United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition period from ______ to ______
Commission File Number: 0-16991
HOTEL PROPERTIES L.P.
Exact Name of Registrant as Specified in its Charter
Delaware 13-3430078
State or Other Jurisdiction of
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3237
Registrant's Telephone Number, Including Area Code
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Balance Sheets At March 31, At December 31,
1996 1995
Assets Real estate, at cost:
Land $ 22,569,415 $ 22,569,415
Buildings 72,568,089 72,561,033
Furniture, fixtures and equipment 44,958,862 43,838,735
------------- -------------
140,096,366 138,969,183
Less accumulated depreciation 42,251,070 40,612,178
------------- -------------
97,845,296 98,357,005
Cash and cash equivalents 1,543,512 1,004,565
Restricted cash 960,348 825,437
Restricted cash - loan reserve 2,534,235 2,538,618
Due from hotel managers, net 543,674 534,669
Replacement reserve receivable 3,473,452 3,478,655
Rent receivable 989,381 684,266
Deferred charges - refinancing costs
net of accumulated amortization of
$244,088 in 1996 and $162,725 in 1995 1,383,164 1,464,527
------------- -------------
Total Assets $ 109,273,062 $ 108,887,742
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 42,580 $ 50,045
Due to affiliates 17,500 18,462
Mortgage loans payable 81,455,269 81,714,517
Mortgage loans interest payable 610,915 0
Refinancing fee payable 412,500 412,500
Deferred management fees 4,187,505 4,187,505
Deferred interest payable 1,849,185 1,849,185
------------- -------------
Total Liabilities 88,575,454 88,232,214
------------- -------------
Partners' Capital:
General partner 0 0
Limited partners (3,464,700 limited
partnership units authorized, issued
and outstanding) 20,697,608 20,655,528
------------- -------------
Total Partners' Capital 20,697,608 20,655,528
------------- -------------
Total Liabilities and Partners' Capital $ 109,273,062 $ 108,887,742
============= =============
Statement of Partners' Capital
For the three months ended March 31, 1996
Limited General
Partners Partner Total
Balance at December 31, 1995 $ 20,655,528 $ 0 $ 20,655,528
Net income 42,080 0 42,080
------------ --- ------------
Balance at March 31, 1996 $ 20,697,608 $ 0 $ 20,697,608
============ === ============
Statements of Operations
For the three months ended March 31, 1996 1995
Income
Rent:
Operating profit $ 2,292,761 $ 2,092,881
Replacement escrow 1,256,891 1,152,373
Interest 96,597 86,781
----------- -----------
Total Income 3,646,249 3,332,035
=========== ===========
Expenses
Interest 1,835,664 2,147,215
Depreciation and amortization 1,720,255 1,880,188
Asset management fee 0 136,037
General and administrative 30,939 27,883
Professional fees 17,311 15,828
----------- -----------
Total Expenses 3,604,169 4,207,151
----------- -----------
Net Income (Loss) $ 42,080 $ (875,116)
=========== ===========
Net Income (Loss) Allocated:
To the General Partner $ 0 $ (8,751)
To the Limited Partners 42,080 (866,365)
----------- -----------
$ 42,080 $ (875,116)
=========== ===========
Per limited partnership unit
(3,464,700 outstanding) $.01 $(.25)
Statements of Cash Flows
For the three months ended March 31, 1996 1995
Cash Flows From Operating
Activities Net income (loss) $ 42,080 $ (875,116)
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating
activities:
Rental income from replacement escrow (1,256,891) (1,152,373)
Depreciation and amortization 1,720,255 1,880,188
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Due from hotel managers, net (9,005) (4,682)
Rent receivable (305,115) (133,329)
Accounts payable and accrued expenses (7,465) (32,077)
Due to affiliates (962) (14,997)
Mortgage loans interest payable 610,915 0
Deferred management fees 0 136,037
Deferred interest payable 0 169,228
Net cash provided by (used for) ----------- -----------
operating activities 793,812 (27,121)
----------- -----------
Cash Flows From Investing Activities
Proceeds from restricted cash 41,336 117,607
Proceeds from replacement reserve receivable 1,085,847 1,562,527
Additions to real estate (1,127,183) (1,680,134)
----------- -----------
Net cash used for investing activities 0 0
----------- -----------
Cash Flows From Financing Activities
Net interest from restricted cash - loan reserve 4,383 0
Principal payments on mortgage loans payable (259,248) 0
----------- -----------
Net cash used for financing activities (254,865) 0
----------- -----------
Net increase (decrease) in cash
and cash equivalents 538,947 (27,121)
Cash and cash equivalents, beginning of period 1,004,565 3,409,299
----------- -----------
Cash and cash equivalents, end of period $ 1,543,512 $ 3,382,178
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 1,224,749 $ 1,977,987
----------- -----------
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1995 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of March 31, 1996 and the results of operations and cash flows for
the three months ended March 31, 1996 and 1995 and the statement of changes in
partner's capital for the three months ended March 31, 1996. Results of
operations for the periods are not necessarily indicative of the results to be
expected for the full year.
