Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 033-20022
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1558094
- ----------------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10400 Fernwood Road
Bethesda, Maryland 20817
- ----------------------------------------- -------------------------------
(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 ____ No ____ Not applicable X The
Partnership became subject to Section 13 reporting on January 28, 1998.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] (Not Applicable)
Documents Incorporated by Reference
None
<PAGE>
================================================================================
Marriott Residence Inn Limited Partnership
TABLE OF CONTENTS
PART I
Item 1. Business.................................................1
Item 2. Properties...............................................5
Item 3. Legal Proceedings........................................6
Item 4. Submission of Matters to a Vote of Security Holders......6
PART II
Item 5. Market For The Partnership's Limited Partnership Units
and Related Security Holder Matters......................7
Item 6. Selected Financial Data..................................8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................8
Item 8. Financial Statements and Supplementary Data.............13
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure................................26
PART III
Item 10. Directors and Executive Officers........................26
Item 11. Management Remuneration and Transactions................27
Item 12. Security Ownership of Certain Beneficial Owners
and Management..........................................27
Item 13. Certain Relationships and Related Transactions..........27
PART IV
Item 14. Exhibits, Supplemental Financial Statement Schedules
and Reports on Form 8-K.................................30
<PAGE>
PART I
ITEM 1. BUSINESS
Description of the Partnership
Marriott Residence Inn Limited Partnership, a Delaware limited partnership (the
"Partnership"), was formed on January 18, 1988 to acquire, own and operate 15
Marriott Residence Inn properties (the "Inns") and the land on which the Inns
are located. The Inns are located in seven states and contain a total of 2,129
suites as of December 31, 1997. The Partnership commenced operations on March
29, 1988.
On October 8, 1993, Marriott Corporation's operations were divided into two
separate companies: Host Marriott Corporation ("Host Marriott") and Marriott
International, Inc. ("MII"). The sole general partner of the Partnership is RIBM
One Corporation, a Delaware corporation (the "General Partner"), a wholly-owned
subsidiary of Host Marriott.
The Partnership is engaged solely in the business of owning and operating the
Inns and therefore is engaged in one industry segment. The principal offices of
the Partnership are located at 10400 Fernwood Road, Bethesda, Maryland 20817.
The Inns are operated as part of the Residence Inn by Marriott system, which as
of December 31, 1997 includes 257 Inns worldwide in the extended-stay segment of
the US lodging industry. The Inns are managed by Residence Inn by Marriott, Inc.
(the "Manager"), a wholly-owned subsidiary of MII, under a long-term management
agreement (the "Management Agreement"). The Management Agreement expires in 2007
with renewals at the option of the Manager for one or more of the Inns for up to
five successive terms of 10 years thereafter. See Item 13 "Certain Relationships
and Related Transactions."
The objective of the Residence Inn by Marriott system, including the Inns, is to
provide consistently superior lodging at a fair price with an appealing,
friendly and contemporary residential character. Residence Inn by Marriott Inns
have fewer guest rooms than traditional full-service hotels, containing
approximately 120 guest suites, as compared to full-service Marriott hotels
which typically contain 350 or more guest rooms.
The Inns are extended-stay, limited service hotels which cater primarily to
business and family travelers who stay more than five consecutive nights. The
Inns typically have 88 to 144 studio, one bedroom, two bedroom and two-story
penthouse suites. They are generally located in suburban settings throughout the
United States and feature a series of residential style buildings with
landscaped walkways, courtyards and recreational areas. See Item 2 "Properties."
Residence Inns do not have restaurants, but offer a complimentary continental
breakfast. In addition, most of the Inns provide a complimentary hospitality
hour. Each suite contains a fully-equipped kitchen and many suites have
woodburning fireplaces.
The Partnership's financing needs have been funded through loan agreements with
independent financial institutions and through loans and advances made by Host
Marriott and its affiliates. See "Debt Financing."
<PAGE>
Organization of the Partnership
Between March 29, 1988 and April 22, 1988 (the "Closing Date"), 65,600 limited
partnership interests (the "Units") were sold in a public offering. The offering
price per Unit was $1,000. The General Partner contributed $662,627 for its 1%
general partnership interest. On the Closing Date, the Partnership acquired the
Inns and the land on which the Inns are located from Host Marriott for $178.8
million. Of the total purchase price, $123 million was paid from the proceeds of
mortgage financing and the remainder from the sale of the Units.
Debt Financing
As of December 31, 1994, the Partnership had outstanding bank mortgage
indebtedness of $123 million (the "Term Loan"). The Term Loan carried interest
at a fixed rate of 10.4% and required no principal amortization prior to
maturity. The Partnership also had $6 million outstanding under a $10 million
revolving loan facility (the "Revolving Loan") which carried interest at a
floating rate equal to .5% over the one, two, three or six month London
Interbank Offered Rate ("LIBOR") as elected by the Partnership and required no
principal amortization prior to maturity. An additional $1.4 million was
outstanding on a note payable to Host Marriott, the proceeds from which were
used for the expansion of the St. Louis Galleria Inn. The note payable to Host
Marriott carried interest at a fixed rate of 10.4% and required no principal
amortization prior to maturity.
The Term Loan, Revolving Loan and note payable to Host Marriott matured on April
24, 1995. The Term Loan and Revolving Loan went into default on the maturity
date as the Partnership was unable to secure replacement financing. Effective
April 25, 1995 through August 31, 1995, the lender granted a forbearance on the
Term Loan and the Revolving Loan in which both loans began to accrue interest at
10.4%. However, effective September 1, 1995, pursuant to the loan documents,
both the Term Loan and Revolving Loan began to accrue interest at the Default
Rate, as defined, of prime plus 2.5 percentage points through October 11, 1995.
Host Marriott granted the Partnership a six-month forbearance of the note
payable upon maturity on April 24, 1995 at the original interest rate.
Host Marriott had also provided the Partnership a $15 million debt service
guarantee (the "Limited Guarantee") to the extent necessary for payment of (i)
interest on the Term Loan, (ii) interest on the Revolving Loan, and (iii) the
principal amount of the Term Loan and the Revolving Loan. Host Marriott was
released from the Limited Guarantee on the date of the original debt maturity of
April 24, 1995.
Refinancing
On October 12, 1995 the Partnership completed a refinancing of the Partnership's
debt through the proceeds of a $100 million senior mortgage (the "Senior
Mortgage") and a $30 million second mortgage (the "Second Mortgage"). The net
proceeds of the Senior and Second Mortgages and existing Partnership cash were
used as follows: (i) to repay the Term Loan of $123 million, (ii) to repay the
Revolving Loan of approximately $6 million, (iii) to repay the $1.4 million note
payable to Host Marriott and (iv) to pay certain costs of structuring the debt.
<PAGE>
The Senior Mortgage of $100 million bears interest at 8.6%, requires monthly
amortization of principal on a 20 year schedule and matures on September 30,
2002. The Second Mortgage of $30 million bears interest at 15.25%, requires
monthly amortization of principal on a 20 year schedule and matures on September
30, 2002.
In addition to the required monthly principal amortization, during each of the
four years from 1996 through 1999, the Partnership is required to pay, on a cash
available basis, an additional $2 million annually toward principal amortization
on the Senior Mortgage. Additionally, during the entire seven year term, the
Partnership has the option to pay up to an additional $1 million principal
payment annually on the Second Mortgage and up to another $1 million optional
principal payment which would be applied in a 2:1 ratio to the Senior and Second
Mortgage, respectively.
The terms of the Senior and Second Mortgages include requirements of the
Partnership to maintain certain defined ratios of operating cash available after
debt service to total debt service. In the event the Partnership fails to
maintain the required debt service ratios, all Inn operating cash flow, plus all
cash or other amounts to which the Partnership is entitled from any source, must
be paid directly to a cash collateral account until the ratios are restored to
their required levels. The Partnership has met all required ratios during the
loan term.
Both the Senior and Second Mortgages are secured by the Inns, the land on which
they are located, a security interest in all personal property associated with
the Inns including furniture and equipment, inventory, contracts and other
general intangibles and an assignment of the Partnership's rights under the
Management Agreement, as defined below.
The weighted average interest rate on the Partnership's debt for the years ended
December 31, 1997 and 1996 was 10.13%. In 1995, the weighted average interest
rate on the Partnership's debt was 10.14%.
Material Contracts
Management Agreement
The primary provisions of the Management Agreement are discussed in Item 13,
"Certain Relationships and Related Transactions."
Competition
The United States lodging industry generally is comprised of two broad segments:
full service hotels and limited service hotels. Full service hotels generally
offer restaurant and lounge facilities and meeting spaces, as well as a wide
range of services, typically including bell service and room service. Limited
service hotels generally offer accommodations with limited or no services and
amenities. As extended-stay, the Inns compete effectively with both full service
and limited service hotels in their respective markets by providing streamlined
services and amenities exceeding those provided by typical limited service
hotels at prices that are significantly lower than those available at full
service hotels.
<PAGE>
The lodging industry in general, and the extended-stay segment in
particular, is highly competitive, but the degree of competition varies from
location to location and time to time. The Inns compete with several other major
lodging brands. Competition in the industry is based primarily on the level of
service, quality of accommodations, convenience of locations and room rates. The
following are key participants in the extended-stay segment of the lodging
industry: Residence Inn, Homewood Suites, Hawthorne Suites, Summerfield Suites,
Extended Stay America and AmeriSuites.
