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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 QUARTERLY PERIOD ENDED MARCH 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-15736
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1468081
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(State of Organization) (I.R.S. Employer Identification Number)
10400 Fernwood Road, Bethesda, MD 20817-1109
- -------------------------------------------- --------------------
(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 |X| No .
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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 26, 1999 (Unaudited)
and March 27, 1998 (Unaudited)................................1
Condensed Balance Sheet
March 26, 1999 (Unaudited) and December 31, 1998................2
Condensed Statement of Cash Flows
Twelve Weeks ended March 26, 1999 (Unaudited)
and March 27, 1998 (Unaudited)................................3
Notes to Condensed Financial Statements (Unaudited)................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................10
Item 6. Exhibits and Reports on Form 8-K..................................10
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except unit and per unit amounts)
Twelve Weeks Ended
March 26, March 27,
1999 1998
<S> -------------- ---------
REVENUES> <C> <C>
Hotel revenues
Rooms................................................................................$ 43,610 $ 41,794
Food and beverage.................................................................... 3,075 2,987
Other................................................................................ 1,545 1,491
-------------- -------------
Total hotel revenues............................................................... 48,230 46,272
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OPERATING COSTS AND EXPENSES
Hotel property-level costs and expenses
Rooms................................................................................ 9,611 8,829
Food and beverage.................................................................... 2,734 2,556
Other department costs and expenses.................................................. 455 415
Selling, administrative and other.................................................... 11,210 10,695
-------------- -------------
Total hotel property-level costs and expenses...................................... 24,010 22,495
Depreciation........................................................................... 4,349 3,968
Base and Courtyard management fees..................................................... 2,894 2,776
Incentive management fee............................................................... 2,166 2,235
Ground rent, taxes and other........................................................... 4,081 3,864
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Total operating costs and expenses................................................. 37,500 35,338
-------------- -------------
OPERATING PROFIT.......................................................................... 10,730 10,934
Interest expense....................................................................... (6,029) (6,253)
Interest income........................................................................ 164 124
-------------- -------------
NET INCOME................................................................................$ 4,865 $ 4,805
============== =============
ALLOCATION OF NET INCOME
General Partner........................................................................$ 243 $ 240
Limited Partners....................................................................... 4,622 4,565
-------------- -------------
$ 4,865 $ 4,805
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NET INCOME PER LIMITED PARTNER UNIT (1,150 Units).........................................$ 4,019 $ 3,969
============== =============
See Notes to Condensed Financial Statements.
</TABLE>
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<TABLE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(in thousands)
March 26, December 31,
1999 1998
(Unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net............................................................$ 293,796 $ 297,189
Deferred financing costs, net of accumulated amortization.............................. 5,752 5,854
Due from Courtyard Management Corporation.............................................. 5,636 4,210
Property improvement fund.............................................................. 5,976 5,475
Restricted cash........................................................................ 6,961 9,315
Cash and cash equivalents.............................................................. 14,904 9,203
-------------- ---------------
$ 333,025 $ 331,246
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Mortgage debt..........................................................................$ 311,121 $ 313,051
Straight-line ground rent due to affiliates of Marriott International, Inc............. 19,330 19,384
Debt service guaranty and accrued interest payable to Host Marriott Corporation........ 14,340 14,208
Incentive management fees due to Courtyard Management Corporation...................... 5,488 5,653
Accounts payable and accrued liabilities............................................... 2,686 3,750
-------------- ---------------
Total Liabilities................................................................ 352,965 356,046
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PARTNERS' CAPITAL (DEFICIT)
General Partner........................................................................ 328 85
Limited Partners....................................................................... (20,268) (24,885)
-------------- ---------------
Total Partners' Deficit.......................................................... (19,940) (24,800)
-------------- ---------------
$ 333,025 $ 331,246
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See Notes to Condensed Financial Statements.