No significant events have occurred subsequent to fiscal year 1995 and no
material contingencies exist, which would require disclosure in this interim
report per Regulation S-X, Rule 10- 01, Paragraph (a)(5).
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
On June 28, 1995 (the "Effective Date"), the Partnership refinanced and amended
its $80,438,000 mortgage loans payable and the $2,531,417 revolving credit
loans payable (collectively, the "Loan") with The Equitable Life Assurance
Society of the United States ("Equitable"), and terminated its Asset Management
Agreement with EREIM. The Loan, which matured on June 2, 1995, was extended
under the existing terms to the Effective Date. At closing, the Partnership
made a $500,000 principal payment, and the Loan was consolidated into a new
mortgage loan with Equitable totalling $82,469,417 (the "New Mortgage"). The
New Mortgage is collateralized by four separate deeds of trust with respect to
the Hotels.
Under the terms of the New Mortgage, the Partnership is required to make
monthly payments of principal and interest in the amount of $741,999 at a rate
of 9% per annum based on a 20- year amortization term. Payments commenced on
August 1, 1995, and continue until maturity on June 2, 2000, at which time the
entire outstanding principal balance is due. The New Mortgage may be prepaid
in whole or in part at any time prior to June 2, 1998 in connection with a sale
or refinancing of one or more of the Hotels without paying a prepayment
premium. Subsequent to June 2, 1998, prepayment of the New Mortgage will be
subject to a prepayment premium as set forth in the New Mortgage agreement.
As a condition of the New Mortgage, the Partnership entered into an escrow
agreement with Equitable requiring the Partnership to provide additional
collateral for the New Mortgage. In addition to an initial deposit of $1.25
million, the Partnership agreed to direct Marriott to forward rent from
operating profit generated by the Hotels ("Rent"), subsequent to the Effective
Date, to an escrow account (the "Loan Reserve") maintained by Equitable's
escrow agent. As of March 31, 1996, the Loan Reserve balance was maintained at
$2.5 million, and there were no defaults on the New Mortgage. Since both of
these conditions were satisfied, the Partnership received 100% of the Rent
directly from Marriott beginning in the fourth quarter of 1995. As of March
31, 1996, the Partnership has funded the Loan Reserve in the amount of
$2,534,235, and such amount is included as "Restricted cash - loan reserve" on
the Partnership's balance sheet. The funds in excess of the $2.5 million
represent interest earned on the Loan Reserve which is transferred to the
Partnership quarterly.
As of the Effective Date, the Partnership terminated its June 3, 1988 Asset
Management Agreement with EREIM. Pursuant to the termination agreement, EREIM
is entitled to a refinancing fee in the amount of $412,500, which is payable
upon the earlier of a sale or refinancing of one or more of the Hotels or on
June 2, 2000. On the Partnership's balance sheet, the refinancing fee is
included in the asset line item "Deferred charges - refinancing costs" and the
liability line item "Refinancing fee payable," and is being amortized over the
term of the New Mortgage. Additionally, all deferred management fees and
deferred interest payable earned as of the Effective Date in the amounts of
$4,187,505 and $1,849,185, respectively, will remain as liabilities to EREIM
but subordinate to a return of investor equity plus a 6% annual return thereon.
No further management fees or interest on these amounts will accrue after the
Effective Date.
Total costs incurred by the Partnership relating to the refinancing of the Loan
and termination of the Asset Management Agreement were approximately $1.6
million and have been reflected in "Deferred charges - refinancing costs" on
the Partnership's balance sheet. The refinancing costs consist of a 1%
refinancing fee of $825,000 paid to Equitable, a refinancing fee payable to
EREIM of $412,500 and legal and other refinancing costs of approximately
$362,500. These costs are being amortized over the five-year term of the New
Mortgage.
