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, 1999
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 |X| No ____
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
None
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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
Item 1. Business........................................................1
Item 2. Properties......................................................5
Item 3. Legal Proceedings...............................................7
Item 4. Submission of Matters to a Vote of Security Holders.............8
PART II
Item 5. Market For The Partnership's Limited Partnership Units
and Related Security Holder Matters...........................8
Item 6. Selected Financial Data.........................................9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................9
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.....15
Item 8. Financial Statements and Supplementary Data....................16
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.....................................28
PART III
Item 10. Directors and Executive Officers...............................29
Item 11. Management Remuneration and Transactions.......................30
Item 12. Security Ownership of Certain Beneficial Owners and Management.30
Item 13. Certain Relationships and Related Transactions.................31
PART IV
Item 14. Exhibits, Supplemental Financial Statement Schedules
and Reports on Form 8-K......................................34
<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, 1999. The
Partnership commenced operations on August 20, 1986 and will terminate on
December 31, 2086, unless earlier dissolved.
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 and are
managed by Courtyard Management Corporation (the "Manager"), a wholly-owned
subsidiary of Marriott International, Inc. ("MII"). As part of the Partnership's
debt 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 each. 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 Partnership may terminate the Management Agreement if, during any three
consecutive years, specified minimum operating results are not achieved.
However, the Manager may prevent termination by paying the Partnership the
amount by which the minimum operating results were not achieved. In addition,
upon the sale of a Hotel, the Partnership may terminate the Management Agreement
with respect to that Hotel with payment of a termination fee. Prior to December
31, 2001, a maximum of fifteen Hotels can be sold free and clear of the
Management Agreement with payment of the termination fee. The termination fee is
calculated by the Manager as the net present value of reasonably anticipated
future incentive management fees.
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
generally have fewer guest rooms than traditional, full-service hotels, in most
cases 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.
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 "Closing Date"), 1,150 units of limited partnership
interests (the "Units") in the Partnership, representing a 95% interest in the
Partnership, were sold in a private placement offering. The offering price per
Unit was $100,000. 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.
Twenty-eight of the Hotels were conveyed to the Partnership in 1986, twenty-one
Hotels in 1987 and the final Hotel in January 1988.
On April 17, 1998, Host Marriott Corporation ("Host Marriott"), the parent of
CBM One, as defined below, announced that its Board of Directors authorized the
company to reorganize its business operations so as to qualify as a real estate
investment trust ("REIT") to become effective as of January 1, 1999 (the "REIT
Conversion"). On December 29, 1998, Host Marriott announced that it had
completed substantially all the steps necessary to complete the REIT Conversion
and expected to qualify as a REIT under the applicable Federal income tax laws
beginning January 1, 1999. In connection with the REIT Conversion, Host Marriott
contributed substantially all of its hotel assets to a newly-formed partnership,
Host Marriott, L.P. ("Host LP").
Prior to December 24, 1998 the sole general partner of the Partnership, with a
5% interest was CBM One Corporation ("CBM One"), a wholly owned subsidiary of
Host Marriott. In connection with Host Marriott's REIT Conversion, the following
steps occurred. Host Marriott formed CBM One LLC, a Delaware single member
limited liability company, having three classes of member interests (Class A -
1% economic interest, managing; Class B - 98% economic interest, non-managing;
Class C - 1% economic interest, non-managing). The Class B interests are
entitled to exercise all voting/other rights with respect to the corporate stock
owned directly or indirectly by the Partnership. CBM One merged into CBM One LLC
on December 24, 1998 and CBM One ceased to exist. On December 28, 1998, Host
Marriott contributed its entire interest in CBM One LLC to Host LP, which is
owned 78% by Host Marriott and 22% by outside partners. Finally, on December 30,
1998, Host LP contributed its 98% Class B interest and its 1% Class C interest
in CBM One LLC to Rockledge Hotel Properties, Inc. ("Rockledge"), a Delaware
corporation which is owned 95% by Host LP (economic non-voting interest) and 5%
by Host Marriott Statutory/Charitable Employee Trust (100% voting interest), a
Delaware statutory business trust. As a result, the sole general partner of the
Partnership is CBM One LLC (the "General Partner"), with a Class A 1% managing
economic interest owned by Host LP, a Class B 98% and Class C 1% non-managing
economic interests owned by Rockledge.
<PAGE>
Debt
On March 21, 1997 (the "Refinancing Date") both the mortgage debt on 49 of the
Partnership's Hotels (the "49 Hotels Loan") and the mortgage debt on the Windsor
CT Hotel (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 loan ("50 Hotels
Loan") is 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 of 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, 1999, the principal balance of the loan was $305.1 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. No guarantees 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
Management Agreement
The primary provisions of the Management Agreement are discussed in Item 13,
"Certain Relationships and Related Transactions."
Ground 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 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 December 31, 1999 and 1998, the Partnership paid
a total of $8.4 million and $8.3 million in ground rent, respectively. See Item
2 "Properties" for a listing of Hotels that have ground leases.
In connection with the refinancing, MII and affiliates agreed to subordinate
their right to receive rental payments under the MII ground leases to the
payment of debt service on the 50 Hotels Loan.
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, Four Points by Sheraton, Hampton Inn and Hilton Garden Inns.
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. An increase in supply growth began in 1996 with the
introduction of a number of new national brands. 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,
AmeriSuites, Hampton Inn and Hampton Inn and Suites.
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 LP, the managing member 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 LP, 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 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 as amended (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 LP
provides the services of certain employees (including the General Partner's
executive officers) of Host LP 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 LP and its other affiliates. No officer or director of the
General Partner or employee of Host LP 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 LP, 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 LP or its subsidiaries for the cost of providing
administrative services to the Partnership.
ITEM 2. PROPERTIES
Introduction
The properties consisted of 50 Courtyard by Marriott hotels as of December 31,
1999. The Hotels range in age between 12 and 17 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. See Item 1 "Business--Competition."
The following table sets forth certain information related to the Hotels.
<PAGE>
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
Location Rooms
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
---------
Total rooms: 7,223
=========
(1) Land is leased from an affiliate of MII.
(2) Land is leased from a third party.
<PAGE>
ITEM 3. 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 Corporation ("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.
