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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
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RHODE ISLAND 05-0440218
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(STATE OF ORGANIZATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(301) 380-2070
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(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
Securities to be registered pursuant to Section 12(b) of the Act: Not Applicable
Securities to be registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTERESTS
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(TITLE OF CLASS)
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TABLE OF CONTENTS
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Page No.
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ITEM 1. Business...................................................... 3
ITEM 2. Financial Information......................................... 7
ITEM 3. Property...................................................... 11
ITEM 4. Security Ownership of Certain Beneficial Owners and
Management.................................................... 12
ITEM 5. Directors and Executive Officers.............................. 13
ITEM 6. Executive Compensation........................................ 14
ITEM 7. Certain Relationships and Related Transactions................ 14
ITEM 8. Legal Proceedings............................................. 15
ITEM 9. Market for and Distributions on Limited Partnership Units and
Related Security Holder Matters............................... 15
ITEM 10. Recent Sales of Unregistered Securities....................... 16
ITEM 11. Description of Registrant's Securities........................ 16
ITEM 12. Indemnification of Directors and Officers..................... 19
ITEM 13. Financial Statements.......................................... 21
ITEM 14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 38
ITEM 15. Financial Statements, Supplementary Schedule and Exhibits..... 38
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FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements 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. 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. 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.
ITEM 1. BUSINESS
DESCRIPTION OF THE PARTNERSHIP
Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P. (the "Partnership"),
a Rhode Island limited partnership, was formed in 1988 to acquire, own, lease,
mortgage and operate the Marriott Suites O'Hare Hotel (the "Hotel"), located in
the Village of Rosemont, Illinois. The Partnership leases the land underlying
the Hotel from Simon/Rosemont Developers (the "Ground Lease").
The sole general partner of the Partnership, with a 1% interest, is MOHS
Corporation (the "General Partner"), a Delaware corporation and a wholly-owned
subsidiary of Host Marriott Corporation ("Host Marriott"). The Partnership is
engaged solely in the business of owning and operating the Hotel and therefore
is engaged in one industry segment. The principal offices of the Partnership
are located at 10400 Fernwood Road, Bethesda, Maryland 20817.
The Hotel is operated by Marriott International, Inc. ("MII" and "Manager"), as
part of the Marriott Hotels, Resorts and Suites full-service hotel system under
a long-term management agreement. The Hotel has the right to use the Marriott
name pursuant to the management agreement and, if this agreement is terminated,
the Partnership will lose that right for all purposes (except as part of the
Partnership's name). See Item 7, "Certain Relationships and Related
Transactions."
Marriott Suites typically contain 250 guest suites and are targeted to short-
term upscale business and pleasure travelers who desire full-service hotel
amenities with the more spacious accommodations characteristic of all-suite
hotels. Marriott Suites are not intended to provide accommodations to heavily
discounted segments of the hotel market. Accordingly, for the past five years,
transient business has accounted for approximately 82% of the Hotel's
roomnights. The bulk of both the transient and group business has consisted of
corporate travelers. The Hotel, located only five minutes from Chicago O'Hare
International Airport, offers its guests 256 luxury suites with several
amenities, including a separate living room, wet bar with coffee/tea service,
separate dressing area with full length mirror and hair-dryer, large well-lit
work desk, and an upgraded telephone system providing a second line for modem
use. Additionally, the Hotel offers a food and beverage outlet, a business
center and approximately 2,600 square feet of meeting space. The Hotel has been
awarded the AAA Four Diamond designation for quality and has consistently ranked
among the top 5 Marriott hotels for service and product in the midwest region in
virtually all major guest satisfaction categories. The Partnership has no
current plans to acquire any new properties or sell the Hotel. See Item 3,
"Property."
ORGANIZATION OF THE PARTNERSHIP
The Partnership was formed on August 31, 1988, and operations commenced on June
12, 1989 (the "Closing Date"), pursuant to its amended and restated agreement of
limited partnership (the "Partnership Agreement"). Between September 15, 1988,
and the Closing Date, 335 limited partnership interests (the "Units"),
representing a 98% interest in the Partnership, were sold pursuant to a private
placement offering at $35,000 per Unit. At the time of Partnership formation,
there were two general partners, MOHS Corporation and MB Investment Properties,
Inc. ("MBIP"), each of which contributed $119,500 for their respective 1%
general partnership interests. On August 23, 1996, MBIP withdrew as a general
partner of the Partnership and converted its 1% general partner interest to a
limited partnership interest.
