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 June 30, 1997
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
June 30, At December 31,
1997 1996
Assets
Real estate, at cost:
Land $ 0 $ 22,569,415
Buildings 0 72,645,014
Furniture, fixtures and equipment 0 48,892,073
------------- -------------
0 144,106,502
Less accumulated depreciation 0 (47,206,347)
------------- -------------
0 96,900,155
Real estate held for disposition 100,000,975 0
Cash and cash equivalents 1,912,305 3,590,188
Restricted cash 828,578 1,297,810
Restricted cash - loan reserve 2,534,971 2,534,317
Due from hotel managers, net 610,484 577,522
Replacement reserve receivable 1,249,652 3,426,722
Rent receivable 1,204,217 488,415
Deferred charges - refinancing costs,
net of accumulated amortization of $650,901
in 1997 and $488,176 in 1996 976,351 1,139,076
------------- -------------
Total Assets $ 109,317,533 $ 109,954,205
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 247,148 $ 85,067
Due to affiliates 14,246 1,000
Mortgage loans payable 79,382,345 80,239,491
Mortgage loans interest payable 595,368 601,796
Promissory note payable 878,494 0
Refinancing fee payable 412,500 412,500
Distributions payable 0 1,399,879
Deferred management fees 4,187,505 4,187,505
Deferred interest payable 1,849,185 1,849,185
------------- -------------
Total Liabilities 87,566,791 88,776,423
------------- -------------
Partners' Capital:
General Partner 0 0
Limited Partners (3,464,700 limited partnership
units authorized, issued and outstanding) 21,750,742 21,177,782
------------- -------------
Total Partners' Capital 21,750,742 21,177,782
------------- -------------
Total Liabilities and Partners' Capital $ 109,317,533 $ 109,954,205
============= =============
Statement of Partners' Capital
For the six months ended June 30, 1997
Limited General
Partners Partner Total
Balance at December 31, 1996 $ 21,177,782 $ 0 $ 21,177,782
Net income 572,960 0 572,960
------------ ---- ------------
Balance at June 30, 1997 $ 21,750,742 $ 0 $ 21,750,742
============ ==== ============
Statements of Operations
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
Income
Rent:
Operating profit $ 2,720,759 $ 2,337,325 $ 5,023,414 $ 4,630,086
Replacement escrow 1,504,897 1,415,167 2,758,737 2,672,058
Interest and other 103,567 96,220 222,271 192,817
----------- ----------- ----------- -----------
Total Income 4,329,223 3,848,712 8,004,422 7,494,961
----------- ----------- ----------- -----------
Expenses
Interest 1,789,369 1,826,815 3,588,417 3,662,479
Depreciation and
amortization 1,865,499 1,771,539 3,687,839 3,491,794
General and administrative 50,989 37,710 115,363 68,649
Professional fees 29,750 11,971 39,843 29,282
----------- ----------- ----------- -----------
Total Expenses 3,735,607 3,648,035 7,431,462 7,252,204
----------- ----------- ----------- -----------
Net Income $ 593,616 $ 200,677 $ 572,960 $ 242,757
=========== =========== =========== ===========
Net Income Allocated:
To the General Partner $ 0 $ 0 $ 0 $ 0
To the Limited Partners 593,616 200,677 572,960 242,757
----------- ----------- ----------- -----------
$ 593,616 $ 200,677 $ 572,960 $ 242,757
=========== =========== =========== ===========
Per limited partnership unit
(3,464,700 outstanding) $.17 $.06 $.17 $.07
---- ---- ---- ----
Statements of Cash Flows
For the six months ended June 30, 1997 1996
Cash Flows From Operating Activities:
Net income $ 572,960 $ 242,757
Adjustments to reconcile net income to net cash
provided by operating activities:
Rental income from replacement escrow (2,758,737) (2,672,058)
Depreciation 3,525,114 3,329,069
Amortization 162,725 162,725
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Due from hotel managers, net (32,962) (14,488)
Rent receivable (715,802) (368,018)
Accounts payable and accrued expenses 162,081 (12,469)
Due to affiliates 13,246 (1,952)
Mortgage loans interest payable (6,428) 607,943
------------ ------------
Net cash provided by operating activities 922,197 1,273,509
------------ ------------
Cash Flows From Investing Activities:
Proceeds from restricted cash 979,870 112,387
Proceeds from replacement reserve receivable 5,303,663 2,786,176
Additions to real estate, net (6,625,934) (2,898,563)
------------ ------------
Net cash used for investing activities (342,401) 0
------------ ------------
Cash Flows From Financing Activities:
Net interest from restricted cash - loan reserve (654) 5,588
Principal payments on mortgage loans payable (857,146) (655,458)
Distributions (1,399,879) 0
------------ ------------
Net cash used for financing activities (2,257,679) (649,870)
------------ ------------
Net increase (decrease) in cash and
cash equivalents (1,677,883) 623,639
Cash and cash equivalents, beginning of period 3,590,188 1,004,565
------------ ------------
Cash and cash equivalents, end of period $ 1,912,305 $ 1,628,204
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 3,594,845 $ 3,054,536
------------ ------------
Supplemental Disclosure of Non-Cash Financing Activities:
In 1997, the Partnership borrowed $1,100,000 under the Promissory note payable
and funded the replacement reserve to make certain non-structural repairs and
renovations at the St. Louis Hotel. During 1997, the Partnership made
promissory note principal payments from the replacement reserve totaling
$221,506.