Conflicts of Interest
Because Host Marriott, the parent of the General Partner, MII and their
affiliates own and/or operate hotels other than the Partnership's Inns and MII
and its affiliates license others to operate hotels under the various brand
names owned by MII and its affiliates, potential conflicts of interest exist.
With respect to these potential conflicts of interest, Host Marriott, MII and
their affiliates retain a free right to compete with the Partnership's Inns,
including the right to develop, own, and operate competing hotels now and in the
future in markets in which the Inns are located, in addition to those existing
hotels which may currently compete directly or indirectly with the Inns.
Under Delaware law, the General Partner has unlimited liability for the
obligations of the Partnership, unless those obligations are, by contract,
without recourse to the partners of the Partnership. Since the General Partner
is entitled to manage and control the business and operations of the
Partnership, and because certain actions taken by the General Partner or the
Partnership could expose the General Partner or its parent, Host Marriott, to
liability that is not shared by the limited partners (for example, tort
liability and environmental liability), this control could lead to conflicts of
interest.
Policies with Respect to Conflicts of Interest
It is the policy of the General Partner that the Partnership's relationship with
the General Partner, any affiliate of the General Partner, or persons employed
by the General Partner or its affiliates be conducted on terms that are fair to
the Partnership and that are commercially reasonable. Agreements and
relationships involving the General Partner or its affiliates and the
Partnership are on terms consistent with the terms on which the General Partner
or its affiliates have dealt with unrelated parties.
The Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") provides that any agreements, contracts or arrangements between the
Partnership and the General Partner or any of its affiliates, except for
rendering legal, tax, accounting, financial, engineering, and procurement
services to the Partnership by employees of the General Partner or its
affiliates, will be on commercially reasonable terms and will be subject to the
following additional conditions:
(i) the General Partner or any such affiliate must have the ability to render
such services or to sell or lease such goods;
(ii) such agreements, contracts or arrangements must be fair to the Partnership
and reflect commercially reasonable terms and must be embodied in a written
contract which precisely describes the subject matter thereof and all
compensation to be paid therefor;
<PAGE>
(iii) no rebates or give-ups may be received by the General Partner or any such
affiliate, nor may the General Partner or any such affiliate participate in any
reciprocal business arrangements which would have the effect of circumventing
any of the provisions of the Partnership Agreement; and
(iv) no such agreement, contract or arrangement as to which the limited partners
had previously given approval may be amended in such a manner as to increase the
fees or other compensation payable by the Partnership to the General Partner or
any of its affiliates or to decrease the responsibilities or duties of the
General Partner or any such affiliate in the absence of the consent of the
holders of a majority in interest of the limited partners.
Employees
Neither the General Partner nor the Partnership has any employees. Host Marriott
provides the services of certain employees (including the General Partner's
executive officers) of Host Marriott to the Partnership and the General Partner.
The Partnership and the General Partner anticipate that each of the executive
officers of the General Partner will generally devote a sufficient portion of
his or her time to the business of the Partnership. However, each of such
executive officers also will devote a significant portion of his or her time to
the business of Host Marriott and its other affiliates. No officer or director
of the General Partner or employee of Host Marriott devotes a significant
percentage of time to Partnership matters. To the extent that any officer,
director or employee does devote time to the Partnership, the General Partner or
Host Marriott, as applicable, is entitled to reimbursement for the cost of
providing such services. See Item 11 "Management Remuneration and Transactions"
for information regarding payments made to Host Marriott or its subsidiaries for
the cost of providing administrative services to the Partnership.
Proposed Transaction
The General Partner has undertaken, on behalf of the Partnership, to pursue,
subject to further approval of the partners, a potential transaction (the
"Consolidation") in which (i) subsidiaries of CRF Lodging Company, L.P. (the
"Company"), a newly formed Delaware limited partnership, would merge with and
into the Partnership and up to five other limited partnerships, with the
Partnership and the other limited partnerships being the surviving entities
(each, a "Merger" and collectively, the "Mergers"), subject to the satisfaction
or waiver of certain conditions; (ii) CRF Lodging Trust ("CRFLT"), a Maryland
real estate investment trust, the sole general partner of the Company, would
offer its common shares of beneficial interest, par value $0.01 per share (the
"Common Shares") to investors in an underwritten public offering and would
invest the proceeds of such offering in the Company in exchange for units of
limited partnership interests in the company ("CRFLT Units"); and (iii) the
Partnership would enter into a Lease for the operation of its Inns pursuant to
which a Lessee would pay rent to the Partnership based upon the greater of a
fixed dollar amount of base rent or specified percentages of gross sales, as
specified in the Lease. If the partners approve the transaction and other
conditions are satisfied, the partners of the Partnership would receive CRFLT
Units in the Merger in exchange for their interests in the Partnership. A
preliminary Prospectus/Consent Solicitation was filed as part of a Registration
Statement on Form S-4 with the Securities and Exchange Commission and which
describes the potential transaction in greater detail. Any offer of CRFLT Units
in connection with the Consolidation will be made solely by a final
Prospectus/Consent Solicitation.
<PAGE>
ITEM 2. PROPERTIES
Introduction
The Inns consist of 15 Residence Inn by Marriott Inns as of December 31, 1997.
The Inns, which range in age between 10 and 13 years, are geographically
diversified among seven states: four in Ohio, three in California, three in
Georgia, two in Missouri, and one in Illinois, Colorado and Michigan.
The extended-stay segment of the lodging industry experienced increased
competition throughout 1997 as new extended-stay purpose-built competitors
entered the market. This trend is expected to continue in 1998. In response to
this increased competition, Residence Inn by Marriott's strategy is to
differentiate the brand on the basis of superior service offerings and delivery.
On a combined basis, competitive forces affecting the Inns are not, in the
opinion of the General Partner, more adverse than the overall competitive forces
affecting the lodging industry generally. See Item 1 "Business--Competition."
<TABLE>
Name and Location of Partnership Inns
Inn Number of Suites Date Opened
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------- -------------------- -----------------
California
Costa Mesa 144 1986
La Jolla 287 1986
Long Beach 216 1987
Colorado
Boulder 128 1986
Georgia
Atlanta Buckhead 136 1987
Atlanta Cumberland 130 1987
Atlanta Dunwoody 144 1984
Illinois
Chicago Lombard 144 1987
Michigan
Southfield 144 1986
Missouri
St. Louis Chesterfield 104 1986
St. Louis Galleria 152 1986
Ohio
Cincinnati North 144 1985
Columbus North 96 1985
Dayton North 64 1987
Dayton South 96 1985
=========================
TOTAL 2,129
=========================
</TABLE>
<PAGE>
The following table shows selected combined operating statistics for the Inns:
<TABLE>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Combined average occupancy.................83.4% 83.5% 85.8%
Combined average daily suite rate...$ 91.44 $ 88.02 $ 81.14
REVPAR..............................$ 76.26 $ 73.50 $ 69.62
</TABLE>
Revenue per available room ("REVPAR") represents the combination of the
average daily room rate charged and the average occupancy achieved, and is a
commonly used indicator of hotel performance.
ITEM 3. LEGAL PROCEEDINGS
The Partnership and the Inns 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.
On February 11, 1998, four individual limited partners in partnerships
sponsored by Host Marriott Corporation ("Host Marriott"), filed a class action
lawsuit against Host Marriott and the general partners of Courtyard by Marriott
Limited Partnership, Courtyard by Marriott II Limited Partnership, Marriott
Residence Inn Limited Partnership, Marriott Residence Inn II Limited
Partnership, and Fairfield Inn by Marriott Limited Partnership (collectively,
the "Partnerships"). The plaintiffs allege that the merger of the Partnerships
(the "Merger") into an umbrella partnership real estate investment trust
proposed by CRF Lodging Company, L.P. in a preliminary registration statement
filed with the Securities and Exchange Commission, dated December 22, 1997,
constitutes a breach of the fiduciary duties owed to the limited partners of the
Partnerships by Host Marriott and the general partners of the Partnerships. In
addition, the plaintiffs allege that the Merger breaches various agreements
relating to the Partnerships. The plaintiffs are seeking, among other things,
the following: certification of a class; injunction relief to prohibit
consummation of the Merger or, in the alternative, rescission of the Merger, and
damages. Host Marriott and the general partners of the Partnerships believe that
these allegations are totally devoid of merit and they intend to vigorously
defend against such claims. The defendants also maintain that this lawsuit is
premature because the Merger has not been, and may not be consummated as
proposed in the filings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP UNITS AND RELATED
SECURITY HOLDER MATTERS
There is currently no established public trading market for the Units and it is
not anticipated that a public market for the Units will develop. Assignments of
Units are limited to the first date of each fiscal quarter and are subject to
approval by the General Partner. As of December 31, 1997, there were 4,127
holders of record of the 65,600 Units.
The Partnership generally distributes cash available for distribution as
follows: (i) first, 99% to the limited partners and 1% to the General Partner,
until the partners have received, with respect to such year, an amount equal to
10% of their Invested Capital, defined as the excess of original capital
contributions over cumulative distributions of net refinancing and sales
proceeds ("Capital Receipts") (ii) second, remaining cash available for
distribution will be distributed as follows, depending on the amount of Capital
Receipts previously distributed:
(a) 99% to the limited partners and 1% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts of less
than 50% of their original capital contributions; or
(b) 85% to the limited partners and 15% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts equal to or
greater than 50% but less than 100% of their original capital contributions; or
(c) 70% to the limited partners and 30% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts equal to
100% or more of their original capital contributions.
