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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 Quarter ended March 28, 1997
OR
|-| Transition Report Pursuant|to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-16728
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 52-1533559
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(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization
10400 Fernwood Road
Bethesda, Maryland
20817
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Address of principal executive offices)
Registrant's telephone number, including area code: 301-380-2070
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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<PAGE>
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COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statement of Operations
Twelve Weeks Ended March 28, 1997 and March 22, 1996.... 1
Condensed Consolidated Balance Sheet
March 28, 1997 and December 31, 1996.................... 2
Condensed Consolidated Statement of Cash Flows
Twelve Weeks ended March 28, 1997 and March 22, 1996.... 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................... 6
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per unit amounts)
<CAPTION>
Twelve Weeks Ended
March 28, March 22,
1997 1996
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<S>
REVENUES <C> <C>
Hotel revenues.........................................................................$ 32,677 $ 27,989
Interest income........................................................................ 478 591
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.................................................................................... 33,155 28,580
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OPERATING COSTS AND EXPENSES
Interest............................................................................... 11,399 10,375
Depreciation .......................................................................... 6,297 6,397
Ground rent, taxes and other........................................................... 5,935 5,413
Base and Courtyard management fees..................................................... 3,792 3,474
Incentive management fee............................................................... 3,003 2,435
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.................................................................................... 30,426 28,094
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NET INCOME...............................................................................$ 2,729 $ 486
============== ==============
ALLOCATION OF NET INCOME
General Partner........................................................................$ 136 $ 24
Limited Partners....................................................................... 2,593 462
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....................................................................................$ 2,729 $ 486
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NET INCOME PER LIMITED PARTNER UNIT (1,470 Units)........................................$ 1,764 $ 314
============== ==============
See Notes to Condensed Consolidated Financial Statements.
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1
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<TABLE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<CAPTION>
March 28, December 31,
1997 1996
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(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net............................................................$ 458,735 $ 458,687
Due from Courtyard Management Corporation.............................................. 13,518 13,315
Other assets........................................................................... 50,540 54,052
Restricted cash........................................................................ 8,859 6,848
Cash and cash equivalents.............................................................. 10,944 14,197
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....................................................................................$ 542,596 $ 547,099
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LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Debt...................................................................................$ 523,028 $ 526,253
Management fees due to Courtyard Management Corporation. .............................. 35,929 36,442
Due to Marriott International, Inc. and affiliates..................................... 9,142 9,169
Accounts payable and accrued liabilities............................................... 3,709 7,176
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Total Liabilities................................................................... 571,808 579,040
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PARTNERS' CAPITAL (DEFICIT)
General Partner........................................................................ 5,923 5,787
Limited Partners....................................................................... (35,135) (37,728)
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Total Partners' Deficit............................................................. (29,212) (31,941)
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....................................................................................$ 542,596 $ 547,099
============== ==============
See Notes to Condensed Consolidated Financial Statements.
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2
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<TABLE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Twelve Weeks Ended
March 28, March 22,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................................................$ 2,729 $ 486
Noncash items.......................................................................... 6,147 7,857
Changes in operating accounts.......................................................... (3,670) (2,019)
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Cash provided by operating activities............................................... 5,206 6,324
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INVESTING ACTIVITIES
Additions to property and equipment.................................................... (6,345) (3,016)
Change in property improvement funds................................................... 3,122 79
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Cash used in investing activities................................................... (3,223) (2,937)
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FINANCING ACTIVITIES
Repayments of debt .................................................................... (3,225) (532,100)
Change in reserve accounts............................................................. (2,011) (3,706)
Proceeds from debt .................................................................... -- 537,600
Payment of financing costs............................................................. -- (12,511)
Repayment of advances from Host Marriott Corporation................................... -- (6,489)
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Cash used in financing activities................................................... (5,236) (17,206)
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DECREASE IN CASH AND CASH EQUIVALENTS.................................................... (3,253) (13,819)
CASH AND CASH EQUIVALENTS at beginning of period......................................... 14,197 27,708
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CASH AND CASH EQUIVALENTS at end of period...............................................$ 10,944 $ 13,889
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest..............................................$ 14,574 $ 9,277
============== ==============
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
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COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements have been
prepared by the Courtyard By Marriott II Limited Partnership (the
"Partnership") without audit. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles 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 condensed consolidated financial statements should be read in
conjunction with the Partnership's consolidated financial statements and
notes thereto included in the Partnership's Form 10-K for the fiscal year
ended December 31, 1996.
