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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: 033-24935
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
---------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1605434
- ------------------------------------- --------------------------------------
(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 ___ No ____ (Not Applicable. On August 25, 1992, the
Registrant filed an application for relief from the reporting requirements of
the Securities Exchange Act of 1934 pursuant to Section 12(h) thereof. Pursuant
to a grant of the relief requested in such application, the Registrant was not
required to, and did not make, any filings pursuant to the Securities Exchange
Act of 1934 from October 23, 1989 until the application was voluntarily
withdrawn on January 26, 1998.)
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Marriott Residence Inn II Limited Partnership
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TABLE OF CONTENTS
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PAGE NO.
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PART I - FINANCIAL INFORMATION
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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 28, March 22,
1997 1996
---------- ----------
<S> <C> <C>
REVENUES............................................ $ 8,348 $ 7,525
---------- ----------
OPERATING COSTS AND EXPENSES
Depreciation....................................... 1,633 1,757
Incentive management fee........................... 887 769
Residence Inn system fee........................... 631 590
Property taxes..................................... 516 510
Base management fee................................ 332 312
Equipment rent and other........................... 211 286
---------- ----------
4,210 4,224
---------- ----------
OPERATING PROFIT.................................... 4,138 3,301
Interest expense................................... (3,055) (3,173)
Interest income.................................... 138 74
---------- ----------
NET INCOME.......................................... $ 1,221 $ 202
========== ==========
ALLOCATION OF NET INCOME
General Partner.................................... $ 12 $ 2
Limited Partners................................... 1,209 200
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$ 1,221 $ 202
========== ==========
NET INCOME PER LIMITED PARTNER UNIT (70,000 Units).. $ 17 $ 3
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
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MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
March 28, December 31,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net................................................... $ 144,499 $ 144,792
Deferred financing costs, net................................................. 3,702 3,797
Due from Residence Inn by Marriott, Inc....................................... 2,696 2,472
Property improvement fund..................................................... 1,838 2,150
Restricted reserves........................................................... 4,928 4,291
Cash and cash equivalents..................................................... 5,597 8,008
---------- ----------
$ 163,260 $ 165,510
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt................................................................. $ 140,000 $ 140,000
Incentive management fee due to Residence Inn by Marriott, Inc................ 14,878 14,610
Accounts payable and accrued expenses......................................... 1,492 1,695
---------- ----------
Total Liabilities............................................................ 156,370 156,305
---------- ----------
PARTNERS' CAPITAL
General Partner............................................................... 147 171
Limited Partners.............................................................. 6,743 9,034
---------- ----------
Total Partners' Capital...................................................... 6,890 9,205
---------- ----------
$ 163,260 $ 165,510
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 28, March 22,
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ 1,221 $ 202
Noncash items................................ 1,996 2,526
Changes in operating accounts................ (427) (8,994)
--------- ---------
Cash provided by (used in) operating
activities................................. 2,790 (6,266)
--------- ---------
INVESTING ACTIVITIES
Additions to property and equipment.......... (1,340) (820)
Additions to restricted reserves............. (637) (747)
Change in property improvement funds......... 312 (2,378)
--------- ---------
Cash used in investing activities........... (1,665) (3,945)
--------- ---------
FINANCING ACTIVITIES
Capital distributions to partners............ (3,536) --
Proceeds from mortgage loan.................. -- 140,000
Repayment of mortgage debt................... -- (137,089)
Refinancing costs............................ -- (3,160)
--------- ---------
Cash used in financing activities........... (3,536) (249)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS......... (2,411) (10,460)
CASH AND CASH EQUIVALENTS at beginning of
period....................................... 8,008 13,892
--------- ---------
CASH AND CASH EQUIVALENTS at end of period.... $ 5,597 $ 3,432
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest....................... $ 3,098 $ 9,893
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements have been
prepared by Marriott Residence Inn 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. Interim results are not necessarily indicative of fiscal year
performance because of seasonal and short-term variations.
2. Revenues represent house profit of the Partnership Inns since the
Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Inns to Residence Inn by
Marriott, Inc. (the "Manager"). House profit reflects the net revenues
flowing to the Partnership as property owner and represents Inn operating
results less property-level expenses, excluding depreciation, Residence Inn
system, base and incentive management fees, real and personal property
taxes, equipment rent, insurance and certain other costs, which are
classified as operating costs and expenses. Revenues consist of the
following for the twelve-weeks ended (in thousands):
<TABLE>
<CAPTION>
March 28, March 22,
1997 1996
--------- ---------
<S> <C> <C>
INN SALES
Suites........................... $15,778 $14,761
Other operating departments...... 868 819
------- -------
16,646 15,580
------- -------
INN EXPENSES
Departmental direct costs
Suites....................... 3,356 3,135
Other operating departments.. 353 339
Other Inn operating expenses..... 4,589 4,581
------- -------
8,298 8,055
------- -------
REVENUES............................. $ 8,348 $ 7,525
======= =======
</TABLE>
4
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3. 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 ("Units") and (iii) the Partnership would enter
into a Lease for the operation of its Hotels 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 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 Units in connection with the Consolidation will be made solely
by a final Prospectus/Consent Solicitation.