At March 31, 1996, the Partnership's real estate, at cost, was $140,096,366,
compared to $138,969,183 at December 31, 1995. The increase is due to
improvements completed at all of the Hotels, including room renovations at the
St. Louis and Tan-Tar- A Hotels.
The Partnership's cash balance is invested in an interest- bearing account and
is used as a working capital reserve for operating expenses, debt service and
Partnership liabilities. At March 31, 1996, the Partnership had cash and cash
equivalents of $1,543,512 compared to $1,004,565 at December 31, 1995. The
increase is primarily due to net cash provided by operating activities
exceeding cash used for financing activities.
A reserve account for each of the Properties has been established to cover
certain costs of improvements, replacements, refurbishments, renewals as well
as furniture, fixtures and equipment ("FF&E") upgrades. For the Los Angeles
Hotel, the St. Louis Hotel and Tan-Tar-A Hotel, the reserve is maintained on
behalf of the Partnership at each Property and is classified as "Replacement
reserve receivable" on the Partnership's balance sheet. The reserve for the
Nashville Hotel, which totaled $960,348 at March 31, 1996, compared to $825,437
at December 31, 1995, is held by the Partnership and is classified as
"Restricted cash" on the Partnership's balance sheet. The increase in 1996 is
attributable to contributions to the reserve exceeding expenditures.
In addition to the reserve accounts for each Hotel, under the original Loan,
Equitable had made lines of credit aggregating $27,162,000 available to the
Partnership (collectively, the "Equitable Line of Credit"), as necessary and
subject to certain restrictions. The Equitable Line of Credit was available to
meet Marriott's request for additional funds for FF&E or building additions or
expansions in excess of those available in the Hotels' reserve accounts. In
each case, Marriott was obligated to contribute a portion of such funds. The
Equitable Line of Credit was terminated under the New Mortgage. There are
currently no anticipated capital requirements by Marriott in excess of the FF&E
reserve for the next five years.
Prior to 1994, distributions were paid on a quarterly basis from Net Cash Flow
to Unitholders based on the seasonal performance of the Hotels. The General
Partner suspended the payment of cash distributions commencing with the fourth
quarter distribution in 1994. This action was taken in order to increase
Partnership cash reserves to provide for the various costs of securing
replacement financing related to the maturity of the Partnership's outstanding
indebtedness in June 1995. Distributions will remain suspended until, at a
minimum, certain requirements are met under the terms of the New Mortgage. In
addition to the Loan Reserve requirement, the Partnership is also required, at
a minimum, to receive rents from the Hotels equal to, at a minimum, 110% of
debt service for the previous consecutive 12 months before cash distributions
can be resumed. Since a significant portion of the Partnership's cash reserves
were depleted to cover costs associated with the refinancing and establishing
the Loan Reserve, the General Partner intends to utilize a portion of future
cash flow generated in excess of debt service requirements to replenish the
Partnership's working capital reserves. Once the Partnership's debt service
coverage requirements are met and the working capital reserves are replenished,
the General Partner should be in a position to evaluate the Partnership's cash
flow from operations, along with its future cash requirements, to determine if
cash distributions may be resumed at such time. It is expected that future
distributions, if any, would be reinstated on an annual basis rather than the
previous quarterly schedule.
The primary source of ongoing cash and liquidity is from rental revenue under
the operating leases and the Partnership's cash reserves. The Partnership
knows of no trends, demands, commitments, events or uncertainties, other than
the Partnership's cash requirements pursuant to the terms of the New Mortgage,
that will result in or that are reasonably likely to result in the
Partnership's liquidity increasing or decreasing in any material way, other
than the normal seasonal fluctuation in hotel operations which, in turn, causes
fluctuations in rental income throughout the year.
