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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 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 033-24935
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1605434
- ---------------------------------------- ---------------------------------------
(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)
Indicated 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>
MARRIOTT RESIDENCE INN 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 26, 1999 and March 27, 1998 (Unaudited)..1
Condensed Consolidated Balance Sheet
March 26, 1999 (Unaudited) and December 31, 1998..................2
Condensed Consolidated Statement of Cash Flows
Twelve Weeks ended March 26, 1999 and March 27, 1998 (Unaudited)..3
Notes 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...........9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................10
Item 6. Exhibits and Reports on Form 8-K....................................10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except Unit and per Unit amounts)
<TABLE>
<S> <C> <C>
Twelve Weeks Ended
March 26, March 27,
1999 1998
---------- -----------
REVENUES
Inn revenues
Suites...........................................$ 15,956 $ 15,924
Other............................................ 845 793
---------- -----------
Total Inn revenues............................. 16,801 16,717
---------- -----------
OPERATING COSTS AND EXPENSES
Inn property-level costs and expenses
Suites........................................... 3,840 3,448
Other department costs and expenses.............. 462 534
Selling, administrative and other................ 4,484 4,708
---------- -----------
Total Inn property-level costs and expenses.... 8,786 8,690
Depreciation and amortization...................... 1,653 1,662
Incentive management fee........................... 777 841
Residence Inn system fee........................... 638 637
Property taxes..................................... 570 516
Base management fee................................ 336 334
Equipment rent and other........................... 191 136
---------- -----------
12,951 12,816
---------- -----------
OPERATING PROFIT...................................... 3,850 3,901
Interest expense................................... (2,966) (3,032)
Interest income.................................... 191 193
---------- -----------
NET INCOME............................................$ 1,075 $ 1,062
========== ===========
ALLOCATION OF NET INCOME
General Partner....................................$ 11 $ 11
Limited Partners................................... 1,064 1,051
---------- -----------
$ 1,075 $ 1,062
========== ===========
NET INCOME PER LIMITED PARTNER UNIT
(70,000 Units).....................................$ 15 $ 15
========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<S> <C> <C>
March 26, December 31,
1999 1998
(Unaudited)
ASSETS
Property and equipment, net....................................................$ 142,261 $ 141,382
Due from Residence Inn by Marriott, Inc........................................ 5,540 3,805
Deferred financing costs, net of accumulated amortization...................... 2,879 2,973
Property improvement funds..................................................... 1,063 --
Restricted reserves............................................................ 6,397 6,153
Cash and cash equivalents....................................................... 11,923 14,553
------------- ----------------
$ 170,063 $ 168,866
============== ================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt..................................................................$ 137,142 $ 137,582
Incentive management fee due to Residence Inn by Marriott, Inc................. 20,317 19,617
Accounts payable and accrued expenses.......................................... 1,679 1,817
------------- ----------------
Total Liabilities........................................................ 159,138 159,016
------------- ----------------
PARTNERS' CAPITAL
General Partner................................................................ 188 177
Limited Partners............................................................... 10,737 9,673
------------- ----------------
Total Partners' Capital.................................................. 10,925 9,850
------------- ----------------
$ 170,063 $ 168,866
============= ================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
MARRIOTT RESIDENCE INN II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<S> <C> <C>
Twelve Weeks Ended
March 26, March 27,
1999 1998
------------- --------------
OPERATING ACTIVITIES
Net income.......................................................................$ 1,075 $ 1,062
Noncash items.................................................................... 2,447 2,299
Change in operating accounts..................................................... (1,822) (831)
------------- --------------
Cash provided by operating activities...................................... 1,700 2,530
------------- --------------
INVESTING ACTIVITIES
Additions to property and equipment, net......................................... (2,532) (1,070)
Change in property improvement funds............................................. (1,063) 230
Change in restricted reserves.................................................... (295) (250)
------------- --------------
Cash used in investing activities.......................................... (3,890) (1,090)
------------- --------------
FINANCING ACTIVITIES
Repayment of mortgage debt....................................................... (440) (407)
Capital distributions to partners................................................ -- (3,535)
------------- ---------------
Cash used in financing activities.......................................... (440) (3,942)
-------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS............................................... (2,630) (2,502)
CASH AND CASH EQUIVALENTS at beginning of period.................................... 14,553 10,126
------------- --------------
CASH AND CASH EQUIVALENTS at end of period..........................................$ 11,923 $ 7,624
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest..................................................$ 3,042 $ 3,075
============= ==============
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
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 year ended December 31, 1998.
