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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. 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 of Organization) (I.R.S. Employer Identification Number)
10400 Fernwood Road, Bethesda, MD 20817-1109
- ---------------------------------------- -----------------------
(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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COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
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TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Operations
Twelve Weeks Ended March 24, 2000 and March 26, 1999
(Unaudited)...............................1
Condensed Consolidated Balance Sheet
March 24, 2000 (Unaudited) and December 31, 1999................2
Condensed Consolidated Statement of Cash Flows
Twelve Weeks Ended March 24, 2000 and March 26, 1999
(Unaudited)...............................3
Note to Condensed Consolidated 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..................................................7
Item 6. Exhibits and Reports on Form 8-K...................................8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except unit and per unit amounts)
<TABLE>
Twelve Weeks Ended
March 24, March 26,
2000 1999
------------- ---------
<S> <C> <C>
REVENUES
Hotel revenues
Rooms...................................................$ 61,453 $ 61,391
Food and beverage....................................... 4,092 4,128
Other................................................... 2,472 2,280
Total hotel revenues.................................. 68,017 67,799
OPERATING COSTS AND EXPENSES
Hotel property-level costs and expenses
Rooms................................................... 13,796 13,599
Food and beverage....................................... 3,559 3,587
Other department costs and expenses..................... 960 694
Selling, administrative and other....................... 15,736 15,863
Total hotel property-level costs and expenses........ 34,051 33,743
Depreciation............................................. 8,124 6,118
Ground rent, taxes and other............................. 6,667 5,999
Base and Courtyard management fees....................... 4,081 4,068
Incentive management fee................................. 3,133 3,095
Total operating costs and expenses................... 56,056 53,023
OPERATING PROFIT............................................ 11,961 14,776
Interest expense......................................... (10,005) (10,393)
Interest income.......................................... 321 308
NET INCOME.................................................$ 2,277 $ 4,691
============= =============
ALLOCATION OF NET INCOME
General Partner.........................................$ 114 $ 235
Limited Partners........................................ 2,163 4,456
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$ 2,277 $ 4,691
============= =============
NET INCOME PER LIMITED PARTNER UNIT (1,470 Units)..........$ 1,471 $ 3,031
============= =============
See Note to Condensed Consolidated Financial Statements.
</TABLE>
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COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
March 24, December 31,
2000 1999
-------------- ----------
(Unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net............................................................$ 447,732 $ 454,412
Deferred financing costs, net of accumulated amortization.............................. 12,327 12,690
Due from Courtyard Management Corporation.............................................. 7,983 8,795
Other assets........................................................................... 26 11
Property improvement fund.............................................................. 11,769 5,395
Restricted cash........................................................................ 17,699 18,299
Cash and cash equivalents.............................................................. 18,661 23,341
-------------- ---------------
$ 516,197 $ 522,943
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LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Debt...................................................................................$ 480,493 $ 483,181
Management fees due to Courtyard Management Corporation................................ 33,396 33,805
Due to Marriott International, Inc. and affiliates..................................... 8,785 8,812
Accounts payable and accrued liabilities............................................... 9,793 12,017
-------------- ---------------
Total Liabilities................................................................ 532,467 537,815
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PARTNERS' CAPITAL (DEFICIT)
General Partner........................................................................ 8,425 8,311
Limited Partners....................................................................... (24,695) (23,183)
-------------- ---------------
Total Partners' Deficit.......................................................... (16,270) (14,872)
-------------- ---------------
$ 516,197 $ 522,943
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See Note to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
Twelve Weeks Ended
March 24, March 26,
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income ...............................................................................$ 2,277 $ 4,691
Noncash items............................................................................. 8,472 6,482
Changes in operating accounts............................................................. (1,248) (212)
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Cash provided by operating activities............................................... 9,501 10,961
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INVESTING ACTIVITIES
Additions to property and equipment....................................................... (1,444) (6,388)
Change in property improvement funds...................................................... (6,374) 2,228
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Cash used in investing activities................................................... (7,818) (4,160)
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FINANCING ACTIVITIES
Capital distributions..................................................................... (3,675) --
Repayments of debt ....................................................................... (2,688) (2,494)
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Cash used in financing activities................................................... (6,363) (2,494)
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............................................. (4,680) 4,307
CASH AND CASH EQUIVALENTS at beginning of period............................................. 23,341 17,903
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CASH AND CASH EQUIVALENTS at end of period...................................................$ 18,661 $ 22,210
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest.................................................$ 11,453 $ 11,644
============= =============
See Note to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The accompanying unaudited, condensed, consolidated financial
statements have been prepared by Courtyard By Marriott II 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, 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 year
ended December 31, 1999.
