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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 24, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 033-20022
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 52-1558094
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(State of Organization) (I.R.S. Employer Identification Number)
10400 Fernwood Road, Bethesda, MD 20817-1109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 380-2070
Securities registered pursuant to Section
12(b) of the Act:
Not Applicable
Securities registered pursuant to Section
12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No_____
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MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
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TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statement of Operations
Twelve Weeks Ended March 24, 2000 and March 26, 1999 (Unaudited)...............................1
Condensed Balance Sheet
March 24, 2000 (Unaudited) and December 31, 1999...............................................2
Condensed Statement of Cash Flows
Twelve Weeks Ended March 24, 2000 and March 26, 1999 (Unaudited)...............................3
Note to Condensed Financial Statements (Unaudited)................................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................5
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................8
Item 6. Exhibits and Reports on Form 8-K..................................................................9
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)
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Twelve Weeks Ended
March 24, March 26,
2000 1999
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REVENUES
Inn revenues
Suites.........................................................................$ 14,264 $ 14,341
Other.......................................................................... 719 694
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Total Inn revenues........................................................... 14,983 15,035
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OPERATING COSTS AND EXPENSES
Inn property-level costs and expenses
Suites......................................................................... 3,258 3,177
Other department costs and expenses............................................ 374 382
Selling, administrative and other.............................................. 3,823 3,833
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Total Inn property-level costs and expenses.................................. 7,455 7,392
Depreciation..................................................................... 1,482 1,271
Incentive management fee......................................................... 770 1,068
Property taxes................................................................... 583 529
Residence Inn system fee......................................................... 571 574
Base management fee.............................................................. 300 301
Equipment rent and other......................................................... 253 147
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11,414 11,282
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OPERATING PROFIT.................................................................... 3,569 3,753
Interest expense................................................................. (2,519) (2,750)
Interest income.................................................................. 85 34
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NET INCOME..........................................................................$ 1,135 $ 1,037
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ALLOCATION OF NET INCOME
General Partner..................................................................$ 11 $ 10
Limited Partners................................................................. 1,124 1,027
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$ 1,135 $ 1,037
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NET INCOME PER LIMITED PARTNER UNIT
(65,600 Units)...................................................................$ 17 $ 16
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See Note to Condensed Financial Statements.
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MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(IN THOUSANDS)
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March 24, December 31,
2000 1999
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(Unaudited)
ASSETS
Property and equipment, net....................................................$ 138,740 $ 138,792
Due from Residence Inn by Marriott, Inc........................................ 2,785 1,984
Deferred financing costs, net of accumulated amortization...................... 1,198 1,307
Property improvement fund...................................................... 2,043 867
Cash and cash equivalents...................................................... 5,903 6,025
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$ 150,669 $ 148,975
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LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt..................................................................$ 102,473 $ 103,282
Incentive management fee due to Residence Inn by Marriott, Inc................. 30,515 29,781
Accounts payable and accrued expenses.......................................... 946 312
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Total Liabilities........................................................ 133,934 133,375
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PARTNERS' CAPITAL
General Partner................................................................ 244 233
Limited Partners............................................................... 16,491 15,367
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Total Partners' Capital.................................................. 16,735 15,600
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$ 150,669 $ 148,975
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See Note to Condensed Financial Statements.
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MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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Twelve Weeks Ended
March 24, March 26,
2000 1999
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OPERATING ACTIVITIES
Net income.......................................................................$ 1,135 $ 1,037
Noncash items.................................................................... 2,332 2,308
Changes in operating accounts.................................................... (167) (616)
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Cash provided by operating activities...................................... 3,300 2,729
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INVESTING ACTIVITIES
Change in property improvement fund.............................................. (1,176) (1,223)
Additions to property and equipment.............................................. (1,437) (1,062)
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Cash used in investing activities.......................................... (2,613) (2,285)
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FINANCING ACTIVITIES
Principal payments on mortgage debt.............................................. (809) (1,052)
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DECREASE IN CASH AND CASH EQUIVALENTS............................................... (122) (608)
CASH AND CASH EQUIVALENTS, at beginning of period................................... 6,025 4,027
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CASH AND CASH EQUIVALENTS, at end of period.........................................$ 5,903 $ 3,419
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest............................................$ 1,740 $ 2,772
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See Note to Condensed Financial Statements.