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. ("Marriott International"), 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 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")
was filed by the plaintiff's 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 included in the
above-referenced Haas lawsuit, Case No. 98-CI-04092.
On March 9, 2000, the Defendants entered into a settlement agreement with
counsel to 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 be paid $134,130 per Unit ($154,249,500 in the aggregate, if
the holders of all Units participate) in exchange for the conveyance of all
limited partner Units to a joint venture to be formed between affiliates of Host
Marriott and MII, dismissal of the litigation and a complete release of all
claims. This amount would be reduced by the amount of attorneys' fees awarded by
the court. Limited partners who opt out of the settlement would have their
interests in the Partnership converted into the right to receive the value of
their interests in cash (excluding any amount related to their claims against
the Defendants and retain their individual claims against the Defendants). The
Defendants may terminate the settlement if the holders of more than 10% of the
Partnership's 1,150 limited partner 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 litigation 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 the Partnership's limited partners.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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, 1999, there were 1,076 holders (including
holders of half-units) of record of the Partnership's 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.
As of December 31, 1999, the Partnership has distributed a total of $4.9 million
to the General Partner and $92.2 million to the limited partners ($80,181 per
limited partner unit) since inception. Included in the $80,181 of distributions
per limited partner unit was a $4,000 distribution per limited partner unit 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. During
1999, the Partnership distributed $666,000 to the General Partner and $12.7
million ($3,000 and $8,000 per limited partner unit from 1998 and 1999
operations, respectively) to the limited partners. An additional $3,500 per
limited partner unit from 1999 operations was distributed in February 2000.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data presents historical operating information
of the Partnership for each of the five years in the period ended December 31,
1999 presented in accordance with accounting principles generally accepted in
the United States (in thousands, except per unit amounts):
<TABLE>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues.................................................$ 206,074 $ 201,250 $ 189,552 $ 181,639 $ 170,799
Operating Profit......................................... 43,896 44,276 40,683 35,985 30,752
Net income............................................... 19,601 18,885 27,813 13,454 4,988
Net income per limited partner unit (1,150 Units)........ 16,192 15,601 22,976 11,114 4,120
Balance Sheet Data:
Total assets.............................................$ 328,860 $ 331,246 $ 331,406 $ 330,509 $ 338,740
Total liabilities........................................ 347,321 356,046 362,991 349,839 369,224
Cash distributions per limited partner unit (1,150 Units) 11,000 10,000 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 in this Form 10-K 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.
GENERAL
The following discussion and analysis addresses results of operations for the
fiscal years ended December 31, 1999, 1998 and 1997. During the period from 1997
through 1999, the Partnership's total revenues grew from $189.6 million to
$206.1 million. Growth in room sales, and thus hotel sales, was driven primarily
by growth in room 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 1998 through 1999, the Hotels' combined average
room rate increased by $3 to $90, while the combined average occupancy decreased
by 1% to approximately 79%.
The Partnership's operating costs and expenses are, to a great extent, fixed.
Therefore, the Partnership derives substantial operating leverage from increases
in revenue offset in part by (i) base and Courtyard management fees under the
Management Agreement, which are each 3% of gross hotel sales, (ii) incentive
management fees equal to 15% of operating profit, and (iii) variable ground
lease payments.
RESULTS OF OPERATIONS
The following table shows selected combined operating and financial statistics
for the Hotels.
<TABLE>
Year Ended December 31,
1999 1998 1997
----------- ----------- -------
<S> <C> <C> <C>
Combined average occupancy............................................... 79.1% 79.7% 80.0%
Combined average daily room rate.........................................$ 89.54 $ 87.09 $ 81.10
REVPAR $.................................................................$ 70.83 $ 69.41 $ 64.88
</TABLE>
1999 Compared to 1998:
Revenues. Revenues increased $4.8 million, or 2%, to $206.1 million in 1999 from
$201.3 million in 1998 as a result of the slight growth in REVPAR of 2%. The
increase in REVPAR was primarily the result of a 3% increase in the combined
average room rate to approximately $90, which was partially offset by a one
percentage point decrease in the combined average occupancy to 79%.
Additionally, other revenues increased $565,000.
Operating Costs and Expenses. Operating costs and expenses increased $5.2
million, or 3%, to $162.2 million in 1999 from $157.0 million in 1998, primarily
reflecting an increase in base and Courtyard management fees associated with
increased revenues and operating profit as well as an increase in property-level
costs and expenses. Insurance and other expenses increased due to an increase in
general and administrative expenses. As a percentage of hotel revenues,
operating costs and expenses represented 79% of revenues for 1999 and 78% in
1998.
Total Hotel Property-Level Costs and Expenses. The 1999 total hotel
property-level costs and expenses increased $4.2 million, or 4%. Rooms costs,
food and beverage costs, and selling, administrative and other expenses each
increased in 1999. The overall increase in hotel property-level costs and
expenses is due to an increase in salary and benefits as the Hotels endeavor to
maintain competitive wage scales.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit decreased $380,000 to $43.9 million,
or 21% of total revenues, in 1999 from $44.3 million, or 22% of total revenues,
in 1998.
Interest Expense. Interest expense decreased $637,000 to $25.7 million in 1999
from $26.3 million in 1998 from the decrease in principal as a result of
principal payments of $8 million on the mortgage debt.
Net Income. Net income increased $716,000 to $19.6 million, or 10% of total
revenues, in 1999 from $18.9 million, or 9% of total revenues, in 1998 as a
result of the items discussed above.
1998 Compared to 1997:
Revenues. Revenues increased $11.8 million, or 6%, to $201.3 million in 1998
from $189.6 million in 1997 as a result of strong growth in REVPAR of 7%. The
increase in REVPAR was primarily a result of a 7% increase in combined average
daily room rates. Additionally, food and beverage revenues increased $524,000.
Operating Costs and Expenses. Operating costs and expenses increased $8.1
million, or 5%, to $157.0 million in 1998 from $148.9 million in 1997, primarily
reflecting an increase in base, Courtyard and incentive management fees
associated with increased revenues and operating profit as well as an increase
in property-level costs and expenses. As a percentage of hotel revenues,
operating costs and expenses represented 78% of revenues for 1998 and 79% in
1997.