3
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On February 16, 1989, the Partnership executed a purchase and sale agreement
with Host Marriott to acquire the Hotel and the leasehold interest in the land
on which the Hotel is situated for $35 million. Under the purchase and sale
agreement, Host Marriott agreed to reduce the purchase price of the Hotel up to
an aggregate total of $3 million to the extent that the Hotel did not provide
cash flow, after payment of ground rent and debt service, equivalent to $1
million for each of the three years ended June 19, 1992 (the "Cash Flow
Guaranty"). A total of $2,476,000 was paid to the Partnership under the Cash
Flow Guaranty. The price adjustments have been allocated as a reduction of the
carrying value of the Partnership's property and equipment in the Partnership's
balance sheet. The total purchase price was paid from proceeds of the mortgage
financing (see "Debt Financing") and sale of the Units.
DEBT FINANCING
Mortgage Debt
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The Partnership entered into a loan agreement on June 12, 1989 with a bank to
provide non-recourse mortgage debt of $25.5 million (the "Mortgage Debt") to
finance the acquisition of the Hotel. The Mortgage Debt initially bore interest
at a floating interest rate. On August 11, 1989 the Partnership exercised its
option to fix the interest rate at 9.575% until maturity on June 12, 1996.
Interest on the Mortgage Debt was payable on the last day of March, June,
September and December of each year. No amortization of principal was required
prior to maturity or the sale or refinancing of the Hotel.
The Mortgage Debt matured on June 12, 1996 (the "Maturity Date"). On September
24, 1996 (the "Refinancing Date"), the Partnership completed a refinancing of
the Mortgage Debt (the "Amended and Restated Mortgage Debt"). The lender
granted the Partnership a forbearance of the loan for the period between the
Maturity Date and the Refinancing Date. During the forbearance period from the
Maturity Date until August 15, 1996, the Partnership continued to pay interest
at the contract rate of 9.575%. Thereafter, until the Refinancing Date, the
Partnership paid interest at a rate of 10.575%. The Amended and Restated
Mortgage Debt matures on June 12, 2001 and carries a floating interest rate of
200 basis points over the three-month London Interbank Offered Rate ("LIBOR"),
with an option to fix the interest rate during the first two years of the loan
term. The weighted average interest rate from the Refinancing Date through
December 31, 1996, was 7.62%. The weighted average interest rate for 1997 was
7.69%. The restructured loan requires minimum quarterly amortization payments
based on a 20-year schedule. Additionally, all excess cash flow after payment of
ground rent, required principal and interest payments, incentive management fee,
partnership administrative expenses and refinancing costs is to be applied
toward principal amortization. In June 1997, the Partnership paid $305,000 from
excess cash flow generated during 1996 toward additional principal amortization.
The Partnership made a $766,000 principal payment in June 1998 from excess cash
flow generated during 1997.
The Amended and Restated Mortgage Debt is secured by the Hotel, an assignment of
the Partnership's interest under the Ground Lease, an assignment of the Hotel
management agreement, and by the grant of a security interest in the
Partnership's cash accounts and the personal property and fixtures of the Hotel.
Debt Guarantees
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No debt service guarantee was provided on the Amended and Restated Mortgage
Debt. However, the General Partner reaffirmed its guarantee to the lender that
in the event of a foreclosure, proceeds payable to the lender would be at least
$5,000,000. The General Partner believes that the chances of foreclosure are
remote.
Roof and Facade Loan
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A subsidiary of MII, Marriott International Capital Corporation ("MICC"),
provided $605,000 in available loan proceeds for the completion of the facade
and roof restoration project at the Hotel. As of December 31, 1997, $528,000
had been disbursed under the loan. The loan matures in June 2000, bears
interest at 9% and will be repaid from the Partnership's cash flow from
operations after defined priorities. The final disbursement of $35,000 occurred
during the second quarter of 1998. Payments of approximately $19,000 in
principal and interest will occur monthly.