In the opinion of the Partnership, the accompanying unaudited,
condensed, consolidated 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. Interim
results are not necessarily indicative of full 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 LLC (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 Federal 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 reclassifications were made to the prior year financial
statements to conform to the 2000 presentation.
<PAGE>
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 of the
hotels and other properties, the level of 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 room rate structures; (iii) changes in travel patterns, taxes
and government regulations which influence or determine wages, prices,
construction costs and procedures; (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
Hotel Revenues. Total hotel revenues for first quarter 2000 increased by
$218,000 to $68 million when compared to the same period in 1999. The increase
in hotel revenues was achieved primarily through the slight increase in rooms
revenue and an increase in telephone revenues, which was slightly offset by an
additional day of operations in first quarter 1999. First quarter 2000 revenues
represent 84 days of operations and first quarter 1999 represents 85 days of
operations.
Rooms revenues. Rooms revenues for first quarter 2000 increased slightly to
$61.4 million when compared to the same period last year due to the slight
increase in revenue per available room ("REVPAR") to $71 in first quarter 2000
when compared to $70 for first quarter 1999. The increase in REVPAR is due to
the $3 increase in the combined average rate to $93 partially offset by a two
percentage point decrease in combined average occupancy to 76%.
Operating costs and expenses. Operating costs and expenses increased $3 million,
or 6%, to $56 million for first quarter 2000 when compared to first quarter
1999, primarily due to the increase in depreciation and ground rent, taxes and
other expenses discussed below. As a percentage of Hotel revenues, operating
costs and expenses represented 82% and 78% of revenues for first quarter 2000
and first quarter 1999, respectively.
The Partnership's Hotel property-level costs and expenses increased $308,000 to
$34.1 million when compared to the same period in 1999. Hotel property-level
costs and expenses are higher due to increased salary and benefit expenses as
the Hotels endeavor to maintain competitive wage scales. As a percentage of
Hotel revenues, property-level costs and expenses represented approximately 50%
of revenues for both first quarter 2000 and first quarter 1999.
Depreciation. Depreciation expense increased $2 million to $8.1 million for
first quarter 2000 when compared to the same period in 1999. The increase is due
to a loss of $1.5 million associated with the retirement of property and
equipment and the completion of rooms renovations during 1999.
Ground rent, taxes and other. Ground rent, taxes and other expenses increased
$668,000 to $6.7 million for first quarter 2000 when compared to first quarter
1999 due to increases in administrative costs.
Operating Profit. Operating profit decreased $2.8 million for first quarter 2000
to $12 million when compared to the same period in 1999. The decrease was due to
the increases in depreciation, ground rent, taxes and other expenses, and the
loss on retirement of property and equipment described above. As a percentage of
Hotel revenues, operating profit represented 18% of revenues for first quarter
2000 and 22% for first quarter 1999.
Interest Expense. Interest expense decreased $388,000, or 4%, to $10 million for
first quarter 2000 when compared to the same period in 1999 as a result of
principal amortization on the Certificates/Mortgage Loan. The weighted average
interest rate for first quarter 2000 was 8.6% as compared to 8.7% for first
quarter 1999.
Net Income. Net income for first quarter 2000 decreased by $2.4 million to $2.3
million when compared to first quarter 1999 as a result of the items discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions. The General Partner believes
that cash from Hotel operations will be sufficient to make the required debt
service payments, to fund the current capital expenditures needs of the Hotels
as well as to make cash distributions to the limited partners.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is 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 first quarter 2000 and first quarter 1999, was
$9.5 million and $11.0 million respectively. The decrease in cash provided by
operations is primarily due to the decrease in net income due to the items
discussed above.
