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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d
of the Securities Exchange Act of 1934
For the Quarter ended March 27, 1998
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-15736
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 52-1468081
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10400 Fernwood Road
Bethesda, Maryland 20817
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301-380-2070
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes ____ No ____ (Not Applicable). On August 25, 1992, the
Registrant filed an application for relief from the reporting requirements of
the Securities Exchange Act of 1934 pursuant to Section 12(h) thereof. 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October 23, 1989 until the application was voluntarily withdrawn on January 27,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.
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<PAGE>
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COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
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TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statement of Operations
Twelve Weeks Ended March 27, 1998 and March 28, 1997...........................1
Condensed Balance Sheet
March 27, 1998 and December 31, 1997...........................................2
Condensed Statement of Cash Flows
Twelve Weeks ended March 27, 1998 and March 28, 1997...........................3
Notes to Condensed Financial Statements........................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................8
Item 6. Exhibits and Reports on Form 8-K....................................9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands except per Unit amounts)
<TABLE>
Twelve Weeks Ended
March 27, March 28,
1998 1997
-------------- --------------
<S> <C> <C>
REVENUES.................................................................................$ 23,777 $ 21,688
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OPERATING COSTS AND EXPENSES
Depreciation........................................................................... 3,968 4,107
Base and Courtyard management fees..................................................... 2,776 2,607
Incentive management fees.............................................................. 2,235 --
Ground rent, taxes and other........................................................... 3,864 3,597
-------------- --------------
Total Operating Costs and Expenses.................................................. 12,843 10,311
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OPERATING PROFIT......................................................................... 10,934 11,377
Interest expense....................................................................... (6,253) (5,580)
Interest income........................................................................ 124 84
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NET INCOME BEFORE EXTRAORDINARY ITEMS.................................................... 4,805 5,881
EXTRAORDINARY ITEMS
Gain on forgiveness of deferred fees................................................... -- 14,896
Loss on extinguishment of debt......................................................... -- (2,423)
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-- 12,473
NET INCOME...............................................................................$ 4,805 $ 18,354
============== ==============
ALLOCATION OF NET INCOME
General Partner........................................................................$ 240 $ 918
Limited Partners....................................................................... 4,565 17,436
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$ 4,805 $ 18,354
============== ==============
NET INCOME BEFORE EXTRAORDINARY ITEMS PER
LIMITED PARTNER UNIT (1,150 Units).....................................................$ 3,969 $ 4,858
============== ==============
NET INCOME PER LIMITED PARTNER UNIT (1,150 Units)........................................$ 3,969 $ 15,162
============== ==============
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
March 27, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net............................................................$ 303,931 $ 305,156
Due from Courtyard Management Corporation............................................... 5,927 4,913
Other assets............................................................................ 7,468 7,923
Restricted cash......................................................................... 6,699 7,964
Cash and cash equivalents............................................................... 9,677 5,450
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$ 333,702 $ 331,406
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LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage debt..........................................................................$ 318,622 $ 320,407
Due to Marriott International, Inc. and affiliates..................................... 19,562 19,616
Due to Host Marriott Corporation....................................................... 13,741 13,594
Incentive management fees due to Courtyard Management Corporation...................... 6,083 6,476
Accounts payable and accrued liabilities............................................... 2,474 2,898
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Total Liabilities.................................................................... 360,482 362,991
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PARTNERS' DEFICIT
General Partner........................................................................ (14) (254)
Limited Partners....................................................................... (26,766) (31,331)
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Total Partners' Deficit.............................................................. (26,780) (31,585)
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$ 333,702 $ 331,406
============== ===============
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
