this transaction resulted in a
single downgrade of MII's long-term senior unsecured debt effective April 1997.
Therefore, the Partnership has transferred $3.9 million into the reserve account
as of December 31, 1997. Out of the balance, approximately $3.2 million of real
estate taxes have been paid. 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.
In addition, in connection with the 50 Hotels Loan, the Partnership was also
required to reserve one month's debt service in a separate account. In 1997, the
Partnership transferred $2.8 million into the debt reserve account. The debt
reserve is also included in restricted cash in the accompanying balance sheet.
NOTE 7. LAND LEASES
The land on which 31 of the Hotels are located is leased from affiliates of MII.
In addition, two of the Hotels are located on land leased from third parties.
The ground leases have remaining terms (including all renewal options) expiring
between the years 2058 and 2081. The MII ground leases and one of the third
party ground leases provide for rent based on specific percentages (from 2% to
9.75%) of certain sales categories, subject to minimum amounts. The minimum
rentals are adjusted at various anniversary dates throughout the lease terms, as
defined in the agreements. The affiliates of MII, as land lessors, agreed to
continue to subordinate their ownership interest as well as receipt of ground
rent to debt service on the 50 Hotels Loan obtained March 21, 1997 (see Note 6).
Minimum future rental payments during the term of the ground leases are as
follows (in thousands):
Lease Ground
Year Leases
1998 $ 7,068
1999 7,068
2000 7,140
2001 7,140
2002 7,140
Thereafter 539,563
-------
$ 575,119
=======
Total ground rent expense was $7,648,000 in 1997, $7,246,000 in 1996 and
$7,066,000 in 1995.
NOTE 8. MANAGEMENT AGREEMENT/OPERATING AGREEMENTS
In connection with the debt refinancing, the Operating Agreements, as defined
below, were terminated as of January 3, 1997. A new management agreement (the
"Management Agreement") was executed as of January 4, 1997 for the management of
the 50 Partnership Hotels.
Operating Agreements
On the Closing Date, the Partnership entered into a long-term management
agreement (the "Original Management Agreement") with the Manager to operate the
Hotels as part of the Courtyard by Marriott hotel system. Effective January 1,
1994, in connection with the 49 Hotels Loan agreement, the Original Management
Agreement was converted into two long-term operating agreements (the "Operating
Agreement(s)") with the Operator, one for the 49 Hotels and one for the Windsor
Hotel. The Operating Agreements had initial terms expiring on December 31, 2007
for a majority of the Hotels. The Operator could renew the term, for one or more
of the Hotels, at its option, for up to five successive terms of 10 years each.
The 49 Hotels Operating Agreement provided for annual payments to the
Partnership equal to 85% of operating profit, as defined (75% of operating
profit after the Partners have received cumulative distributions of loan
proceeds equal to $60,526,500). However, until the 49 Hotels Loan balance was
below $300 million, 100% of Available Cash Flow from the 49 Hotels would have
been paid by the Operator to the Partnership. The additional payment to the
Partnership of 15% or 25% of operating profit accrued as deferred incentive
management fees. No incentive management fees related to the 49 Hotels were
deferred in 1997 due to the new management agreement terms as discussed below.
As of December 31, 1996, $25,076,000 of incentive management fees related to the
49 Hotels were deferred.
<PAGE>
The Windsor Hotel Operating Agreement also provided for annual payments to the
Partnership equal to 85% of operating profit, as defined, for the Windsor Hotel
(75% of operating profit after the Partners have received cumulative
distributions of loan proceeds equal to $60,526,500). However, if 85% or 75% of
operating profit from the Windsor Hotel was insufficient to cover debt service
on the Windsor Hotel, then the 15% or 25% of operating profit, as defined, was
paid to the Partnership. This additional payment to the Partnership of 15% or
25% of operating profit, as defined, accrued as deferred incentive management
fees. No incentive management fees related to the Windsor Hotel were deferred in
1997 due to the new management agreement terms as discussed below. As of
December 31, 1996, $520,000 of incentive management fees related to the Windsor
Hotel were deferred.
In connection with the refinancing of the Partnership's debt, the Manager agreed
to forgive approximately $15 million of deferred fees in exchange for a $4.2
million payment of deferred incentive management fees at closing.