Simultaneous with the execution of the loan agreement between the Partnership
and MICC, Host Marriott purchased a 50% participation interest in the loan from
MICC. Pursuant to the participation agreement, Host Marriott reimbursed MICC
for 50% of the loan advances made to-date and will continue to reimburse MICC
for 50% of any additional advances. Host Marriott will be reimbursed by MICC
for 50% of the loan repayments as they are made by the Partnership to MICC.
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MATERIAL CONTRACTS
Management Agreement
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The Manager operates the Hotel pursuant to a long-term management agreement (the
"Management Agreement") which has an initial term expiring in 2008. The Manager
may renew the Management Agreement at its option, for up to five successive 10-
year terms. The Partnership may terminate the Management Agreement if specified
minimum operating results are not achieved. However, the Manager may prevent
termination by paying the Partnership the amount by which the minimum operating
results were not achieved.
The Management Agreement provides for annual payments of (i) the base management
fee equal to 3% of gross sales from the Hotel and (ii) the incentive management
fee equal to 20% of Net House Profit, as defined in the Management Agreement.
Net House Profit represents gross hotel sales less property-level expenses,
including base management fee, property tax and insurance costs, property
improvement fund contributions, and certain other costs related to the operation
of the Hotel. Payment of the incentive management fee is subordinated to the
required principal and interest payments on the Amended and Restated Mortgage
Debt, ground rent and an 8% annual priority return to the General Partner and
the limited partners (collectively, the "Partners"). For additional information
see Item 7, "Certain Relationships and Related Transactions."
Pursuant to the Management Agreement, the Hotel is operated as part of the
Marriott Hotels, Resorts and Suites full-service hotel system which at December
31, 1997 included 326 hotels with a total of 124,571 guest rooms.
Ground Lease
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In 1989, the leasehold interest in the land upon which the Hotel is located was
assigned to the Partnership by Host Marriott. The lease was created on June 16,
1986 pursuant to the Ground Lease from the landlord to Host Marriott. The
initial term of the Ground Lease expires in 2014. The Ground Lease may be
renewed at the option of the Partnership for five successive terms of ten years
each. Upon expiration or termination of the Ground Lease, title to the Hotel
and all improvements revert to the lessor. Rent expense under the Ground Lease
is calculated at an amount equal to the greater of a minimum rental of $300,000
per year or a percentage rental equal to 3% of annual gross room sales.
Under the lease, the Partnership pays all costs, expenses, taxes and assessments
relating to the land, including real estate taxes. The Ground Lease provides
that the Partnership has a first right of negotiation in the event the ground
lessor decides to sell the leased premises.
COMPETITION
Demand in the U.S. lodging industry continues to be strong as a result of an
improved economic environment and a corresponding increase in domestic business
and leisure travel. Also, the upscale full-service hotel segment has benefited
from a continued low room supply growth rate, which is attributable to several
factors including the limited availability of attractive building sites for
full-service hotels and the lack of available financing for new full-service
hotel construction. The cyclical nature of the U.S. lodging industry has been
demonstrated over the past two decades. Low hotel profitability during the
1974-1975 recession led to a prolonged slump in new construction, to high
occupancy rates, and to real price increases in the late 1970s and early 1980s.
Changes in tax and banking laws during the early 1980s precipitated a
construction boom which peaked in 1986 and created an oversupply of hotel rooms
that had not been absorbed fully by increased demand. This caused a significant
decrease in new hotel development in the early 1990s which has resulted in a
gradual U.S. hotel supply/demand imbalance.
The Partnership's Hotel competes with other major lodging brands in its region.
Competition in the region is based primarily on the level of service, quality of
accommodations, convenience of location, and room rates of each hotel. The
Partnership believes that its inclusion within the nationwide Marriott full-
service hotel system provides advantages of name recognition; centralized
reservations and advertising; system-wide marketing and promotion; and
centralized purchasing, training, and support services. Additional competitive
information is set forth in Item 3 "Property" with respect to the Hotel.
5
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CONFLICTS OF INTEREST
Because Host Marriott and its affiliates own and/or operate hotels other than
the one owned by the Partnership, potential conflicts of interest exist. With
respect to these potential conflicts of interest, Host Marriott and its
affiliates retain a free right to compete with the Partnership's Hotel,
including the right to develop competing hotels now and in the future, in
addition to those existing hotels which may compete directly or indirectly.
