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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 16, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-15736
COURTYARD BY MARRIOTT LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1468081
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(State of Organization) (I.R.S. Employer Identification Number)
10400 Fernwood Road, Bethesda, MD 20817-1109
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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 .
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<PAGE>
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Courtyard by Marriott Limited Partnership
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TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
June 16, 2000 (Unaudited) and December 31, 1999.................1
Condensed Statements of Operations
Twelve and Twenty-Four Weeks Ended June 16, 2000
and June 18, 1999 (Unaudited).................................2
Condensed Statements of Cash Flows
Twenty-Four Weeks ended June 16, 2000
and June 18, 1999 (Unaudited).................................3
Note to Condensed Financial Statements (Unaudited).................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................5
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................8
Item 6. Exhibits and Reports on Form 8-K...................................9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Courtyard by Marriott Limited Partnership
Condensed Balance Sheets
(in thousands)
<TABLE>
June 16, December 31,
2000 1999
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net............................................................$ 284,634 $ 285,915
Due from Courtyard Management Corporation.............................................. 5,589 2,868
Deferred financing costs, net of accumulated amortization.............................. 5,207 5,411
Property improvement fund.............................................................. 10,685 7,857
Restricted cash........................................................................ 7,584 11,889
Cash and cash equivalents.............................................................. 15,634 14,920
---------- ----------
$ 329,333 $ 328,860
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Mortgage debt..........................................................................$ 300,841 $ 305,086
Straight-line ground rent due to affiliates of Marriott International, Inc............. 19,045 19,152
Debt service guaranty and accrued interest payable to affiliate........................ 15,096 14,794
Incentive management fees due to Courtyard Management Corporation...................... 3,855 4,777
Accounts payable and accrued liabilities............................................... 2,960 3,512
--------- ---------
Total Liabilities................................................................ 341,797 347,321
--------- ---------
PARTNERS' CAPITAL (DEFICIT)
General Partner........................................................................ 698 399
Limited Partners....................................................................... (13,162) (18,860)
--------- ---------
Total Partners' Deficit.......................................................... (12,464) (18,461)
--------- ---------
$ 329,333 $ 328,860
========= =========
See Note to Condensed Financial Statements.
</TABLE>
<PAGE>
Courtyard by Marriott Limited Partnership
Condensed Statements of Operations
(Unaudited)
(in thousands, except Unit and per Unit amounts)
<TABLE>
Twelve Weeks Ended Twenty-Four Weeks Ended
June 16, June 18, June 16, June 18,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES ---------- --------- ---------- ----------
Hotel revenues
Rooms.............................................$ 47,026 $ 45,354 $ 90,349 $ 88,964
Food and beverage................................. 3,109 3,113 6,073 6,188
Other............................................. 1,571 1,568 3,297 3,113
-------- ------- ------- -------
Total hotel revenues............................ 51,706 50,035 99,719 98,265
-------- ------- ------- -------
OPERATING COSTS AND EXPENSES
Hotel property-level costs and expenses
Rooms............................................. 10,657 10,150 20,459 19,761
Food and beverage................................. 2,795 2,764 5,441 5,498
Other department costs and expenses............... 914 510 1,571 965
Selling, administrative and other................. 11,648 11,091 22,760 22,301
------- ------- ------- -------
Total hotel property-level costs and expense.... 26,014 24,515 50,231 48,525
Depreciation........................................ 4,779 4,469 9,324 8,818
Base and Courtyard management fees.................. 3,102 3,002 5,983 5,896
Incentive management fee............................ 2,386 2,366 4,560 4,532
Ground rent, taxes and other........................ 4,431 4,004 8,553 8,085
------- ------- ------- -------
Total operating costs and expenses.............. 40,712 38,356 78,651 75,856
------- ------- ------- -------
OPERATING PROFIT....................................... 10,994 11,679 21,068 22,409
Interest expense.................................... (5,800) (5,929) (11,627) (11,958)
Interest income..................................... 470 313 774 477
------- ------- ------- -------
NET INCOME.............................................$ 5,664 $ 6,063 $ 10,215 $ 10,928
======= ======= ======= =======
ALLOCATION OF NET INCOME
General Partner.....................................$ 283 $ 303 $ 511 $ 546
Limited Partners.................................... 5,381 5,760 9,704 10,382
------- ------- ------- -------
$ 5,664 $ 6,063 $ 10,215 $ 10,928
======= ======= ======= =======
NET INCOME PER LIMITED PARTNER UNIT
(1,150 Units).......................................$ 4,679 $ 5,009 $ 8,438 $ 9,028
======= ======= ======== =======
See Note to Condensed Financial Statements.