Cash available for distribution means, with respect to any fiscal period, the
cash revenues of the Partnership from all sources during the fiscal period,
other than Capital Receipts less (i) all cash expenditures of the Partnership
during such fiscal period, including, without limitation, debt service,
repayment of advances made by the General Partner, fees for management services
and administrative expenses (excluding expenditures incurred by the Partnership
in connection with a transaction resulting in Capital Receipts), and (ii) such
reserves as may be determined by the General Partner in its reasonable
discretion to be necessary to provide for the foreseeable cash needs of the
Partnership or for the maintenance, repair, or restoration of the Inns.
As of December 31, 1997, the Partnership has distributed a total of $40,356,670
($609 per limited partner unit) since inception. In February 1997, $1,656,566
($25 per limited partner unit) was distributed from 1996 operations. In 1996,
$4,969,697 ($75 per limited partner unit) was distributed, of this amount,
$1,656,566 was from 1996 operations ($25 per limited partner unit) and the
remaining $3,313,131 was from 1995 operations ($50 per limited partner unit). In
1995, $861,414 ($13 per limited partner unit) was distributed from 1994
operations. In February 1998, the Partnership distributed $3,313,131 from 1997
operations ($50 per limited partner unit). No distributions of Capital Receipts
have been made since inception.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data present historical operating information
for the Partnership for each of the five years in the period ended December 31,
1997 presented in accordance with generally accepted accounting principles.
<TABLE>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues.......$ 33,042 $ 32,084 $ 30,069 $ 27,305 $ 25,193
====== ====== ====== ====== ======
Net income/
(loss) $ 4,914 $ 3,087 $ 1,517 $ (1,588) $ (2,891)
====== ====== ====== ======= =======
Net income/
(loss) per
limited partner
unit
(65,600 Units).$ 74 $ 47 $ 23 $ (24) $ (44)
======== ======== ======== ======== =======
Total assets...$ 151,971 $ 151,658 $ 157,061 $ 155,640 $ 157,602
======== ======== ======== ======== =========
Total
liabilities....$ 143,392 $ 146,337 $ 149,858 $ 149,092 $ 146,153
======== ======== ======== ======== ========
Cash distributions per limited partner unit
(65,600 Units).$ 25 $ 75 $ 13 $ 50 $ 49
======== ======== ======== ======== ========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Partnership to be different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. 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. These risks are detailed from time to time in the Partnership's
filings with the Securities and Exchange Commission. The Partnership undertakes
no obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
GENERAL
The following discussion and analysis addresses results of operations for the
fiscal years ended December 31, 1997, 1996 and 1995. During the period from 1995
through 1997, Partnership revenues (Inn sales less Inn operating costs and
expenses) grew from $30.1 million to $33.0 million, while the Partnership's
total Inn sales grew from $56.7 million to $62.1 million. Growth in suite sales,
and thus Inn sales, is primarily a function of combined average occupancy and
combined average suite rates. During the period from 1995 through 1997, the
Inns' combined average suite rate increased approximately $10 from $81 to $91,
while the combined average occupancy decreased over two percentage points from
85.8% to 83.4%.
The Partnership's operating costs and expenses are, to a great extent, fixed.
Therefore, the Partnership derives substantial operating leverage from increases
in revenue. This operating leverage is offset in part by variable expenses,
including (i) base management and Residence Inn system fees under the Management
Agreement, which are 2% of gross sales, and 4% of suite sales, respectively; and
(ii) incentive management fees under the Management Agreement equal to 15% of
Operating Profit (20% when Operating Profit equals or exceeds $23.5 million), as
defined, payable out of 50% of available cash flow as defined.
<PAGE>
RESULTS OF OPERATIONS
1997 Compared to 1996:
Revenues. Revenues increased by $1.0 million in 1997, to $33 million, a 3%
increase when compared to 1996. This increase in revenues was achieved primarily
through an increase in Inn revenue per available room ("REVPAR"), which
represents the combination of the combined average daily room rate charged and
the combined average occupancy achieved, and is a commonly used indicator of
hotel performance. REVPAR does not include food and beverage or other ancillary
revenues generated by the property. REVPAR grew nearly 4% in 1997 as a result of
an increase in average suite rates, as discussed below. A $798,000 decrease in
other Inn operating expenses due to an adjustment to the Partnership's sales and
use tax liability also contributed to the increase in Inn revenues. The sales
and use tax liability was reduced pursuant to a review of the aggregate exposure
of the Inns.
Inn sales. Total 1997 Inn sales of $62.1 million represented a $1.3 million, or
2%, increase over 1996 results. This increase was achieved primarily through
increases in the combined average suite rate from $88 in 1996 to $91 in 1997. As
a result, 1997 combined average suite sales increased by $1.1 million, or 2%, to
$59.1 million from $58.0 million in 1996. Combined average occupancy remained
stable at approximately 83.4%. Ten of the Partnership's 15 Inns posted occupancy
rates exceeding 80% for 1997.
Operating Costs and Expenses. Operating costs and expenses decreased to $15.7
million in 1997 from $15.9 million in 1996. As a percentage of Inn revenues,
operating costs and expenses represented 47% of revenues for 1997 and 50% in
1996.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased $1.2 million to $17.4
million, or 53% of total revenues, in 1997 from $16.2 million, or 50% of
revenues in 1996.
Interest Expense. Interest expense decreased 5% to $12.8 million in 1997 from
$13.4 million in 1996 due to principal amortization of the Senior and Second
Mortgages.
Net Income. Net income increased $1.8 million to $4.9 million, or 15% of
revenues, in 1997 from $3.1 million, or 10% of total revenues, in 1996 due
primarily to the changes in revenues and expenses discussed above.
1996 Compared to 1995:
Revenues. Revenues (Inn sales less Inn operating costs and expenses) increased
$2.0 million in 1996 to $32.1 million, a 7% increase when compared to 1995. This
increase in revenues was achieved primarily through a 6% increase in REVPAR,
that was primarily the result of an increase in the combined average suite rate,
as discussed below.
Inn sales. Total 1996 Inn sales of $60.8 million represented a $4.1 million, or
7%, increase over 1995 results. This increase was achieved primarily through
increases in the combined average suite rate from $81 in 1995 to $88 in 1996. As
a result, 1996 suite sales increased by $4.1 million, or 8%, to $58.0 million
from $53.9 million in 1995, despite a 2.3 percentage point decrease in combined
average occupancy from approximately 86% to 84%, during these periods. Eleven of
the Partnership's 15 Inns posted occupancy rates exceeding 80% for 1996.
<PAGE>
Operating Costs and Expenses. Operating costs and expenses increased to $15.9
million, or 50% of revenues, in 1996 from $15.7 million, or 52% of revenues, in
1995.
Operating Profit. Operating profit increased $1.8 million to $16.2 million, or
50% of revenues, in 1996 from $14.4 million, or 48% of revenues, in 1995 due to
the changes in revenues and operating costs discussed above.
Interest Expense. Interest expense remained stable at $13.4 million.
Net Income. Net income increased $1.6 million to $3.1 million, or 10% of
revenues, in 1996 from $1.5 million, or 5% of total revenues, in 1995 due
primarily to improved lodging results.
CAPITAL RESOURCES AND LIQUIDITY
General
The General Partner believes that cash from Inn operations and Partnership
reserves will provide adequate funds in the short term and long term for the
operational and capital needs of the Partnership.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is cash from operations. Its
principal uses of cash are to make debt service payments, fund the property
improvement fund, and to make distributions to the limited partners. Cash
provided from operations was $12.7 million, $10.8 million and $9.4 million for
the years ended December 31, 1997, 1996 and 1995, respectively. The $1.9 million
increase in cash from operations in 1997 over 1996 was primarily due to the $1.0
million in increased rent collections from the Manager. The improved cash from
operations was also a result of the $638,000 decrease in mortgage interest
payments due to the payment of the optional principal amortization on the debt.
Cash from operations increased $1.4 million in 1996 over 1995 primarily because
of the $2.0 million increase in Inn revenues during this time period. This
increase in revenues was offset by the $244,000 increase in base management and
Residence Inn system fees which increased as a result of improved sales. The
Partnership paid $12.4 million, $13.0 million and $14.5 million in interest in
1997, 1996 and 1995, respectively.
Cash used in investing activities was $3.9 million, $3.2 million and $3.0
million, respectively, in 1997, 1996 and 1995. The Partnership's cash investing
activities consist primarily of contributions to the property improvement fund
and capital expenditures for improvements to existing Inns. Contributions to the
property improvement fund were $3.1 million, $3.0 million and $2.8 million for
the years ended December 31, 1997, 1996 and 1995, while capital expenditures
were $5.5 million, $3.6 million and $3.1 million, respectively, during these
same time periods. The increase in capital expenditures reflects increased
spending for suite refurbishments and structural improvements at the Inns.