Under Rhode Island law, the General Partner has unlimited liability for
obligations of the Partnership unless those obligations are, by contract,
without recourse to the partners thereof. Under the Partnership Agreement, the
General Partner has broad management discretion over the business of the
Partnership and with regard to the operation of the Hotel. No limited partner
may take any part in the conduct or control of the Partnership's business. The
authority of the General Partner is limited in certain respects, including
acquiring hotel properties in addition to the Hotel and selling or otherwise
disposing of or consenting to the sale or disposition of the Partnership's
assets. For a discussion of limitations on the authority of the General
Partner, see Item 11, "Description of Registrant's Securities -- Authority of
the General Partner." Because certain actions taken by the General Partner or
the Partnership could expose the General Partner or its parent, Host Marriott,
to liability that is not shared by the limited partners (for example, tort
liability or environmental liability), this control could lead to a conflict of
interest. Under Rhode Island law, the General Partner has a fiduciary duty to
the Partnership and is required to exercise good faith and loyalty in all its
dealings with respect to Partnership affairs.
POLICIES WITH RESPECT TO CONFLICTS OF INTEREST
It is the policy of the General Partner that the Partnership's relationship with
the General Partner, any affiliate of the General Partner, or persons employed
by the General Partner are conducted on terms which are fair to the Partnership
and which are commercially reasonable. Agreements and relationships involving
the General Partner or its affiliate and the Partnership are on terms consistent
with the terms on which the General Partner or its affiliates have dealt with
unrelated parties.
The Partnership Agreement provides that agreements, contracts or arrangements
between the Partnership and the General Partner or any of its affiliates, other
than arrangements for rendering legal, accounting, engineering, and investor
reporting services to the Partnership by the General Partner or its affiliates,
which agreements will be on commercially reasonable terms, will be subject to
the following conditions:
(a) the General Partner or any affiliate must be actively engaged in the
business of rendering such services or selling or leasing such goods;
(b) such agreements, contracts or arrangements shall be embodied in a written
contract which precisely describes the subject matter thereof and all
compensation to be paid therefor;
(c) no rebates may be received by the General Partner or any affiliate, nor may
the General Partner or any affiliate participate in any reciprocal business
arrangements which would have the effect of circumventing any of the
provisions of the Partnership Agreement;
(d) no such agreement, contract or arrangement may be amended in such manner as
to increase the fees or other compensation payable to the General Partner or
any affiliate or to decrease the responsibilities or duties of the General
Partner or any affiliate in the absence of the consent of the limited
partners holding a majority of the Units; and
(e) any such agreement, contract or arrangement which relates to or secures any
funds advanced or loaned to the Partnership by the General Partner or any
affiliate must reflect commercially reasonable terms.
EMPLOYEES
The Partnership has no employees; however, employees of the General Partner are
available to perform administrative services for the Partnership. The
Partnership reimburses the General Partner for the cost of providing such
services. See Item 6, "Executive Compensation," for information regarding
payments made to the General Partner for the cost of providing administrative
services to the Partnership.
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HOST MARRIOTT CORPORATION'S CONVERSION TO A REAL ESTATE INVESTMENT TRUST
On April 17, 1998, Host Marriott Corporation ("Host Marriott"), parent company
of the General Partner of the Partnership, announced that its Board of Directors
authorized Host Marriott to reorganize its business operations to qualify as a
real estate investment trust ("REIT") to become effective as of January 1, 1999.
As part of the REIT conversion, Host Marriott formed a new operating partnership
(the "Operating Partnership"), and limited partners in certain Host Marriott
full-service hotel partnerships and joint ventures, including Mutual Benefit
Chicago Marriott Suite Hotel Partners, L.P., are expected to be given an
opportunity to receive, on a tax-deferred basis, Operating Partnership units in
the Operating Partnership in exchange for their current limited partnership
interests. The Operating Partnership units would be redeemable by the limited
partner for freely traded Host Marriott shares (or the cash equivalent thereof)
at any time after one year from the closing of the merger. In connection with
the REIT conversion, on June 2, 1998, the Operating Partnership filed a
Registration Statement on Form S-4 (the "Form S-4") with the Securities and
Exchange Commission. Limited partners will be able to vote on this
Partnership's participation in the merger later this year through a consent
solicitation.