</TABLE>
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<TABLE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Twelve Weeks Ended
March 26, March 27,
1999 1998
<S> <C>------------- <C> ---------
OPERATING ACTIVITIES
Net income.............................................................................$ 4,865 $ 4,805
Noncash items.......................................................................... 4,583 4,219
Changes in operating accounts.......................................................... (333) (1,623)
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Cash provided by operations...................................................... 9,115 7,401
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INVESTING ACTIVITIES
Additions to property and equipment, net............................................... (956) (2,743)
Change in property improvement fund.................................................... (501) 353
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Cash used in investing activities................................................ (1,457) (2,390)
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FINANCING ACTIVITIES
Capital distributions.................................................................. (5) --
Repayments of mortgage debt............................................................ (1,930) (1,785)
Change in debt reserve................................................................. (22) 1,003
Payment of financing costs............................................................. -- (2)
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Cash used in financing activities................................................ (1,957) (784)
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INCREASE IN CASH AND CASH EQUIVALENTS..................................................... 5,701 4,227
CASH AND CASH EQUIVALENTS at beginning of period.......................................... 9,203 5,450
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CASH AND CASH EQUIVALENTS at end of period................................................$ 14,904 $ 9,677
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest........................................................$ 6,143 $ 6,289
============== =============
See Notes to Condensed Financial Statements.
</TABLE>
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COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed financial statements have been prepared by the
Courtyard By Marriott Limited Partnership (the "Partnership") without
audit. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted from the
accompanying statements. The Partnership believes the disclosures made
are adequate to make the information presented not misleading. However,
the condensed financial statements should be read in conjunction with the
Partnership's financial statements and notes thereto included in the
Partnership's 10-K for the year ended December 31, 1998.
In the opinion of the Partnership, the accompanying unaudited condensed
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position
of the Partnership as of March 26, 1999 and December 31, 1998, and the
results of operations and cash flows for the twelve weeks ended March 26,
1999 and March 27, 1998. 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. As
discussed in full detail in the Partnership's 10-K, the General Partner
is CBM One LLC. 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
Federal 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 1998 financial statements to
conform to the 1999 presentation.
3. Revenues primarily represent the gross sales generated by the
Partnership's Hotels. 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 considered the impact of EITF 97-2 on its condensed
financial statements and determined that EITF 97-2 requires the
Partnership to include property-level sales and operating expenses of its
Hotels in its condensed statement of operations. The Partnership has
given retroactive effect to the adoption of EITF 97-2 in the accompanying
condensed statement of operations. Application of EITF 97-2 to the
condensed financial statements for the first quarters 1999 and 1998
increased both revenues and operating expenses by approximately $24.0
million and $22.5 million, respectively, and had no impact on operating
profit or net income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q include forward-looking statements
and as such may involve known and unknown risks, uncertainties and other factors
which may cause the actual transactions, results, performance or achievements to
be materially different from any future transactions, results, performance or
achievements expressed or implied by such forward-looking statements. The
cautionary statements set forth in reports filed under the Securities Exchange
Act of 1934 contained important factors with respect to such forward-looking
statements, including: (i) national and local economic and business conditions
that will, among other things, affect demand for hotels and other properties,
the level of rates and occupancy that can be achieved by such properties and the
availability and terms of financing; (ii) the ability to compete effectively;
(iii) changes in travel patterns, taxes and government regulations; (iv)
governmental approvals, actions and initiatives; and (v) the effects of tax
legislative action. 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 or that any deviations
will not be material. 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 increased $2.0 million, or 4%, to $48.2 million for first
quarter 1999 from $46.3 million for first quarter 1998 as a result of strong
growth in revenue per available room ("REVPAR") of 3%. REVPAR 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). REVPAR for first quarter 1999 increased $2, or 3%, to $71 when
compared to first quarter 1998, primarily due to the increase in combined
average room rate of $2, or 2%, to $90. The combined average occupancy remained
stable at 79%.
Operating Costs and Expenses. The Partnership's operating costs and expenses
increased $2.2 million, or 6%, to $37.5 million for first quarter 1999 when
compared to first quarter 1998, primarily due to the increase in property-level
costs and expenses. As a percentage of hotel revenues, operating costs and
expenses represented 78% of revenues for first quarter 1999 and 76% for first
quarter 1998.
Total Hotel Property-Level Costs and Expenses. First quarter 1999 total hotel
property-level costs and expenses increased $1.5 million, or 7% when compared to
first quarter 1998. The increase is due to increases in both rooms costs and
selling expenses, administrative and other expenses. As a percentage of hotel
revenues, property-level costs and expenses represented 50% of revenues for
first quarter 1999 and 49% for first quarter 1998.
Depreciation. Depreciation expense increased $381,000 to $4.3 million for first
quarter 1999 from $4.0 million for first quarter 1998 due to $11.1 million of
property, plant and equipment additions in 1998.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit decreased $204,000, or 2%, to $10.7
million for first quarter 1999 when compared to $10.9 million in first quarter
1998.