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1996 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and reoccurring
adjustments which are, in the opinion of management, necessary to present a
fair statement of financial position as of June 30, 1997 and the results of
operations for the three and six months ended June 30, 1997 and 1996, cash
flows for the six months ended June 30, 1997 and 1996, and the statement of
partners' capital for the six months ended June 30, 1997. Results of operations
for the periods are not necessarily indicative of the results to be expected
for the full year.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
The following significant events have occurred subsequent to fiscal year 1996
which require disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
Effective as of January 1, 1997, the Partnership began reimbursing certain
expenses incurred by the General Partner and its affiliates in servicing the
Partnership to the extent permitted by the partnership agreement. In prior
years, affiliates of the General Partner had voluntarily absorbed these
expenses.
Real estate held for disposition
On June 30, 1997, the Partnership began the process of marketing the Los
Angeles Airport Marriott Hotel, the St. Louis Airport Marriott Hotel, the
Nashville Airport Marriott Hotel, and the Marriott's Tan- Tar-A Resort Hotel
(collectively, "the Properties") and accordingly reclassified the Properties
as "Real estate held for disposition" at their net book value.
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 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
Equitable Real Estate Investment Management, Inc. ("EREIM"). The Loan was
consolidated into a new mortgage loan with Equitable totaling $82,469,417 (the
"New Mortgage"). The New Mortgage is collateralized by four separate deeds of
trust with respect to the Hotels and has a term of five years.
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 (the "Loan Reserve"). As of June 30, 1997, the
Loan Reserve balance was maintained at $2.5 million, and there were no defaults
on the New Mortgage. The Loan Reserve may be used by the Partnership to meet
Marriott Hotel Services, Inc.'s ("Marriott" or the "Hotel Manager") request for
additional funds for furniture, fixtures and equipment ("FF&E") or building
additions or expansions in excess of those available in the Hotels' reserve
accounts. In each case, Marriott is obligated to contribute a portion of such
funds.
After considering a number of factors, including the recently improved
operating performance of the Hotels, the improving hospitality industry
nationwide and the significantly strengthened market for the acquisition of
full-service hotel properties, the General Partner has decided to begin
marketing the Hotels for sale. The Partnership has retained Eastdil Realty
Company, a nationally-recognized real estate firm, to assist with the marketing
efforts. The goal is to maximize the selling price of the Hotels and
ultimately dissolve the Partnership and distribute the net sales proceeds to
limited partners in accordance with the terms of the Partnership Agreement.
There can be no assurance that the Partnership's marketing efforts will result
in a sale of the Hotels, or that a sale, if completed, will result in any
particular level of net sales proceeds.
In view of the anticipated sale of the Hotels, the Partnership's real estate
has been recorded at cost, less accumulated depreciation and amortization at
June 30, 1997 on the Partnership's Balance Sheet as "Real estate held for
disposition." Real estate held for disposition at June 30, 1997 was
$100,000,975.