Management Agreement
As part of the refinancing, the two Operating Agreements were converted into a
single management agreement effective January 4, 1997. The initial term of the
Management Agreement expires at the end of 2017. The Manager can extend the
Management Agreement for up to four successive periods of ten years.
Under the Management Agreement, the Manager has agreed to subordinate a portion
of the Courtyard management fee equal to 1% of gross Hotel sales to debt service
on the 50 Hotels Loan. In addition, the Partnership paid $4.2 million of
deferred incentive management fees at closing, and the Manager agreed to forgive
approximately $15 million of deferred fees leaving a $6.5 million balance of
accrued incentive management fees. The $15 million of forgiven fees is
recognized as an extraordinary gain in the 1997 financial statements. Deferred
and current year incentive management fees are payable from 50% of available
cash after the payment of: (i) debt service; (ii) deferred Courtyard management
fees, if any; (iii) deferred MII ground rent, if any; and (iv) a priority return
to the Partnership equal to 10% of cumulative capital less sale and refinancing
proceeds. In addition, incentive management fees paid are capped at 15% of
operating profit and no longer increase to 25% of operating profit once
cumulative distributions of refinancing proceeds equal $60.5 million. Deferred
management fees are not payable to the Manager from sale or refinancing
proceeds. Unpaid incentive management fees will not accrue. For 1997 an
incentive management fee of $8,906,000 was paid to the Manager excluding the
$4.2 million of deferred incentive management fees paid during 1997.
Certain terms of the Operating Agreements remain in force in accordance with the
new Management Agreement. These terms relate to the management fees, Chain
Services, working capital and the property improvement fund. These items are
discussed below.
The Operating Agreements and the Management Agreement provide for annual
payments to the Operator/Manager of (i) the base management fee equal to 3% of
gross sales from the Hotels, (ii) the Courtyard management fee equal to 3% of
gross sales from the Hotels, and (iii) the incentive management fee equal to 15%
of operating profit, as defined.
The Operator/Manager is required to furnish Chain Services which are furnished
generally on a central or regional basis to all managed, owned or leased hotels
in the Courtyard by Marriott hotel system. Under the Operating Agreements and
the Management Agreement, charges for certain Chain Services cannot exceed 5% of
gross Hotel sales. The Operator/Manager will be responsible for any Chain
Services in excess of the 5% of gross Hotel sales limit from its own funds. In
addition, beginning in 1997, the Hotels participate in MII's Marriott's Rewards
Program ("MRP"). The costs of this program are charged to all hotels in the
full-service, Residence Inn by Marriott, Courtyard by Marriott and Fairfield Inn
by Marriott systems based upon the MRP sales at each hotel. Chain Services and
MRP costs charged to the Partnership under the Management Agreement were
$7,084,000 in 1997. The total amount of Chain Services was $6,540,000 in 1996
and $6,412,000 in 1995.
The Partnership is required to provide the Manager with working capital and
fixed asset supplies to meet the operating needs of the Hotels. Upon termination
of the Management Agreement, the working capital and supplies will be returned
to the Partnership. Of the $3,213,000 originally advanced to the
Operator/Manager, $2,000,000 of excess working capital was returned to the
Partnership in 1988, leaving a balance of $1,213,000 as of December 31, 1997 and
1996.
<PAGE>
The Operating Agreements/Management Agreement provide for a property improvement
fund to be maintained to ensure that the physical condition and product quality
of the Hotels are maintained. Contributions to the property improvement fund are
equal to 5% of gross Hotel sales through 1998 and may be increased, at the
option of the Manager, to 6% of gross Hotel sales in 1999 and 2000 and 7%
thereafter. For the year ended December 31, 1997, the Partnership contributed
$9,478,000 to the property improvement fund, excluding the $7,000,000
contribution paid in 1997 from refinancing proceeds (see Note 6). For the years
ended December 31, 1996 and 1995, the Partnership contributed $9,082,000 and
$8,540,000, respectively, to the property improvement fund.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Partnership has no directors or officers. The business and policy making
functions of the Partnership are carried out through the directors and executive
officers of CBM One Corporation, the General Partner, who are listed below:
Age at
Name Current Position December 31, 1997
- ---- ---------------- -----------------
Bruce F. Stemerman President and Director 42
Christopher G. Townsend Vice President, Secretary
and Director 50
Earla L. Stowe Vice President and Chief
Accounting Officer 36
Bruce Wardinski Treasurer 37
Business Experience
Bruce F. Stemerman joined Host Marriott in 1989 as Director--Partnership
Services. He became Vice President--Lodging Partnerships in 1994 and became
Senior Vice President--Asset Management in 1996. Prior to joining Host Marriott,
Mr. Stemerman spent ten years with Price Waterhouse. He also serves as a
director and an officer of numerous Host Marriott subsidiaries.
Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Senior Attorney. In 1984 he was made Assistant Secretary of Host Marriott. In
1986 he was made an Assistant General Counsel. He was made Senior Vice
President, Corporate Secretary and Deputy General Counsel of Host Marriott in
1993. In January 1997, he was made General Counsel of Host Marriott. He also
serves as a director and an officer of numerous Host Marriott subsidiaries.
Earla L. Stowe was appointed to Vice President and Chief Accounting Officer of
CBM One Corporation on October 8, 1996. Ms. Stowe joined Host Marriott
Corporation in 1982 and held various positions in the tax department until 1988.
She joined the Partnership Services department as an accountant in 1988 and in
1989 she became an Assistant Manager--Partnership Services. She was promoted to
Manager--Partnership Services in 1991 and to Director--Asset Management in 1996.
Bruce Wardinski joined Host Marriott in 1987 as a Senior Financial Analyst of
Financial Planning & Analysis and was named Manager in June 1988. He was
appointed Director, Financial Planning & Analysis in 1989, Director of Project
Finance in January 1990, Senior Director of Project Finance in June 1993, Vice
President--Project Finance in June 1994, and Senior Vice President of
International Development in October 1995. In June 1996, Mr. Wardinski was named
Senior Vice President and Treasurer of Host Marriott. Prior to joining Host
Marriott, Mr. Wardinski was with the public accounting firm Price Waterhouse.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
As noted in Item 10 above, the Partnership has no directors or officers nor does
it have any employees. Under the Partnership Agreement, however, the General
Partner has the exclusive right to conduct the business and affairs of the
Partnership subject only to the management agreements described in Items 1 and
13. The General Partner is required to devote to the Partnership such time as
may be necessary for the proper performance of its duties, but the officers and
directors of the General Partner are not required to devote their full time to
the performance of such duties. No officer or director of the General Partner
devotes a significant percentage of time to Partnership matters. To the extent
that any officer or director does devote time to the Partnership, the General
Partner is entitled to reimbursement for the cost of providing such services.
For the fiscal years ending December 31, 1997, 1996 and 1995, the Partnership
reimbursed the General Partner in the amount of $260,000, $154,000 and $129,000,
respectively, for the cost of providing all administrative and other services as
General Partner. For information regarding all payments made by the Partnership
to Host Marriott and subsidiaries, see Item 13 "Certain Relationships and
Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of December 31, 1997, no person owned of record, or to the Partnership's
knowledge owned beneficially, more than 5% of the total number of limited
partnership Units. The General Partner owns a total of 15 Units representing a
1.24% limited partnership interest in the Partnership.
As of December 31, 1997, an officer and director of the General Partner and Host
Marriott owned a quarter unit; an officer of Host Marriott owned a quarter unit;
and two officers of MII owned one unit each.
The Partnership is not aware of any arrangements which may, at a subsequent
date, result in a change in control of the Partnership other than the
consolidation described in Item 1.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
In connection with the debt refinancing, the 49 Hotels Operating Agreement and
the Windsor Hotel Operating Agreement in effect from January 1, 1994 to January
3, 1997 were terminated. A new Management Agreement was executed as of January
4, 1997 for the management of the 50 Partnership Hotels.
<PAGE>
Term
The Management Agreement has an initial term expiring December 31, 2017 and can
be renewed for four successive ten year periods as to one or more of the Hotels.
The Partnership may terminate the Management Agreement if, during any three
consecutive years, the average operating profit, as defined, does not exceed
$40,198,000 plus 8% of the sum of owner funded capital expenditures.
Management Fees
The Management Agreement provides for annual payments of (i) the base management
fee equal to 3% of gross Hotel sales, (ii) the Courtyard management fee equal to
3% of gross Hotel sales, and (iii) the incentive management fee equal to 15% of
operating profit, as defined. A portion of the Courtyard management fee equal to
1% of gross Hotel sales is subordinate to debt service on the mortgage loan.