Twelve Weeks Ended
March 27, March 28,
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................................$ 4,805 $ 18,354
Extraordinary items................................................................... -- (12,473)
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Income before extraordinary items..................................................... 4,805 5,881
Noncash items......................................................................... 4,219 4,624
Changes in operating accounts......................................................... (1,623) (9,740)
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Cash provided by operating activities............................................... 7,401 765
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INVESTING ACTIVITIES
Additions to property and equipment, net.............................................. (2,743) (2,507)
Change in property improvement funds.................................................. 353 (6,529)
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Cash used in investing activities................................................... (2,390) (9,036)
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FINANCING ACTIVITIES
Proceeds from mortgage debt .......................................................... -- 325,000
Repayments of mortgage debt .......................................................... (1,785) (288,975)
Change in restricted cash............................................................. 1,003 --
Payment of financing costs............................................................ (2) (5,342)
Capital distributions................................................................. -- (121)
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Cash (used in) provided by financing activities..................................... (784) 30,562
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INCREASE IN CASH AND CASH EQUIVALENTS.................................................... 4,227 22,291
CASH AND CASH EQUIVALENTS at beginning of period......................................... 5,450 12,709
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CASH AND CASH EQUIVALENTS at end of period...............................................$ 9,677 $ 35,000
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest.......................................................$ 6,289 $ 7,625
============== ==============
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed financial statements have been prepared by the
Courtyard By Marriott Limited Partnership (the "Partnership") without
audit. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted from the
accompanying statements. The Partnership believes the disclosures made
are adequate to make the information presented not misleading. However,
the condensed financial statements should be read in conjunction with the
Partnership's financial statements and notes thereto included in the
Partnership's 10-K for the fiscal year ended December 31, 1997.
In the opinion of the Partnership, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of the Partnership as of March 27, 1998 and December
31, 1997, and the results of operations and cash flows for the twelve
weeks ended March 27, 1998 and March 28, 1997. Interim results are not
necessarily indicative of fiscal year performance because of seasonal and
short-term variations.
For financial reporting purposes, the net income of the Partnership is
allocated 95% to the Limited Partners and 5% to the General Partner.
Significant differences exist between the net income for financial
reporting purposes and the net income reported for Federal income tax
purposes. These differences are due primarily to the use for income tax
purposes of accelerated depreciation methods, shorter depreciable lives
for the assets, difference in the timing of recognition of certain fees
and straight-line rent adjustments.
2. Certain reclassifications were made to the prior quarter financial
statements to conform to the current quarter presentation.
3. Revenues consist of Hotel operating results as follows:
<TABLE>
Twelve Weeks Ended
March 27, March 28,
1998 1997
(in thousands)
<S> <C> <C>
HOTEL SALES
Rooms.........................................................................$ 41,794 $ 38,901
Food and beverage............................................................. 2,987 3,023
Other......................................................................... 1,491 1,524
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46,272 43,448
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HOTEL EXPENSES
Departmental direct costs
Rooms...................................................................... 8,829 8,254
Food and beverage.......................................................... 2,556 2,500
Other hotel operating expenses................................................ 11,110 11,006
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22,495 21,760
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REVENUES..........................................................................$ 23,777 $ 21,688
============== ==============
</TABLE>
4. In December 1997, Host Marriott Corporation on behalf of the General
Partner, CBM One Corporation, filed a preliminary Prospectus/Consent
Solicitation Statement (the "S-4") with the Securities and Exchange
Commission which proposed the consolidation (the "Consolidation") of this
Partnership and five other limited partnerships into a publicly traded
real estate investment trust ("REIT"). The General Partner has been
working to resolve various open issues concerning the proposed
Consolidation.
In addition, there are existing REIT's which are active in the moderate
price and extended stay hotel segment that have expressed an interest in
the six limited partnerships. Therefore, the General Partner has had
preliminary discussions with some of these companies. Although no
agreements have yet been reached, the General Partner continues to pursue
the possibility of a potential transaction involving the Partnership's
assets or a merger of the Partnership with an existing publicly traded
company.
