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Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 12, 1998
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 033-24935 52-1605434
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
incorporation or Identification No.)
organization)
10400 Fernwood Road, Bethesda, MD 20817-1109
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 301-380-2070
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<PAGE>
ITEM 5. OTHER EVENTS
On June 12, 1998, August 21, 1998 and November 25, 1998, the General
Partner sent to the Limited Partners of the Partnership a letter that
accompanied the Partnership's Quarterly Reports on Form 10-Q. Such letters are
being filed as exhibits to this Current Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
99.1 Letter from the General Partner to the Limited Partner
of the Partnership that accompanied the Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended
March 27, 1998.
99.2 Letter from the General Partner to the Limited Partners of
the Partnership that accompanied the Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended June
19, 1998.
99.3 Letter from the General Partner to the Limited Partners of
the Partnership that accompanied the Partnership's
Quarterly Report on Form 10-Q for the Quarter Ended
September 11, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP
By: MARRIOTT RIBM TWO CORPORATION
General Partner
November 30, 1998 By: /s/ Earla L. Stowe
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Name: Earla L. Stowe
Title: Vice President and Chief Accounting
Officer
<PAGE>
EXHIBIT INDEX
Exhibit No.: Description:
99.1 Letter from the General Partner to the Limited Partners of the
Partnership that accompanied the Partnership's Quarterly
Report on Form 10-Q for the Quarter Ended March 27, 1998.
99.2 Letter from the General Partner to the Limited Partners of the
Partnership that accompanied the Partnership's Quarterly
Report on Form 10-Q for the Quarter Ended June 19, 1998.
99.3 Letter from the General Partner to the Limited Partners of the
Partnership that accompanied the Partnership's Quarterly
Report on Form 10-Q for the Quarter Ended September 11, 1998.
Exhibit 99.1
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MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP
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1998 First Quarter Report
Limited Partner Quarterly Update
Presented for your review is the 1998 First Quarter Report for Marriott
Residence Inn II Limited Partnership. In 1997, the Partnership began filing
periodic reports with the Securities and Exchange Commission ("SEC"). The
Partnership will continue to file what are known as Form 10-Qs each quarter, and
a Form 10-K annually. The Form 10-Q immediately follows this update and replaces
the quarterly report format previously used by the Partnership.
Potential Transaction
In December 1997, Host Marriott Corporation on behalf of the General Partner,
Marriott RIBM Two Corporation, filed a preliminary Prospectus/Consent
Solicitation Statement (the "S-4") with the SEC which proposed the consolidation
(the "Consolidation") of this Partnership and five other limited partnerships
into a publicly traded real estate investment trust ("REIT"). The General
Partner has been working to resolve various open issues concerning the proposed
Consolidation.
In addition, there are existing REIT's which are active in the moderate price
and extended stay hotel segment that have expressed an interest in the six
limited partnerships. Therefore, the General Partner has had preliminary
discussions with some of these companies. Although no agreements have yet been
reached, the General Partner continues to pursue the possibility of a potential
transaction involving the Partnership's assets or a merger of the Partnership
with an existing publicly traded company.
The General Partner has retained Merrill Lynch to advise the Partnership with
respect to the Partnership's strategic alternatives, including the original
Consolidation plan and other available alternatives. The General Partner intends
to continue to explore these alternatives and determine which path to pursue,
obviously subject to appropriate partner approval.
Cash Distributions and Capital Expenditure Budgets
During the first quarter of 1998, the Partnership distributed $50 per limited
partner unit which represents a 5% annualized return on invested capital. The
distribution was made entirely from 1997 cash from operations.
Based on current 1998 operating forecasts, we anticipate that 1998 cash
available for distribution will be comparable to 1997 levels. It is expected
that the Partnership will make one distribution after year end and that the
distribution will also be net of a reserve established by the General Partner
for the future capital needs of the Partnership Inns, as discussed below.