Deferral Provisions
As part of the debt refinancing, the Partnership agreed to pay $4.2 million of
deferred incentive management fees and the Manager agreed to forgive $15 million
of these fees at the new mortgage debt closing on March 21, 1997. This left a
remaining balance of $6.5 million of accrued incentive management fees as of
March 21, 1997 and December 31, 1997.
Under the new Management Agreement, base and Courtyard management fees no longer
accrue if not paid. In addition, incentive management fees are capped at 15% of
operating profit and no longer increase to 25% of operating profit once
cumulative distributions of refinancing proceeds equal $60.5 million. Deferred
and current year incentive management fees are payable from 50% of available
cash after the payment of: (i) debt service; (ii) deferred Courtyard management
fees; if any; (iii) deferred MII ground rent, if any; and (iv) a priority return
to the Partnership equal to 10% of cumulative capital less sale and refinancing
proceeds. Deferred management fees are not payable to the Manager from sale or
refinancing proceeds. Unpaid incentive management fees will not accrue.
Chain Services
The Manager is required to furnish certain services ("Chain Services") which are
furnished generally on a central or regional basis to all hotels managed, owned
or leased in the Courtyard by Marriott hotel system. Under the Management
Agreement, charges for certain Chain Services cannot exceed 5% of gross Hotel
sales. In addition, beginning in 1997, the Hotels participate in MII's
Marriott's Rewards Program ("MRP"). The total amount of Chain Services and MRP
costs allocated to the Partnership was $7,084,000 in 1997, $6,540,000 in 1996
and $6,412,000 in 1995.
Working Capital
The Partnership is required to provide the Manager with working capital and
fixed asset supplies to meet the operating needs of the Hotels. Upon termination
of the Management Agreement, the working capital and supplies will be returned
to the Partnership. As of December 31, 1997, the Partnership has advanced the
Manager $1,213,000 in working capital. Property Improvement Fund
The Management Agreement provides for the establishment of a repairs and
equipment reserve (property improvement fund) for the Hotels. The funding of
this reserve is based on a percentage of gross Hotel sales. The contribution to
the property improvement fund is at 5% of gross Hotel sales through 1998 and may
be increased, at the option of the Manager, to 6% of gross Hotel sales in 1999
and 2000 and 7% thereafter if the current contribution of 5% of gross Hotel
sales is insufficient to make the replacements, renewals and repairs to maintain
the Hotels in accordance with the Manager's standards for Courtyard by Marriott
hotels.
Payments to MII and Subsidiaries
The following table sets forth the amount paid to MII and affiliates under both
the Operating and Management Agreements and the ground lease agreements for the
years ended December 31, 1997, 1996 and 1995 (in thousands). The table also sets
forth accrued but unpaid incentive management fees:
<TABLE>
1997 1996 1995
---------- ---------- -------
<S> <C> <C> <C>
Incentive management fee............................................................$ 8,906 $ -- $ --
Ground rent......................................................................... 7,302 6,966 6,402
Chain services and MRP allocation................................................... 7,084 6,540 6,412
Base management fee................................................................. 5,687 5,449 5,124
Courtyard management fee............................................................ 5,687 5,449 5,124
Deferred incentive management fee................................................... 4,224 -- --
---------- ---------- -----------
$ 38,890 $ 24,404 $ 23,062
========== ========== ===========
Accrued but unpaid fees:
Incentive management fee............................................................$ -- $ 9,365 $ 8,615
========== ========== ===========
</TABLE>
Payments to Host Marriott and Subsidiaries
The following sets forth amounts paid by the Partnership to Host Marriott and
its subsidiaries for the years ended December 31, 1997, 1996 and 1995 (in
thousands):
<TABLE>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Cash distributions..................................................................$ 2,613 $ 30 $ --
Administrative expenses reimbursed.................................................. 260 154 129
---------- ---------- -----------
$ 2,873 $ 184 $ 129
========== ========== ===========
</TABLE>
<PAGE>
Mortgage Debt Guarantees
Upon the refinancing of the Partnership debt on March 21, 1997, Host Marriott
and MII were released from the following guaranties.