</TABLE>
<PAGE>
Courtyard by Marriott Limited Partnership
Condensed Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
Twenty-Four Weeks Ended
June 16, June 18,
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES --------- ---------
Net income................................................................................$ 10,215 $ 10,928
Noncash items............................................................................. 9,860 9,289
Changes in operating accounts............................................................. 3 (1,650)
------- ---------
Cash provided by operating activities............................................... 20,078 18,567
------- ---------
INVESTING ACTIVITIES
Additions to property and equipment, net.................................................. (8,073) (1,848)
Change in property improvement fund....................................................... (2,828) (2,696)
-------- ---------
Cash used in investing activities................................................... (10,901) (4,544)
-------- ---------
FINANCING ACTIVITIES
Repayments of mortgage debt............................................................... (4,245) (3,899)
Capital distributions..................................................................... (4,237) (3,455)
Payments received on investor notes receivable............................................ 19 --
------- ---------
Cash used in financing activities................................................... (8,463) (7,354)
------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS....................................................... 714 6,669
CASH AND CASH EQUIVALENTS at beginning of period............................................. 14,920 9,203
------- ---------
CASH AND CASH EQUIVALENTS at end of period...................................................$ 15,634 $ 15,872
======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest...........................................................$ 12,128 $ 12,383
======= =========
See Note to Condensed Financial Statements.
</TABLE>
<PAGE>
Courtyard by Marriott Limited Partnership
Note to Condensed Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
The accompanying unaudited, condensed financial statements have been
prepared by Courtyard by Marriott Limited Partnership (the
"Partnership"). Certain information and footnote disclosures normally
included in financial statements presented in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted from the accompanying statements. The Partnership believes the
disclosures made are adequate to make the information presented not
misleading. However, the unaudited, condensed financial statements should
be read in conjunction with the Partnership's financial statements and
notes thereto included in the Partnership's Form 10-K for the year ended
December 31, 1999.
In the opinion of the Partnership, the accompanying unaudited, condensed
financial statements reflect all adjustments necessary to present fairly
the financial position of the Partnership as of June 16, 2000 and
December 31, 1999, the results of operations for the twelve and
twenty-four weeks ended June 16, 2000 and June 18, 1999, and cash flows
for the twenty-four weeks ended June 16, 2000 and June 18, 1999. Results
are not necessarily indicative of full year performance because of
seasonal and short-term variations.
For financial reporting purposes, the net income of the Partnership is
allocated 95% to the Limited Partners and 5% to CBM One LLC (the "General
Partner"). Significant differences exist between the net income for
financial reporting purposes and the net income reported for Federal
income tax purposes. These differences are due primarily to the use for
Federal income tax purposes of accelerated depreciation methods, shorter
depreciable lives for the assets, difference in the timing of recognition
of certain fees and straight-line rent adjustments.
Certain reclassifications were made to the prior year unaudited,
condensed financial statements to conform to the 2000 presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q are forward-looking statements
within the meaning of federal securities regulations. All forward-looking
statements 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. Future
transactions, results, performance and achievements will be affected by general
economic, business and financing conditions, competition and governmental
actions. The cautionary statements set forth in reports filed with the
Securities and Exchange Commission contain important factors with respect to
such forward-looking statements, including: (i) national and local economic and
business conditions that will, among other things, affect demand for hotels and
other properties and the availability and terms of financing; (ii) the ability
to maintain the properties in a first-class manner (including meeting capital
expenditure requirements); (iii) the ability to compete effectively in areas
such as access, location, quality of accommodations and room rate structure;
(iv) changes in travel patterns, taxes and government regulations; (v)
governmental approvals, actions and initiatives; and (vi) the effects of tax
legislative action. Although the Partnership believes the expectations reflected
in such forward-looking statements are based upon reasonable assumptions, it can
give no assurance that its expectations will be attained or that any deviations
will not be material. The Partnership undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect any future events or circumstances.