Based upon current capital expenditure budgets, the Partnership's property
improvement fund is forecasted to be insufficient beginning in 1998. This
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,
the General Partner established a reserve (the "Capital Reserve") in 1996 for
future capital needs of the Partnership's Inns. As of March 27, 1998, the
Capital Reserve balance was $4.7 million. The current property improvement fund
shortfall estimate of $6.4 million through 1999 will be funded by $4.1 million
from the Capital Reserve, with the remaining $2.3 million to be funded by
increasing the property improvement fund contribution rate from 5% to 6% in 1998
and 7% in 1999. The proposed financing of the property improvement fund
shortfall is subject to approval by the Partnership's mortgage lender. As
always, we will continue to work with the manager to promote efficient use of
the property improvement fund.
Inn Operations
Partnership revenues decreased 4% when compared to 1997. This decrease is
primarily due to stable Inn sales and REVPAR results combined with higher Inn
labor costs. REVPAR, or revenue per available room, is a commonly used indicator
of Inn performance which measures daily suite revenue generated on a per suite
basis. On a combined basis, REVPAR for the first quarter 1998 increased 1% to
$76 from $75 in first quarter 1997 due to a 2% increase in the combined average
suite rate to approximately $92 partially offset by a two percentage point
decrease in the combined average occupancy to approximately 83%.
Amounts Paid to the General Partner and Marriott International, Inc.
The chart below summarizes amounts paid (in thousands) to the General Partner
and Marriott International, Inc. for the twelve weeks ended March 27, 1998
(unaudited):
<TABLE>
Marriott International, Inc.:
<S> <C>
Residence Inn system fee............................$ 637
Chain services and Marriott Rewards Program......... 439
Marketing fund contribution......................... 398
Base management fee................................. 334
Incentive management fee............................ 298
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$ 2,106
General Partner:
Administrative expenses reimbursed..................$ 144
Capital distribution................................ 35
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$ 179
</TABLE>
Further details of the First Quarter 1998 Inn operations are contained in the
Partnership's Form 10-Q, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
You are encouraged to review the enclosed Form 10-Q in its entirety. If you have
any further questions regarding your investment, please contact Host Marriott
Partnership Investor Relations at (301) 380-2070.
Exhibit 99.2
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MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP
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1998 Second Quarter Report
Limited Partner Quarterly Update
Presented for your review is the 1998 Second Quarter Report for Marriott
Residence Inn II Limited Partnership. Discussion of the Partnership's
performance and Inn operations is included in Item 2, Management's Discussion
and Analysis of Financial Condition and Results of Operations. You are
encouraged to review this report in its entirety. If you have any further
questions regarding your investment, please contact Host Marriott Partnership
Investor Relations at (301) 380-2070.
Potential Transaction
As previously reported to you, Host Marriott Corporation on behalf of the
General Partner, Marriott RIBM Two Corporation, filed a preliminary
Prospectus/Consent Solicitation Statement with the SEC in December 1997 which
proposed the consolidation (the "Consolidation") of this Partnership and five
other limited partnerships into a publicly traded real estate investment trust
("REIT").
In addition, we reported to you that there are existing REIT's which are active
in the moderate price and extended stay hotel segment that have expressed an
interest in acquiring the hotels owned by the six limited partnerships. The
General Partner has had preliminary discussions with some of these companies and
continues to pursue the possibility of a potential transaction involving the
sale of the Partnership's assets or a merger of the Partnership with an existing
publicly traded company.
The General Partner has retained Merrill Lynch to advise the Partnership with
respect to the Partnership's strategic alternatives. The General Partner intends
to continue to explore these alternatives and determine which path to pursue,
obviously subject to appropriate partner approval.
Secondary Market Activity
There has been an increase in the number of third party solicitations for this
Partnership's limited partner units. Although we are not in a position to advise
you as to whether you should accept such offers, limited partners should be
aware that the Partnership Agreement contains certain restrictions on the
assignment of partnership interests. Among these restrictions is a prohibition
on sales of additional Partnership interests in any calendar year if such
additional transfers would result in the Partnership not being able to qualify
for at least one of the "safe harbors" which govern the circumstances under
which a limited partnership will cease to be treated as a partnership and will
instead be treated as a corporation for tax purposes. If Partnership sales
activity for 1998 brings the Partnership to the safe harbor limit for 1998, the
Partnership would be unable to allow additional unit sales in 1998. You should
check with the General Partner before signing any sale document to determine if
your transfer can be accepted.