Total Hotel Property-Level Costs and Expenses. The 1998 total hotel
property-level costs and expenses increased $5.8 million, or 6%. The increase is
due to increases in both rooms costs and selling, administrative and other
expenses.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased $3.6 million to $44.3
million, or 22% of total revenues, in 1998 from $40.7 million, or 21% of
revenues, in 1997.
Interest Expense. Interest expense increased $315,000 to $26.3 million in 1998
from $26.0 million in 1997 from the increase in the debt principal balance as a
result of the 1997 debt refinancing.
<PAGE>
Income Before Extraordinary Items. Income before extraordinary items increased
$3.5 million to $18.9 million, or 9% of revenues, in 1998, from $15.3 million,
or 8% of revenues, in 1997.
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. No
extraordinary gain was recognized in 1998.
Net Income. Net income decreased $8.9 million to $18.9 million, or 9% of total
revenues, in 1998 from $27.8 million, or 15% of total revenues, in 1997 due to
the impact of the net extraordinary gain in the prior year, discussed above.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions. The General Partner believes
that cash from Hotel operations will be sufficient to make the required debt
service payments, to fund the 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 cash from operations. Cash
provided by operations was $37.1 million, $38.1 million and $27.2 million for
the years ended 1999, 1998 and 1997, respectively. The decrease in cash from
operations from 1998 to 1999 was primarily due to a 3% increase in operating
costs and expenses.
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 $10.2 million, $14.9
million and $16.8 million for 1999, 1998 and 1997, respectively. As part of the
debt refinancing, contributions to the property improvement fund remained at 5%
of gross Hotel sales through 1998 and were increased by the Manager to 6% in
1999 and 2000 and may be increased to 7% in 2001 if the current contribution of
6% of gross Hotel sales is insufficient to make the replacements, renewals and
repairs necessary to maintain the Hotels in accordance with the Manager's
standards for Courtyard by Marriott hotels. Capital expenditures for hotel
improvements were $7.8 million, $11.1 million and $23.6 million for the years
ended December 31, 1999, 1998 and 1997, respectively. During 1997, a majority of
the Partnership's Hotels underwent room renovations and replacements.
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 $21.2 million, $19.5 million and $17.7 million for
1999, 1998 and 1997, respectively. During 1999, 1998 and 1997 the Partnership
paid cash distributions of $13.3 million, $12.1 million and $40.1 million,
respectively. Cash distributions in 1997 included a $25,000 per limited
partnership Unit return of investment from refinancing proceeds.
<PAGE>
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 1999 and 1998, the Partnership repaid
$8.0 million and $7.4 million, respectively, in principal on the refinanced
debt. The Partnership also paid $24.6 million, $25.3 million and $24.8 million
of interest on its mortgage debt in 1999, 1998 and 1997, 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 MII is
downgraded by Standard and Poor's Rating Services. The assumption of additional
debt associated with MII's acquisition of the Renaissance Hotel Group N.V.
resulted in a single downgrade of MII's long-term senior unsecured debt
effective April 1997. 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, as of December 31, 1999.
In addition, in connection with the 50 Hotels Loan, the Partnership was also
required to reserve one month's debt service in a separate escrow account. The
debt service reserve is included in restricted cash in the accompanying balance
sheet.
Debt
In March 1997, the Partnership refinanced all of its outstanding mortgage
debt. The total amount of debt increased from $280.8 million to $325.0 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 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.
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 December 31, 1999 and 1998, the Partnership paid
a total of $8.4 million and $8.3 million in ground rent, respectively.
In connection with the refinancing, MII and affiliates agreed to subordinate
their right to receive rental payments under the MII ground leases to the
payment of debt service on the 50 Hotels Loan.
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, which were equal to 5% through 1998. In accordance with the
Management Agreement, contributions to the property improvement fund were
increased by the Manager to 6% in 1999 and 2000 and may be increased to 7% in
2001 if the current contribution of 6% of gross Hotel sales is insufficient to
make the replacements, renewals and necessary repairs to maintain the Hotels in
accordance with the Manager's standards for Courtyard by Marriott hotels. The
balance in the fund totaled $7.9 million and $5.5 million as of December 31,
1999 and 1998, respectively. Total capital expenditures for 1999, 1998 and 1997
were $7.8 million, $11.1 million and $23.6 million, respectively.
Deferred Management Fees
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
approximately $14.9 million of these fees on the Refinancing Date. This left a
remaining balance of $6.5 million of accrued incentive management fees as of
March 21, 1997 and December 31, 1997. The Partnership paid $823,000 and $876,000
of deferred incentive management fees during 1998 and 1999, respectively,
leaving a balance of $4.8 million of deferred incentive management fees as of
December 31, 1999.
Under the new Management Agreement, base and Courtyard management fees no longer
accrue if not paid. 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.
Competition
The moderately priced lodging segment continues to be highly competitive. An
increase in supply growth continued through 1999 with the introduction of a
number of new national brands. The Partnership is continually making
improvements at the Hotels intended to enhance the overall value and
competitiveness of the Hotels. 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, AmeriSuites, Hampton Inn
and Hampton Inn and Suites.
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 1999, the growth in average room rates of
Courtyard Hotels kept pace with inflationary 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 7A. 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
December 31, 1999, all of the Partnership's mortgage debt has a fixed interest
rate.