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MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
NOTE TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of Significant Accounting Policies
The accompanying unaudited, condensed financial statements have been prepared by
Marriott Residence Inn Limited Partnership (the "Partnership"). Certain
information and footnote disclosures normally included in financial statements
presented in accordance with accounting principles generally accepted in the
United States have been condensed or omitted from the accompanying statements.
The Partnership believes the disclosures made are adequate to make the
information presented not misleading. However, the unaudited, condensed
financial statements should be read in conjunction with the Partnership's
financial statements and notes thereto included in the Partnership's Form 10-K
for the year ended December 31, 1999.
In the opinion of the Partnership, the accompanying unaudited, condensed
financial statements reflect all adjustments necessary to present fairly the
financial position of the Partnership as of March 24, 2000, and the results of
operations and cash flows for the twelve weeks ended March 24, 2000 and March
26, 1999. Results are not necessarily indicative of full year performance
because of seasonal and short-term variations.
For financial reporting purposes, net income of the Partnership is allocated 99%
to the limited partners and 1% to RIBM One LLC (the "General Partner").
Significant differences exist between the net income for financial reporting
purposes and the net income for Federal income tax purposes. These differences
are due primarily to the use, for Federal income tax purposes, of accelerated
depreciation methods and shorter depreciable lives of the assets and differences
in the timing of the recognition of incentive management fee expense.
Certain reclassifications were made to prior year financial statements to
conform to the 2000 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q include forward-looking statements
and as such may involve known and unknown risks, uncertainties and other factors
which may cause the actual transactions, results, performance or achievements to
be materially different from any future transactions, results, performance or
achievements expressed or implied by such forward-looking statements. The
cautionary statements set forth in reports filed under the Securities Act of
1934 contained important factors with respect to such forward-looking
statements, including: (i) national and local economic and business conditions
that will affect, among other things, demand for products and services at the
Inns and other properties, the level of suite and room rates and occupancy that
can be achieved by such properties and the availability and terms of financing;
(ii) the ability to compete effectively in areas such as access, location,
quality of accommodations and suite and room rate structures; (iii) changes in
travel patterns, taxes and government regulations which influence or determine
wages, prices, construction procedures and costs; (iv) governmental approvals,
actions and initiatives, including the need for compliance with environmental
and safety requirements, and changes in laws and regulations or the
interpretation thereof; and (v) the effects of tax legislative action. Although
the Partnership believes the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be attained or that any deviations will not be material.
The Partnership undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
RESULTS OF OPERATIONS
Revenues. Revenues decreased slightly to $14.9 million for first quarter 2000
when compared to $15.0 million for first quarter 1999 primarily as a result of
an additional day of operations in first quarter 1999. First quarter 2000
revenues represent 84 days of operations while first quarter 1999 represents 85
days of operations. Inn revenue per available room ("REVPAR"), which represents
the combination of the combined average daily suite rate charged and the
combined average daily occupancy achieved, and is a commonly used indicator of
Inn performance, increased slightly in first quarter 2000 to $79.72 from $79.46.
REVPAR does not include other ancillary revenues generated by the Inns. The
increase in REVPAR resulted from a $1.53 increase in combined average room rate
to $97.54 for first quarter 2000 from $96.01 for first quarter 1999 offset by a
one percentage point decrease in combined average occupancy to 82% for the first
quarter 2000 from 83% for the first quarter 1999. Despite the first quarter 2000
increase in REVPAR, the additional day of operations in 1999 resulted in a
$77,000 decline in combined average suite sales for first quarter 2000 when
compared to the same period in 1999.