The General Partner has retained Merrill Lynch to advise the Partnership
with respect to the Partnership's strategic alternatives, including the
original Consolidation plan and other available alternatives. The General
Partner intends to continue to explore these alternatives and determine
which path to pursue, obviously subject to appropriate partner approval.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Partnership to be different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Although the Partnership believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Partnership's
filings with the Securities and Exchange Commission. The Partnership undertakes
no obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
RESULTS OF OPERATIONS
Revenues. Revenues (hotel sales less direct hotel operating costs and expenses)
increased $2.1 million, or 10%, to $23.8 million for first quarter 1998 when
compared to first quarter 1997. The Partnership's revenues and operating profit
were impacted by improved lodging results. The increase was driven primarily by
growth in revenue per available room ("REVPAR"). REVPAR, or revenue per
available room, represents the combination of the average daily room rate
charged and the average daily occupancy achieved and is a commonly used
indicator of hotel performance (although it is not a GAAP, or generally accepted
accounting principles, measure of revenue). Room sales increased $2.9 million,
or 7%, to $41.8 million in first quarter of 1998 when compared to first quarter
1997, reflecting improvements in REVPAR for the quarter.
REVPAR for first quarter 1998 increased $5, or 7%, to $69 when compared to first
quarter 1997, primarily due to the increase in combined average room rate of $8,
or 9%, to $88 even though the combined average occupancy decreased by one
percentage point to approximately 79%. Due to the continued high occupancy of
these properties, the Partnership expects future increases in REVPAR to be
driven by room rate increases, rather than increases in occupancy. However,
there can be no assurance that REVPAR will continue to increase in the future.
Operating Costs and Expenses. The Partnership's operating costs and expenses
increased $2.5 million, or 25%, to $12.8 million for first quarter 1998 when
compared to first quarter 1997, primarily due to an increase in incentive
management fees. In accordance with the management agreement, incentive
management fees equal 15% of operating profit. Deferred and current year
incentive management fees are payable from 50% of available cash flow after the
payment of (i) debt service; (ii) deferred Courtyard system fees, if any; (iii)
deferred ground rent due to Marriott International, Inc. ("MII"), if any; and
(iv) a priority return to the Partnership equal to 10% of cumulative capital
less sale and refinancing proceeds. Future unpaid management fees do not accrue.
There were no incentive management fees earned during first quarter 1997, as
there was no available cash flow.
Operating Profit. As a result of changes in revenues and operating costs and
expenses discussed above, operating profit decreased $443,000, or 4%, to $10.9
million for first quarter 1998 when compared to first quarter 1997.
<PAGE>
Income Before Extraordinary Items. Income before extraordinary items decreased
by $1.1 million, or 18%, to $4.8 million for first quarter 1998 when compared to
first quarter 1997, primarily due to an increase in interest expense of
$569,000, or 10%, to $6.1 million. Interest expense increased due to refinancing
the Partnership's mortgage debt on March 21, 1997 at a higher interest rate.
Extraordinary Items. The Partnership recognized a net extraordinary gain in the
first quarter of 1997 of $12.5 million representing the forgiveness of deferred
management fees by Courtyard Management Corporation partially offset by an
extraordinary loss on the early extinguishment of debt.
Net Income. Net income for first quarter 1998 decreased by $13.5 million to $4.8
million, compared to net income of $18.4 million, for first quarter 1997 as a
result of the items discussed above.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have historically been funded through loan
agreements with various lenders and Host Marriott Corporation ("Host Marriott").
The General Partner believes that the Partnership will have sufficient capital
resources and liquidity to continue to conduct its business in the ordinary
course.
Principal Sources and Uses of Cash
Cash provided by operations was $7.4 million and $765,000 for first quarters
1998 and 1997, respectively. The Partnership's principal source of cash is cash
from operations. Cash provided by operations was higher in first quarter 1998
primarily due to the payment of $4.2 million of deferred management fees in
connection with the refinancing in 1997. In addition, Due from Courtyard
Management Corporation decreased $2 million in first quarter 1998 when compared
to first quarter 1997 which also contributed to the increase in cash provided by
operations during first quarter 1998.
Cash used in investing activities was $2.4 million and $9 million for first
quarters 1998 and 1997, respectively. The Partnership's cash used in investing
activities consists primarily of contributions to the property improvement fund
and capital expenditures for improvements to the hotels. As part of the debt
refinancing on March 21, 1997, a $7 million contribution was made to the
property improvement fund in first quarter 1997 which accounts for the decrease
in cash used in investing activities in first quarter 1998.