However, the Partnership has a debt service guaranty advance that is sensitive
to changes in interest rates. The interest recognized on this debt obligation is
based on the prime rate, which was 7.75% at December 31, 1998 and 8.50% at
December 31, 1999.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index Page
Courtyard by Marriott Limited Partnership Financial Statements:
Report of Independent Public Accountants................................17
Statement of Operations.................................................18
Balance Sheet...........................................................19
Statement of Changes in Partners' Capital (Deficit).....................20
Statement of Cash Flows.................................................21
Notes to Financial Statements...........................................22
<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, 1999 and 1998,
and the related statements of operations, changes in partners' capital (deficit)
and cash flows for the three years ended December 31, 1999. 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 and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the 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, 1999 and 1998, and the results of its operations
and its cash flows for the three years ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
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 is not part of the basic financial statements,
and, in our opinion, fairly states 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
Vienna, Virginia
March 17, 2000
<PAGE>
STATEMENT OF OPERATIONS
Courtyard by Marriott Limited Partnership
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands, except per Unit amounts)
<TABLE>
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
REVENUES
Hotel revenues
Rooms........................................................................$ 186,441 $ 182,097 $ 170,583
Food and beverage............................................................ 12,909 12,994 12,470
Other........................................................................ 6,724 6,159 6,499
----------- ----------- -----------
Total hotel revenues....................................................... 206,074 201,250 189,552
----------- ----------- -----------
OPERATING COSTS AND EXPENSES
Hotel property-level costs and expenses
Rooms........................................................................ 42,487 39,481 36,539
Food and beverage............................................................ 11,707 11,247 10,966
Other department costs and expenses.......................................... 1,775 2,024 2,116
Selling, administrative and other............................................ 48,293 47,330 44,627
----------- ----------- -----------
Total hotel property-level costs and expenses.............................. 104,262 100,082 94,248
Depreciation................................................................... 18,977 19,031 19,387
Base and Courtyard management fees............................................. 12,364 12,074 11,373
Incentive management fee....................................................... 9,165 9,426 8,906
Ground rent.................................................................... 8,175 8,021 7,648
Property taxes................................................................. 6,982 6,761 5,278
Insurance and other............................................................ 2,253 1,579 2,029
----------- ----------- -----------
Total Operating Costs and Expenses....................................... 162,178 156,974 148,869
----------- ----------- -----------
OPERATING PROFIT.................................................................. 43,896 44,276 40,683
Interest expense............................................................... (25,668) (26,305) (25,990)
Interest income................................................................ 1,373 914 647
----------- ----------- -----------
NET INCOME BEFORE EXTRAORDINARY ITEMS............................................. 19,601 18,885 15,340
EXTRAORDINARY ITEMS
Gain on forgiveness of deferred management fees................................ -- -- 14,896
Loss on extinguishment of debt................................................. -- -- (2,423)
----------- ----------- -----------
NET INCOME........................................................................$ 19,601 $ 18,885 $ 27,813
=========== =========== ===========
ALLOCATION OF NET INCOME
General Partner................................................................$ 980 $ 944 $ 1,391
Limited Partners............................................................... 18,621 17,941 26,422
----------- ----------- -----------
$ 19,601 $ 18,885 $ 27,813
=========== =========== ===========
NET INCOME BEFORE EXTRAORDINARY ITEMS PER
LIMITED PARTNER UNIT (1,150 Units).............................................$ 16,192 $ 15,601 $ 12,672
=========== =========== ===========
NET INCOME PER LIMITED PARTNER UNIT (1,150 Units).................................$ 16,192 $ 15,601 $ 22,976
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
BALANCE SHEET
Courtyard by Marriott Limited Partnership
December 31, 1999 and 1998
(in thousands)
<TABLE>
1999 1998
----------- --------
<S> <C> <C>
ASSETS
Property and equipment, net...................................................................$ 285,915 $ 297,189
Deferred financing costs, net of accumulated amortization..................................... 5,411 5,854
Due from Courtyard Management Corporation..................................................... 2,868 4,210
Property improvement fund..................................................................... 7,857 5,475
Restricted cash............................................................................... 11,889 9,315
Cash and cash equivalents..................................................................... 14,920 9,203
----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
$ 328,860 $ 331,246
======== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES
Mortgage debt.................................................................................$ 305,086 $ 313,051
Straight-line ground rent due to affiliates of Marriott International, Inc.................... 19,152 19,384
Debt service guaranty and accrued interest payable to Host Marriott Corporation............... 14,794 14,208
Incentive management fees due to Courtyard Management Corporation............................. 4,777 5,653
Accounts payable and accrued liabilities...................................................... 3,512 3,750
----------- -----------
Total Liabilities....................................................................... 347,321 356,046
----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
PARTNERS' CAPITAL (DEFICIT)
General Partner
Capital contributions....................................................................... 28,218 28,218
Capital distributions....................................................................... (4,853) (4,187)
Cumulative net losses....................................................................... (22,966) (23,946)
----------- -----------
399 85
----------- -----------
Limited Partners
Capital contributions, net of offering costs of $12,912..................................... 100,845 100,845
Investor notes receivable................................................................... (39) (98)
Capital distributions....................................................................... (92,208) (79,553)
Cumulative net losses....................................................................... (27,458) (46,079)
----------- -----------
(18,860) (24,885)
----------- -----------
Total Partners' Deficit................................................................. (18,461) (24,800)
----------- -----------
$ 328,860 $ 331,246
=========== ===========
</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, 1999, 1998 and 1997
(in thousands)
<TABLE>
General Limited
Partner Partners Total
<S> <C> <C> <C>
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)
Capital distributions........................................................ (605) (11,495) (12,100)
Net income................................................................... 944 17,941 18,885
----------- ----------- -----------
Balance, December 31, 1998........................................................ 85 (24,885) (24,800)
Payments received on investor notes receivable............................... -- 59 59
Capital distributions........................................................ (666) (12,655) (13,321)
Net income................................................................... 980 18,621 19,601
----------- ----------- -----------
Balance, December 31, 1999........................................................$ 399 $ (18,860) $ (18,461)
=========== =========== ===========
</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, 1999, 1998 and 1997
(in thousands)
<TABLE>
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.....................................................................$ 19,601 $ 18,885 $ 27,813
Net extraordinary items........................................................ -- -- (12,473)
----------- ----------- -----------
Income before extraordinary items.............................................. 19,601 18,885 15,340
Noncash items:
Depreciation................................................................. 18,977 19,031 19,387
Deferred interest on guaranty advances....................................... 586 614 619
Amortization of deferred financing costs as interest expense................. 443 443 696
Loss on disposition of fixed assets.......................................... 115 -- --
Changes in operating accounts:
Change in restricted cash reserve............................................ (2,978) (353) (4,489)
Due from Courtyard Management Corporation.................................... 1,342 703 394
Payment of deferred incentive management fees................................ (876) (823) (4,224)
Straight-line ground rent due to affiliates of Marriott International, Inc... (232) (232) (232)
Accounts payable and accrued liabilities..................................... 166 (146) (313)
----------- ----------- -----------
Cash provided by operations.............................................. 37,144 38,122 27,178
----------- ----------- -----------
INVESTING ACTIVITIES
Additions to property and equipment, net....................................... (7,818) (11,064) (23,604)
Change in property improvement fund............................................ (2,382) (3,847) 6,821
----------- ----------- -----------
Cash used in investing activities........................................ (10,200) (14,911) (16,783)
----------- ----------- -----------
FINANCING ACTIVITIES
Capital distributions.......................................................... (13,321) (12,100) (40,068)
Payment of mortgage debt....................................................... (7,965) (7,356) (293,568)
Payments received on investor notes receivable................................. 59 -- --
Establishment of debt reserve.................................................. -- -- (2,691)
Payment of financing costs..................................................... -- (2) (6,327)
Proceeds from mortgage debt.................................................... -- -- 325,000
----------- ----------- -----------
Cash used in financing activities........................................ (21,227) (19,458) (17,654)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 5,717 3,753 (7,259)
CASH AND CASH EQUIVALENTS at beginning of year.................................... 9,203 5,450 12,709
----------- ----------- -----------
CASH AND CASH EQUIVALENTS at end of year..........................................$ 14,920 $ 9,203 $ 5,450
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest................................................$ 24,676 $ 25,285 $ 24,844
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Courtyard by Marriott Limited Partnership
December 31, 1999 and 1998
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 Hotels are
operated as part of the Courtyard by Marriott hotel system by Courtyard
Management Corporation (the "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, were sold
pursuant to a private placement offering at $100,000 per Unit. CBM One
Corporation ("CBM One"), a wholly-owned subsidiary of Host Marriott Corporation
("Host Marriott"), 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.
