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 September 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 September 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 101,573,504 0
Cash and cash equivalents 3,295,547 3,590,188
Restricted cash 761,160 1,297,810
Restricted cash - loan reserve 2,535,388 2,534,317
Due from hotel managers, net 623,182 577,522
Replacement reserve receivable 1,306,902 3,426,722
Rent receivable 1,145,542 488,415
Deferred charges - refinancing costs,
net of accumulated amortization of
$732,263 in 1997 and $488,176 in 1996 894,989 1,139,076
Total Assets $ 112,136,214 $ 109,954,205
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 94,935 $ 85,067
Due to affiliates 23,951 1,000
Mortgage loans payable 78,939,144 80,239,491
Mortgage loans interest payable 592,043 601,796
Promissory note payable 652,545 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 86,751,808 88,776,423
Partners' Capital:
General Partner 0 0
Limited Partners (3,464,700 limited partnership
units authorized, issued and outstanding) 25,384,406 21,177,782
Total Partners' Capital 25,384,406 21,177,782
Total Liabilities and Partners' Capital $ 112,136,214 $ 109,954,205
Statement of Partners' Capital
For the nine months ended September 30, 1997
Limited General
Partners Partner Total
Balance at December 31, 1996 $ 21,177,782 $ 0 $ 21,177,782
Net income 4,206,624 0 4,206,624
Balance at September 30, 1997 $ 25,384,406 $ 0 $ 25,384,406
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Income
Rent:
Operating profit $ 3,799,357 $ 3,632,750 $ 8,822,771 $ 8,262,836
Replacement escrow 1,690,274 1,586,659 4,449,011 4,258,717
Interest and other 108,968 96,052 331,239 288,869
Total Income 5,598,599 5,315,461 13,603,021 12,810,422
Expenses
Interest 1,779,471 1,817,766 5,367,888 5,480,245
Depreciation and
amortization 81,362 1,701,797 3,769,201 5,193,591
General and administrative 65,258 25,826 180,621 94,475
Professional fees 38,844 18,957 78,687 48,239
Total Expenses 1,964,935 3,564,346 9,396,397 10,816,550
Net Income $ 3,633,664 $ 1,751,115 $ 4,206,624 $ 1,993,872
Net Income Allocated:
To the General Partner $ 0 $ 0 $ 0 $ 0
To the Limited Partners 3,633,664 1,715,115 4,206,624 1,993,872
$ 3,633,664 $ 1,751,115 $ 4,206,624 $ 1,993,872
Per limited partnership unit
(3,464,700 outstanding) $ 1.05 $ .51 $ 1.21 $ .58
Statements of Cash Flows
For the nine months ended September 30, 1997 1996
Cash Flows From Operating Activities:
Net income $ 4,206,624 $ 1,993,872
Adjustments to reconcile net income to net
cash provided by operating activities:
Rental income from replacement escrow (4,449,011) (4,258,717)
Depreciation 3,525,114 4,949,503
Amortization 244,087 244,088
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Due from hotel managers, net (45,660) (34,415)
Rent receivable (657,127) (84,891)
Accounts payable and accrued expenses 9,868 (4,618)
Due to affiliates 22,951 (2,418)
Mortgage loans interest payable (9,753) 604,904
Net cash provided by operating activities 2,847,093 3,407,308
Cash Flows From Investing Activities:
Proceeds from restricted cash 536,650 297,520
Proceeds from replacement reserve receivable 6,568,831 3,065,559
Additions to real estate, net (8,198,463) (3,363,079)
Net cash used for investing activities (1,092,982) 0
Cash Flows From Financing Activities:
Proceeds from promissory note 1,100,000 0
Payments of principal on promissory note (447,455) 0
Net interest from restricted cash - loan reserve (1,071) 5,937
Principal payments on mortgage loans payable (1,300,347) (1,060,649)
Distributions (1,399,879) 0
Net cash used for financing activities (2,048,752) (1,054,712)
Net increase (decrease) in cash
and cash equivalents (294,641) 2,352,596
Cash and cash equivalents, beginning of period 3,590,188 1,004,565
Cash and cash equivalents, end of period $ 3,295,547 $ 3,357,161
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 5,377,641 $ 4,875,341
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 September 30, 1997 and the results
of operations for the three and nine months ended September 30, 1997 and 1996,
cash flows for the nine months ended September 30, 1997 and 1996, and the
statement of partners' capital for the nine months ended September 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. Upon
reclassification, depreciation expense is no longer recorded.