Results of Operations
For the three-month period ended March 31, 1996, net cash generated by
operating activities was $793,812, compared with net cash used for
operating activities of $27,121 for the corresponding period in 1995. This
change is due to an increase in net income earned by the Partnership in 1996,
as well as an increase in accrued interest payable resulting from a difference
in the timing of interest payments between the two periods. The Partnership
generated net income of $42,080 for the three-month period ended March 31,
1996, compared to a net loss of $875,116 for the corresponding three-month
period in 1995. The change from net loss to net income is due to an increase
in rental income from improved Hotel operations and interest income, as well as
a decrease in interest expense, depreciation and amortization, and asset
management fees. After adding back the non-cash items of depreciation and
amortization and subtracting the amount of rental income from the FF&E
replacement escrow, the Partnership had an adjusted net operating income of
$505,444 for the three-month period ended March 31, 1996 compared to an
adjusted net operating loss of $147,301 for the three-month period ended March
31, 1995.
Total Partnership income was $3,646,249 for the three-month period
ended March 31, 1996, compared to $3,332,035 for the three-month period ended
March 31, 1995. The increase is due primarily to higher rents from operating
profit earned at the Los Angeles, St. Louis and Nashville Hotels. Rent from
replacement escrow, which is calculated as a percentage of the Hotels' gross
revenues, increased to $1,256,891 for the three- month period ended March 31,
1996 from $1,152,373 for the three- month period ended March 31, 1995. The
increase is due to an increase in gross revenues at the Hotels. Interest
income totaled $96,597 for the three-month period ended March 31, 1996,
compared to $86,781 for the three-month period ended March 31, 1995. The
increase is primarily attributable to higher restricted cash balances in 1996.
Total Partnership expenses for the three-month period ended March 31, 1996 were
$3,604,169 compared to $4,207,151 for the three-month period ended March 31,
1995. The decrease is due primarily to lower interest expense, lower
depreciation and amortization, and the elimination of the asset management fees
as a result of the termination of the Asset Management Agreement. These
decreases were partially offset by higher general and administrative expenses
and professional fees. Interest expense decreased to $1,835,664 for the
three-month period ended March 31, 1996 from $2,147,215 for the three-month
period ended March 31, 1995, as a result of the New Mortgage which provides for
principal amortization and bears a lower interest rate than the original
mortgage loan, as well as the payment of the revolving credit loan and
termination of the Asset Management Agreement pursuant to the refinancing.
General and administrative expenses totaled $30,939 for the three-month period
ended March 31, 1996, compared with $27,883 for the three-month period ended
March 31, 1995. The increase is due primarily to higher accounting and
Partnership administrative expenses being recognized in 1996.
The following summarizes the Hotels' performance for the period from January 1
to March 22 of the indicated years (i.e., the first three Marriott accounting
periods):
1996 1995 % Change
------------------------------------------
Weighted Average Occupancy 75.9% 74.6% 1.7%
Weighted Average Room Rate $ 83.96 $ 80.46 4.3%
Total Hotel Sales $ 24,049,538 $ 22,736,536 5.8%
Hotel Operating Profit $ 3,195,624 $ 2,531,071 26.3%
Rent Earned by the Partnership
(for the quarter ended March 31) $ 2,292,761 $ 2,092,881 9.6%
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - On February 13, 1996, based upon,
among other things, the advice of Partnership counsel, Skadden,
Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of
Control (as defined below) occurs, the General Partner may
distribute the Partnership's cash balances not required for its
ordinary course day- today operations. "Change of Control"
means any purchase or offer to purchase more than 10% of the
Units that is not approved in advance by the General Partner.
In determining the amount of the distribution, the General
Partner may take into account all material factors. In
addition, the Partnership will not be obligated to make any
distribution to any partner and no partner will be entitled to
receive any distribution until the General Partner has declared
the distribution and established a record date and distribution
date. The Partnership filed a Form 8-K disclosing this
resolution on February 20, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOTEL PROPERTIES L.P.
BY: EHP/GP INC.
General Partner
Date: May 15, 1996 BY: /s/Jeffrey C. Carter
Director, President
and Chief Financial Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 5,038,095
<SECURITIES> 0
<RECEIVABLES> 5,006,507
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 140,096,366
<DEPRECIATION> (42,251,070)
<TOTAL-ASSETS> 109,273,062
<CURRENT-LIABILITIES> 60,080
<BONDS> 81,455,269
<COMMON> 0
0
0
<OTHER-SE> 20,697,608
<TOTAL-LIABILITY-AND-EQUITY> 109,273,062
<SALES> 0
<TOTAL-REVENUES> 3,646,249
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,768,505
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,835,664
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,080
<EPS-PRIMARY> .01
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