In the opinion of the Partnership, the accompanying 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 26, 1999, and the
results of operations and cash flows for the twelve weeks ended March 26,
1999 and March 27, 1998. Interim results are not necessarily indicative
of fiscal year performance because of seasonal and short-term variations.
The net income of the Partnership is allocated 99% to the limited
partners and 1% to RIBM Two 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.
2. Certain reclassifications were made to prior year condensed consolidated
financial statements to conform to the 1999 presentation.
3. Revenues primarily represent the gross sales generated by the
Partnership's Inns. On November 20, 1997, the Emerging Issues Task Force
("EITF") of the Financial Accounting Standards Board reached a consensus
on EITF 97-2, "Application of FASB Statement No. 94 and APB Opinion No.
16 to Physician Practice Management Entities and Certain Other Entities
with Contractual Management Arrangements." EITF 97-2 addresses the
circumstances in which a management entity may include the revenues and
expenses of a managed entity in its financial statements.
The Partnership considered the impact of EITF 97-2 on its condensed
consolidated financial statements and determined that EITF 97-2 requires
the Partnership to include property-level sales and operating expenses of
its Inns in its condensed consolidated statement of operations. The
Partnership has given retroactive effect to the adoption of EITF 97-2 in
the accompanying condensed consolidated statement of operations.
Application of EITF 97-2 to the condensed consolidated financial
statements for the twelve weeks ended March 26, 1999 and March 27, 1998
increased both revenues and operating expenses by approximately $8.8
million and $8.7 million, respectively, and had no impact on operating
profit or net income.
<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 Exchange
Act of 1934 contained important factors with respect to such forward-looking
statements, including: (i) national and local economic and business conditions
that will, among other things, affect demand for hotels and other properties,
the level of rates and occupancy that can be achieved by such properties and the
availability and terms of financing; (ii) the ability to compete effectively;
(iii) changes in travel patterns, taxes and government regulations; (iv)
governmental approvals, actions and initiatives; 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. REVPAR, or revenue per available room, is a commonly used indicator of
market performance for hotels (although it is not a GAAP, or generally accepted
accounting principles, measure of revenue) which represents the combination of
the combined average daily suite rate charged and the combined average daily
occupancy achieved. REVPAR does not include other ancillary revenues generated
by the Inns. REVPAR remained stable for the first quarter 1999 when compared to
the first quarter 1998 due to a decrease in the combined average daily suite
rate of $1, or 1%, to $91 while the combined average daily occupancy increased
one percentage point to 83%. Inn revenues increased $84,000, or 0.5%, to $16.8
million in the first quarter 1999 when compared to the first quarter 1998.
Operating Costs and Expenses. Operating costs and expenses increased $135,000,
or 1%, to $13.0 million for the first quarter 1999. As a percentage of Inn
revenues, Inn operating costs and expenses were 77% of revenues for the first
quarter 1999 and the first quarter 1998.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit remained stable at $3.9 million, or
23% of revenues, for both the first quarter 1999 and the first quarter 1998.
Interest Expense. Interest expense decreased $66,000, or 2%, to $3.0 million for
the first quarter 1999 when compared to the first quarter 1998 due to principal
amortization on the mortgage debt.
Net Income. Net income for the first quarter 1999 remained stable at $1.1
million, or 6% of revenues, for both the first quarter 1999 and the first
quarter 1998.
<PAGE>
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 total suite
refurbishments at a majority of the Partnership's Inns. The General Partner
believes that cash from Inn operations and Partnership reserves will be adequate
in the short term and is working with the Manager to address long term
operational and capital needs of 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, fund the property
improvement fund and to make distributions to the limited partners.
Cash provided by operating activities was $1.7 million for the first quarter
1999 compared to $2.5 million for the first quarter 1998. The $830,000 decrease
was due to an increase in net operating profit not yet received by the
Partnership included in Due from Residence Inn by Marriott, Inc. in the
accompanying condensed consolidated balance sheet.