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 September 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. Eastdil has completed the preparation of marketing
brochures, and it is expected that the active marketing of the Hotels
will commence in the fourth quarter. The Hotel operating leases give Marriott
the right of first refusal in the event the Partnership receives an offer to
purchase the Hotels and desires to accept such offer. Pursuant to the terms of
the Hotel operating leases, the Partnership must give notice of such offer to
Marriott, and Marriott may elect to purchase the Hotels at the same price and
conditions. 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
September 30, 1997 on the Partnership's Balance Sheet as "Real estate held
for disposition." Real estate held for disposition at September 30, 1997 was
$101,573,504. Upon reclassification, depreciation expense is no longer
recorded.
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 September 30, 1997, the Partnership had cash and
cash equivalents of $3,295,547, compared to $3,590,188 at December 31, 1996.
The decrease is due to cash used for investing 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 $1,306,902 at September 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 $761,160 at September 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
$1,145,542 at September 30, 1997, compared to $488,415 at December 31, 1996 due
to the timing of receipt of payments. Deferred charges refinancing costs
decreased to $894,989 at September 30, 1997, compared to $1,139,076 at December
31, 1996, due to the scheduled amortization of the New Mortgage. Accounts
payable and accrued expenses increased to $94,935 at September 30, 1997,
compared to $85,067 at December 31, 1996 due to the timing of payments for
audit, legal and administrative expenses. Due to affiliates increased to
$23,951 at September 30, 1997, compared to $1,000 at December 31, 1996,
primarily due to administrative reimbursement accruals due through September
30, 1997. Such expenses were not reimbursable in prior periods.
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 $447,455 during the first nine months 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 $3,633,664 and $4,206,624 for the
three- and nine-month periods ended September 30, 1997, respectively, compared
to net income of $1,751,115 and $1,993,872, respectively, for the corresponding
periods in 1996. The increases are due to increases in total income and
decreases in total expenses, primarily depreciation. 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 $2,024,752 and $3,526,814 for the three- and nine-month
periods ended September 30, 1997, respectively, compared with $1,866,253 and
$2,928,746, respectively, for the corresponding periods in 1996, reflecting
improved operational activity.
Total income for the three- and nine-month periods ended September 30, 1997 was
$5,598,599 and $13,603,021, respectively, compared with $5,315,461 and
$12,810,422, respectively, for the three- and nine-month periods ended
September 30, 1996. The increases are due to higher rents from operating
profit earned at the Los Angeles and Nashville 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 $1,690,274 and $4,449,011 for the three- and nine-month periods
ended September 30, 1997, respectively, compared to $1,586,659 and $4,258,717,
respectively, for the same periods in 1996. Interest and other income totaled
$108,968 and $331,239 for the three- and nine-month periods ended September 30,
1997, respectively, compared to $96,052 and $288,869, 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 nine-month periods ended September 30, 1997
were $1,964,935 and $9,396,397, respectively, compared with $3,564,346 and
$10,816,550, respectively, for the three- and nine-month periods ended
September 30, 1996. The decreases are due primarily to decreases in interest
expense and depreciation and amortization expense, which were partially offset
by increases in general and administrative expenses and professional fees.
Interest expense decreased to $1,779,471 and $5,367,888, for the three- and
nine-month periods ended September 30, 1997, respectively, compared to
$1,817,766 and $5,480,245, respectively, for the three- and nine-month periods
ended September 30, 1996. The decreases are due to the scheduled amortization
of the New Mortgage. Depreciation and amortization expenses for the three- and
nine-month periods ended September 30, 1997 were $81,362 and $3,769,201,
respectively, compared with $1,701,797 and $5,193,591, respectively, for the
corresponding periods in 1996. The decreases are due primarily to the Hotels
no longer being depreciated as a result of being classified as "Real estate
held for disposition." General and administrative expenses for the three- and
nine-month periods ended September 30, 1997 were $65,258 and $180,621,
respectively, compared to $25,826 and $94,475, 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. Professional fees totaled $38,844 and
$78,687 for the three- and nine-month periods ended September 30, 1997,
respectively, compared to $18,957 and $48,239, respectively, for the three- and
nine-month periods ended September 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 September 8 of the indicated years (i.e., the first nine Marriott
accounting periods):
1997 1996 % Change
Weighted Average Occupancy 80.7% 80.2% 0.6
Weighted Average Room Rate $ 97.10 $ 88.68 9.5
Total Hotel Sales $ 85,624,932 $ 82,078,485 4.3
Hotel Operating Profit 16,051,391 13,969,195 14.9
Rent Earned by the Partnership* 8,822,771 8,262,836 6.8
*For the nine-month period ended September 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 September 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: November 14, 1997
BY: /s/ Jeffrey C. Carter
Director, President and Chief
Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-END> Sept-30-1997
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<RECEIVABLES> 3,075,626
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<CURRENT-LIABILITIES> 710,929
<BONDS> 78,939,144
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0
0
<OTHER-SE> 25,384,406
<TOTAL-LIABILITY-AND-EQUITY> 112,136,214
<SALES> 0
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