Operating Costs and Expenses. Operating costs and expenses increased to $11.4
million for first quarter 2000 from $11.3 million for first quarter 1999. This
is primarily due to an increase in property-level costs and expenses of $63,000,
an increase in depreciation expense for the first quarter of $211,000, and an
increase of $106,000 in equipment rent and other expenses. These expenses were
offset by a decrease in the incentive management fee ("IMF") of $298,000. The
IMF earned by Residence Inn by Marriott, Inc. (the "Manager") is calculated as
15% of Operating Profit, as defined in the Management Agreement, in any year in
which Operating Profit is less than $23.5 million and as 20% of Operating Profit
whenever Operating Profit equals or exceeds $23.5 million. During interim
reporting periods, the percentage used to calculate IMF, 15% or 20%, is
determined based on whether or not full year Operating Profit is expected to
fall short of, or exceed, $23.5 million. The IMF was calculated as 15% of
Operating Profit for the first quarter of 2000. IMF was calculated as 20% of
Operating Profit for the first quarter of 1999 based upon the expectation at
March 26, 1999 that full-year Operating Profit would exceed $23.5 million.
However, as of March 24, 2000, the expectation is that full year 2000 Operating
Profit will fall below $23.5 million. The increase in depreciation expense was
due to the $3.8 million growth in the average depreciable fixed assets balance
between the first quarter of 1999 and 2000. As a percentage of Inn revenues,
operating costs and expenses were 76% and 75% of revenues for first quarter 2000
and 1999, respectively.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit decreased $184,000 to $3.6 million,
or 24% of revenues, for first quarter 2000 from $3.8 million, or 25% of
revenues, for first quarter 1999.
Interest Expense. Interest expense decreased $231,000 to $2.5 million for first
quarter 2000 from $2.8 million for first quarter 1999 due to principal
amortization of the Senior and Second Mortgages.
Net Income. As a result of the items discussed above, net income for first
quarter 2000 increased $98,000 to $1.1 million, or 8% of revenues, from $1.0
million, or 7% of revenues, for first quarter 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financing needs have been historically funded through loan
agreements with independent financial institutions. Beginning in 1998, the
Partnership's property improvement fund was insufficient to meet current needs.
The shortfall is primarily due to the need to complete renovations and total
suite refurbishments at a majority of the Partnership's Inns. To reduce the
shortfall, the Partnership provided a $1.2 million and a $1.45 million loan to
the fund in first quarter 2000 and first quarter 1999, respectively.
A portion of the renovations mentioned above is part of the routine capital
expenditure cycle for maintaining Inns that are 12 to 15 years old. However, in
light of the increased competition in the extended-stay market, the Manager has
proposed additional improvements that are intended to enhance the overall value
and competitiveness of the Inns. These proposed improvements include design,
structural and technological improvements to modernize and enhance the
functionality and appeal of the Inns. Based upon information provided by the
Manager, approximately $45 million to $55 million may be required over the next
five years for the routine renovations and all of the proposed additional
improvements. Based on the continuing capital expenditure needs of the Inns over
the next few years, it appears unlikely that cash distributions will be possible
for 2000 and 2001.
The General Partner believes that cash from Inn operations and Partnership
reserves will be sufficient to make the required debt service payments and to
fund a portion of the capital expenditures at the Inns. The General Partner is
reviewing the Manager's proposed Inn renovations and improvements to identify
those projects that have the greatest value to 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 and fund the property
improvement fund.
Cash provided by operating activities increased to $3.3 million for first
quarter 2000 as compared to $2.7 million for first quarter 1999. This is
primarily due to a decrease in the amount of cash paid for mortgage interest
from $2.8 million in first quarter 1999 to $1.7 million in first quarter 2000.
Cash used in investing activities was $2.6 million and $2.3 million for first
quarter 2000 and 1999, respectively. The Partnership's cash used in investing
activities primarily consists of contributions to the property improvement fund
and capital expenditures for improvements to the Inns. Contributions to the
property improvement fund were $749,000 and $828,000 for the first quarter 2000
and first quarter 1999, respectively, while capital expenditures were $1.4
million and $1.1 million, respectively, during these same periods. Contributions
to the property improvement fund decreased $79,000 in first quarter 2000 due
primarily to the decrease in the contribution rate from 5.5% of revenues in 1999
to 5% in 2000. The Partnership advanced $1.2 million and $1.45 million to the
property improvement fund during first quarter 2000 and first quarter 1999,
respectively, to reduce the 1999 and 1998 shortfalls, respectively.