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 June 30, 1997, the Partnership had cash and cash
equivalents of $1,912,305, compared to $3,590,188 at December 31, 1996. The
decrease is due to cash used for operating and financing activities, primarily
due to the distribution paid to limited partners on February 14, 1997 and the
timing of debt service payments.
A reserve account for each of the Hotels has been established to cover certain
costs of improvements, replacements, refurbishments and renewals, as well as
FF&E upgrades. For the Los Angeles, St. Louis and Tan-Tar-A Hotels, the
reserve is maintained on behalf of the Partnership at each Hotel and is
classified as "Replacement reserve receivable" on the Partnership's balance
sheet. Replacement reserve receivable decreased from $3,426,722 at December
31, 1996 to $1,249,652 at June 30, 1997 due to expenditures exceeding
contributions to the reserve. For the Nashville Hotel, the reserve is held by
the Partnership and is classified as "Restricted cash" on the Partnership's
balance sheet. Restricted cash decreased to $828,578 at June 30, 1997,
compared to $1,297,810 at December 31, 1996 as a result of expenditures
exceeding contributions to the reserve. Rent receivable increased to
$1,204,217 at June 30, 1997, compared to $488,415 at December 31, 1996 due to
the timing of receipt of payments. Accounts payable and accrued expenses
increased to $247,148 at June 30, 1997, compared to $85,067 at December 31,
1996 due to the receipt by the Partnership of a real estate tax refund from the
County of Los Angeles for the 1994 and 1995 tax years. The refund will be paid
to the Hotel Manager.
On October 18, 1996, the Partnership entered into a loan agreement and executed
a promissory note in an amount up to $1,100,000 (the "Line of Credit") with
Marriott International Capital Corporation (the "Lender"). The purpose of such
financing was to provide the Partnership with the required capital to implement
certain upgrades to furniture, fixtures and equipment and to make certain
non-structural repairs and renovations (collectively, the "Renovations") at the
St. Louis Hotel. The Lender will fund to the Partnership from time-to- time
amounts necessary (up to the maximum amount of the Line of Credit) to complete
the Renovations at the St. Louis Hotel. The Line of Credit is unsecured and
non-recourse to the Partnership. During the first half of 1997, the Partnership
borrowed $1,100,000 under the Line of Credit and funded the replacement reserve
to make the Renovations.
The Partnership has directed the Hotel Manager, the St. Louis Hotel's tenant,
to make payments on behalf of the Partnership solely from the St. Louis Hotel's
FF&E Replacement Reserve account in an amount equal to $61,986 per period
commencing with the second accounting period in fiscal 1997 until the maturity
of the Line of Credit. The Line of Credit bears interest at a rate of 9% per
annum on all outstanding amounts and can be prepaid by the Partnership without
premium or penalty. The Hotel Manager will fund all interest payments into the
FF&E Replacement Reserve account from the Hotel Manager's own funds prior to
making any interest payments to the Lender. Consequently, the payment from the
tenant will offset the interest as if this were an interestfree loan to the
Partnership. The Partnership made principal payments on the Line of Credit
from the replacement reserve totaling $221,506 during the first half of 1997.
Prior to 1994, cash distributions were paid on a quarterly basis from net cash
flow provided by operating activities to Unitholders based on the seasonal
performance of the Hotels. The General Partner suspended the payment of cash
distributions in the fourth quarter of 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 remained suspended through 1996 in
order for the Partnership to meet certain requirements under the terms of the
New Mortgage. Due to the satisfaction of such requirements, and improved
operations during 1996 at both the Partnership and Hotel levels, a cash
distribution in the amount of $0.40 per Unit was paid to Limited Partners on
February 14, 1997 from the Partnership's operations during the past year. The
distribution was paid to Limited Partners of record as of each month-end in
1996. This represented a one-time distribution of 1996 annual cash flow and
did not indicate the reinstatement of regular cash distributions. The ability
of the Partnership to make future distributions is dependent upon various
factors, including the cash flow generated from Hotel operations in excess of
debt service, the adequacy of cash reserves, and the outcome of the
Partnership's marketing efforts. While the General Partner intends to evaluate
the Partnership's cash position on an annual basis, should the marketing
efforts result in a sale, any payment to limited partners would likely be in
the form of one or more liquidating distributions. There can be no assurance
that future cash flow will be sufficient to fund additional distributions.