Preliminary valuation information on the Partnership units was disclosed in the
Form S-4. The estimated exchange value is $33,471 per Partnership Unit (the
"Estimated Exchange Value"). The Estimated Exchange Value is subject to
adjustment to reflect various closing and other adjustments and the final
valuation information will be set forth in the final Form S-4 through a consent
solicitation.
The final valuation likely will differ from the Estimated Exchange Value set
forth above and such difference may be material. The consent solicitation for
approval of a merger of the Partnership will contain the final valuation for a
Partnership unit as well as a discussion of the methodologies, variables,
assumptions and estimates used.
The solicitation period is expected to commence in late September 1998 and the
merger, if approved, would close by the end of the year (although there is no
assurance that this will be the case).
ITEM 2. FINANCIAL INFORMATION
The following selected financial data presents historical operating information
for the Partnership for the twenty-four weeks ended June 19, 1998 and June 20,
1997 and for each of the five years ended December 31, 1997 presented in
accordance with generally accepted accounting principles (in thousands, except
per unit amounts):
SELECTED FINANCIAL DATA
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Twenty-Four Weeks Ended
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Year Ended December 31,
June 19, June 20, ----------------------------
1998 1997 1997 1996 1995 1994 1993
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Revenues (1)............................................ $ 3,358 $ 2,952 $ 6,568 $ 5,660 $ 4,913 $ 4,509 $ 4,311
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Net income (loss)....................................... $ 437 $ 266 $ 582 $ (565) $(1,655) $(1,920) $(2,031)
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Net income (loss) per limited partner unit (335 Units).. $ 1,281 $ 776 $ 1,701 $(1,651) $(4,839) $(5,617) $(5,941)
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Total assets............................................ $26,710 $26,056 $25,962 $25,701 $25,975 $27,002 $27,701
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Total liabilities....................................... $29,094 $29,193 $28,783 $29,104 $28,813 $28,185 $26,964
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(1) Revenues represent house profit from the Hotel since the Partnership has
delegated substantially all of the operating decisions related to the
generation of house profit of the Hotel to the Manager.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
TWENTY-FOUR WEEKS ENDED JUNE 19, 1998 COMPARED TO TWENTY-FOUR WEEKS ENDED
JUNE 20, 1997
Revenues. Revenues increased 14% or $406,000, over 1997 from $3.0 million to
$3.4 million. Revenues and operating profit were impacted primarily by growth
in revenue per available room ("REVPAR") of 10% over the comparable period in
1997 from $119 to $131. REVPAR represents the combination of the average daily
room rate charged and the average daily occupancy achieved and is a commonly
used indicator of hotel performance (although it is not a GAAP, or generally
accepted accounting principle, measure of revenue). REVPAR does not include
food and beverage or other ancillary revenues generated by the property. The
increase in REVPAR was the result of a 12% increase in average room rate from
$143 to $160, slightly offset by a 1.4 percentage point decrease in average
occupancy to 82%. The increase in average room rate for the year-to-date 1998
was primarily due to the Hotel limiting the sale of discounted rooms, creating a
breakfast-included rate which raised the non-corporate premium rate, and
increasing its corporate room rate $10 to $199, which represents a $30 increase
over the corporate rate charged in the second quarter of 1997. The slight
decrease in occupancy was the result of the Hotel's corporate rate increase.
Operating Costs and Expenses. Operating costs and expenses increased 13% to
$1.9 million for the twenty-four weeks ended June 19, 1998 when compared to the
same period in 1997. The increase in operating costs and expenses was primarily
due to the 21% or $82,000 increase in depreciation expense and the 18% or
$70,000 increase in the incentive management fee. The increase in depreciation
expense was due to the completion of the rooms renovation in 1997. The increase
in the incentive management fee was the result of the improvement in revenues
discussed above. As a percentage of revenues, operating costs and expenses
remained stable at 58% for the first twenty-four weeks of 1998 when compared to
the same period in 1997.
Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, operating profit increased $176,000 to $1.4
million year-to-date in 1998 from $1.2 million for the same period in 1997.
Operating profit was 42% of revenues during both time periods.
Interest expense. Interest expense increased 1% for the twenty-four weeks ended
June 19, 1998 when compared to the same period in 1997 due primarily to interest
expense recognized on the roof and facade loan with a subsidiary of the Manager.
The loan, which matures in June 2000, bears interest at 9% and will be repaid
from the Partnership's cash flow from operations after defined priorities.