RESULTS OF OPERATIONS
Revenues. Revenues increased $1.7 million and $1.5 million to $51.7 million and
$99.7 million for the second quarter of 2000 and through the second quarter of
2000, respectively, when compared to the same periods in 1999. The increase in
revenues was achieved primarily through an increase in the combined average room
rate. The combined average room rate increased 4.2% to $94 for the second
quarter of 2000 and 3.9% to $94 through the second quarter of 2000 as compared
to the same periods in 1999.
Combined average occupancy for the second quarter of 2000 and through the second
quarter of 2000 decreased slightly to 82% and 79%, respectively, when compared
to the same periods in 1999. REVPAR, or revenue per available room, represents
the combination of the average daily room rate charged and the average daily
occupancy achieved. REVPAR for the second quarter of 2000 and through the second
quarter of 2000 was $77 and $74, respectively, representing a 3.7% and 1.9%
increase, respectively, when compared to the same periods in 1999.
Operating Costs and Expenses. For the second quarter of 2000, the Partnership's
operating costs and expenses increased $2.4 million to $40.7 million when
compared to the same period in 1999. In addition, through the second quarter of
2000, operating costs and expenses increased $2.8 million to $78.7 million when
compared to the same period in 1999. As a percentage of revenues, operating
costs and expenses increased from 77% of revenues for both the second quarter of
1999 and through the second quarter of 1999 to 79% of revenues for the second
quarter of 2000 and through the second quarter of 2000. The increase in
operating costs and expenses was primarily due to an increase in property-level
costs and expenses at the Hotels, depreciation expense, and ground rent, taxes
and other expenses discussed below.
<PAGE>
The Partnership's Hotel property-level costs and expenses increased $1.5 million
to $26.0 million and $1.7 million to $50.2 million for the second quarter of
2000 and through the second quarter of 2000, respectively, when compared to the
same periods in 1999. Hotel property-level costs and expenses increased due to
higher salary and benefit expenses as the Hotels endeavor to maintain
competitive wage scales. In addition, marketing expenses increased in 2000 as
compared to 1999. Additionally, other department costs and expenses increased
$404,000 and $606,000 for the second quarter of 2000 and through the second
quarter of 2000, respectively, as expenditures for items that fall below the
minimum dollar threshold for capitalization increased relative to the prior
year. As a percentage of total hotel revenues, property-level costs and expenses
represented 50% of revenues for the second quarter of 2000 and through the
second quarter of 2000 as compared to 49% of revenues for the same periods in
1999.
Depreciation expense increased $310,000 and $506,000 to $4.8 million and $9.3
million for the second quarter of 2000 and through the second quarter of 2000,
respectively, due to the increase in property, plant, and equipment additions in
2000 as compared to 1999.
Ground rent, taxes and other expenses increased $427,000 and $468,000 to $4.4
million and $8.6 million for the second quarter of 2000 and through the second
quarter of 2000, respectively, when compared to the same periods in 1999 due to
increases in administrative costs, primarily as a result of fees incurred in
connection with the litigation discussed in Part II, Item 1, Legal Proceedings.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit decreased $685,000, or 6%, to $11.0
million, or 21% of revenues, for the second quarter of 2000 from $11.7 million,
or 23% of revenues, for the second quarter of 1999. In addition, operating
profit decreased $1.3 million, or 6%, to $21.1 million, or 21% of revenues,
through the second quarter of 2000 from $22.4 million, or 23% of revenues, for
the same period in 1999.
Interest Expense. Interest expense decreased 2% to $5.8 million for the second
quarter of 2000 when compared to the same period in 1999 and decreased $331,000
to $11.6 million through the second quarter of 2000 when compared to the same
period in 1999 as a result of principal amortization of the Partnership's
mortgage debt.