ITEM 2. 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 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.
RESULTS OF OPERATIONS
First Quarter 1997 Compared To First Quarter 1996
Revenues. Revenues for the First Quarter 1997 increased $.8 million, or 10.9%,
to $8.3 million. Revenue and operating profit were impacted primarily by growth
in revenue per available room ("REVPAR"). REVPAR is a commonly used indicator
of market performance for hotels which represents the combination of daily room
rate charged and the average daily occupancy achieved. REVPAR does not include
food and beverage or other ancillary revenues generated by the property. Inn
sales increased $1.1 million, or 6.8%, to $16.6 million in the First Quarter
1997 reflecting the improvements in REVPAR for the period. REVPAR increased
6.9% for the First Quarter 1997 due primarily to an increase in average room
rates of 5%, while average occupancy increased by 1.4 percentage points. Due to
the high occupancy of these properties, the Partnership expects future increases
in REVPAR to be driven by room rate increases, rather than occupancy increases.
However, there can be no assurance that REVPAR will continue to increase in the
future.
Operating Costs and Expenses. Operating costs and expenses remained stable at
$4.2 million for the First Quarter 1997. As a percentage of Inn revenues, Inn
operating costs and expenses were 50% and 56% of revenues for the First Quarter
1997 and the First Quarter 1996, respectively.
Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, operating profit increased by $0.8 million to $4.1
million, or 50% of revenues, for the First Quarter 1997 from $3.3 million, or
44% of revenues, for the First Quarter 1996.
Interest Expense. Interest expense decreased 3.7% to $3.1 million for the First
Quarter 1997 from $3.2 million for the First Quarter 1996.
Net Income. Net income for the First Quarter 1997 increased $1.0 million to
$1.2 million, or 15% of revenues, compared to net income of $0.2 million, or
2.7% of revenues, for the First Quarter 1996.
5
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LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $2.8 million for the First Quarter 1997 while
cash used in operations was $6.3 million for the First Quarter 1996.
Cash used in investing activities for the First Quarter 1997 and the First
Quarter 1996 was $1.7 million and $3.9 million, respectively. The Partnership's
cash investing activities consists primarily of contributions to the property
improvement fund and capital expenditures for improvements to existing Inns and
contributions to restricted cash reserves required under the new terms of the
mortgage debt.
Cash used in financing activities for the First Quarter 1997 and the First
Quarter 1996 was $3.5 million and $0.2 million, respectively. The Partnership's
cash financing activities primarily consist of capital distributions to
partners, repayment of debt and payment of financing costs, as well as the
refinancing of certain debts of the Partnership. In March 1996, the Partnership
refinanced mortgage debt of $137 million with proceeds from a $140 million
nonrecourse mortgage loan. The excess proceeds from the loan were primarily
used to establish a reserve for certain capital expenditures. The refinanced
debt is nonrecourse to the Partnership, bears interest at a fixed rate of 8.85%
and matures in 2006. Principal amortization is required on the loan over the
ten year term based on a 25-year amortization. In connection with the
refinancing, the Partnership contributed the Bossier City Residence Inn to a
newly formed wholly-owned subsidiary.
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.
6
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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 II
LIMITED PARTNERSHIP
By: MARRIOTT RIBM TWO CORPORATION
General Partner
January 26, 1998 By: /s/ Patricia K. Brady
-- ---------------------------------------------
Patricia K. Brady
Vice President and Chief Accounting Officer
7
<TABLE> <S> <C>
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<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> 0000841283
<NAME> MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-28-1997
<CASH> 5,597
<SECURITIES> 0
<RECEIVABLES> 2,696
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,468
<PP&E> 209,516
<DEPRECIATION> (65,017)
<TOTAL-ASSETS> 163,260
<CURRENT-LIABILITIES> 156,370
<BONDS> 0
0
0
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<OTHER-SE> 6,890
<TOTAL-LIABILITY-AND-EQUITY> 163,260
<SALES> 0
<TOTAL-REVENUES> 8,348
<CGS> 0
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<OTHER-EXPENSES> 4,072
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<INTEREST-EXPENSE> 3,055
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<EPS-PRIMARY> 0
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</TABLE>