On April 17, 1998, Host Marriott, the parent of CBM One, announced that its
Board of Directors authorized the company to reorganize its business operations
so as to qualify as a real estate investment trust ("REIT") to become effective
as of January 1, 1999 (the "REIT Conversion"). On December 29, 1998, Host
Marriott announced that it had completed substantially all the steps necessary
to complete the REIT Conversion and expected to qualify as a REIT under the
applicable Federal income tax laws beginning January 1, 1999. Subsequent to the
REIT Conversion, Host Marriott is referred to as Host REIT. In connection with
the REIT Conversion, Host Marriott contributed substantially all of its hotel
assets to a newly-formed partnership, Host Marriott L.P. ("Host LP").
In connection with the REIT Conversion, the following steps occurred. Host
Marriott formed CBM One LLC, a Delaware single member limited liability company,
having three classes of member interests (Class A - 1% economic interest,
managing; Class B - 98% economic interest, non-managing; Class C - 1% economic
interest, non-managing). CBM One merged into CBM One LLC on December 24, 1998
and CBM One ceased to exist. On December 28, 1998, Host Marriott contributed its
entire interest in CBM One LLC to Host Marriott, L.P. ("Host LP"), which is
owned 78% by Host Marriott and 22% by outside limited partners. Finally on
December 30, 1998, Host LP contributed its 98% Class B and 1% Class C interest
in CBM One LLC to Rockledge Hotel Properties, Inc. ("Rockledge"), a Delaware
corporation which is owned 95% by Host LP (economic non-voting interest) and 5%
by Host Marriott Statutory/Charitable Employee Trust, a Delaware statutory
business trust (100% of voting interest). As a result, the sole general partner
of the Partnership is CBM One LLC (the "General Partner") which has three
classes of member interests; Class A 1% managing economic interest owned by Host
LP and a Class B 98% and Class C 1% non-managing economic interest owned by
Rockledge.
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 the 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 are outlined in
the partnership agreement, the General Partner will be allocated net losses
equal to the amounts advanced.
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.
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 accounting principles
generally accepted in the United States 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.
Working Capital and Supplies
Pursuant to the terms of the Partnership's management agreement discussed in
Note 7, the Partnership is required to provide the Manager with working capital
and supplies to meet the operating needs of the Hotels. The Manager converts
cash advanced by the Partnership into other forms of working capital consisting
primarily of operating cash, inventories, and trade receivables and payables
which are maintained and controlled by the Manager. Upon termination of the
management agreement, the Manager is required to convert working capital and
supplies into cash and return it to the Partnership. As a result of these
conditions, the individual components of working capital and supplies controlled
by the Manager are not separately stated in the accompanying consolidated
balance sheet but rather are included in the line Due from Courtyard Management
Corporation.
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 5.
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 its fair market value. No such adjustment was required at December 31, 1999
or 1998.
Deferred Financing Costs
Deferred financing costs represent the costs incurred in connection with
obtaining the mortgage debt (see Note 5) and are amortized, using the
straight-line method which approximates the effective interest rate method, over
the term of the loan. Financing costs as of December 31, 1999 and 1998 were
$6,644,000. Accumulated amortization of financing costs as of December 31, 1999
and 1998 totaled $1,233,000 and $790,000, respectively.
Ground Rent
The land leases with affiliates of MII and with third parties (see Note 6)
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 reduction in ground rent expense to reflect minimum lease payments on a
straight-line basis was $232,000 for 1999, 1998 and 1997.
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 $58,317,000 and $52,845,000 as of December
31, 1999 and 1998, respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
Reclassifications
Certain reclassifications were made to the prior year financial statements to
conform to the 1999 presentation.
<PAGE>
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
1999 1998
----------- --------
<S> <C> <C>
Land.............................................................................................$ 23,446 $ 23,437
Leasehold improvements........................................................................... 219,158 216,118
Building and improvements........................................................................ 142,435 136,872
Furniture and equipment.......................................................................... 132,730 167,230
----------- -----------
517,769 543,657
Less accumulated depreciation.................................................................... (231,854) (246,468)
----------- -----------
$ 285,915 $ 297,189
=========== ===========
</TABLE>
NOTE 4. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value 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, 1999 As of December 31, 1998
---------------------------- ---------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
Mortgage debt.............................................$ 305,086 $ 284,245 $ 313,051 $ 298,274
Incentive management fees due to Courtyard
Management Corporation.................................$ 4,777 $ 3,307 $ 5,653 $ 3,447
Debt service guaranty and accrued interest payable to
Host Marriott Corporation..............................$ 14,794 $ 2,854 $ 14,208 $ 1,389
</TABLE>
The estimated fair value of mortgage debt obligations is based on the expected
future debt service payments discounted at estimated market rates. Management
fees due to Courtyard Management Corporation 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 5. DEBT
On February 9, 1988, the Partnership entered into a loan agreement to provide
non-recourse mortgage debt on the Hotel located in Windsor, CT (the "Windsor
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 49 of
the Hotels (excluding Windsor). The 49 Hotels Loan and the Windsor Loan were
refinanced on March 21, 1997 (the "Refinancing Date") and the Lenders were
repaid in full.