<PAGE>
In addition to reviewing the information provided in this report, we encourage
you to consult with your financial and tax advisors when deciding if you should
sell your Partnership units. Due to the allocation of tax losses and income to
you over the life of the Partnership as well as any cash distributions paid to
you, your tax basis in this investment may be significantly lower than your
original investment amount. Therefore, there may be negative tax effects
resulting from the sale of these units that may impact your decision to sell.
Once you have begun the sale process we will do whatever is in our power to
facilitate the transfer of your units. Please note, the General Partner does not
charge a fee in connection with the transfer of Partnership units. If you wish
to effect a transfer, please contact our transfer agent, Trust Company of
America/Gemisys at 1-800-797-6812 for the necessary documents.
Capital Expenditure Budgets
Based upon current capital expenditure budgets, the Partnership's property
improvement fund is forecasted to be insufficient beginning in 1998. This
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,
the General Partner established a reserve (the "Capital Reserve") in 1996 for
future capital needs of the Partnership's Inns. The current property improvement
fund shortfall estimate is $6.4 million through 1999. The Partnership has
received written approval from the lender to fund $4.1 million of the property
improvement fund shortfall from the Capital Reserve, with the remaining $2.3
million to be funded by increasing the property improvement fund contribution
rate from 5% to 6% in 1998 and 7% in 1999. Funding of the 1998 shortfall of $2.5
million is expected to begin during third quarter 1998 with repayments scheduled
to begin in first quarter 1999.
Amounts Paid to the General Partner and Marriott International, Inc. and
Affiliates.
The chart below summarizes amounts paid (in thousands) to the General Partner
and Marriott International, Inc. and affiliates for the twenty-four weeks ended
June 19, 1998 (unaudited):
<TABLE>
Marriott International, Inc. and Affiliates:
<S> <C>
Residence Inn system fee.........................$ 1,285
Chain services and Marriott Rewards Program...... 952
Marketing fund contribution...................... 803
Base management fee.............................. 674
Incentive management fee......................... 530
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$ 4,244
General Partner:
Administrative expenses reimbursed...............$ 161
Capital distribution............................. 35
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$ 196
</TABLE>
Exhibit 99.3
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MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP
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1998 Third Quarter Report
Limited Partner Quarterly Update
Presented for your review is the 1998 Third Quarter Report for Marriott
Residence Inn II Limited Partnership (the "Partnership"). A discussion of the
Partnership's performance and Inn operations is included in the attached Form
10-Q, Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations. You are encouraged to review this report in its entirety.
If you have any further questions regarding your investment, please contact Host
Marriott Partnership Investor Relations at (301) 380-2070.
Potential Transaction
The General Partner previously advised you that it is reviewing strategic
alternatives that could result in increased liquidity for Limited Partners. In
December 1997, we reported that Host Marriott Corporation ("Host") on behalf of
the General Partner, filed a preliminary Prospectus/Consent Solicitation
Statement with the Securities and Exchange Commission. This statement proposed
the consolidation (the "Consolidation") of this Partnership and five other
limited partnerships into a publicly traded real estate investment trust
("REIT"). Subsequently, we reported to you that there were existing REITs active
in the moderate price and extended-stay hotel segment that had expressed an
interest in acquiring some of the hotels owned by the six limited partnerships.
The General Partner retained Merrill Lynch to advise the Partnerships with
respect to these alternatives.
You may also be aware that although the hotel industry is generally continuing
to report improving operating results, stock prices for the companies that own
hotels, including REITs, have declined significantly from the price levels
experienced in early 1998. There are a number of reasons given by the industry's
analysts for this development ranging from increased supply in certain segments
of the market to general economic concerns and global market trends influencing
the US securities markets. In addition, the availability of bank credit and
public debt has reduced dramatically in recent months. The effect of these
developments is that many of the traditional purchasers of hotels such as those
owned by the Partnership are restricted in their ability to raise capital to
purchase hotels. Although over the past months we have reviewed various
alternatives, to date, there have been no acceptable offers from third parties
to purchase the Partnership's hotels.