Cash used in financing activities was $6.6 million, $11.5 million and $4.5
million, respectively, in 1997, 1996 and 1995. The Partnership's cash financing
activities consist primarily of repayments of debt, capital distributions to
partners, payment of debt financing costs and debt refinancing. In October 1995,
the Partnership refinanced debt of $130.4 million with the proceeds from a $100
million senior mortgage loan ("Senior Mortgage") and a $30 million second
mortgage loan ("Second Mortgage"). The Partnership paid $207,000 and $3.1
million in 1996 and 1995, respectively, for refinancing costs associated with
this transaction. See "Refinancing" below. During 1997, 1996 and 1995,
respectively, the Partnership repaid $4.9 million, $6.3 million and $177,000 of
principal on the Senior and Second Mortgages. Capital distributions to the
partners were $1.7 million, $5.0 million and $861,000, respectively, in 1997,
1996 and 1995. The $1.7 million distributed in 1997 was from 1996 operations. Of
the $5.0 million distributed in 1996, $1.7 million was from 1996 operations and
$3.3 million was from 1995 operations. The $861,000 distributed in 1995 was from
1994 operations. In February 1998, the Partnership distributed $3.3 million from
1997 earnings.
<PAGE>
Refinancing
The Partnership's debt was refinanced on October 12, 1995 at which time the Term
Loan, Revolving Loan and note payable to Host Marriott were fully repaid with
the proceeds from a $130 million nonrecourse mortgage loan (the "Mortgage
Debt"). The Mortgage Debt is comprised of a $100 million note (the "Senior
Mortgage") which bears interest at 8.6% and a $30 million note (the "Second
Mortgage") which bears interest at 15.25% for an initial blended interest rate
of 10.13%. Both the Senior Mortgage and Second Mortgage require monthly
amortization of principal and mature on September 30, 2002. In addition to the
required monthly amortization, during each of the four years from 1996 through
1999, the Partnership is required to pay, on a cash available basis, an
additional $2 million annually toward principal amortization on the Senior
Mortgage. Additionally, during the entire seven year term, the Partnership has
the option to pay up to an additional $1 million principal payment annually on
the Second Mortgage and up to another $1 million optional principal payment
which would be applied in a 2:1 ratio to the Senior and Second Mortgage,
respectively.
Host Marriott was released from its $15 million debt service guarantee
obligation on the date of the original debt maturity of April 24, 1995. No
amounts were advanced under this obligation.
Both the Senior Mortgage and the Second Mortgage are secured by the Inns, the
land on which they are located, a security interest in all personal property
associated with the Inns including furniture and equipment, inventory, contracts
and other general intangibles and an assignment of the Partnership's rights
under the management agreement.
Operating profit from the Inns in excess of debt service on the Senior and
Second Mortgages is distributed as follows, in order of priority: (i) to pay the
Partnership its annual 10% priority return, (ii) to the Manager in payment of
deferred base management fees, (iii) 50% of the remaining operating profit is
paid to the Manager for incentive management fees and 50% is retained by the
Partnership until the amount retained by each party, separately, equals 5% of
the Partnership's invested capital, and (iv) once the Partnership has retained
the additional 5% return, 75% of any remaining operating profit is paid to the
Manager for incentive management fees and 25% is retained by the Partnership.
Property Improvement Fund
The Management Agreement requires annual contributions to a property improvement
fund to ensure that the physical condition and product quality of the Inns are
maintained. Contributions to this fund are based on a percentage of annual total
Inn sales, currently equal to 5%. Based on current capital budgets, the
Partnership's FF&E reserves are forecasted to be insufficient beginning in 1998
through 2002. The shortfall is primarily due to the need to complete total suite
refurbishments at the majority of the Partnership's Inns in the next several
years. As a result of this expected future shortfall, the General Partner
established a reserve in 1996 for the future capital needs of the Partnership's
Inns. 1996 cash distributions to partners were net of this reserve. The current
shortfall estimate for 1998 of $2.1 million is projected to be funded from
operating cash reserved in prior years. It is anticipated that 1998
distributions will be net of an additional capital reserve. The balance in the
property improvement fund totaled $1.2 million as of December 31, 1997. Total
capital expenditures for 1997, 1996 and 1995 were $5.5 million, $3.6 million and
$3.1 million, respectively.
Deferred Management Fees
The Manager earns a base management fee equal to 2% of the Inns' gross sales.
Through 1990, payment of the base management fee was subordinate to qualifying
debt service payments and retention by the Partnership of annual cash flow from
operations of $6,626,263. Deferred base management fees are payable from
operating cash flow, but only after the payment of (i) debt service, (ii) a
priority return to the Partnership and (iii) certain other priorities as defined
in the Management Agreement. Beginning in 1991 and thereafter, base management
fees are paid currently. Pursuant to the terms of the Management Agreement, the
Partnership paid deferred base management fees of $627,000, $515,000 and
$491,000 for fiscal years ended December 31, 1997, 1996 and 1995, respectively.
Deferred base management fees do not accrue interest. As of December 31, 1997
and December 31, 1996, cumulative deferred base management fees totaled $872,000
and $1.5 million, respectively.
<PAGE>
In addition, the Manager is entitled to an incentive management fee equal to 15%
of Operating Profit, as defined in the Management Agreement (20% in any year in
which Operating Profit is equal to or greater than $23.5 million). The incentive
management fee is payable out of 50% of cash flow from operations remaining
after payments of qualifying debt service, retention by the Partnership of
annual cash flow from operations of $6,626,263 and the deferred base management
fee. Of this amount, the Partnership retains an additional 50% of the excess
cash flow, up to 5% of its invested capital. Thereafter, the incentive
management fee is payable out of 75% of the remaining cash flow from operations.
Through 1989, the Manager was not entitled to accrue any unpaid incentive
management fees. Incentive management fees earned after 1989 are payable in the
future from operating cash flow, as defined. Unpaid incentive management fees
are paid from cash flow available for incentive management fees following
payment of the then current incentive management fees. In each of the years
ended December 31, 1997 and December 31, 1996, $3.4 million in incentive
management fees were earned and deferred. In 1995, $3.1 million in incentive
management fees were earned and deferred. Through December 31, 1997, no
incentive management fees have been paid to the Manager and approximately
$545,000 is expected to be paid during 1998. As of December 31, 1997, 1996 and
1995, deferred incentive management fees were $22.7 million, $19.3 million and
$16.0 million, respectively.
Competition
The extended-stay lodging segment continues to be highly competitive. An
increase in supply growth began in 1996 with the introduction of a number of new
national brands. For 1998, the outlook continues to be positive. Residence Inns
continue to command a premium share of the market in which they are located in
spite of the growth of new chains. It is expected that Residence Inn will
continue outperforming both national and local competitors. The brand is
continuing to carefully monitor the introduction of new extended-stay brands and
growth of existing brands including Homewood Suites, Hawthorne Suites,
Summerfield Suites, Extended Stay America and AmeriSuites.
Inflation
The rate of inflation has been relatively low in the past four years. The
Manager is generally able to pass through increased costs to customers through
higher room rates and prices. In 1997, the increase in average suite rates of
Residence Inns exceeded inflationary costs.