50 Hotels Loan
On 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
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 of 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.
During 1999 and 1998, the Partnership made payments of $7,965,000 and
$7,356,000, respectively on the 50 Hotels Loan. At December 31, 1999 and 1998,
the outstanding principal balance on the 50 Hotels Loan was $305.1 million and
$313.1 million, respectively.
<PAGE>
Debt maturities as of December 31, 1999 under the 50 Hotels Loan are as follows
(in thousands):
2000 $ 8,604
2001 9,306
2002 10,065
2003 10,886
2004 11,773
Thereafter 254,452
--------------
$ 305,086
==============
The 50 Hotels 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 guarantees 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 MII is
downgraded by Standard and Poor's Rating Services. The assumption of additional
debt associated with MII's acquisition of Renaissance Hotel Group N.V. resulted
in a single downgrade of MII's long-term senior unsecured debt effective April
1997. 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. The balance
of the debt service reserve as of December 31, 1999 and 1998 was $2.7 million
and $2.8 million, respectively. The debt reserve is included in restricted cash
in the accompanying balance sheet.
Restricted cash consists of the following:
1999 1998
----------- -------
Debt Service Reserve........................$ 2,740 $ 2,788
Real Estate and Insurance Escrow............ 835 1,764
Restricted Cash Collateral.................. 8,314 4,763
----------- -----------
$ 11,889 $ 9,315
=========== ===========
Debt Service Guaranty
In 1986, Host Marriott provided additional security to the lenders in the form
of a debt guaranty on the original loan established in 1986 (the "Debt Service
Guaranty") of aggregate interest and principal of up to $37.3 million. As of
December 31, 1999, $7,341,000 had been advanced by the General Partner under the
Debt Service Guaranty. The Debt Service Guaranty accrues interest at the prime
interest rate. The weighted average interest rate on the Debt Service Guaranty
advance was 8.0% for 1999 and 8.4% for 1998. The prime interest rate was 8.5% at
December 31, 1999. Accrued interest on the advance as of December 31, 1999 and
1998, was $7,453,000 and $6,867,000, respectively.
NOTE 6. 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.
<PAGE>
Minimum future rental payments during the term of the ground leases as of
December 31, 1999 are as follows (in thousands):
Lease
Years
-----
2000 $ 8,690
2001 8,690
2002 8,913
2003 9,456
2004 9,456
Thereafter 2,872,282
--------------
$ 2,917,487
==============
Total ground rent expense was $8,175,000 in 1999, $8,021,000 in 1998 and
$7,648,000 in 1997.
NOTE 7. MANAGEMENT AGREEMENT
Prior to the refinancing of the mortgage debt, the two operating agreements were
converted into a single management agreement effective January 4, 1997. The
initial term of the management agreement (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 Partnership may terminate the Management Agreement if, during any three
consecutive years, specified minimum operating results are not achieved.
However, the Manager may prevent termination by paying the Partnership the
amount by which the minimum operating results were not achieved. In addition,
upon the sale of a Hotel, the Partnership may terminate the Management Agreement
with respect to that Hotel with payment of a termination fee. Prior to December
31, 2001, a maximum of fifteen Hotels can be sold free and clear of the
Management Agreement with payment of the termination fee. The termination fee is
calculated by the Manager as the net present value of reasonably anticipated
future incentive management fees.
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, and the Manager agreed to forgive
approximately $14.9 million of deferred fees on the Refinancing Date. The $14.9
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. 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. For the
years ended December 31, 1999, 1998 and 1997 current incentive management fees
of $9,165,000, $9,426,000 and $8,906,000 were paid to the Manager. Deferred
incentive management fees of $876,000, $823,000 and $4.2 million were paid to
the Manager during the years ended December 31, 1999, 1998 and 1997,
respectively.
The Manager is required to provide Chain Services which are generally furnished
on a central or regional basis to all managed, owned or leased hotels in the
Courtyard by Marriott hotel system. Under the Management Agreement, charges for
certain Chain Services cannot exceed 5% of gross Hotel sales. The Manager is
responsible for any Chain Services in excess of the 5% of gross Hotel sales
limit from its own funds. Beginning in 1997, the Hotels also 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 $10,185,000, $9,676,000 and $7,737,000 in 1999, 1998
and 1997, respectively.
The Partnership is required to provide the Manager with sufficient 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. The working capital balance was $1,213,000 as of
December 31, 1999 and 1998, respectively.
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. Contributions to the property improvement fund were
equal to 5% of gross Hotel sales through 1998 and were increased to 6% of gross
Hotel sales in 1999 and 2000 and may be increased, at the option of the Manager,
to 7% thereafter. For the years ended December 31, 1999 and 1998, the
Partnership contributed $12,361,000 and $10,540,000, respectively, to the
property improvement fund.
NOTE 8. LITIGATION
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 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 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 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 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")
was filed by the plaintiff's 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 included in the
above-referenced Haas lawsuit, Case No. 98-CI-04092.
On March 9, 2000, the Defendants entered into a settlement agreement with
counsel to 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 be paid $134,130 per Unit ($154,249,500 in the aggregate, if
the holders of all Units participate) in exchange for the conveyance of all
limited partner Units to a joint venture to be formed between affiliates of Host
Marriott and MII, dismissal of the litigation and a complete release of all
claims. This amount would be reduced by the amount of attorneys' fees awarded by
the court. Limited partners who opt out of the settlement would have their
interests in the Partnership converted into the right to receive the value of
their interests in cash (excluding any amount related to their claims against
the Defendants and retain their individual claims against the Defendants). The
Defendants may terminate the settlement if the holders of more than 10% of the
Partnership's 1,150 limited partner 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 litigation 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.