49 Hotels Loan Guaranties
Host Marriott provided additional security to the 49 Hotels Loan lenders in the
form of a debt guaranty (the "Debt Service Guaranty") of aggregate interest and
principal of up to $40 million. Host Marriott's performance under the Debt
Service Guaranty was backed by a $40 million guaranty of aggregate principal and
interest from MII (the "Backup Guaranty"). Payments by Host Marriott under the
Debt Service Guaranty or MII under the Backup Guaranty would have been treated
as advances to the Partnership and bore interest at the base rate announced by
The First National Bank of Chicago. The Debt Service Guaranty replaced the
original guarantee of $37.3 million under the Original 49 Hotels Loan. No
amounts were advanced under the Debt Service Guaranty or the Backup Guaranty
covering the 49 Hotels Loan. As of December 31, 1997 and 1996, $7,341,000 had
been advanced by the General Partner under the Original 49 Hotels Loan guaranty.
The weighted average interest rate on the Original 49 Hotel Loan guaranty
advances was 8.4%, 8.3% and 8.8% for 1997, 1996 and 1995, respectively. The
interest rate at December 31, 1997 was 8.5% and 8.25% at December 31, 1996.
Accrued interest on the guaranty advance as of December 31, 1997 and 1996, was
$6,253,000 and $5,634,000, respectively.
MII provided two additional guaranties to the 49 Hotels Loan lenders: the debt
and tenant change guaranty (the "Debt and Tenant Change Guaranty") and the
Marriott International Guaranty (the "MII Guaranty").
The Debt and Tenant Change Guaranty provided that in the event of nonpayment of
principal and interest when due or upon loan maturity, MII would have advanced
amounts, as defined, in addition to amounts advanced under the Backup Guaranty
for principal and interest. No amounts were advanced pursuant to the MII
Guaranty and Debt and Tenant Change Guaranty.
Windsor Loan Guaranty
Host Marriott directly or through the General Partner provided additional
security to the Windsor Loan lenders in the form of a debt service guaranty of
aggregate interest and principal on the Windsor Loan of up to $706,000. Payments
by Host Marriott or the General Partner under the debt service guaranty were
treated as advances to the Partnership and bore interest at the base rate
announced by The First National Bank of Chicago. No amounts were advanced under
the Windsor Loan guaranty.
<PAGE>
PART IV
ITEM 14. EXHIBITS, SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) List of Documents Filed as Part of This Report
(1) Financial Statements
All financial statements of the registrant as
set forth under Item 8 of this Report on Form
10-K.
(2) Financial Statement Schedules
The following financial information is filed
herewith on the pages indicated.
Schedule III - Real Estate and Accumulated Depreciation
All other schedules are omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.
(3) EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit
Number Description Page
- ------------- ------------------------------------------------------------------------------------------ -------
*2. Purchase Agreement between Marriott Corporation and
Courtyard by Marriott Limited Partnership dated August N/A
4, 1986.
*3. Amended and Restated Certificate and Amended and
Restated Agreement of Limited Partnership of Courtyard N/A
by Marriott Limited Partnership dated August 20, 1986.
*10.a Management Agreement between Courtyard by Marriott Limited
Partnership and Courtyard Management Corporation dated N/A
August 14, 1986.
*10.b Assignment of sublease and Warranty and Assumption of
Obligations between Marriott Corporation and the N/A
Courtyard by Marriott Limited Partnership dated August 19,
1986 for the Northlake, Georgia property. Sublease Agreement
between Crow-Atlanta Retail, Ltd. and Marriott Corporation
dated April 5, 1983.
*10.c Assignment of Lease and Warranty and Assumption of
Obligations between Marriott Corporation and the N/A
Courtyard by Marriott Limited Partnership dated August 19,
1986 for the Windy Hill, Georgia property. Marriott Hotel
and Lease between Kan Am Properties Limited and Marriott
Corporation dated September 1, 1982.
*10.d Assignment of Lease and Warranty and Assumption of
Obligations between Marriott Corporation and the N/A
Courtyard by Marriott Limited Partnership dated December 9,
1986 for the San Francisco Airport, California property.
Marriott Hotel Land Lease between AE Properties, Inc. and
Marriott Corporation dated May 6, 1985.