Seasonality
Demand, and thus room occupancy, is affected by normally recurring seasonal
patterns. For most of the Inns, demand is higher in the spring and summer months
(March through October) than during the remainder of the year.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Page
Marriott Residence Inn Limited Partnership Financial Statements:
Report of Independent Public Accountants............................ 14
Statement of Operations............................................. 15
Balance Sheet....................................................... 16
Statement of Changes in Partners' Capital........................... 17
Statement of Cash Flows............................................. 18
Notes to Financial Statements....................................... 19
<PAGE>
Report of Independent Public Accountants
TO THE PARTNERS OF MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP:
We have audited the accompanying balance sheet of Marriott Residence Inn Limited
Partnership (a Delaware limited partnership) as of December 31, 1997 and 1996,
and the related statements of operations, changes in partners' capital and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements and schedule are the responsibility of the General
Partner's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marriott Residence Inn Limited
Partnership as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 17, 1998
<PAGE>
Statement of Operations
Marriott Residence Inn Limited Partnership
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands, except per Unit amounts)
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
REVENUES (Note 3).....................$ 33,042 $ 32,084 $ 30,069
OPERATING COSTS AND EXPENSES
Depreciation and amortization...... 5,328 5,620 5,976
Incentive management fee............ 3,383 3,366 3,130
Residence Inn system fee............ 2,363 2,321 2,158
Property taxes...................... 2,213 2,229 2,235
Base management fee................. 1,242 1,216 1,135
Equipment rent and other............ 1,149 1,181 1,035
----- ----- -----
15,678 15,933 15,669
------ ------ ------
OPERATING PROFIT....................... 17,364 16,151 14,400
Interest expense.................... (12,788) (13,411) (13,405)
Interest income..................... 338 347 522
------- ------ ------
NET INCOME...........................$ 4,914 $ 3,087 $ 1,517
======= ====== ======
ALLOCATION OF NET INCOME
General Partner...................$ 49 $ 31 $ 15
Limited Partners.................. 4,865 3,056 1,502
------ ------ -----
$ 4,914 $ 3,087 $ 1,517
======= ====== ======
NET INCOME PER LIMITED PARTNER UNIT
(65,600 Units).....................$ 74 $ 47 $ 23
======= ======= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Balance Sheet
Marriott Residence Inn Limited Partnership
December 31, 1997 and 1996
(in thousands)
<TABLE>
1997 1996
---- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Property and equipment, net....................$ 140,448 $ 140,272
Due from Residence Inn by Marriott, Inc........ 2,462 2,462
Property improvement fund...................... 1,160 2,767
Deferred financing costs, net of
accumulated amortization..................... 2,251 2,728
Cash and cash equivalents...................... 5,650 3,429
------- -------
$ 151,971 $ 151,658
======= =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt................................$ 118,576 $ 123,519
Incentive management fee due
to Residence Inn by Marriott, Inc......... 22,709 19,326
Base management fee due to Residence Inn by
Marriott, Inc............................. 872 1,499
Accounts payable and accrued expenses........ 1,235 1,993
------- -------
Total Liabilities......................... 143,392 146,337
------- -------
PARTNERS' CAPITAL
General Partner
Capital contribution....................... 663 663
Capital distributions...................... (403) (387)
Cumulative net losses...................... (98) (147)
-------- -------
162 129
Limited Partners
Capital contribution, net of offering
costs of $7,550......................... 58,050 58,050
Capital distributions..................... (39,953) (38,313)
Cumulative net losses..................... (9,680) (14,545)
-------- -------
8,417 5,192
-------- -------
Total Partners' Capital................... 8,579 5,321
-------- -------
$ 151,971 $ 151,658
======== =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Statement of Changes in Partners' Capital
Marriott Residence Inn Limited Partnership
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.....$ 141 $ 6,407 $ 6,548
Capital distributions..... (8) (854) (862)
Net income................ 15 1,502 1,517
-------- -------- --------
Balance, December 31, 1995...... 148 7,055 7,203
Capital distributions...... (50) (4,919) (4,969)
Net income................. 31 3,056 3,087
-------- -------- --------
Balance, December 31, 1996...... 129 5,192 5,321
Capital distributions....... (16) (1,640) (1,656)
Net income.................. 49 4,865 4,914
-------- -------- --------
Balance, December 31, 1997.....$ 162 $ 8,417 $ 8,579
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Statement of Cash Flows
Marriott Residence Inn Limited Partnership
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................$ 4,914 $ 3,087 $ 1,517
Noncash items:
Depreciation and amortization........... 5,328 5,620 5,976
Incentive management fee due to
Residence Inn by Marriott, Inc........ 3,383 3,366 3,130
Amortization of deferred financing costs
as interest........................... 472 473 191
(Gain) loss on dispositions of
property and equipment................ -- (10) (18)
Changes in operating accounts:
Due from Residence Inn by Marriott, Inc. -- (1,133) 417
Accounts payable and accrued expenses... (753) (68) (1,334)
Repayment of deferred base management fee
due to Residence Inn by Marriott, Inc. (627) (515) (491)
-------- -------- --------
Cash provided by operations........... 12,717 10,820 9,388
-------- -------- --------
INVESTING ACTIVITIES
Additions to property and equipment, net... (5,504) (3,561) (3,095)
Change in property improvement fund........ 1,607 379 102
-------- -------- --------
Cash used in investing activities..... (3,897) (3,182) (2,993)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from mortgage loan................ -- -- 130,000
Repayment of mortgage debt................. -- -- (128,967)
Payment of note payable to Host Marriott
Corporation............................. -- -- (1,395)
Principal payments on mortgage debt........ (4,943) (6,304) (177)
Capital distributions to partners.......... (1,656) (4,969) (862)
Payment of financing costs................. -- (207) (3,096)
-------- -------- --------
Cash used in financing activities..... (6,599) (11,480) (4,497)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
AND CASH EQUIVALENTS................... 2,221 (3,842) 1,898
CASH AND CASH EQUIVALENTS at beginning of year 3,429 7,271 5,373
-------- -------- --------
CASH AND CASH EQUIVALENTS at end of year......$ 5,650 $ 3,429 $ 7,271
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest........ $12,354 $ 12,992 $ 14,547
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
Marriott Residence Inn Limited Partnership
December 31, 1997 and 1996
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Marriott Residence Inn Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed March 29, 1988 to acquire, own and operate 15
Residence Inn by Marriott hotels (the "Inns") and the land on which the Inns are
located. The Inns are located in seven states in the United States: four in
Ohio, three in California, three in Georgia, two in Missouri and one in
Illinois, Colorado and Michigan, and as of December 31, 1997, have a total of
2,129 suites. The sole general partner of the Partnership, with a 1% interest,
is RIBM One Corporation (the "General Partner"), a Delaware corporation and
wholly-owned subsidiary of Host Marriott.
Between March 29, 1988 and April 22, 1988 (the "Closing Date"), 65,600 limited
partnership interests (the "Units") were sold in a public offering. The
offering price per Unit was $1,000. The General Partner contributed $662,627 for
its 1% general partnership interest. The Inns are managed by Residence Inn by
Marriott, Inc. (the "Manager"), a wholly-owned subsidiary of Marriott
International, Inc. ("MII"), as part of the Residence Inn by Marriott hotel
system.
The General Partner has undertaken, on behalf of the Partnership, to pursue,
subject to further approval of the partners, a potential transaction (the
"Consolidation") in which (i) subsidiaries of CRF Lodging Company, L.P. (the
"Company"), a newly formed Delaware limited partnership, would merge with and
into the Partnership and up to five other limited partnerships, with the
Partnership and the other limited partnerships being the surviving entities
(each, a "Merger" and collectively, the "Mergers"), subject to the satisfaction
or waiver of certain conditions; (ii) CRF Lodging Trust ("CRFLT"), a Maryland
real estate investment trust, the sole general partner of the Company, would
offer its common shares of beneficial interest, par value $0.01 per share (the
"Common Shares") to investors in an underwritten public offering and would
invest the proceeds of such offering in the Company in exchange for units of
limited partnership interests in the company ("CRFLT Units"); and (iii) the
Partnership would enter into a lease for the operation of its Inns pursuant to
which a lessee would pay rent to the Partnership based upon the greater of a
fixed dollar amount of base rent or specified percentages of gross sales, as
specified in the lease. If the partners approve the transaction and other
conditions are satisfied, the partners of the Partnership would receive CRFLT
Units in the Merger in exchange for their interests in the Partnership.
A preliminary Prospectus/Consent Solicitation was filed as part of a
Registration Statement on Form S-4 with the Securities and Exchange Commission
and which describes the potential transaction in greater detail. Any offer of
CRFLT Units in connection with the Consolidation will be made solely by a final
Prospectus/Consent Solicitation.
Partnership Allocations and Distributions
Net profits for Federal income tax purposes are generally allocated to the
partners in proportion to the distributions of cash available for distribution.
The Partnership generally distributes cash available for distribution as
follows: (i) first, 99% to the limited partners and 1% to the General Partner,
until the partners have received, with respect to such year, an amount equal to
10% of their Net Capital Investment, defined as the excess of original capital
contributions over cumulative distributions of net refinancing and sales
proceeds ("Capital Receipts"); (ii) second, remaining cash available for
distribution will be distributed as follows, depending on the amount of Capital
Receipts previously distributed:
<PAGE>
(a) 99% to the limited partners and 1% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts of less
than 50% of their original capital contributions; or
(b) 85% to the limited partners and 15% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts equal to or
greater than 50% but less than 100% of their original capital contributions; or
(c) 70% to the limited partners and 30% to the General Partner, if the partners
have received aggregate cumulative distributions of Capital Receipts equal to
100% or more of their original capital contributions.
Losses and net losses are allocated 99% to the limited partners and 1% to the
General Partner.
Capital Receipts not retained by the Partnership will generally be distributed
(i) first, 99% to the limited partners and 1% to the General Partner until the
partners have received cumulative distributions from all sources equal to a
cumulative simple return of 12% per annum on their Net Capital Investment and an
amount equal to their contributed capital, payable only from Capital Receipts;
(ii) next, if the Capital Receipts are from a sale, 100% to the General Partner
until it has received 2% of the gross proceeds from the sale; and (iii)
thereafter, 70% to the limited partners and 30% to the General Partner.
Gains will generally be allocated (i) first, to those partners whose capital
accounts have negative balances until such negative balances are brought to
zero; (ii) second, to all partners in amounts necessary to bring each of their
respective capital account balances equal to their Invested Capital, as defined,
plus a 12% return on such Invested Capital; (iii) next, to the General Partner
in an amount necessary to bring the General Partner's capital account balance to
an amount which is equal to 2% of the gross proceeds from the sale; and (iv)
thereafter, 70% to the limited partners and 30% to the General Partner.
Proceeds from the sale of substantially all of the assets of the Partnership
will be distributed to the partners in accordance with their capital account
balances as adjusted to take into account the gain or loss resulting from such
sale.
For financial reporting purposes, profits and losses are allocated among the
partners based upon their stated interests in cash available for distribution.
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership's records are maintained on the accrual basis of accounting and
its fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenues and Expenses
Revenues represent house profit of the Inns because the Partnership has
delegated substantially all of the operating decisions related to the generation
of house profit of the Inns to the Manager. House profit reflects Inn operating
results which flow to the Partnership as property owner and represents gross Inn
sales less property-level expenses, excluding depreciation and amortization,
base, Residence Inn system and incentive management fees, property taxes,
equipment rent and other costs, which are disclosed separately in the
accompanying statement of operations.
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF 97-2, "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.
The Partnership is assessing the impact of EITF 97-2 on its policy of excluding
the property-level revenues and operating expenses of its Inns from its
statement of operations (see Note 3). If the Partnership concludes that EITF
97-2 should be applied to its Inns, it would include operating results of those
managed operations in its financial statements. Application of EITF 97-2 to the
financial statements as of and for the year ended December 31, 1997, would have
increased both revenues and operating expenses by approximately $29 million and
would have had no impact on operating profit or net income.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
Land and improvements 40 years
Buildings and improvements 40 years
Furniture and equipment 3 to 10 years
All property and equipment is pledged as security for the mortgage debt
described in Note 6.
