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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 24, 2000
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
- ------------------------- ------------------------------------------
(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 24, 2000
and March 26, 1999 (Unaudited)................................1
Condensed Balance Sheet
March 24, 2000 (Unaudited) and December 31, 1999................2
Condensed Statement of Cash Flows
Twelve Weeks ended March 24, 2000
and March 26, 1999 (Unaudited)................................3
Note to Condensed Financial Statements (Unaudited).................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................5
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................7
Item 6. Exhibits and Reports on Form 8-K...................................8
<PAGE>
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)
<TABLE>
Twelve Weeks Ended
March 24, March 26,
2000 1999
<S> <C> <C>
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REVENUES
Hotel revenues
Rooms................................................................................$ 43,323 $ 43,610
Food and beverage.................................................................... 2,964 3,075
Other................................................................................ 1,726 1,545
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Total hotel revenues............................................................... 48,013 48,230
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OPERATING COSTS AND EXPENSES
Hotel property-level costs and expenses
Rooms................................................................................ 9,802 9,611
Food and beverage.................................................................... 2,646 2,734
Other department costs and expenses.................................................. 234 455
Selling, administrative and other.................................................... 11,535 11,210
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Total hotel property-level costs and expenses...................................... 24,217 24,010
Depreciation........................................................................... 4,545 4,349
Base and Courtyard management fees..................................................... 2,881 2,894
Incentive management fee............................................................... 2,174 2,166
Ground rent, taxes and other........................................................... 4,122 4,081
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Total operating costs and expenses................................................. 37,939 37,500
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OPERATING PROFIT.......................................................................... 10,074 10,730
Interest expense....................................................................... (5,827) (6,029)
Interest income........................................................................ 304 164
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NET INCOME................................................................................$ 4,551 $ 4,865
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ALLOCATION OF NET INCOME
General Partner........................................................................$ 228 $ 243
Limited Partners....................................................................... 4,323 4,622
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$ 4,551 $ 4,865
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NET INCOME PER LIMITED PARTNER UNIT (1,150 Units).........................................$ 3,759 $ 4,019
============== =============
See Note to Condensed Financial Statements.
</TABLE>
<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
March 24, December 31,
2000 1999
-------------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net............................................................$ 283,126 $ 285,915
Due from Courtyard Management Corporation.............................................. 6,156 2,868
Deferred financing costs, net of accumulated amortization.............................. 5,309 5,411
Property improvement fund.............................................................. 12,262 7,857
Restricted cash........................................................................ 8,667 11,889
Cash and cash equivalents.............................................................. 11,248 14,920
-------------- ---------------
$ 326,768 $ 328,860
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LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Mortgage debt..........................................................................$ 302,998 $ 305,086
Straight-line ground rent due to affiliates of Marriott International, Inc............. 19,098 19,152
Debt service guaranty and accrued interest payable to Host Marriott Corporation........ 14,941 14,794
Incentive management fees due to Courtyard Management Corporation...................... 4,540 4,777
Accounts payable and accrued liabilities............................................... 3,338 3,512
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Total Liabilities................................................................ 344,915 347,321
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PARTNERS' CAPITAL (DEFICIT)
General Partner........................................................................ 415 399
Limited Partners....................................................................... (18,562) (18,860)
-------------- ---------------
Total Partners' Deficit.......................................................... (18,147) (18,461)
-------------- ---------------
$ 326,768 $ 328,860
============== ===============
See Note to Condensed Financial Statements.
</TABLE>
<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
Twelve Weeks Ended
March 24, March 26,
2000 1999
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OPERATING ACTIVITIES
Net income.............................................................................$ 4,551 $ 4,865
Noncash items.......................................................................... 4,824 4,583
Changes in operating accounts.......................................................... (531) (355)
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Cash provided by operations...................................................... 8,844 9,093
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INVESTING ACTIVITIES
Additions to property and equipment, net............................................... (1,786) (956)
Change in property improvement fund.................................................... (4,405) (501)
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Cash used in investing activities................................................ (6,191) (1,457)
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FINANCING ACTIVITIES
Capital distributions.................................................................. (4,237) (5)
Repayments of mortgage debt............................................................ (2,088) (1,930)
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Cash used in financing activities................................................ (6,325) (1,935)
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.......................................... (3,672) 5,701
CASH AND CASH EQUIVALENTS at beginning of period.......................................... 14,920 9,203
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CASH AND CASH EQUIVALENTS at end of period................................................$ 11,248 $ 14,904
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest........................................................$ 6,052 $ 6,143
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See Note to Condensed Financial Statements.