<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 LLC, the General Partner, who are listed below:
Age at
Name Current Position December 31, 1999
Robert E. Parsons, Jr. President and Manager 44
Christopher G. Townsend Executive Vice President,
Secretary and Manager 52
W. Edward Walter Treasurer 44
Earla L. Stowe Vice President and Chief 38
Accounting Officer
Business Experience
Robert E. Parsons, Jr. joined Host Marriott's Corporate Financial Planning staff
in 1981 and was made Assistant Treasurer in 1988. In 1993, Mr. Parsons was
elected Senior Vice President and Treasurer of Host Marriott, and in 1995, he
was elected Executive Vice President and Chief Financial Officer of Host
Marriott. He is also an Executive Vice President and Chief Financial Officer of
Host LP and serves as a director, manager and 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 is also
a Senior Vice President, Corporate Secretary and General Counsel of Host LP and
serves as a director, manager and an officer of numerous Host Marriott
subsidiaries.
W. Edward Walter joined Host Marriott in 1996 as Senior Vice
President-Acquisitions and in 1998 was made Treasurer of Host Marriott. He is
also a Senior Vice President and Treasurer of Host LP and serves as a director,
manager and officer of numerous Host Marriott subsidiaries. Prior to joining
Host Marriott, Mr. Walter was a partner at Trammell Crow Residential Company and
President of Bailey Capital Corporation, a real estate firm focusing on tax
exempt real estate investments.
Earla L. 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. Ms. Stowe was promoted to
Senior Director-Corporate Accounting in 1998.
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 manager of the General Partner
devotes a significant percentage of time to Partnership matters. To the extent
that any officer or manager 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, 1999, 1998 and 1997, the Partnership
reimbursed the General Partner in the amount of $146,000, $523,000 and $260,000,
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, 1999, Palm Investors, LLC, an unrelated third party, owns
approximately 5.4% 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, 1999, an officer and manager of the General Partner and Host
Marriott and their respective affiliates owned a quarter Unit; an officer of
Host Marriott owned a quarter Unit; and two officers of MII owned one Unit each.
On March 9, 2000, Host Marriott and MII entered into a settlement agreement to
resolve pending litigation filed by the limited partners against Host Marriott
and MII. 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 be paid $134,130 per Unit
($154,249,500 in the aggregate, if the holders of all Units participate) in
exchange for the conveyance of all limited partner Units to a joint venture to
be formed between affiliates of Host Marriott and MII, dismissal of the
litigation and a complete release of all claims. The details of the settlement
will be contained in a court-approved notice and purchase offer/consent
solicitation to the Partnership's limited partners. See Item 3, "Legal
Proceedings."
<PAGE>
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 Partnership's 50 Hotels.
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. In
addition, upon the sale of a Hotel, the Partnership may terminate the Management
Agreement with respect to that Hotel with payment of a termination fee. Prior
to December 31, 2001, a maximum of fifteen Hotels can be sold free and
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
approximately $14.9 million of these fees on the Refinancing Date. This left a
remaining balance of $6.5 million of accrued incentive management fees as of
March 21, 1997 and December 31, 1997. The Partnership paid $823,000 and $876,000
of deferred incentive management fees during 1998 and 1999, respectively,
leaving a balance of $4.8 million of deferred incentive management fees as of
December 31, 1999.
Under the new Management Agreement, base and Courtyard management fees no longer
accrue if not paid. 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 and Marriott's Reward Program
The Manager is required to provide certain services ("Chain Services") which are
generally furnished 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 Chain Services cannot exceed 5% of gross Hotel sales.
Beginning in 1997, the Hotels also participate in MII's Marriott's Rewards
Program ("MRP"). The total amount of Chain Services and MRP costs allocated to
the Partnership was $10,185,000 in 1999, $9,676,000 in 1998 and $7,737,000 in
1997.
Working Capital
The Partnership is required to provide the Manager with sufficient 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, 1999, the Partnership has
advanced the Manager $1,213,000 in working capital.
Property Improvement Fund
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. Contributions to the property improvement fund were
equal to 5% of gross Hotel sales through 1998 and were increased to 6% of gross
Hotel sales in 1999 and 2000 and may be increased, at the option of the Manager,
to 7% thereafter. For the years ended December 31, 1999 and 1998, the
Partnership contributed $12,361,000 and $10,540,000, respectively, to the
property improvement fund.
Leases
The land on which 31 of the Hotels are located is leased from affiliates of MII.
In addition, two of the Hotels are located on land leased from third parties.
The ground leases have remaining terms (including all renewal options) expiring
between the years 2058 and 2081. The MII ground leases and the third party
ground leases provide for rent based on specific percentages (from 2% to 9.75%)
of certain sales categories, subject to minimum amounts. The minimum rentals are
adjusted at various anniversary dates throughout the lease terms, as defined in
the agreements. The affiliates of MII, as land lessors, agreed to continue to
subordinate their ownership interest as well as receipt of ground rent to debt
service.
Payments to MII and Subsidiaries
The following table sets forth the amount paid to MII and affiliates under both
the Operating and Management Agreements and the ground lease agreements for the
years ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
Incentive management fee..........................................................$ 9,165 $ 9,426 $ 8,906
Ground rent....................................................................... 7,479 7,383 7,302
Chain services and MRP allocation................................................. 10,185 9,676 7,737
Base management fee............................................................... 6,182 6,037 5,687
Courtyard management fee.......................................................... 6,182 6,037 5,687
Deferred incentive management fee................................................. 876 823 4,224
----------- ----------- -----------
$ 40,069 $ 39,382 $ 39,543
=========== =========== ===========
</TABLE>
<PAGE>
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, 1999, 1998 and 1997 (in
thousands):
<TABLE>
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
Cash distributions................................................................$ 831 $ 755 $ 2,613
Administrative expenses reimbursed................................................ 146 523 260
----------- ----------- -----------
$ 977 $ 1,278 $ 2,873
=========== =========== ===========
</TABLE>
Debt Service Guaranty
In 1986, Host Marriott provided additional security to the lenders in the form
of a debt guaranty on the original loan established in 1986 (the "Debt Service
Guaranty") of aggregate interest and principal of up to $37.3 million. As of
December 31, 1999, $7,341,000 had been advanced by the General Partner under the
Debt Service Guaranty. The Debt Service Guaranty accrues interest at the prime
interest rate. The weighted average interest rate on the Debt Service Guaranty
advance was 8.0% for 1999 and 8.4% for 1998. The prime interest rate was 8.5% at
December 31, 1999. Accrued interest on the advance as of December 31, 1999 and
1998, was $7,453,000 and $6,867,000, respectively.