In the opinion of the Partnership, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of the Partnership as of March 28, 1997 and December 31,
1996, and the results of operations and cash flows for the twelve weeks
ended March 28, 1997 and March 22, 1996. Interim results are not
necessarily indicative of fiscal year performance because of seasonal and
short-term variations.
For financial reporting purposes, the net income of the Partnership is
allocated 95% to the Limited Partners and 5% to CBM Two Corporation (the
"General Partner"). Significant differences exist between the net income
for financial reporting purposes and the net income reported for Federal
income tax purposes. These differences are due primarily to the use for
income tax purposes of accelerated depreciation methods, shorter
depreciable lives for the assets, differences in the timing of the
recognition of certain fees and straight-line rent adjustments.
Certain reclassifiations were made to the prior year financial statements
to conform to the 1997 presentation.
2. Revenues represent house profit which is hotel sales less hotel-level
expenses, excluding certain operating costs and expenses such as
depreciation, base, Courtyard and incentive management fees, real and
personal property taxes, ground and equipment rent, insurance and certain
other costs. Revenues consist of the following for the twelve weeks ended
(in thousands):
March 28, March 22,
1997 1996
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HOTEL SALES
Rooms...............................$ 56,756 $ 51,576
Food and beverage... ............... 4,111 4,149
Other............................... 2,337 2,174
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............................................ 63,204 57,899
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HOTEL EXPENSES
Departmental direct costs
Rooms............................ 11,640 11,380
Food and beverage................ 3,434 3,562
Other............................... 15,453 14,968
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................................. 30,527 29,910
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HOTEL REVENUES.........................$ 32,677 $ 27,989
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4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
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 limited partners.
Cash provided by operations for the twelve weeks ended March 28, 1997 and March
22, 1996, was $5.2 million and $6.3 million, respectively. During the twelve
weeks ended March 28, 1997, the Partnership utilized funds from the property
improvement fund to purchase $6.3 million of property and equipment. In
addition, the Partnership repaid $3.2 million of debt during the first quarter
of 1997.
The General Partner believes that cash from hotel operations combined with the
ability to defer certain management fees to the Manager and ground rent payments
to Marriott International, Inc. and affiliates will provide adequate funds in
the short term and long term for the operational and capital needs of the
Partnership.
RESULTS OF OPERATIONS
Revenues (hotel sales less direct hotel operating costs and expenses) increased
by $4.7 million for the twelve weeks ended March 28, 1997, to $32.7 million, a
16.7% increase when compared to the same period in 1996. This increase in
revenues was achieved through an increase in hotel sales.
For the twelve weeks ended March 28, 1997, hotel sales increased $5.3 million to
$63.2 million, a 9.2% increase over the comparable period in 1996. This increase
in sales was achieved primarily through an increase in the combined average room
rate of $5.98 to $81.89 from $75.91 for the twelve weeks ended March 28, 1997.
The increase in average room rate is primarily due to agressive weekday pricing
and national weekend promotional pricing which was extended through February
1997. As a result, room sales for the twelve weeks ended March 28, 1997
increased by $5.2 million, or 10%, to $56.8 million from $51.6 million for the
comparable period in 1996.
Combined average occupancy for the first quarter 1997 increased by 1.5
percentage points to 79.8% as compared to the same period in 1996. Thirty-four
of the Partnership's 70 Hotels posted occupancy rates exceeding 80% for the
twelve weeks ended March 28, 1997. REVPAR, or revenue per available room,
represents the combination of the combined average daily room rate charged and
the combined average occupancy achieved. REVPAR for the twelve weeks ended March
28, 1997, increased $5.91 to $65.35, a 9.9% increase over the same period in
1996.