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
Courtyard Management Corporation 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.
During the first quarter 1998, $784,000 was used for financing activities and
during the first quarter of 1997, $30.6 million was provided by financing
activities. 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. In first
quarter 1997, the Partnership received refinancing proceeds in excess of
repayments of the mortgage debt. This provided cash to the Partnership which was
used to pay financing costs and provided funds for a partial return of capital
distribution to the partners. This distribution was paid April 4, 1997.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Marvin Schick and Jack Hirsch, the plaintiffs in a class action lawsuit filed
their complaint, styled Marvin Schick, et al. v. Host Marriott Corporation, et
al., Civil Action No. 15991 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 Corporation ("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, filed a class action lawsuit, styled Ruben, et al. v. Host
Marriott Corporation, et al., Civil Action No. 16186, in Delaware State Chancery
Court 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 "Five Partnerships"). The plaintiffs allege that the merger of the Five
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 Five Partnerships by Host Marriott and the general partners of the Five
Partnerships. In addition, the plaintiffs allege that the Merger breaches
various agreements relating to the Five Partnerships. The plaintiffs are
seeking, among other things, the following: certification of a class; injunctive
relief to block 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 them. The defendants also maintain that this
lawsuit is premature because the Merger has not been, and may not be,
consummated as proposed in the SEC filings.
On March 16, 1998, limited partners in several partnerships sponsored by Host
Marriott filed a lawsuit, styled Robert M. Haas, Sr. and Irwin Randolph Joint
Tenants, et al. v. Marriott International, Inc., et al., Case No. CI-04092, in
the 57th Judicial District Court of Bexar County, Texas against Marriott
International, Inc. ("Marriott International"), Host Marriott, various of their
subsidiaries, J.W. Marriott, Jr., Stephen Rushmore, and Hospitality Valuation
Services, Inc. (collectively, the "Defendants"). The lawsuit relates to the
following limited partnerships: Courtyard by Marriott Limited Partnership,
Courtyard by Marriott II Limited Partnership, Marriott Residence Inn Limited
Partnership, Marriott Residence Inn II Limited Partnership, Fairfield Inn by
Marriott Limited Partnership, Desert Springs Marriott Limited Partnership, and
Atlanta Marriott Marquis Limited Partnership (collectively, the "Seven
Partnerships"). The plaintiffs allege that the Defendants conspired to sell
hotels to the Seven Partnerships for inflated prices and that they charged the
Seven Partnerships excessive management fees to operate the Seven Partnerships'
hotels. The plaintiffs further allege that the Defendants committed fraud,
breached fiduciary duties, and violated the provisions of various contracts. The
plaintiffs are seeking unspecified damages. The Defendants, which do not include
the Seven Partnerships, believe that there is no truth to the plaintiffs'
allegations and that the lawsuit is totally devoid of merit. The Defendants
intend to vigorously defend against the claims asserted in the lawsuit. Although
the Seven Partnerships have not been named as Defendants in the lawsuit, the
partnership agreements relating to the Seven Partnerships include an indemnity
provision which requires the Seven Partnerships, under certain circumstances, to
indemnify the general partners against losses, judgments, expenses, and fees.
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.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
None.
b. Reports on Form 8-K:
May 6, 1998 -- Letter to limited partners regarding status of proposed
consolidation.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
COURTYARD BY MARRIOTT
LIMITED PARTNERSHIP
By: CBM ONE CORPORATION
General Partner
/s/ Earla L. Stowe
May 11, 1998 By: ---------------------------
Earla L. Stowe
Vice President and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000813807
<NAME> COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-27-1998
<EXCHANGE-RATE> 1.00
<CASH> 9,677
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<RECEIVABLES> 5,927
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<CURRENT-ASSETS> 14,167
<PP&E> 535,336
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<CURRENT-LIABILITIES> 41,860
<BONDS> 318,622
0
0
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