Payments of approximately $19,000 per month began in June 1998, following the
final disbursement of loan proceeds.
Net income. For year-to-date 1998, net income increased $171,000 to $437,000,
compared to $266,000 for the same period in 1997. This increase was primarily
due to an increase in hotel revenues, offset by the changes in expenses
discussed above.
1997 COMPARED TO 1996
Revenues. Revenues increased $908,000 or 16%, to $6.6 million in 1997 from $5.7
million in 1996 as a result of strong growth in REVPAR of 13%. Hotel sales
increased $1.4 million, or 10%, to $14.4 million in 1997 also reflecting
improvements in REVPAR for the year. The increase in REVPAR was the result of a
14% increase in average room rate from $129 in 1996 to $147 in 1997, while
average occupancy decreased one percentage point to 83%. The decrease in
occupancy was primarily the result of the Hotel's suites refurbishment which
displaced approximately 1,000 roomnights during the first quarter of 1997.
Operating Costs and Expenses. Operating costs and expenses remained stable at
$3.9 million in 1997 compared to 1996. As a percentage of revenues, operating
costs and expenses decreased to 59% of revenues in 1997 from 69% in 1996.
Operating costs and expenses remained stable primarily due to the $399,000
decrease in depreciation expense as a result of the majority of the Hotel's
furniture and equipment becoming fully depreciated in 1996, offset by the
$171,000 increase in combined incentive and base management fees and the $33,000
increase in ground rent due to improved revenues as discussed above.
Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, operating profit increased $901,000 to $2.7
million, or 41% of total revenues, in 1997 from $1.8 million, or 31% of revenues
in 1996.
Interest Expense. Interest expense decreased to $2.1 million in 1997 from $2.4
million in 1996 due to regular and additional principal amortization on the debt
totaling $886,000. Additionally, the weighted average interest rate on the
mortgage debt in 1997 decreased to 7.69% from 9.31% in 1996 due to the 1996
refinancing. See "Refinancing."
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Net Income. Net income increased $1.1 million to $582,000 in 1997 over 1996 due
to the items discussed above.
1996 COMPARED TO 1995
Revenues. Revenues increased $747,000, or 15%, to $5.7 million in 1996 from
$4.9 million in 1995 as a result of strong growth in REVPAR. REVPAR increased
10% to $108 in 1996. Hotel sales increased $1.4 million, or 12%, to $13 million
in 1996 also reflecting improvements in REVPAR for the year. The increase in
REVPAR was the result of a 7% increase in average suite rate from $121 in 1995
to $129 in 1996, combined with a three percentage point increase in average
occupancy to 84%.
Operating Costs and Expenses. Operating costs and expenses decreased $237,000
to $3.9 million in 1996 from $4.1 million in 1995. As a percentage of revenues,
operating costs and expenses represented 69% of revenues in 1996 and 84% in
1995. The decrease in operating costs and expenses was primarily due to a
$410,000 decrease in depreciation expense due to the majority of the Hotel's
furniture and equipment becoming fully depreciated in early 1996.
Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, operating profit increased $984,000 to $1.8
million, or 31% of revenues, in 1996 from $788,000, or 16% of revenues in 1995.
Interest Expense. Interest expense was $2.4 million in 1996 and $2.5 million in
1995.
Net Loss. Net loss decreased $1.1 million to a net loss of $565,000 in 1996
over the net loss of $1.7 million in 1995 due to the items discussed above.
CAPITAL RESOURCES AND LIQUIDITY
GENERAL
The General Partner believes that cash from operations will provide adequate
funds for the operational needs of the Partnership for the foreseeable future.
PRINCIPAL SOURCES AND USES OF CASH
The Partnership's principal source of cash is from operations. Its principal
uses of cash are to fund the property improvement fund of the Hotel and to pay
required principal amortization of the mortgage debt. Additionally, the
Partnership is required to use its excess annual cash flow to pay additional
principal on the mortgage debt.
Total cash provided by operating activities for the twenty-four weeks ended June
19, 1998 and June 20, 1997, was $1.2 million and $1.1 million, respectively.