Cash used in investing activities for the first quarter 1999 and the first
quarter 1998 was $3.9 million and $1.1 million, respectively. The Partnership's
cash investing activities consist primarily of contributions to the property
improvement fund, capital expenditures for improvements to the Inns and
contributions to restricted cash reserves required under the terms of the
mortgage debt. Contributions to the property improvement fund were $3.7 million
and $800,000 for the first quarter 1999 and the first quarter 1998,
respectively, while capital expenditures were $2.5 million and $1.1 million for
the first quarter 1999 and the first quarter 1998, respectively. The $2.9
million increase in contributions is due to a $2.5 million loan funded by the
Partnership to the property improvement fund and an increase in the contribution
rate from 5% of gross Inn revenues to 7% in order to complete suite
refurbishments at some of the Partnership's Inns, which resulted in a $1.4
million increase in capital expenditures.
Cash used in financing activities for the first quarters 1999 and 1998 was
$440,000 and $3.9 million, respectively. The Partnership's cash financing
activities primarily consist of capital distributions to partners and repayment
of mortgage debt. The Partnership distributed $3.5 million to the partners in
the first quarter 1998 from 1997 operations. No distributions of cash were made
in the first quarter 1999. Repayment of mortgage debt was $440,000 and $407,000
during first quarter 1999 and first quarter 1998, respectively.
Strategy for Liquidity
The General Partner is continuing to explore alternatives to provide liquidity
for the Partnership and maximize the value of the limited partners' investment.
While the General Partner can make no assurances as to the outcome of their
efforts, the General Partner continues to work with Merrill Lynch who is acting
as an advisor in this regard.
Year 2000 Issues
Year 2000 issues have arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19." If not corrected, many computer applications could
fail or create erroneous results. The following disclosure provides information
regarding the current status of the Partnership's Year 2000 compliance program.
Host Marriott Corporation ("Host Marriott") has adopted the compliance program
because it recognizes the importance of minimizing the number and seriousness of
any disruptions that may occur as a result of the Year 2000 issue. Host
Marriott's compliance program includes an assessment of Host Marriott's hardware
and software computer systems and embedded systems, as well as an assessment of
the Year 2000 issues relating to third parties with which Host Marriott has a
material relationship or whose systems are material to the operations of the
Partnership's Inns. Host Marriott's efforts to ensure that its computer
systems are Year 2000 compliant have been segregated into two separate phases:
in-house systems and third-party systems.
In-House Systems. Host Marriott has invested in the implementation and
maintenance of accounting and reporting systems and equipment that are intended
to enable the Partnership to provide adequately for its information and
reporting needs and which are also Year 2000 compliant. Substantially all of
Host Marriott's in-house systems have already been certified as Year 2000
compliant through testing and other mechanisms, and Host Marriott has not
delayed any systems projects due to the Year 2000 issue. Host Marriott is in the
process of engaging a third party to review its Year 2000 in-house compliance.
Host Marriott believes that future costs associated with Year 2000 issues for
its in-house systems will be insignificant and, therefore, not impact the
Partnership's business, financial condition and results of operations. Host
Marriott has not developed, and does not plan to develop, a separate contingency
plan for its in-house systems due to their current Year 2000 compliance.
Third-Party Systems. The Partnership relies upon operational and accounting
systems provided by third parties, primarily the Manager of its Inns, to
provide the appropriate property-specific operating systems (including
reservation, phone, elevator, security, HVAC and other systems) and to provide
it with financial information. Based on discussions with the third parties that
are critical to the Partnership's business, including the Manager of its Inns,
Host Marriott believes that these parties are in the process of studying their
systems and the systems of their respective vendors and service providers and,
in many cases, have begun to implement changes, to ensure that they are Year
2000 compliant. However, Host Marriott has not received any oral or written
assurances that these third parties will be Year 2000 compliant on time. To the
extent these changes impact property-level systems, the Partnership may be
required to fund capital expenditures for upgraded equipment and software. The
Partnership does not expect these charges to be material, but is committed to
making these investments as required. To the extent that these changes relate to
the Manager's centralized systems (including reservations, accounting,
purchasing, inventory, personnel and other systems), the Partnership's
management agreement generally provides for these costs to be charged to the
Partnership's properties. Host Marriott expects that the Manager will incur Year
2000 costs for its centralized systems in lieu of costs related to system
projects that otherwise would have been pursued and therefore, its overall level
of centralized systems charges allocated to the Inns will not materially
increase as a result of the Year 2000 compliance effort. Host Marriott believes
that this deferral of certain system projects will not have a material impact on
its future results of operations, although it may delay certain productivity
enhancements at the Partnership's Inns. Host Marriott will continue to monitor
the efforts of these third parties to become Year 2000 compliant and will take
appropriate steps to address any non-compliance issues. The Partnership believes
that in the event of material Year 2000 non-compliance, the Partnership will
have the right to seek recourse against the Manager under its management
agreement. The management agreement, however, generally does not specifically
address the Year 2000 compliance issue. Therefore, the amount of any recovery in
the event of Year 2000 non-compliance at a property, if any, is not determinable
at this time.