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
The Partnership generated net income of $593,616 and $572,960 for the three-
and six-month periods ended June 30, 1997, respectively, compared to net income
of $200,677 and $242,757, respectively, for the corresponding periods in 1996.
The increases are due to increases in total income, which were partially offset
by increases in total expenses. 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 adjusted net operating income
of $954,218 and $1,502,062 for the three- and six-month periods ended June 30,
1997, respectively, compared with $557,049 and $1,062,493, respectively, for
the corresponding periods in 1996.
Total income for the three- and six-month periods ended June 30, 1997 was
$4,329,223 and $8,004,422, respectively, compared with $3,848,712 and
$7,494,961, respectively, for the three- and six-month periods ended June 30,
1996. The increases are due to higher rents from operating profit earned at
all four Hotels, higher rents from replacement escrow, and higher interest and
other income. Rent from replacement escrow, which is calculated as a
percentage of the Hotels' gross revenues, was $1,504,897 and $2,758,737 for the
three- and six-month periods ended June 30, 1997, respectively, compared to
$1,415,167 and $2,672,058, respectively, for the same periods in 1996. Interest
and other income totaled $103,567 and $222,271 for the three- and six-month
periods ended June 30, 1997, respectively, compared to $96,220 and $192,817,
respectively, for the same periods in 1996. The increases are primarily
attributable to higher operating and restricted cash balances during the 1997
periods.
Total expenses for the three- and six-month periods ended June 30, 1997 were
$3,735,607 and $7,431,462, respectively, compared with $3,648,035 and
$7,252,204, respectively, for the three- and six-month periods ended June 30,
1996. The increases are due primarily to increases in depreciation and
amortization, general and administrative expenses and professional fees, which
were partially offset by decreases in interest expense. General and
administrative expenses for the three- and six-month periods ended June 30,
1997 were $50,989 and $115,363, respectively, compared to $37,710 and $68,649,
respectively, for the same periods in 1996. During the 1997 periods, certain
expenses incurred by the General Partner, its affiliates, and an unaffiliated
third party service provider in servicing the Partnership, which were
voluntarily absorbed by affiliates of the General Partner in prior periods,
were reimbursable to the General Partner and its affiliates. Interest expense
decreased to $1,789,369 and $3,588,417, for the three- and six-month periods
ended June 30, 1997, respectively, compared to $1,826,815 and $3,662,479,
respectively, for the three- and six- month periods ended June 30, 1996. The
decreases are due to the scheduled amortization of the New Mortgage.
Professional fees totaled $29,750 and $39,843 for the three- and six-month
periods ended June 30, 1997, respectively, compared to $11,971 and $29,282,
respectively, for the three- and six-month periods ended June 30, 1996. The
increases are due primarily to higher legal accruals and higher expenses
relating to engineering studies performed at the Hotels during 1997, which were
partially offset by lower audit accruals for 1997.
The following table summarizes the Hotels' performance for the period from
January 1 to June 16 of the indicated years (i.e., the first six Marriott
accounting periods):
1997 1996 % Change
Weighted Average Occupancy 79.8% 77.9% 2.4
Weighted Average Room Rate $95.33 $86.96 9.6
Total Hotel Sales $ 54,957,850 $ 51,686,685 6.3
Hotel Operating Profit 9,490,888 8,155,650 16.4
Rent Earned by
the Partnership* 5,023,414 4,630,086 8.5
*For the six-month period ended June 30.
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 - No reports on Form 8- K were filed
during the quarter ended June 30, 1997.
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: August 14, 1997
BY: /s/ Jeffrey C. Carter
---------------------
Director, President and Chief
Financial Officer
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<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 5,275,854
<SECURITIES> 0
<RECEIVABLES> 3,064,353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 100,000,975
<DEPRECIATION> 0
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<CURRENT-LIABILITIES> 856,762
<BONDS> 79,382,345
<COMMON> 0
0
0
<OTHER-SE> 21,750,742
<TOTAL-LIABILITY-AND-EQUITY> 109,317,533
<SALES> 0
<TOTAL-REVENUES> 8,004,422
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,843,045
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,588,417
<INCOME-PRETAX> 572,960
<INCOME-TAX> 0
<INCOME-CONTINUING> 572,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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