The increase was primarily due to an increase in hotel revenues when compared to
1997. See "Results of Operations" above.
Cash provided by operating activities was $1.9 million in 1997, $798,000 in 1996
and $636,000 in 1995. The $1.1 million increase in cash provided by operating
activities between 1997 and 1996 was due primarily to the $908,000 increase in
revenues, offset by $606,000 in incentive management fee paid, and $1 million in
reduced interest payments, due to the debt refinancing discussed below. The
$162,000 increase in cash provided by operating activities between 1996 and 1995
was due primarily to the $747,000 increase in revenues, offset by $465,000 in
increased interest payments. Interest payments increased primarily as a result
of the 1996 debt refinancing which resulted in one additional debt service
payment in 1996 compared to 1995.
For the twenty-four weeks ended June 19, 1998 and June 20, 1997, cash used in
investing activities was $300,000 and $244,000, respectively, and consisted of
contributions to and expenditures from the property improvement fund.
Cash used in investing activities was $1.1 million, $517,000 and $486,000 in
1997, 1996 and 1995, respectively. The Partnership's cash investing activities
consist primarily of contributions to the property improvement fund and capital
expenditures for improvements to the Hotel. In 1997, the Hotel completed a roof
and facade restoration project, with funds provided by the Partnership, for
which approximately $528,000 was spent. See Item 1 "Debt Financing -- Roof and
Facade Loan."
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For the twenty-four weeks ended June 19, 1998 and June 20, 1997, cash used in
financing activities was $118,000 and $477,000, respectively, and consisted
primarily of repayments on the mortgage debt. Additionally, during the second
quarter of 1998, the Partnership made its final draw of $35,000 on the roof and
facade loan.
Cash used in financing activities was $721,000 in 1997 and $342,000 in 1996. In
1997, the Partnership's cash financing activities consisted of repayment of
mortgage debt of $886,000, $528,000 in proceeds from a loan from a subsidiary of
MII, and $363,000 in payments of financing costs related to the 1996
refinancing. The Partnership made debt principal payments of $139,000 and paid
financing costs of $203,000 in 1996. Financing activity in 1995 consisted
entirely of the $164,000 advance from, and subsequent repayment into the
property improvement fund, so that the Partnership could make its first quarter
debt service payment in 1995. Prior to the debt refinancing in 1996, no
repayments of mortgage principal were required prior to maturity. See
"Refinancing."
REFINANCING
On September 24, 1996, the Partnership successfully refinanced its $25.5 million
mortgage debt. Proceeds from the new loan were used to repay the existing
mortgage debt and pay refinancing costs. The refinanced debt bears interest at
a floating rate of 200 basis points over the three-month LIBOR rate, with an
option to fix the interest rate during the first two years of the loan term, and
requires quarterly payments of principal and interest based upon a 20-year
amortization schedule for a five-year term expiring on the maturity date of June
12, 2001. The weighted average interest rate on the Partnership's debt in 1997,
1996 and 1995 was 7.69%, 9.31% and 9.575%, respectively. The weighted average
interest rate during the twenty-four weeks ended June 19, 1998 was 7.69%,
compared to 7.64% during the comparable period in 1997.
PROPERTY IMPROVEMENT FUND
The Partnership is required to maintain the Hotel in good condition. Under the
Management Agreement, the Partnership is required to make annual contributions
to the property improvement fund which provides funding for capital expenditures
and replacement of furniture, fixtures and equipment. Contributions to the fund
equaled 4% of gross Hotel sales in 1997, 1996 and 1995. The contribution amount
will remain at 4% of gross Hotel sales in 1998 and 1999. In 2000 and
thereafter, the Partnership is required to contribute 5% of gross Hotel sales to
the fund. In 1997, 1996 and 1995, the Partnership contributed $577,000,
$523,000 and $468,000, respectively, to the property improvement fund. For the
second quarter year-to-date 1998 and second quarter year-to-date 1997, the
Partnership contributed $284,000 and $260,000, respectively, to the property
improvement fund.
The General Partner expects that contributions to the property improvement fund
will provide a sufficient reserve for the future capital repair and replacement
needs of the Hotel's property and equipment.