*10.e The Courtyard by Marriott Limited Partnership received an
assignment from Marriott Corporation of 12 Ground Leases N/A
for land that Marriott Corporation had previously leased
from various affiliates (the "Original Landlords") on April
13, 1986. The 12 Ground Leases are identical in all material
respects except as to their assignment date to the
Partnership, rents due (Exhibit A of each Ground Lease)
and the affiliates of Marriott Corporation who are the
Original Landlords. The schedule below sets forth the terms
of each Ground Lease not filed which differ from the copy of
the example Ground Lease (Atlanta-Delk Road) which is filed
herewith. In addition, a copy of Exhibit A is being filed
for each excluded Ground Lease.
Property State Assignment Date Original Landlord
-------- ----- --------------- -----------------
Atlanta-Delk Road GA 12/09/86 Host Restaurants, Inc.
Buena Park CA 12/09/86 Essex House Condominium
Corporation
Cincinnati-Blue Ash OH 10/15/86 Host Restaurants, Inc.
Columbus-Dublin OH 11/12/86 Host Restaurants, Inc.
Dearborn MI 11/12/86 Host Restaurants, Inc.
Hunt Valley MD 10/15/86 Essex House Condominium
Corporation
Memphis-Park Ave-East TN 10/15/86 Host Restaurants, Inc.
Montgomery AL 12/09/86 Host Restaurants, Inc.
Naperville IL 12/09/86 Casa Maria of Maryland, Inc.
Brentwood (Nashville) TN 09/17/86 Host Restaurants, Inc.
Norfolk-VA Beach VA 12/09/86 Host Restaurants, Inc.
Brookfield (Richmond) VA 12/09/86 Newark Properties, Inc. Page
----
**10.f Loan Agreement between Citibank, N.A., The First National
Bank of Chicago and Courtya by Marriott Limited N/A
Partnership dated February 9, 1988.
**10.g Promissory Note for $4,136,995 between Courtyard by
Marriott Limited Partnership and The First National N/A
Bank of Chicago dated February 10, 1988 and Promissory Note
for $4,136,995 between Courtyard by Marriott Limited
Partnership and Citibank, N.A. dated February 10, 1988.
**10.h Debt Service Guaranty between Marriott Corporation, as
Guarantor, and Citibank, N.A. and the First National N/A
Bank of Chicago, as Lender, dated February 10, 1988.
**10.i Lease Agreement between Courtyard Management Corporation
and Courtyard by Marriott Limited Partnership with N/A
LaSalle National Trust, N.A.and Alexander Title Agency,Inc.
as Trustees dated January 1, 1994.
**10.j Lease Agreement between Courtyard Management Corporation
and Courtyard by Marriott Limited Partnership dated N/A
January 1, 1994.
**10.k Second Amendment and Restated Loan Agreement for
$304,788,924.58 between the Banks as N/A named within the N/A
Agreement and Citibank, as Agent, and Courtyard by
Marriott Limited Partnership dated April 7, 1994.
**10.l Amended and Restated Debt Service Guaranty dated April 7,
1994 between Host Marriott Corporation, as Guarantor, N/A
and the Lenders as named within the Second Amended and
Restated Loan Agreement dated April 7, 1994 and Citibank,
N.A., as Agent.
**10.m Management Agreement by and between Courtyard Management
Corporation (Manager) dated January 4, 1997 and N/A
Courtyard by Marriott Limited Partnership (Owner).
**10.n Loan Agreement by and between Courtyard by Marriott Limited
Partnership (Borrower) and Lehman Brothers Holdings, N/A
Inc. (Lender) dated March 21, 1997.
**10.o First Amendment to Loan Agreement by and between Courtyard
by Marriott Limited Partnership (Borrower) and Lehman N/A
Brothers Holdings, Inc. (Lender) dated March 21, 1997.
**10.p Mortgage Note by Courtyard by Marriott Limited Partnership
Payable to The Order of Lehman Brothers Holdings, Inc. N/A
d/b/a Lehman Capital in the amount of $325,000,000.00
dated March 21, 1997.
**10.q Courtyard by Marriott Limited Partnership Promissory Note
in favor of Host Marriott Corporation in the amount of N/A
$7,340,744.00 together with Endorsement by CBM One
Holdings, Inc. dated March 21, 1997.