</TABLE>
<PAGE>
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
NOTE TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The accompanying unaudited, condensed financial statements have been
prepared by the Courtyard By Marriott Limited Partnership (the
"Partnership"). Certain information and footnote disclosures normally
included in financial statements presented in accordance with accounting
principles generally accepted in the United States 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 unaudited, condensed financial statements should
be read in conjunction with the Partnership's financial statements and
notes thereto included in the Partnership's Form 10-K for the year ended
December 31, 1999.
In the opinion of the Partnership, the accompanying unaudited, condensed
financial statements reflect all adjustments necessary to present fairly
the financial position of the Partnership as of March 24, 2000, and the
results of operations and cash flows for the twelve weeks ended March 24,
2000 and March 26, 1999. Interim results are not necessarily indicative
of full 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 CBM One LLC (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
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.
Certain reclassifications were made to the prior year unaudited,
condensed financial statements to conform to the current year
presentation.
<PAGE>
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 Act of
1934 contained important factors with respect to such forward-looking
statements, including: (i) national and local economic and business conditions
that will affect, among other things, demand for products and services at the
Hotels and other properties, the level of room rates and occupancy that can be
achieved by such properties and the availability and terms of financing; (ii)
the ability to compete effectively in areas such as access, location, quality of
accommodations and room rate structures; (iii) changes in travel patterns, taxes
and government regulations which influence or determine wages, prices,
construction procedures and costs; (iv) governmental approvals, actions and
initiatives including the need for compliance with environmental and safety
requirements, and changes in laws and regulations or the interpretation thereof;
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 decreased slightly to $48 million for first quarter 2000 when
compared to the same period in 1999 as a result of an additional day of
operations in first quarter 1999. First quarter 2000 revenues represent 84 days
of operations and first quarter 1999 represents 85 days of operations. Revenue
per available room ("REVPAR") represents the combination of the average daily
room rate charged and the average daily occupancy achieved. REVPAR remained
unchanged at $71 due to an increase in the combined average room rate of $3, or
3%, to $93, which was offset by a decrease in the combined average occupancy of
three percentage points to 76% for first quarter 2000 when compared to first
quarter 1999.
Operating Costs and Expenses. The Partnership's operating costs and expenses
increased $439,000, or 1%, to $37.9 million for first quarter 2000 when compared
to first quarter 1999, primarily due to the increase in property-level costs and
expenses and depreciation expense as discussed below. As a percentage of Hotel
revenues, operating costs and expenses represented 79% of revenues for first
quarter 2000 and 78% for first quarter 1999.
The Partnership's Hotel property-level costs and expenses increased $207,000 to
$24.2 million when compared to the same period in 1999. Hotel property-level
costs and expenses are higher due to increased salary and benefit expenses as
the Hotels endeavor to maintain competitive wage scales. However, as a
percentage of Hotel revenues, property-level costs and expenses represented
approximately 50% of revenues for both first quarter 2000 and first quarter
1999.
Depreciation expense increased $196,000 to $4.5 million for first quarter 2000
from $4.3 million for first quarter 1999 due to property, plant and equipment
additions.
Operating Profit. As a result of the changes in operating costs and expenses
discussed above, operating profit decreased $656,000, or 6%, to $10.1 million
for first quarter 2000 when compared to $10.7 million in first quarter 1999.
Interest Expense. Interest expense decreased $202,000 to $5.8 million for first
quarter 2000 when compared to the same period in 1999 as a result of principal
amortization on the Partnership's mortgage debt.
Net Income. Net income for first quarter 2000 decreased by $314,000 to $4.6
million, compared to net income of $4.9 million for first quarter 1999 as a
result of the items discussed above.
Liquidity and Capital Resources
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions and Host Marriott Corporation
("Host Marriott"). The General Partner believes that cash from Hotel operations
will be sufficient to make required debt service payments, to fund current
capital expenditure needs of the Hotels as well as to make cash distributions to
the limited partners.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is from operations. Its principal
uses of cash are to make debt service payments, fund the property improvement
fund and to make distributions to the partners.
Cash provided by operating activities was $8.8 million and $9.1 million for
first quarters 2000 and 1999, respectively.