Direct hotel operating costs and expenses increased from $29.9 million for the
twelve weeks ended March 22, 1996 to $30.5 million for the twelve weeks ended
March 28, 1997. However, as a percentage of total hotel sales, these costs and
expenses decreased to 48.3% in the first quarter of 1997 from 51.7% in the first
quarter of 1996. This has resulted in higher rooms and food and beverage
revenues. Rooms revenues increased by 12.2% for the twelve weeks ended March 28,
1997, as compared to the same quarter in 1996. Food and beverage revenues also
increased by 15.3% for the twelve weeks ended March 28, 1997, from the
comparable period in 1996.
Interest expense increased 9.9% to $11.4 million for the twelve weeks ended
March 28, 1997, from $10.4 million for the first quarter of 1996. The increase
is due to the refinancing of the mortgage debt at fixed rates which are higher
than the variable interest rates which were in effect through January 24, 1996.
The weighted average interest rate for first quarter 1997 was 8.8% as compared
to 8.2% for the first quarter 1996.
5
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The increase in base and Courtyard management fees of 9.2%, from $3.5 million
for the first quarter 1996 to $3.8 million for the same period in 1997 is due to
the improved combined hotel sales for the 70 Hotels.
Ground rent, taxes and other increased by 9.7% primarily due to increases in
ground rent and property tax expense during the twelve weeks ended March 28,
1997 over the same quarter in 1996. However, as a percentage of total hotel
sales, ground rent and property tax expense remained stable at 4.6% and 3.8%,
respectively.
In the first quarter of 1997 $3.0 million of incentive management fees were
earned as compared to $2.4 million earned in the same period in 1996. The
increase in incentive management fees earned was the result of improved combined
hotel operating results.
For the twelve weeks ended March 28, 1997, the Partnership had net income of
$2.7 million, an increase of $2.2 million, from net income of $0.5 million for
the same quarter in 1996. This increase was primarily due to higher revenues as
discussed above, offset by increases in interest expense and management fees.
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 esxpressed or implied by
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain Limited Partners of the Partnership have filed a lawsuit in Texas state
court against the General Partner, the Manager and certain of their respective
affiliates, officers and directors. These partners have alleged that the General
Partner and the Manager have improperly operated the business affairs of the
Partnership and its hotels. The General Partner believes that all of these
claims are without foundation and intends to vigorously defend against them.
The Partnership and the Hotels 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.
6
<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.
COURTYARD BY MARRIOTT II
LIMITED PARTNERSHIP
By: CBM TWO CORPORATION
General Partner
May 9, 1997 By: ------------------------------------------
Earla L. Stowe
Vice President and Chief Accounting Officer
7
<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.
COURTYARD BY MARRIOTT II
LIMITED PARTNERSHIP
By: CMB TWO CORPORATION
General Partner
/s/ Earla L. Stowe
May 9, 1997 By: ---------------------------------
Earla L. Stowe
Vice President and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000832179
<NAME> COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-28-1997
<EXCHANGE-RATE> 1.000
<CASH> 19,803
<SECURITIES> 50,540 <F1>
<RECEIVABLES> 13,518
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 83,861
<PP&E> 691,880
<DEPRECIATION> (233,145)
<TOTAL-ASSETS> 542,596
<CURRENT-LIABILITIES> 3,709
<BONDS> 568,099
0
0
<COMMON> 0
<OTHER-SE> (29,212) <F2>
<TOTAL-LIABILITY-AND-EQUITY> 542,596
<SALES> 0
<TOTAL-REVENUES> 33,155
<CGS> 0
<TOTAL-COSTS> 19,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,399
<INCOME-PRETAX> 2,729
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,729
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> THIS REPRESRENTS OTHER ASSETS
<F2> THIS REPRESENTS PARTNERS DEFICIT
</FN>
</TABLE>