Net Income. Net income for first quarter 1999 increased by $60,000 to $4.9
million, compared to net income of $4.8 million for first quarter 1998 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 $9.1 million and $7.4 million for first quarters
1999 and 1998, respectively. The Partnership's principal source of cash is cash
from operations. The increase in first quarter 1999 was primarily due to a 4%
increase in revenues.
Cash used in investing activities was $1.5 million and $2.4 million for first
quarters 1999 and 1998, 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.
Contributions to the property improvement fund increased to 6% of gross Hotel
sales in 1999 from 5% in 1998. Contributions to the property improvement fund
will remain at 6% through the end of fiscal year 2000 and may be increased
thereafter to 7% at the option of the Manager.
During the first quarters 1999 and 1998, $2.0 million and $784,000,
respectively, was used for financing activities. The Partnership's financing
activities primarily consist of repayments of debt and capital distributions to
its partners.
Strategy for Liquidity
The General Partner is continuing to explore alternatives to provide liquidity
for the Partnership and maximize the value of the limited partners' investment.
While the General Partner can make no assurances as to the outcome of their
efforts, the General Partner continues to work with Merrill Lynch who is acting
as an advisor in this regard.
Year 2000 Issues
Year 2000 issues have arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19." If not corrected, many computer applications could
fail or create erroneous results. The following disclosure provides information
regarding the current status of the Partnership's Year 2000 compliance program.
Host Marriott has adopted the compliance program because it recognizes the
importance of minimizing the number and seriousness of any disruptions that may
occur as a result of the Year 2000 issue. Host Marriott's compliance program
includes an assessment of Host Marriott's hardware and software computer systems
and embedded systems, as well as an assessment of the Year 2000 issues relating
to third parties with which Host Marriott has a material relationship or whose
systems are material to the operations of the Partnership's Hotels. Host
Marriott's efforts to ensure that its computer systems are Year 2000 compliant
have been segregated into two separate phases:
in-house systems and third-party systems.
In-House Systems. Host Marriott has invested in the implementation and
maintenance of accounting and reporting systems and equipment that are intended
to enable the Partnership to provide adequately for its information and
reporting needs and which are also Year 2000 compliant. Substantially all of
Host Marriott's in-house systems have already been certified as Year 2000
compliant through testing and other mechanisms, and Host Marriott has not
delayed any systems projects due to the Year 2000 issue. Host Marriott is in the
process of engaging a third party to review its Year 2000 in-house compliance.
Host Marriott believes that future costs associated with Year 2000 issues for
its in-house systems will be insignificant and, therefore, not impact the
Partnership's business, financial condition and results of operations. Host
Marriott has not developed, and does not plan to develop, a separate contingency
plan for its in-house systems due to their current Year 2000 compliance.
Third-Party Systems. The Partnership relies upon operational and accounting
systems provided by third parties, primarily the Manager of its Hotels, to
provide the appropriate property-specific operating systems (including
reservation, phone, elevator, security, HVAC and other systems) and to provide
it with financial information. Based on discussions with the third parties that
are critical to the Partnership's business, including the Manager of its Hotels,
Host Marriott believes that these parties are in the process of studying their
systems and the systems of their respective vendors and service providers and,
in many cases, have begun to implement changes, to ensure that they are Year
2000 compliant. However, Host Marriott has not received any oral or written
assurances that these third parties will be Year 2000 compliant on time. To the
extent these changes impact property-level systems, the Partnership may be
required to fund capital expenditures for upgraded equipment and software. The
Partnership does not expect these charges to be material, but is committed to
making these investments as required. To the extent that these changes relate to
the Manager's centralized systems (including reservations, accounting,
purchasing, inventory, personnel and other systems), the Partnership's
management agreement generally provides for these costs to be charged to the
Partnership's properties. Host Marriott expects that the Manager will incur Year
2000 costs for its centralized systems in lieu of costs related to system
projects that otherwise would have been pursued and therefore, its overall level
of centralized systems charges allocated to the Hotels will not materially
increase as a result of the Year 2000 compliance effort. Host Marriott believes
that this deferral of certain system projects will not have a material impact on
its future results of operations, although it may delay certain productivity
enhancements at the Partnership's Hotels. Host Marriott will continue to monitor
the efforts of these third parties to become Year 2000 compliant and will take
appropriate steps to address any non-compliance issues. The Partnership believes
that in the event of material Year 2000 non-compliance, the Partnership will
have the right to seek recourse against the Manager under its management
agreement. The management agreement, however, generally does not specifically
address the Year 2000 compliance issue. Therefore, the amount of any recovery in
the event of Year 2000 non-compliance at a property, if any, is not determinable
at this time.