Cash used in investing activities was $7.8 million and $4.2 million for first
quarter 2000 and first quarter 1999, respectively. Cash used in investing
activities for 2000 includes capital expenditures of $1.4 million, primarily
related to renovations and replacements of furniture, fixtures and equipment at
the Partnership's Hotels as compared to $6.4 million in 1999. The property
improvement fund increased $6.4 million for the first quarter 2000 as compared
to an increase of $2.2 million for the comparable period in 1999. During first
quarter 2000, the Partnership funded $4.9 million to the property improvement
fund for certain capital expenditures.
Cash used in financing activities was $6.4 million and $2.5 million for first
quarter 2000 and first quarter 1999, respectively. During these periods, the
Partnership repaid $2.7 million and $2.5 million, respectively, of principal on
the commercial mortgage-backed securities. Cash used in financing activities
included $3.7 million of cash distributions to limited partners during the first
quarter of 2000. On February 16, 2000, the Partnership utilized 1999 cash flow
after debt service to make a final 1999 cash distribution of $2,500 per limited
partner unit or $3,675,000. There were no cash distributions to the limited
partners in first quarter 1999 as the final 1998 cash distribution was made in
second quarter 1999.
<PAGE>
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
Certain Limited Partners of the Partnership filed a lawsuit, styled Whitey Ford,
et al. v. Host Marriott Corporation, et al., Case No. 96-CI-08327, in the 285th
Judicial District Court of Bexar County, Texas on June 7, 1996, against Host
Marriott Corporation ("Host Marriott"), Marriott International, Inc. ("MII"),
various related entities, and others (collectively, the "Defendants"). On
January 29, 1998, two other Limited Partners, A.R. Milkes and D.R. Burklew,
filed a petition to expand this lawsuit into a class action. On June 23, 1998,
the Court entered an order certifying a class of limited partners under Texas
law. The plaintiffs allege, among other things, that the Defendants committed
fraud, breached fiduciary duties, and violated the provisions of various
contracts.
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 MII, Host
Marriott, 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 the Partnership was filed by the
plaintiffs' lawyers in the same court, involves similar allegations against the
Defendants, and has been certified as a class action (see above). As a result of
this development, the Partnership 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 the Whitey Ford litigation.
The settlement is subject to numerous conditions, including partnership
agreement amendments, 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 $147,959 per Unit, or a pro rata portion
thereof, in cash in exchange for the transfer, directly or through a merger, of
all limited partner Units to a joint venture between subsidiaries of Host
Marriott and MII, dismissal of the litigation, and a complete release of all
claims. If the Texas court approves legal fees and expenses of approximately
$29,000 per Unit to counsel to the class action plaintiffs, the net amount that
each class member who transfers his Unit and releases all of his litigation
claims will receive is approximately $119,000 per Unit, or a pro rata portion
thereof for fractional Units.
Limited partners who opt out of the settlement would have their interests in the
Partnership converted into the right to receive the appraised value of the Units
in cash (excluding any amount related to the claims asserted in the class action
litigation) and will 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 1,470 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 Hotels under long-term agreements.
The details of the settlement will be contained in a court-approved notice and
purchase offer/consent solicitation 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 and purchase
offer/consent solicitation 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.
COURTYARD BY MARRIOTT II
LIMITED PARTNERSHIP
By: CBM TWO LLC
General Partner
May 8, 2000 By: /s/ Earla L. Stowe
------------------
Earla L. Stowe
Vice President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT 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> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-24-2000
<EXCHANGE-RATE> 1.00
<CASH> 18,661
<SECURITIES> 0
<RECEIVABLES> 7,983
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,821
<PP&E> 723,667
<DEPRECIATION> (275,935)
<TOTAL-ASSETS> 516,197
<CURRENT-LIABILITIES> 51,974
<BONDS> 480,493
0
0
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<TOTAL-LIABILITY-AND-EQUITY> 516,197
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<OTHER-EXPENSES> (55,735)
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</TABLE>