The Partnership assesses impairment of its real estate properties based on
whether estimated undiscounted future cash flows from such properties on an
individual property basis will be less than their net book value. If a property
is impaired, its basis is adjusted to fair market value.
<PAGE>
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes but rather allocates its profits and losses to the partners. Significant
differences exist between the net income or loss for financial reporting
purposes and the net income or loss reported in the Partnership's tax return.
These differences are due primarily to the use, for income tax purposes, of
accelerated depreciation methods and shorter depreciable lives of the assets and
differences in the timing of the recognition of base and incentive management
fee expenses. As a result of these differences, the Partnership's net assets
reported in the accompanying financial statements exceed the tax basis of such
net assets at December 31, 1997 and 1996 by $17,448,000 and $15,689,000,
respectively.
Deferred Financing Costs
Deferred financing costs represent the costs incurred in connection with the
mortgage debt refinancing totaling $3,303,000. These costs are being amortized
using the straight-line method, which approximates the effective interest
method, over the seven year term of the loan. At December 31, 1997 and 1996,
accumulated amortization of deferred financing costs totaled $1,047,000 and
$575,000, respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
New Statements of Financial Accounting Standards
In 1996, the Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Adoption of SFAS No. 121 did not have an
effect on its financial statements.
Reclassifications
Certain reclassifications were made to prior year financial statements to
conform to the 1997 presentation.
NOTE 3. REVENUES
Partnership revenues consist of Inn operating results for the three years ended
December 31 (in thousands):
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INN SALES
Suites........................$ 59,082 $ 58,019 $ 53,945
Other operating departments... 3,005 2,805 2,780
----- ----- -----
62,087 60,824 56,725
INN EXPENSES
Departmental direct costs
Suites....................... 12,603 11,756 10,839
Other operating departments.. 1,152 1,024 1,013
Other Inn operating expenses... 15,290 15,960 14,804
------ ------ ------
29,045 28,740 26,656
------ ------ ------
REVENUES.........................$ 33,042 $ 32,084 $ 30,069
====== ====== ======
</TABLE>
<PAGE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
1997 1996
---- ----
<S> <C> <C> <C> <C> <C> <C>
Land and improvements..........................$ 46,441 $ 46,441
Buildings and improvements..................... 114,458 112,592
Furniture and equipment........................ 39,540 35,902
-------- --------
200,439 194,935
Less accumulated depreciation.................. (59,991) (54,663)
-------- --------
$ 140,448 $ 140,272
======== ========
</TABLE>
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments are shown below. The fair
value of financial instruments not included in this table are estimated to be
equal to their carrying amounts (in thousands):
As of December 31, 1997 As of December 31, 1996
----------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Mortgage debt....$ 118,576 $ 124,500 $ 123,519 $ 126,900
Incentive management
fee due to Residence
Inn by
Marriott, Inc $ 22,709 $ 2,200 $ 19,326 $ 4,100
Base management
fee due to Residence
Inn by
Marriott, Inc...$ 872 $ 700 $ 1,499 $ 1,500
The estimated fair value of debt obligations is based on the expected future
debt service payments discounted at risk adjusted rates. Base and incentive
management fees payable are valued based on the expected future payments from
operating cash flow discounted at risk adjusted rates.
NOTE 6. MORTGAGE DEBT
As of December 31, 1994, the Partnership's debt consisted of a $123,000,000
nonrecourse mortgage loan (the "Term Loan"), $5,967,000 borrowed under a $10
million revolving credit facility (the "Revolving Loan") and a $1,395,000 note
payable to Host Marriott for an expansion at the St. Louis Galleria Inn. Both
the Term Loan and the note payable to Host Marriott carried interest at a fixed
rate of 10.4% and required no principal amortization prior to maturity. The
Revolving Loan was available to provide interest payments on up to $19 million
of the principal amount of the Term Loan. Borrowings carried interest at a
floating rate equal to .5% over the one, two, three or six-month London
Interbank Offered Rate ("LIBOR") as elected by the Partnership and required no
principal amortization prior to maturity. The Partnership did not borrow under
the Revolving Loan in 1995.
<PAGE>
The Term Loan, Revolving Loan and note payable matured on April 24, 1995. The
Term Loan and Revolving Loan went into default on the maturity date as the
Partnership was unable to secure replacement financing. Effective April 25, 1995
through August 31, 1995, the lender granted a forbearance on the Term loan and
the Revolving Loan in which both loans began to accrue interest at 10.4%.
However, effective September 1, 1995, pursuant to the loan documents, both the
Term Loan and Revolving Loan began to accrue interest at the Default Rate, as
defined, of prime plus 2.5 percentage points through October 11, 1995. Host
Marriott granted the Partnership a six-month forbearance of the note payable
upon maturity on April 24, 1995 at the original interest rate. During the
forbearance period, the Partnership was required to make monthly debt service
payments of interest only on the Term Loan and Revolving Loan and quarterly
payments of interest only on the note payable.
The Partnership's debt was refinanced on October 12, 1995 at which time the Term
Loan, Revolving Loan and note payable to Host Marriott were fully repaid with
the proceeds from a $130 million nonrecourse mortgage loan (the "Mortgage
Debt"). The Mortgage Debt is comprised of a $100 million note (the "Senior
Mortgage") which bears interest at 8.6% and a $30 million note (the "Second
Mortgage") which bears interest at 15.25% for a blended interest rate of 10.13%.
Both the Senior Mortgage and Second Mortgage require monthly amortization of
principal and mature on September 30, 2002. In addition to the required monthly
amortization, during each of the four years from 1996 through 1999, the
Partnership is required to pay, on a cash available basis, an additional $2
million annually toward principal amortization on the Senior Mortgage.
Additionally, during the entire seven year term, the Partnership has the option
to pay up to an additional $1 million principal payment annually on the Second
Mortgage and up to another $1 million optional principal payment which would be
applied in a 2:1 ratio to the Senior and Second Mortgage, respectively. The
weighted-average interest rate for the years ended December 31, 1997 and 1996
was 10.13%. During 1997 and 1996, the Partnership made payments of $4,431,000
and $4,719,000 on the Senior Mortgage and $512,000 and $1,585,000 on the Second
Mortgage, respectively. At December 31, 1997, the outstanding principal balance
of the Senior Mortgage and the Second Mortgage was $90,692,000 and $27,884,000,
respectively.
Host Marriott was released from its $15 million debt service guarantee
obligation on the date of the original debt maturity of April 24, 1995. No
amounts were advanced under this obligation.
Both the Senior Mortgage and the Second Mortgage are secured by the Inns, the
land on which they are located, a security interest in all personal property
associated with the Inns including furniture and equipment, inventory, contracts
and other general intangibles and an assignment of the Partnership's rights
under the management agreement.
Principal amortization of the Senior and Second Mortgages at December 31, 1997
is as follows (in thousands):
1998......................$ 5,423
1999...................... 5,952
2000...................... 4,508
2001...................... 4,972
2002...................... 97,721
------
$ 118,576
=======
<PAGE>
NOTE 7. MANAGEMENT AGREEMENT
The Manager operates the Inns pursuant to a long-term management agreement with
an initial term expiring December 28, 2007. The Manager has the option to extend
the agreement on one or more of the Inns for up to five 10-year terms. The
Manager earns a base management fee equal to 2% of gross sales. Through 1990,
payment of the base management fee was subordinated to qualifying debt service
payments and retention by the Partnership of annual cash flow from operations of
$6,626,263. Deferred base management fees are payable from operating cash flow,
as defined. Beginning in 1991 and thereafter, base management fees are paid
currently. Pursuant to the terms of the management agreement, the Partnership
paid deferred base management fees of $627,000, $515,000 and $491,000 for the
fiscal years ended December 31, 1997, 1996 and 1995, respectively.
In addition, the Manager is entitled to an incentive management fee equal to 15%
of operating profit, as defined (20% in any year in which operating profit is
equal to or greater than $23.5 million). The incentive management fee is payable
out of 50% of cash flow from operations remaining after payments of qualifying
debt service, retention by the Partnership of annual cash flow from operations
of $6,626,263 and the deferred base management fee. After the Partnership has
retained an additional 5% return, the incentive management fee is payable out of
75% of the remaining cash flow from operations. Through 1989, the Manager was
not entitled to accrue any unpaid incentive management fees. Incentive
management fees earned after 1989 are payable in the future from operating cash
flow, as defined. Unpaid incentive management fees are paid from cash flow
available for incentive management fees following payment of the then current
incentive management fees. Through December 31, 1997, no incentive management
fees have been paid to the Manager and approximately $545,000 is expected to be
paid during 1998.
The management agreement also provides for a Residence Inn system fee equal to
4% of suite sales. In addition, the Manager is reimbursed for each Inn's pro
rata share of the actual costs and expenses incurred by the Manager in providing
certain services ("Chain Services") on a central or regional basis to all hotels
operated by the Manager. As franchiser of the Residence Inn by Marriott system,
the Manager maintains a marketing fund to pay the costs associated with certain
system-wide advertising, promotional, and public relations materials and
programs, and operating a toll-free reservation system. Each Inn contributes
2.5% of suite sales to the marketing fund. For the years ended December 31,
1997, 1996 and 1995, the Partnership paid a Residence Inn system fee of
$2,363,000, $2,321,000 and $2,158,000, reimbursed the Manager for $1,051,000,
$1,031,000 and $988,000 of Chain Services and contributed $1,477,000, $1,450,000
and $1,349,000 to the marketing fund, respectively. Chain Services and
contributions to the marketing fund are included in other Inn operating expenses
in Note 3.