Host Marriott will work with the third parties to ensure that appropriate
contingency plans will be developed to address the most reasonably likely worst
case Year 2000 scenarios, which may not have been identified fully. In
particular, Host Marriott has had extensive discussions regarding the Year 2000
problem with Marriott International, Inc. ("MII"), the parent of the Manager of
the Partnership's Hotels. Due to the significance of MII to the Partnership's
business, a detailed description of MII's state of readiness follows.
MII has adopted an eight-step process toward Year 2000 readiness, consisting of
the following: (i) Awareness: fostering understanding of, and commitment to, the
problem and its potential risks; (ii) Inventory: identifying and locating
systems and technology components that may be affected; (iii) Assessment:
reviewing these components for Year 2000 compliance, and assessing the scope of
Year 2000 issues; (iv) Planning: defining the technical solutions and labor and
work plans necessary for each affected system; (v) Remediation/Replacement:
completing the programming to renovate or replace the problem software or
hardware; (vi) Testing and Compliance Validation: conducting testing, followed
by independent validation by a separate internal verification team; (vii)
Implementation: placing the corrected systems and technology back into the
business environment; and (viii) Quality Assurance: utilizing an internal audit
team to review significant projects for adherence to quality standards and
program methodology.
MII has grouped its systems and technology into three categories for purposes of
Year 2000 compliance: (i) information resource applications and technology (IT
Applications) -- enterprise-wide systems supported by MII's centralized
information technology organization ("IR"); (ii) Business-initiated Systems
("BIS") - systems that have been initiated by an individual business unit, and
that are not supported by MII's IR organization; and (iii) Building Systems -
non-IT equipment at properties that use embedded computer chips, such as
elevators, automated room key systems and HVAC equipment. MII is prioritizing
its efforts based on how severe an effect noncompliance would have on customer
service, core business processes or revenues, and whether there are viable,
non-automated fallback procedures (System Criticality).
MII measures the completion of each phase based on documented and quantified
results, weighted for System Criticality. As of March 26, 1999, the Awareness
and Inventory phases were complete for IT Applications, BIS, and Building
Systems. For IT Applications, the Assessment and Planning phases were complete
and Remediation/Replacement and Testing phases were 95 percent complete.
Compliance Validation has been completed for approximately 75% of key systems,
with most of the remaining work in its final stage. For BIS and Building
Systems, Assessment and Planning are substantially complete. For BIS,
Remediation/Replacement is substantially complete and Testing is in progress.
MII is on track for completion of Remediation/Replacement and Testing of
Building Systems for September of 1999. Compliance Validation is in progress for
both BIS and Building Systems. Implementation and Quality Assurance is in
progress for IT Applications, BIS and Building Systems.
Year 2000 compliance communications with MII's significant third party
suppliers, vendors and business partners, including its franchisees are ongoing.
MII's efforts are focused on the connections most critical to customer service,
core business processes and revenues, including those third parties that support
the most critical enterprise-wide IT Applications, franchisees generating the
most revenues, suppliers of the most widely used Building Systems and BIS, the
top 100 suppliers, by dollar volume, of non-IT products, and financial
institutions providing the most critical payment processing functions. Responses
have been received from a majority of the firms in this group. A majority of
these respondents have either given assurances of timely Year 2000 compliance or
have identified the necessary actions to be taken by them or MII to achieve
timely Year 2000 compliance for their products.
MII has established a common approach for testing and addressing Year 2000
compliance issues for its managed and franchised properties. This includes a
guidance protocol for operated properties, and a Year 2000 "Toolkit" for
franchisees containing relevant Year 2000 compliance information. MII is also
utilizing a Year 2000 best-practices sharing system.
Risks. There can be no assurances that Year 2000 remediation by the Partnership
or third parties will be properly and timely completed, and failure to do so
could have a material adverse effect on the Partnership, its business and its
financial condition. The Partnership cannot predict the actual effects to it of
the Year 2000 issue, which depends on numerous uncertainties such as: (i)
whether significant third parties, properly and timely address the Year 2000
issue; and (ii) whether broad-based or systemic economic failures may occur.