Host Marriott will work with the third parties to ensure that appropriate
contingency plans will be developed to address the most reasonably likely worst
case Year 2000 scenarios, which may not have been identified fully. In
particular, Host Marriott has had extensive discussions regarding the Year 2000
problem with Marriott International, Inc. ("MII"), the parent of the Manager of
the Partnership's Inns. Due to the significance of MII to the Partnership's
business, a detailed description of MII's state of readiness follows.
MII has adopted an eight-step process toward Year 2000 readiness, consisting of
the following: (i) Awareness: fostering understanding of, and commitment to, the
problem and its potential risks; (ii) Inventory: identifying and locating
systems and technology components that may be affected; (iii) Assessment:
reviewing these components for Year 2000 compliance, and assessing the scope of
Year 2000 issues; (iv) Planning: defining the technical solutions and labor and
work plans necessary for each affected system; (v) Remediation/Replacement:
completing the programming to renovate or replace the problem software or
hardware; (vi) Testing and Compliance Validation: conducting testing, followed
by independent validation by a separate internal verification team; (vii)
Implementation: placing the corrected systems and technology back into the
business environment; and (viii) Quality Assurance: utilizing an internal audit
team to review significant projects for adherence to quality standards and
program methodology.
MII has grouped its systems and technology into three categories for purposes of
Year 2000 compliance: (i) information resource applications and technology ("IT
Applications") -- enterprise-wide systems supported by MII's centralized
information technology organization ("IR"); (ii) Business-initiated Systems
("BIS") - systems that have been initiated by an individual business unit, and
that are not supported by MII's IR organization; and (iii) Building Systems -
non-IT equipment at properties that use embedded computer chips, such as
elevators, automated room key systems and HVAC equipment. MII is prioritizing
its efforts based on how severe an effect noncompliance would have on customer
service, core business processes or revenues, and whether there are viable,
non-automated fallback procedures ("System Criticality").
MII measures the completion of each phase based on documented and quantified
results, weighted for System Criticality. As of March 26, 1999, the Awareness
and Inventory phases were complete for IT Applications, BIS, and Building
Systems. For IT Applications, the Assessment and Planning phases were complete
and Remediation/Replacement and Testing phases were 95% complete.
Compliance Validation has been completed for approximately 75% of key systems,
with most of the remaining work in its final stage. For BIS and Building
Systems, Assessment and Planning are substantially complete. For BIS,
Remediation/Replacement is substantially complete and Testing is in progress.
MII is on track for completion of Remediation/Replacement and Testing of
Building Systems for September of 1999. Compliance Validation is in progress for
both BIS and Building Systems. Implementation and Quality Assurance is in
progress for IT Applications, BIS and Building Systems.
<PAGE>
Year 2000 compliance communications with MII's significant third party
suppliers, vendors and business partners, including its franchisees are ongoing.
MII's efforts are focused on the connections most critical to customer service,
core business processes and revenues, including those third parties that support
the most critical enterprise-wide IT Applications, franchisees generating the
most revenues, suppliers of the most widely used Building Systems and BIS, the
top 100 suppliers, by dollar volume, of non-IT products, and financial
institutions providing the most critical payment processing functions. Responses
have been received from a majority of the firms in this group. A majority of
these respondents have either given assurances of timely Year 2000 compliance or
have identified the necessary actions to be taken by them or MII to achieve
timely Year 2000 compliance for their products.