Cash used in investing activities was $6.2 million and $1.5 million for first
quarters 2000 and 1999, respectively. The increase in investing activities was
primarily due to the Partnership funding $3.6 million to the property
improvement fund for certain capital expenditures in first quarter 2000.
Cash used in financing activities was $6.3 million and $1.9 million for first
quarter 2000 and first quarter 1999, respectively. During the first quarters
2000 and 1999, the Partnership paid $2.1 million and $1.9 million, respectively,
of principal on the mortgage debt. Cash used in financing activities also
included $4.2 million of cash distributions to the partners during first quarter
2000.
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 24, 2000, all of the Partnership's mortgage debt has a fixed interest
rate.
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
the prime rate, which was 8.5% at December 31, 1999 and 9% at March 24, 2000.
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 for the year ended December 31, 1999.
<PAGE>
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, Courtyard Management Corporation (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. ("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.
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 MII, Host
Marriott, various of their subsidiaries, J.W. Marriott, Jr., Stephen Rushmore,
and Hospitality Valuation Services, Inc. (collectively, the "Defendants"). The
lawsuit now relates to the following limited partnerships: Courtyard by Marriott
Limited Partnership, Marriott Residence Inn Limited Partnership, Marriott
Residence Inn II Limited Partnership, Fairfield Inn by Marriott Limited
Partnership, Host DSM Limited Partnership (formerly known as Desert Springs
Marriott Limited Partnership) and Atlanta II Limited Partnership (formerly known
as Atlanta Marriott Marquis Limited Partnership), collectively, the "Six
Partnerships". The plaintiffs allege that the Defendants conspired to sell
hotels to the Six Partnerships for inflated prices and that they charged the Six
Partnerships excessive management fees to operate the Six Partnerships' hotels.
The plaintiffs further allege, among other things, that the Defendants committed
fraud, breached fiduciary duties and violated the provisions of various
contracts. A related case concerning Courtyard by Marriott II Limited
Partnership ("Courtyard II") filed by the plaintiffs' lawyers in the same court,
involves similar allegations against the Defendants, and has been certified as a
class action. As a result of this development, Courtyard II is no longer
involved in the above-referenced Haas lawsuit, Case No. 98-CI-04092.
On March 9, 2000, the Defendants entered into a settlement agreement with
counsel for the plaintiffs to resolve the Haas and Courtyard II litigation. The
settlement would also resolve the Schick case referred to above. The settlement
is subject to numerous conditions, including partnership agreement amendments,
participation thresholds, court approval and various consents.
Under the terms of the settlement, the limited partners of the Partnership who
elect to participate would receive $134,130 per Unit, or a pro rata portion
thereof, in cash in exchange for the transfer, directly or through a merger, of
all limited partner Units to a joint venture between subsidiaries of Host
Marriott and MII, dismissal of the litigation, and a complete release of all
claims. If the Texas court approves legal fees and expenses of approximately
$18,000 per Unit to counsel to the class action plaintiffs, the net amount that
each class member who transfers his Unit and releases all of his litigation
claims will receive is approximately $116,000 per Unit, or a pro rata portion
thereof for fractional Units.
Limited partners who opt out of the settlement would have their interests in the
Partnership converted into the right to receive the appraised value of the Units
in cash (excluding any amount related to the claims asserted in the class action
litigation) and will retain their individual claims against the Defendants.
The settlement will not be consummated unless the Texas court approves the
fairness of the settlement. The Defendants may terminate the settlement if the
holders of more than 10% of the Partnership's 1,150 Units choose not to
participate, if the holders of more than 10% of the limited partner units in any
one of the other partnerships involved in the settlement choose not to
participate or if certain other conditions are not satisfied. The Manager will
continue to manage the Partnership's Hotels under long-term agreements.
The details of the settlement will be contained in a court-approved notice and
purchase offer/consent solicitation to be sent to the Partnership's limited
partners, and the discussion of the settlement herein is qualified in its
entirety by the terms of the actual court-approved notice and purchase offer/
consent solicitation sent to the Partnership's limited partners.
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
May 8, 2000 By: /s/ Earla L. Stowe
------------------
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
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-24-2000
<EXCHANGE-RATE> 1.00
<CASH> 11,248
<SECURITIES> 0
<RECEIVABLES> 6,156
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,238
<PP&E> 505,419
<DEPRECIATION> (222,293)
<TOTAL-ASSETS> 326,768
<CURRENT-LIABILITIES> 26,976
<BONDS> 317,939
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 326,768
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</TABLE>