Net Income. As a result of the items discussed above, net income decreased
$399,000 to $5.7 million, or 11% of revenues for the second quarter of 2000 when
compared to $6.1 million, or 12% of revenues for the second quarter of 1999. Net
income through the second quarter of 2000 decreased $713,000 to $10.2 million,
or 10% of revenues, when compared to $10.9 million, or 11% of revenues, through
the second quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions and Host Marriott Corporation
("Host Marriott"). The General Partner believes that cash from Hotel operations
will be sufficient to make required debt service payments, to fund current
capital expenditure needs of the Hotels as well as to make cash distributions to
the limited partners.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is from operations. Its principal
uses of cash are to make debt service payments, fund the property improvement
fund and to make distributions to the partners.
Cash provided by operating activities through the second quarter of 2000 and
1999, was $20.1 million and $18.6 million, respectively. The increase in cash
provided by operating activities was primarily due to the decrease in the
restricted cash balance, partially offset by the increase in the receivable
balance due from the Manager at June 16, 2000 when compared to the change in the
restricted cash and receivable balances at June 18, 1999.
Cash used in investing activities was $10.9 million and $4.5 million through the
second quarter of 2000 and 1999, respectively. The increase in investing
activities was primarily due to the Partnership funding $5.6 million for capital
expenditures related to roofing, facade and other improvements at certain Hotels
through the second quarter of 2000.
Cash used in financing activities was $8.5 million and $7.4 million through the
second quarter of 2000 and 1999, respectively. Through the second quarter of
2000 and 1999, the Partnership repaid $4.2 million and $3.9 million,
respectively, of principal on the mortgage debt. The Partnership also paid $4.2
million and $3.5 million of cash distributions to limited partners through the
second quarter of 2000 and 1999, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership does not have significant market risk with respect to interest
rates, foreign currency exchanges or other market rate or price risks, and the
Partnership does not hold any financial instruments for trading purposes. As of
June 16, 2000, all of the Partnership's mortgage debt has a fixed interest rate.
As of June 16, 2000 and December 31, 1999, the Partnership's mortgage debt
totaled $300.8 million and $305.1 million, respectively.
The Partnership has a debt service guaranty advance that is sensitive to changes
in interest rates. The interest recognized on the debt obligation is based on
the prime rate, which was 9.5% at June 16, 2000 and 8.5% at December 31, 1999.
The interest rate, fair value, and future maturity associated with this debt
obligation has not changed materially from the amount reported in the
Partnership's annual report on Form 10-K for the year ended December 31, 1999.
As of June 16, 2000 and December 31, 1999, the Partnership's debt service
guaranty plus accrued interest totaled $15.1 million and $14.8 million,
respectively.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership and the Hotels are involved in routine litigation and
administrative proceedings arising in the ordinary course of business, some of
which are expected to be covered by liability insurance and which collectively
are not expected to have a material adverse effect on the business, financial
condition or results of operations of the Partnership.
Marvin Schick and Jack Hirsch, the plaintiffs in a class action lawsuit styled
Marvin Schick, et al. v. Host Marriott Corporation, et al., Civil Action No.
15991, filed their complaint on October 16, 1997 in Delaware Chancery Court
against the General Partner, Courtyard Management Corporation (the "Manager")
and certain of their respective affiliates, officers and directors. The
plaintiffs claim that the General Partner agreed to decrease the owner's
priority under the Management Agreement for the benefit of the Manager without
obtaining the consent of the limited partners. The lawsuit includes claims
against Host Marriott and the General Partner for breach of contract and breach
of fiduciary duty, and against Marriott International, Inc. ("MII") and the
Manager for interference with contract and aiding and abetting in the breach of
fiduciary duties. The General Partner believes that the change in the Management
Agreement did not require limited partner approval, because, among other things,
it did not result in an increase in compensation to the Manager.