Host Marriott is also unable to predict the severity and duration of any such
failures, which could include disruptions in passenger transportation or
transportation systems generally, loss of utility and/or telecommunications
services, the loss or distortion of hotel reservations made on centralized
reservations systems and errors or failures in financial transactions or payment
processing systems such as credit cards. Due to the general uncertainty inherent
in the Year 2000 issue and the Partnership's dependence on third parties, the
Partnership is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Partnership. Host Marriott's
Year 2000 compliance program is expected to significantly reduce the level of
uncertainty about the Year 2000 issue and Host Marriott believes that the
possibility of significant interruptions of normal operations should be reduced.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership does not have significant market risk with respect to interest
rates, foreign currency exchanges or other market rate or price risks, and the
Partnership does not hold any financial instruments for trading purposes. As of
March 26, 1999, all of the Partnership's mortgage debt is fixed rate.
However, the Partnership has a debt service guaranty advance that is sensitive
to changes in interest rates. The interest recognized on the debt obligation is
based on prime rate, which was 7.75% at December 31, 1998 and at March 26, 1999.
The interest rate, fair value, and future maturity associated with this debt
obligation has not changed materially from the amount reported in the
Partnership's annual report on Form 10-K.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
Marvin Schick and Jack Hirsch, the plaintiffs in a class action lawsuit styled
Marvin Schick, et al. v. Host Marriott Corporation, et al., Civil Action No.
15991, 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. The plaintiffs' claim that the General
Partner agreed to decrease the owner's priority under the Management Agreement
for 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
Marriott International, Inc. 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 defendants filed an answer to the
plaintiffs' complaint and asserted a number of defenses. The parties to this
lawsuit have reached a tentative agreement to settle the matter and are in the
process of finalizing the settlement.
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. 98-CI-04092,
in the 57th Judicial District Court of Bexar County, Texas against Marriott
International, Inc., 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, among other things, 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. They have filed an answer to the plaintiffs' petition and asserted a
number of defenses. A related case concerning Courtyard by Marriott II Limited
Partnership filed by the plaintiff's lawyers in the same court involves similar
allegations against the defendants, and has been certified as a class action. On
March 18, 1999, two of the Partnership's limited partners filed a class action
petition in intervention seeking to convert that portion of the lawsuit relating
to the Partnership into a class action. The court has not yet ruled on this
petition. 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,
expenses and fees.
On April 1, 1999, Equity Resource Fund X, Equity Resource Fund XII, Palm
Investors, L.L.C., and Repp Properties, L.P., limited partners in the
Partnership and in Courtyard by Marriott II Limited Partnership, filed a
derivative lawsuit on behalf of the Partnership and Courtyard by Marriott II
Limited Partnership against Marriott International, Inc., Host Marriott
Corporation, various of their subsidiaries, and several of their current and
former executives. The plaintiffs filed this lawsuit in the 150th Judicial
District of Bexar County, Texas and the case is styled Equity Resource Fund X,
et al. v. CBM One Corporation, et al., Case No. 99-CI-04765. The plaintiffs
allege that the defendants conspired to profit at the partnerships' expense by
entering into agreements, including management agreements and ground leases,
that were unfair and not commercially reasonable. The plaintiffs further allege,
among other things, that the defendants committed fraud, breaches of fiduciary
duties and violated provisions of the various agreements. The plaintiffs are
seeking disgorgement of all fees and rents paid under the management agreements
and leases, cancellation or reformation of these agreements, damages and
replacement of the general partners. The defendants believe that there is no
truth to the plaintiffs' allegations and that the lawsuit is totally devoid of
merit. Although the defendants have not yet been required to file a pleading
responsive to the complaint, they intend to vigorously defend against the claims
asserted in the derivative lawsuit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
None.
b. Reports on Form 8-K:
None.
<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 LLC
General Partner
By: /s/ Earla L. Stowe
Earla L. Stowe
Vice President and
Chief Accounting
May 6, 1999 Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000813807
<NAME> COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-26-1999
<EXCHANGE-RATE> 1.00
<CASH> 14,904
<SECURITIES> 0
<RECEIVABLES> 5,636
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,689
<PP&E> 544,612
<DEPRECIATION> (250,816)
<TOTAL-ASSETS> 333,025
<CURRENT-LIABILITIES> 27,504
<BONDS> 325,461
0
0
<COMMON> 0
<OTHER-SE> (19,940)
<TOTAL-LIABILITY-AND-EQUITY> 333,025
<SALES> 0
<TOTAL-REVENUES> 48,230
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 37,336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,029
<INCOME-PRETAX> 4,865
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,865
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>