<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 N/A
Partnership dated August 4, 1986.
*3.a Amended and Restated Certificate and Amended and Restated
Agreement of Limited N/A Partnership of Courtyard by
Marriott Limited Partnership dated August 20, 1986.
**3.b First Amendment to Amended and Restated Agreement of
Limited Partnership of Courtyard by N/A Marriott Limited
Partnership dated December 28, 1998.
*10.a Management Agreement between Courtyard by Marriott Limited
Partnership and Courtyard N/A Management Corporation dated
August 14, 1986.
*10.b Assignment of sublease and Warranty and Assumption of
Obligations between Marriott N/A Corporation and the
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 N/A Corporation and the
Courtyard by Marriott Limited Partnership dated August 19,
1986 for the Windy Hill, Georgia property. Marriott Hotel
Land 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 N/A Corporation and the
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 N/A
Corporation of 12 Ground Leases 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.
**10.f Loan Agreement between Citibank, N.A., The First National
Bank of Chicago and Courtyard N/A by Marriott Limited
Partnership dated February 9, 1988.
**10.g Promissory Note for $4,136,995 between Courtyard by
Marriott Limited Partnership and The N/A First National
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 N/A
the First National Bank of Chicago, as Lender, dated February 10, 1988.
**10.i Lease Agreement between Courtyard Management Corporation and Courtyard by Marriott N/A
Limited Partnership with 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 N/A Limited Partnership dated
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
Agreement and Citibank, N.A., 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 N/A Corporation, as Guarantor,
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 N/A January 4, 1997 and
Courtyard by Marriott Limited Partnership (Owner).
**10.n Loan Agreement by and between Courtyard by Marriott Limited Partnership (Borrower) and N/A
Lehman Brothers Holdings, Inc. (Lender) dated March 21, 1997.
**10.o First Amendment to Loan Agreement by and between Courtyard
by Marriott Limited N/A Partnership (Borrower) and Lehman
Brothers Holdings, Inc. (Lender) dated March 21, 1997.
**10.p Mortgage Note by Courtyard by Marriott Limited Partnership Payable to The Order of N/A
Lehman Brothers Holdings, Inc. 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 N/A Corporation in the amount of
$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 N/A
Brothers Holdings, Inc. (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 N/A
Partnership, Host Restaurants, Inc. (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.
* 28. Pages 28 through 36 and pages 40 through 44 of Courtyard by Marriott Limited Partnership N/A
Private Placement Memorandum.
</TABLE>
<PAGE>
* 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
A Form 8-K was filed with the SEC on December 10, 1999. This
filing, Item 5-Other Events, discloses that on December 6,
1999, the General Partner sent to the limited partners of
the Partnership a letter that accompanied the Partnership's
Quarterly Report on Form 10-Q for the quarter ended
September 10, 1999. The letter disclosed the quarterly
activities of the Partnership. A copy of the letter was
included as an Item 7-Exhibit in this Form 8-K filing.
<PAGE>
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Courtyard by Marriott Limited Partnership
December 31, 1999
(in thousands)
<TABLE>
Initial Costs Gross Amount at December 31, 1999
------------------------- -------------------------------------------
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) $ 305,086 $ 23,446 $ 361,593 $ 43,537 $ 23,437 $ 361,602 $ 385,039 $124,152
========= ======== ========= ======== ========= ========= ========== ========
</TABLE>
Date of
Completion of Date Depreciation
Construction Acquired Life
50 Courtyard by 1983 - 1988 1986 - 1988 40 years
Marriott Hotels
<TABLE>
Notes:
- -----
1997 1998 1999
------------- ------------- --------
<S> <C> <C> <C>
(a) Reconciliation of Real Estate:
Balance at beginning of year....................................$ 364,120 $ 374,657 $ 376,427
Capital Expenditures............................................ 10,537 1,770 8,623
Dispositions.................................................... -- -- (11)
------------- ------------- -------------
Balance at end of year..........................................$ 374,657 $ 376,427 $ 385,039
============= ============= =============
(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year....................................$ 88,768 $ 100,921 $ 110,047
Depreciation.................................................... 12,153 9,126 14,105
------------- ------------- -------------
Balance at end of year..........................................$ 100,921 $ 110,047 $ 124,152
============= ============= =============
(c) The aggregate cost of land, buildings and improvements for Federal income
tax purposes is approximately $386.5 million at December 31, 1999.
</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 28th day of March,
2000.
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
By: CBM ONE LLC
General Partner
/s/ Earla L. Stowe
------------------
Earla L. Stowe
Vice President
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 LLC)
/s/ Robert E. Parsons, Jr. President and Manager
- --------------------------------------------
Robert E. Parsons, Jr.
/s/ Christopher G. Townsend Executive Vice President,
- -------------------------------------------- Secretary and Manager
Christopher G. Townsend
/s/ W. Edward Walter Treasurer
- --------------------------------------------
W. Edward Walter
/s/ Earla L. Stowe Vice President and Chief
- -------------------------------------------- Accounting Officer
Earla L. Stowe
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 14,920
<SECURITIES> 0
<RECEIVABLES> 2,868
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,157
<PP&E> 517,769
<DEPRECIATION> (231,854)
<TOTAL-ASSETS> 328,860
<CURRENT-LIABILITIES> 27,441
<BONDS> 319,880
0
0
<COMMON> 0
<OTHER-SE> (18,461)
<TOTAL-LIABILITY-AND-EQUITY> 328,860
<SALES> 0
<TOTAL-REVENUES> 206,074
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 160,805
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,668
<INCOME-PRETAX> 19,601
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,601
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