These same market conditions have adversely affected the proposed Consolidation
that would form a new REIT focused on limited service hotels. The original
Consolidation plan included an initial public offering of the REIT's common
shares. We have been advised that it would be difficult to raise the appropriate
level of outside equity and that the perceived benefits of the Consolidation are
not achievable. Therefore, we are not pursuing the plan to form a new REIT.
We are continuing to work with Merrill Lynch to explore alternatives designed to
maximize the long term value of your investment. We will promptly advise you of
any developments.
<PAGE>
Cash Distributions
As previously reported, the Partnership's property improvement fund is
forecasted to be insufficient this year. An additional shortfall in 1999 is
currently being projected. The General Partner has begun discussions with the
Manager in order to resolve this shortfall. However, this shortfall combined
with increased competition in the markets where the Inns operate will impact the
Partnership's ability to make cash distributions to the Limited Partners. At
this time, we do not anticipate being able to make a cash distribution from 1998
operations.
Secondary Market Activity
We are aware of a number of third party solicitations for this Partnership's
limited partner units. Although we are not in a position to advise you as to
whether you should accept such offers, limited partners should be aware that the
Partnership Agreement contains certain restrictions on the assignment of
partnership interests. Among these restrictions is a prohibition on sales of
additional Partnership interests in any calendar year if such additional
transfers would result in the Partnership not being able to qualify for at least
one of the "safe harbors" which govern the circumstances under which a limited
partnership will cease to be treated as a partnership and will instead be
treated as a corporation for tax purposes. If Partnership sales activity for
1998 brings the Partnership to the safe harbor limit for 1998, the Partnership
would be unable to allow additional unit sales in 1998. You should check with
the General Partner before signing any sale document to determine if your
transfer can be accepted.
In addition to reviewing the information provided in this report, we encourage
you to consult with your financial and tax advisors when deciding if you should
sell your Partnership units. Due to the allocation of tax losses and income to
you over the life of the Partnership as well as any cash distributions paid to
you, your tax basis in this investment may be significantly lower than your
original investment amount. Therefore, there may be negative tax effects
resulting from the sale of these units that may impact your decision to sell.
Once you have begun the sale process we will do whatever is in our power to
facilitate the transfer of your units. Please note, the General Partner does not
charge a fee in connection with the transfer of Partnership units. If you wish
to effect a transfer, please contact our transfer agent, Trust Company of
America/Gemisys, at 1-800-797-6812 for the necessary documents.
Amounts Paid to the General Partner and Marriott International, Inc and
Affiliates
The chart below summarizes amounts paid (in thousands) to the General Partner
and Marriott International, Inc. and affiliates for the thirty-six weeks ended
September 11, 1998 (unaudited):
<TABLE>
General Partner:
<S> <C>
Administrative expenses reimbursed...................$ 209
Capital distribution................................. 35
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$ 244
Marriott International, Inc. and Affiliates:
Residence Inn system fee.............................$ 1,938
Chain services and Marriott Rewards Program.......... 1,417
Marketing fund contribution.......................... 1,211
Base management fee.................................. 1,018
Incentive management fee............................. 846
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$ 6,430
</TABLE>
<PAGE>
Estimated 1998 Tax Information
Based on current projections, estimated taxable income of $110 will be allocated
to each limited partner unit for the year ending December 31, 1998.
The 1998 tax information, used for preparing your Federal and state income tax
returns, will be mailed no later than March 15, 1999. To ensure confidentiality,
we regret that we are unable to furnish your tax information over the telephone.
Unless otherwise instructed, we will mail your tax information to your address
as it appears on this report. Therefore, to avoid delays in delivery of this
important information, please notify the Partnership in writing of any address
changes by January 31, 1999.