MII has established a common approach for testing and addressing Year 2000
compliance issues for its managed and franchised properties. This includes a
guidance protocol for operated properties, and a Year 2000 "Toolkit" for
franchisees containing relevant Year 2000 compliance information. MII is also
utilizing a Year 2000 best-practices sharing system.
Risks. There can be no assurances that Year 2000 remediation by the Partnership
or third parties will be properly and timely completed, and failure to do so
could have a material adverse effect on the Partnership, its business and its
financial condition. The Partnership cannot predict the actual effects to it of
the Year 2000 issue, which depends on numerous uncertainties such as: (i)
whether significant third parties, properly and timely address the Year 2000
issue; and (ii) whether broad-based or systemic economic failures may occur.
Host Marriott is also unable to predict the severity and duration of any such
failures, which could include disruptions in passenger transportation or
transportation systems generally, loss of utility and/or telecommunications
services, the loss or distortion of hotel and inn reservations made on
centralized reservations systems and errors or failures in financial
transactions or payment processing systems such as credit cards. Due to the
general uncertainty inherent in the Year 2000 issue and the Partnership's
dependence on third parties, the Partnership is unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact on
the Partnership. Host Marriott's Year 2000 compliance program is expected to
significantly reduce the level of uncertainty about the Year 2000 issue and Host
Marriott believes that the possibility of significant interruptions of normal
operations should be reduced.
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 26, 1999, 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, various of their subsidiaries, J.W.
Marriott, Jr., Stephen Rushmore, and Hospitality Valuation Services, Inc.
(collectively, the "Defendants"). The lawsuit relates to the following limited
partnerships: Courtyard by Marriott Limited Partnership, Courtyard by Marriott
II Limited Partnership, Marriott Residence Inn Limited Partnership, Marriott
Residence Inn II Limited Partnership, Fairfield Inn by Marriott Limited
Partnership, Desert Springs Marriott Limited Partnership and Atlanta Marriott
Marquis Limited Partnership (collectively, the "Seven Partnerships"). The
plaintiffs allege that the Defendants conspired to sell hotels to the Seven
Partnerships for inflated prices and that they charged the Seven Partnerships
excessive management fees to operate the Seven Partnerships' hotels. The
plaintiffs further allege, among other things, that the Defendants committed
fraud, breached fiduciary duties and violated the provisions of various
contracts. The plaintiffs are seeking unspecified damages. The Defendants, which
do not include the Seven Partnerships, believe that there is no truth to the
plaintiffs' allegations and that the lawsuit is totally devoid of merit. The
Defendants intend to vigorously defend against the claims asserted in the
lawsuit. They have filed an answer to the plaintiffs' petition and asserted a
number of defenses. A related case concerning Courtyard by Marriott II Limited
Partnership filed by the plaintiff's lawyers in the same court involves similar
allegations against the defendants, and has been certified as a class action. On
March 18, 1999, two of the Partnership's limited partners filed a class action
petition in intervention seeking to convert that portion of the lawsuit relating
to the Partnership into a class action. The court has not yet ruled on this
petition. Although the Seven Partnerships have not been named as Defendants in
the lawsuit, the partnership agreements relating to the Seven Partnerships
include an indemnity provision which requires the Seven Partnerships, under
certain circumstances, to indemnify the general partners against losses,
expenses and fees.
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 II
LIMITED PARTNERSHIP
By: RIBM TWO LLC
General Partner
May 6, 1999 By: /s/ Earla L. Stowe
------------------
Earla L. Stowe
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the first
quarter Form 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
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1999
<PERIOD-END> Mar-26-1999
<EXCHANGE-RATE> 1.00
<CASH> 11,923
<SECURITIES> 0
<RECEIVABLES> 5,540
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,339
<PP&E> 222,442
<DEPRECIATION> (80,181)
<TOTAL-ASSETS> 170,063
<CURRENT-LIABILITIES> 21,996
<BONDS> 137,142
0
0
<COMMON> 0
<OTHER-SE> 10,925
<TOTAL-LIABILITY-AND-EQUITY> 170,063
<SALES> 0
<TOTAL-REVENUES> 16,801
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,966
<INCOME-PRETAX> 1,075
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,075
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