The Partnership is required to provide the Manager with working capital to meet
the operating needs of the Inns. The Manager converts cash advanced by the
Partnership into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables which are
maintained and controlled by the Manager. Upon termination of the management
agreement, the working capital will be returned to the Partnership. The
individual components of working capital controlled by the Manager are not
reflected in the Partnership's balance sheet. As of December 31, 1997 and 1996,
$775,000 has been advanced to the Manager for working capital.
The management agreement provides for the establishment of a property
improvement fund for the Inns which provides for the replacement of furniture,
fixtures and equipment ("FF&E"). Contributions to the property improvement fund
are equal to 5% of gross revenues of each Inn. Contributions to the property
improvement fund as of December 31, 1997, 1996 and 1995 were $3,104,000,
$3,041,000 and $2,836,000, respectively. Based on current capital budgets, the
Partnership's FF&E reserves are forecasted to be insufficient beginning in 1998
through 2002. The shortfall is primarily due to the need to complete total suite
refurbishments at the majority of the Inns in the next several years. As a
result of this expected future shortfall, the General Partner established a
reserve in 1996 for the future capital needs of the Inns. 1996 cash
distributions to the partners were net of this reserve and it is expected that
1998 distributions will be net of an additional capital reserve. The current
shortfall estimate for 1998 of $2.1 million is projected to be funded from
operating cash reserved in prior years. The Partnership will continue to work
with the Manager in better utilizing the property improvement fund.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Partnership has no directors or officers. The business and policy making
functions of the Partnership are carried out through the directors and executive
officers of RIBM One Corporation, the General Partner, who are listed below:
Age at
Name Current Position December 31, 1997
---- ---------------- -----------------
Bruce F. Stemerman President and Director 42
Christopher G. Townsend Vice President, Secretary and Director 50
Patricia K. Brady Vice President and Chief Accounting Officer 36
Bruce Wardinski Treasurer 37
Business Experience
Bruce F. Stemerman joined Host Marriott in 1989 as Director--Partnership
Services. He became Vice President--Lodging Partnerships in 1994 and became
Senior Vice President--Asset Management in 1996. Prior to joining Host Marriott,
Mr. Stemerman spent ten years with Price Waterhouse. He also serves as a
director and an officer of numerous Host Marriott subsidiaries.
Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Senior Attorney. In 1984 he was made Assistant Secretary of Host Marriott. In
1986 he was made an Assistant General Counsel. He was made Senior Vice
President, Corporate Secretary and Deputy General Counsel of Host Marriott in
1993. In January 1997, he was made General Counsel of Host Marriott. He also
serves as a director and an officer of numerous Host Marriott subsidiaries.
Patricia K. Brady was appointed to Vice President and Chief Accounting Officer
of the General Partner on October 10, 1996. Ms. Brady joined Host Marriott in
1989 as Assistant Manager--Partnership Services. She was promoted to Manager in
1990 and to Director--Asset Management in June 1996. Ms. Brady also serves as an
officer of numerous Host Marriott subsidiaries.
Bruce Wardinski joined Host Marriott in 1987 as a Senior Financial Analyst of
Financial Planning & Analysis and was named Manager in June 1988. He was
appointed Director, Financial Planning & Analysis in 1989, Director of Project
Finance in January 1990, Senior Director of Project Finance in June 1993, Vice
President--Project Finance in June 1994, and Senior Vice President of
International Development in October 1995. In June 1996, Mr. Wardinski was named
Senior Vice President and Treasurer of Host Marriott. Prior to joining Host
Marriott, Mr. Wardinski was with the public accounting firm Price Waterhouse.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
As noted in Item 10 above, the Partnership has no directors or officers nor does
it have any employees. Under the Partnership Agreement, however, the General
Partner has the exclusive right to conduct the business and affairs of the
Partnership subject only to the management agreement described in Items 1 and
13. The General Partner is required to devote to the Partnership such time as
may be necessary for the proper performance of its duties, but the officers and
directors of the General Partner are not required to devote their full time to
the performance of such duties. No officer or director of the General Partner
devotes a significant percentage of time to Partnership matters. To the extent
that any officer or director does devote time to the Partnership, the General
Partner or Host Marriott, as applicable, is entitled to reimbursement for the
cost of providing such services. For the fiscal years ending December 31, 1997,
1996 and 1995, the Partnership reimbursed Host Marriott or its subsidiaries
$157,000, $218,000 and $151,000, respectively, for the cost of providing all
administrative and other services as General Partner. For information regarding
all payments made by the Partnership to Host Marriott and subsidiaries, see Item
13 "Certain Relationships and Related Transactions."
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of December 31, 1997, no person owned of record, or to the Partnership's
knowledge owned beneficially, more than 5% of the total number of limited
partnership Units. The General Partner does not own any limited partnership
interest in the Partnership.
The executive officers and directors of the General Partner, Host Marriott, MII
and their respective affiliates own 80 limited partnership units as of December
31, 1997.
The Partnership is not aware of any arrangements which may, at a subsequent
date, result in a change in control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
Term
The Management Agreement has an initial term expiring on December 28, 2007. The
Manager may renew the term, as to one or more of the Inns, at its option, for up
to five successive terms of 10 years each. The Partnership may terminate the
Management Agreement if, during any three consecutive years after 1992,
specified minimum operating results are not achieved. However, the Manager may
prevent termination by paying to the Partnership the amount by which the minimum
operating results were not achieved.
Management Fees
The Management Agreement provides for annual payments of (i) the base management
fee equal to 2% of gross sales from the Inns, (ii) the Residence Inn system fee
equal to 4% of gross suite sales from the Inns, and (iii) the incentive
management fee equal to 15% of operating profit, as defined (20% in any year in
which operating profit is equal to or greater than $23.5 million). During 1997,
1996 and 1995, respectively, the Partnership paid a Residence Inn system fee of
$2,363,000, $2,321,000 and $2,158,000. See "Deferral Provisions" for a
discussion of the payment of base and incentive management fees.
Deferral Provisions
Through 1990, payment of the base management fee was subordinated to
qualifying debt service payments and retention by the Partnership of annual cash
flow from operations of $6,626,263. Deferred base management fees are payable
from operating cash flow, as defined, but only after payment of debt service and
the Partnership's 10% priority return. Beginning in 1991 and thereafter, base
management fees are paid currently. For the years ended December 31, 1997, 1996
and 1995, respectively, the Partnership paid current base management fees of
$1,242,000, $1,216,000 and $1,135,000. During 1997, 1996 and 1995, $627,000,
$515,000 and $491,000, respectively, of deferred base management fees were
repaid. Deferred base management fees as of December 31, 1997 and 1996 were
$872,000 and $1.5 million, respectively.
The incentive management fee is payable out of 50% of cash flow from operations
remaining after payments of qualifying debt service, retention by the
Partnership of annual cash flow from operations of $6,626,263 and the deferred
base management fee. After the cash flow retained by the Partnership reaches 5%
of invested capital plus any owner funded capital improvements, the incentive
management fee is payable out of 75% of the remaining cash flow from operations.
Through 1989, the Manager was not entitled to accrue any unpaid incentive
management fees. Incentive management fees earned after 1989 are payable in the
future from operating cash flow, as defined. Unpaid incentive management fees
are paid from cash flow available for incentive management fees following
payment of the then current incentive management fees. Through December 31,
1997, no incentive management fees have been paid to the Manager and
approximately $545,000 is expected to be paid during 1998. During 1997 and 1996,
$3.4 million of incentive management fees were deferred. During 1995, $3.1
million of incentive management fees were deferred. Deferred incentive
management fees were approximately $22.7 million and $19.3 million as of
December 31, 1997 and 1996, respectively.
<PAGE>
Chain Services and Marketing Fund
The Manager is reimbursed for each Inn's pro rata share of the actual costs and
expenses incurred by the Manager in providing certain services ("Chain
Services") on a central or regional basis to all hotels operated by the Manager.
As franchiser of the Residence Inn by Marriott system, the Manager maintains a
marketing fund to pay the costs associated with certain system-wide advertising,
promotional, and public relations materials and programs, and operating a
toll-free reservation system. Each Inn contributes 2.5% of gross suite sales to
the marketing fund. For the years ended December 31, 1997, 1996 and 1995, the
Partnership reimbursed the Manager for $1,051,000, $1,031,000 and $988,000 of
Chain Services and contributed $1,477,000, $1,450,000 and $1,349,000 to the
marketing fund, respectively.
Working Capital
The Partnership is required to provide the Manager with working capital to meet
the operating needs of the Inns. The Manager converts cash advanced by the
Partnership into other forms of working capital consisting primarily of
inventories, trade receivables and payables which are maintained and controlled
by the Manager. Upon termination of the management agreement, the working
capital will be returned to the Partnership. The individual components of
working capital controlled by the Manager are not reflected in the Partnership's
balance sheet. As of December 31, 1997 and 1996, $775,000 has been advanced to
the Manager for working capital.
Property Improvement Fund
The Management Agreement provides for the establishment of a property
improvement fund for the Inns which provides for the replacement of furniture,
fixtures and equipment. Contributions to the property improvement fund are equal
to 5% of gross sales of each Inn. Contributions to the property improvement fund
as of December 31, 1997, 1996 and 1995 were $3,104,000, $3,041,000 and
$2,836,000, respectively.