On March 16, 1998, limited partners in several partnerships sponsored by Host
Marriott, filed a lawsuit, styled Robert M. Haas, Sr. and Irwin Randolph Joint
Tenants, et al. v. Marriott International, Inc., et al., Case No. 98-CI-04092,
in the 57th Judicial District Court of Bexar County, Texas against MII, Host
Marriott, various of their subsidiaries, J.W. Marriott, Jr., Stephen Rushmore,
and Hospitality Valuation Services, Inc. (collectively, the "Defendants"). The
lawsuit now relates to the following limited partnerships: Courtyard by Marriott
Limited Partnership, Marriott Residence Inn Limited Partnership, Marriott
Residence Inn II Limited Partnership, Fairfield Inn by Marriott Limited
Partnership, Host DSM Limited Partnership (formerly known as Desert Springs
Marriott Limited Partnership) and Atlanta II Limited Partnership (formerly known
as Atlanta Marriott Marquis Limited Partnership), collectively, the "Six
Partnerships". The plaintiffs allege that the Defendants conspired to sell
hotels to the Six Partnerships for inflated prices and that they charged the Six
Partnerships excessive management fees to operate the Six Partnerships' hotels.
The plaintiffs further allege, among other things, that the Defendants committed
fraud, breached fiduciary duties and violated the provisions of various
contracts. A related case concerning Courtyard by Marriott II Limited
Partnership ("Courtyard II") filed by the plaintiffs' lawyers in the same court,
involves similar allegations against the Defendants, and has been certified as a
class action. As a result of this development, Courtyard II is no longer
involved in the above-referenced Haas lawsuit, Case No. 98-CI-04092.
On March 9, 2000, the Defendants entered into a settlement agreement with
counsel for the plaintiffs to resolve the Haas and Courtyard II litigation. The
settlement would also resolve the Schick case referred to above. The settlement
is subject to numerous conditions, including partnership agreement amendments,
participation thresholds, court approval and various consents.
Under the terms of the settlement, the limited partners of the Partnership who
elect to participate would receive $134,130 per Unit, or a pro rata portion
thereof, in cash in exchange for the transfer, directly or through a merger, of
all limited partner Units to a joint venture between subsidiaries of Host
Marriott and MII, dismissal of the litigation, and a complete release of all
claims. If the Texas court approves legal fees and expenses of approximately
$18,000 per Unit to counsel to the class action plaintiffs, the net amount that
each class member who transfers his Unit and releases all of his litigation
claims will receive is approximately $116,000 per Unit, or a pro rata portion
thereof for fractional Units.
Limited partners who opt out of the settlement would have their interests in the
Partnership converted into the right to receive the appraised value of the Units
in cash (excluding any amount related to the claims asserted in the class action
litigation) and will retain their individual claims against the Defendants.
The settlement will not be consummated unless the Texas court approves the
fairness of the settlement. The Defendants may terminate the settlement if the
holders of more than 10% of the Partnership's 1,150 Units choose not to
participate, if the holders of more than 10% of the limited partner units in any
one of the other partnerships involved in the settlement choose not to
participate or if certain other conditions are not satisfied. The Manager will
continue to manage the Partnership's Hotels under long-term agreements.
The details of the settlement will be contained in a court-approved notice and
purchase offer/consent solicitation to be sent to the Partnership's limited
partners and the discussion of the settlement herein is qualified in its
entirety by the terms of the actual court-approved notice and purchase
offer/consent solicitation sent to the Partnership's limited partners.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits: None.
b. Reports on Form 8-K:
A Form 8-K was filed with the Securities and Exchange Commission on
April 28, 2000. This filing, Item 5--Other Events, discloses that on
April 28, 2000, the General Partner sent to the limited partners of the
Partnership a letter that accompanied the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1999. The letter disclosed
the annual activities of the Partnership. A copy of the letter was
included as an Item 7--Exhibit in this Form 8-K filing.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
COURTYARD BY MARRIOTT
LIMITED PARTNERSHIP
By: CBM ONE LLC
General Partner
July 27, 2000 By: /s/ Matt Whelan
----------------
Matt Whelan
Vice President and
Chief Accounting
Officer