**10.r Intercreditor Agreement by and between Lehman Brothers
Holdings, Inc., d/b/a Lehman Brothers Holdings, Inc. N/A
(Senior Lender) and CBM One Holdings, Inc. (Junior Lender)
dated March 21, 1997.
**10.s Second Amendment of Ground Leases by and among Courtyard
by Marriott Limited Partnership, Host Restaurants, Inc. N/A
(HRI), Newark Properties, Inc.(Newark), Casa Maria of
Maryland, Inc.(Casa Maria) and Essex House Condominium
Corporation (Essex House) (Landlord and Collectively
Landlords) dated March 21, 1997.
27. Financial Data Schedule. N/A
*28. Pages 28 through 36 and pages 40 through 44 of Courtyard by
Marriott Limited Partnership Private Placement N/A
Memorandum.
</TABLE>
* Incorporated by reference to the same numbered exhibit in the
Partnership's General Form for Registration of Securities on Form 10
previously filed with the Commission.
** Incorporated by reference to the same numbered exhibit in the
Partnership's December 31, 1996 10-K previously filed
with the Commission.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during 1997.
<PAGE>
SCHEDULE III
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
<TABLE>
Initial Costs Gross Amount at December 31, 1997
----------------------- ---------------------------------------
Subsequent
Buildings & Costs Buildings & Accumulated
Description Encumbrances Land Improvements Capitalized Land Improvements Total Depreciation
- ----------- ------------ ---- ------------ ----------- ---- ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 Courtyard by
Marriott Hotels
(each less than
5% of total) $ 320,407 $30,797 $ 310,705 $33,155 $ 30,797 $ 343,860 $ 374,657 $ 100,921
============ ======= ============ ======= ======== ============ ========= ===========
</TABLE>
Date of
Completion of Date Depreciation
Construction Acquired Life
------------ -------- ------------
50 Courtyard by 1983 - 1988 1986 - 1988 40 years
Marriott Hotels
<TABLE>
Notes:
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
------------- ------------- ------------
(a) Reconciliation of Real Estate:
Balance at beginning of year.....................................$ 355,228 $ 356,598 $ 364,120
Capital Expenditures............................................. 1,370 7,522 10,537
Dispositions..................................................... -- -- --
------------- ------------- ------------
Balance at end of year...........................................$ 356,598 $ 364,120 $ 374,657
============= ============= ============
(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year.....................................$ 68,494 $ 78,524 $ 88,768
Depreciation..................................................... 10,030 10,244 12,153
------------- ------------- ------------
Balance at end of year...........................................$ 78,524 $ 88,768 $ 100,921
============= ============= ============
(c) The aggregate cost of land, buildings and improvements for Federal income
tax purposes is approximately $371.5 million at December 31, 1997.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 31st day of
March, 1998.
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
By: CBM ONE CORPORATION
General Partner
/s/ Earla L. Stowe
------------------
Earla L. Stowe
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the date indicated above.
Signature Title
(CBM ONE CORPORATION)
/s/Bruce F. Stemerman President and Director
Bruce F. Stemerman (Principal Executive Officer)
/s/ Christopher G. Townsend Vice President, Secretary and Director
Christopher G. Townsend
/s/ Bruce Wardinski Treasurer
Bruce Wardinski
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 31st day of
March, 1998.
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
By: CBM ONE CORPORATION
General Partner
Earla L. Stowe
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the date indicated above.
Signature Title
(CBM ONE CORPORATION)
President and Director
Bruce F. Stemerman (Principal Executive Officer)
Vice President, Secretary and Director
Christopher G. Townsend
Treasurer
Bruce Wardinski
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REPORT 10-K 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 5,450
<SECURITIES> 0
<RECEIVABLES> 4,913
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,887
<PP&E> 532,593
<DEPRECIATION> (227,437)
<TOTAL-ASSETS> 331,406
<CURRENT-LIABILITIES> 28,990
<BONDS> 334,001
0
0
<COMMON> 0
<OTHER-SE> (31,585)
<TOTAL-LIABILITY-AND-EQUITY> 331,406
<SALES> 0
<TOTAL-REVENUES> 95,304
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 53,974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,990
<INCOME-PRETAX> 15,340
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 12,473
<CHANGES> 0
<NET-INCOME> 27,813
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