Payments to MII and Subsidiaries
The following table sets forth the amount paid to MII and its subsidiaries under
the Management Agreement for the years ended December 31, 1997, 1996 and 1995
(in thousands):
1997 1996 1995
---- ---- ----
Residence Inn system fee.......$ 2,363 $ 2,321 $ 2,158
Marketing fund contribution.... 1,477 1,450 1,349
Base management fee............ 1,242 1,216 1,135
Chain services................. 1,051 1,031 988
Deferred base management fees.. 627 515 491
----- ----- -----
$ 6,760 $ 6,533 $ 6,121
===== ===== =====
Payments to Host Marriott and Subsidiaries
The following sets forth amounts paid by the Partnership to Host Marriott and
its subsidiaries, including the General Partner, for the years ended December
31, 1997, 1996 and 1995 (in thousands):
1997 1996 1995
---- ---- ----
Principal and interest on
Host Marriott loan.................$ -- $ -- $ 1,507
Administrative expenses reimbursed.... 157 218 151
Cash distributions.................... 16 50 8
----- ----- -----
$ 173 $ 268 $ 1,666
===== ===== =====
PART IV
ITEM 14. EXHIBITS, SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) List of Documents Filed as Part of This Report
(1) Financial Statements
All financial statements of the registrant as set forth under Item 8
of this Report on Form 10-K.
(2) Financial Statement Schedules
The following financial information is filed herewith on the pages
indicated.
Schedule III - Real Estate and Accumulated Depreciation
All other schedules are omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(3) EXHIBITS
Exhibit
Number Description Page
-------- ------------------------------------------------------- ---------
* 3.1 Amended and Restated Agreement of Limited Partnership N/A
of Marriott Residence Inn Limited Partnership by and
among RIBM One Corporation (General Partner),
Christopher G. Townsend (Organizational Limited
Partner), and Limited Partners dated March 29, 1988.
*10.1 First Amendment to Loan Agreement by and between N/A
Marriott Residence Inn Limited Partnership (Borrower)
and German American Capital Corporation (Lender),
dated April 23, 1996.
*10.2 Loan Agreement by and between Marriott Residence Inn N/A
Limited Partnership (Borrower) and German American
Capital Corporation (Lender), dated October 10, 1995.
*10.3 Indemnity Agreement by Marriott Residence Inn Limited N/A
Partnership (Borrower) and RIBM One Corporation
(collectively, the Indemnitors) in favor of German
American Capital Corporation (Lender), dated October
10, 1995.
*10.4 Four Party Agreement by and among Marriott Residence N/A
Inn Limited Partnership (Borrower), German American
Capital Corporation (Senior Lender), Starwood
Mezzanine Investors, L.P. (Subordinate Lender) and
Residence Inn by Marriott, Inc. (Manager), dated
October 10, 1995.
*10.5 Loan Agreement by and between Marriott Residence Inn N/A
Limited Partnership (Borrower) and Starwood Mezzanine
Investors, L.P. (Lender), dated October 10, 1995.
*10.6 Loan Agreement by and between Marriott Residence Inn N/A
Limited Partnership and The Sanwa Bank Limited, dated
as of April 20, 1988.
*10.7 Revolving Credit Agreement by and between Marriott N/A
Residence Inn Limited Partnership and The Sanwa Bank
Limited, dated as of April 20, 1988.
*10.8 Manager's Letter Agreement between Residence Inn by N/A
Marriott, Inc. and Marriott Residence Inn Limited
Partnership, dated October 10, 1995.
*10.9 Management Agreement by Marriott Residence Inn N/A
Limited Partnership (Owner) and Residence Inn by
Marriott, Inc. (Manager), dated March 29, 1988.
_________________________________
* Incorporated by reference to the Partnership's previously filed
documents.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during 1997.
</TABLE>
<PAGE>
SCHEDULE III
Page 1 of 2
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
<TABLE>
Initial Costs
----------------------------------------
Land Subsequent
and Building and Costs
Description Debt Improvements Improvements Capitalized
- ----------- ---- ------------ ------------ -----------
<S> <C> <C> <C> <C>
La Jolla $ 20,870 $ 11,579 $ 14,462 $ 811
Long Beach 11,503 7,167 11,455 574
St. Louis Galleria 9,960 1,989 5,010 1,618
Boulder 9,249 1,451 6,686 405
Costa Mesa 8,775 3,678 6,955 412
Atlanta Buckhead 8,300 3,894 5,519 572
Atlanta Cumberland 7,589 4,099 4,627 326
Atlanta Dunwoody 7,589 2,116 7,387 526
Chicago Lombard 7,352 3,665 5,746 327
Southfield 7,233 2,031 8,195 811
Cincinnati North 5,217 1,183 9,587 541
St. Louis Chesterfied 4,980 1,539 5,372 415
Other properties, each
less than 5% of total 9,959 2,007 14,553 1,609
------- ----- ------ -----
$118,576 $ 46,398 $ 105,554 $ 8,947
======= ====== ======= =====
</TABLE>
<TABLE>
<S> <C> <C>
<PAGE>
Gross Amount at December 31, 1997
- ------------------------------------------------
Land Date of
and Building and Accumulated Completion of Date Depreciation
Improvements Improvements Total Depreciation Construction Acquired Life
- ------------ ------------ ----- -------------- ----------------- -------- ----
<C> <C> <C> <C> <C> <C> <C>
$11,580 $ 15,272 $26,852 $ 4,022 1986 1988 40 years
7,234 11,962 19,196 2,969 1987 1988 40 years
2,014 6,603 8,617 1,647 1986 1988 40 years
1,451 7,091 8,542 1,764 1986 1988 40 years
3,678 7,367 11,045 1,845 1986 1988 40 years
3,903 6,082 9,985 1,600 1987 1988 40 years
4,099 4,953 9,052 1,311 1987 1988 40 years
2,116 7,913 10,029 1,990 1984 1988 40 years
3,665 6,073 9,738 1,581 1987 1988 40 years
2,031 9,006 11,037 2,286 1986 1988 40 years
1,183 10,128 11,311 2,564 1985 1988 40 years
1,543 5,783 7,326 1,476 1986 1988 40 years
1,944 16,225 18,169 4,585 1985-1987 1988 40 years
----- ------ ------ -----
$46,441 $ 114,458 $160,899 $ 29,640
====== ======= ======= ======
</TABLE>
<PAGE>
SCHEDULE III
Page 2 of 2
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
<TABLE>
Notes:
1995 1996 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(a) Reconciliation of Real Estate:
Balance at beginning of year.$ 157,008 $ 158,281 $ 159,033
Capital Expenditures.......... 1,273 752 1,866
Dispositions.................. -- -- --
------- ------- -------
Balance at end of year.......$ 158,281 $ 159,033 $ 160,899
======= ======= =======
(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year.$ 19,200 $ 22,544 $ 26,140
Depreciation................. 3,344 3,596 3,500
------ ------ ------
Balance at end of year.......$ 22,544 $ 26,140 $ 29,640
====== ====== ======
(c) The aggregate cost of land, buildings and
improvements for Federal income tax purposes
is approximately $159.7 million at December 31, 1997.
(d) The debt balance is $118.6 million as of December 31, 1997
and includes $90.7 million of Senior Mortgage Debt and
$27.9 million of Second Mortgage Debt.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized, on this 31st of
March, 1998.
MARRIOTT RESIDENCE INN
LIMITED PARTNERSHIP
By: RIBM ONE CORPORATION
General Partner
/s/ Patricia K. Brady
---------------------
Patricia K. Brady
Vice President and Chief
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the date indicated above.
Signature Title
(RIBM ONE CORPORATION)
/s/ Bruce F. Stemerman President and Director
- ---------------------------
Bruce F. Stemerman (Principal Executive Officer)
/s/ Christopher G. Townsend Vice President, Secretary and Director
- ---------------------------
Christopher G. Townsend
/s/ Patricia K. Brady Vice President and Chief Accounting Officer
- ---------------------------
Patricia K. Brady
/s/ Bruce Wardinski Treasurer
- ---------------------------
Bruce Wardinski
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 31st day of March,
1998.
MARRIOTT RESIDENCE INN
LIMITED PARTNERSHIP
By: RIBM ONE CORPORATION
General Partner
-----------------------
Patricia K. Brady
Vice President and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the date indicated above.
Signature Title
(RIBM ONE CORPORATION)
- ----------------------- President and Director
Bruce F. Stemerman (Principal Executive Officer)
- ----------------------- Vice President, Secretary and Director
Christopher G. Townsend
- ----------------------- Vice President and Chief Accounting Officer
Patricia K. Brady
- ----------------------- Treasurer
Bruce Wardinski
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK>0000829092
<NAME> MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 5,650
<SECURITIES> 0
<RECEIVABLES> 2,462
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,411
<PP&E> 200,439
<DEPRECIATION> (59,990)
<TOTAL-ASSETS> 151,971
<CURRENT-LIABILITIES> 24,816
<BONDS> 118,576
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 151,971
<SALES> 0
<TOTAL-REVENUES> 33,042
<CGS> 0
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<OTHER-EXPENSES> 15,340
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<INTEREST-EXPENSE> 12,788
<INCOME-PRETAX> 4,914
<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> 4,914
<EPS-PRIMARY> 0
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<FN>
</FN>
</TABLE>