Cash used in financing activities was $809,000 and $1.0 million for first
quarter 2000 and first quarter 1999, respectively. The Partnership's cash used
in financing activities consists of the repayment of mortgage debt. There were
no distributions to the partners in first quarter 2000 or 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership does not have significant market risk with respect to interest
rates, foreign currency exchanges or other market rate or price risks, and the
Partnership does not hold any financial instruments for trading purposes. As of
March 24, 2000, all of the Partnership's debt is fixed rate.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. 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 March 16, 1998, limited partners in several partnerships sponsored by Host
Marriott, filed a lawsuit, styled Robert M. Haas, Sr. and Irwin Randolph Joint
Tenants, et al. v. Marriott International, Inc., et al., Case No. 98-CI-04092,
in the 57th Judicial District Court of Bexar County, Texas against Marriott
International, Inc., Host Marriott Corporation, various of their subsidiaries,
J.W. Marriott, Jr., Stephen Rushmore, and Hospitality Valuation Services, Inc.
(collectively, the "Defendants"). The lawsuit now relates to the following
limited partnerships: Courtyard by Marriott Limited Partnership, Marriott
Residence Inn Limited Partnership, Marriott Residence Inn II Limited
Partnership, Fairfield Inn by Marriott Limited Partnership, Host DSM Limited
Partnership (formerly known as Desert Springs Marriott Limited Partnership) and
Atlanta II Limited Partnership (formerly known as Atlanta Marriott Marquis
Limited Partnership), collectively, the "Six Partnerships". The plaintiffs
allege that the Defendants conspired to sell hotels to the Six Partnerships for
inflated prices and that they charged the Six Partnerships excessive management
fees to operate the Six Partnerships' hotels. The plaintiffs further allege,
among other things, that the Defendants committed fraud, breached fiduciary
duties and violated the provisions of various contracts. A related case
concerning Courtyard by Marriott II Limited Partnership ("Courtyard II") filed
by the plaintiffs' lawyers in the same court involves similar allegations
against the Defendants, and has been certified as a class action. As a result of
this development, Courtyard II is no longer involved in the above-referenced
Haas lawsuit, Case No. 98-CI-04092.
On March 9, 2000, the Defendants entered into a settlement agreement with
counsel for the plaintiffs to resolve the Haas and Courtyard II litigation. The
settlement is subject to numerous conditions, including participation
thresholds, court approval and various consents. Under the terms of the
settlement, the limited partners of the Partnership who elect to participate
would receive $228.38 per Unit or a pro rata portion thereof, ($14,981,728 in
the aggregate, if the holders of all Units participate) in cash in exchange for
dismissal of the litigation and a complete release of all claims. If the Texas
court approves legal fees and expenses of approximately $78 per Unit to counsel
to the class action plaintiffs, the net amount that each holder that is a class
member will receive is approximately $150 per Unit, or a pro rata portion
thereof for fractional Units. In addition to the Defendants' cash payments, the
Manager would waive $29,781,000 of deferred management fees. Limited partners
who opt out of the settlement would receive no payment but would retain their
individual claims against the Defendants. The settlement will not be consummated
unless the Texas court approves the fairness of the settlement. The Defendants
may terminate the settlement if the holders of more than 10% of the
Partnership's 65,600 limited partner Units choose not to participate, if the
holders of more than 10% of the limited partner units in any one of the other
partnerships involved in the settlement choose not to participate or if certain
other conditions are not satisfied. The Manager will continue to manage the
Partnership's Inns under long-term agreements. The details of the settlement
will be contained in a court-approved notice to be sent to the Partnership's
limited partners, and the discussion of the settlement herein is qualified in
its entirety by the terms of the actual court-approved notice sent to the
Partnership's limited partners.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits: None.
b. Reports on Form 8-K: None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARRIOTT RESIDENCE INN
LIMITED PARTNERSHIP
By: RIBM ONE LLC
General Partner
May 8, 2000 By: /s/ Earla L. Stowe
Earla L. Stowe
Vice President
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<NAME> MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-24-2000
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