MANAGEMENT FEES
For 1997, the Partnership paid a base management fee equal to 3% of gross Hotel
sales to the Manager. In addition, the Partnership paid an incentive management
fee of $606,000 payable from cash flow remaining after payment of ground rent,
debt service and an owner's priority return of $1,020,000. Payment of the
incentive management fee is subordinated to the required principal and interest
payments on the Amended and Restated Mortgage Debt, ground rent and an 8% annual
priority return to the Partnership. Of the remaining amount, the Partnership
pays 50% of the current year incentive management fee to the extent of cash
available. Fifty percent of any remaining cash is then applied to 50% of the
current year incentive management fee and unpaid incentive management fees from
prior years. Unpaid incentive management fees are reflected as deferred
incentive management fees due to Marriott International, Inc. in the
Partnership's balance sheet (see Item 13). The Manager waived its right to any
unpaid deferred incentive management fees which were earned during the period
from June 12, 1989 to June 14, 1991. During the first two quarters of 1998 and
1997, the Manager received $439,000 and $261,000, respectively, of current
incentive management fees. The remaining $20,000 and $128,000, respectively, of
incentive management fees earned were accrued as deferred incentive management
fees payable to Marriott International. During 1997 the Manager received
$606,000 of current incentive management fee, while the remaining $258,000 of
incentive management fee earned was accrued as a deferred incentive management
fee payable to Marriott International. In 1996 and 1995, incentive management
fees earned and accrued as deferred incentive management fees totaled $734,000
and $591,000, respectively. No incentive management fees were paid prior to
1997. As of December 31, 1997 and 1996 and June 19, 1998, the balance of
deferred incentive management fees was $3.6 million, $3.3 million and $3.6
million, respectively.
10
<PAGE>
INFLATION
For the three fiscal years ended December 31, 1997 and the year-to-date ended
June 19, 1998, the rate of inflation has been relatively low and, accordingly,
has not had a significant impact on the Partnership's revenues and net income.
The Manager is generally able to pass through increased costs to customers
through higher room rates. In 1997, the increase in average room rates at the
Hotel exceeded those of direct competitors as well as the general level of
inflation. The amount of the Partnership's interest expense under floating rate
debt for a particular year will be affected by changes in short-term interest
rates.
SEASONALITY
Demand, and thus occupancy and room rates, is affected by normally recurring
seasonal patterns. Demand tends to be higher during the months of March through
November than during the remainder of the year. This seasonality tends to
affect the results of operations, increasing hotel revenues during these months.
In addition, this seasonality may also increase the liquidity of the Partnership
during these months.
YEAR 2000 ISSUES
Over the last few years, Host Marriott Corporation, the parent company of the
General Partner, has invested in implementing new accounting systems which are
Year 2000 compliant. Accordingly, the General Partner believes that future
costs associated with Year 2000 issues will be minimal and not material to the
Partnership's financial statements.
However, the Partnership does rely upon accounting software used by the Manager
of its property to obtain financial information. The General Partner believes
that the Manager has begun to implement changes to the property specific
software to ensure that software will function properly in the Year 2000 and
does not expect to incur significant costs related to these modifications.
ITEM 3. PROPERTY
The Partnership owns a single Hotel, which is in full operation and described
below.
LOCATION
The Marriott Suites O'Hare Hotel is a full-service Marriott suites hotel located
approximately 10 miles northwest of downtown Chicago, and two miles east of
O'Hare International Airport (the "Airport") on approximately four acres of
leased land. The Hotel is part of the 29 acre Riverway office and retail park
developed by Simon/Rosemont Developers.
DESCRIPTION
The Hotel opened in November 1988 with 256 guest suites. The Hotel has
approximately 2,600 square feet of meeting space including a 2,000 square foot
meeting room and 600 square foot board room. There is one food and beverage
outlet available in the Hotel, which includes a 94-seat restaurant, 20-seat
private dining restaurant and 33-seat lounge. Recreational amenities include an
indoor pool, a whirlpool and an exercise room. The Hotel also offers a gift
shop and parking for 272 vehicles on site. The Partnership purchased the Hotel
in 1989 for approximately $35 million.
COMPETITION
The following table provides selected data on the Hotel and its seven main
competitors in the vicinity of the Airport:
<TABLE>
<CAPTION>
Number of Year of Meeting Space
Property Rooms Opening (square footage)
- ------------------------------ --------- ------- ----------------
<S> <C> <C> <C>
O'Hare Suites 256 1988 2,600
Hyatt Regency 1,100 1971 81,600
Hilton 856 1972 33,900
O'Hare Marriott 681 1968 27,000
Westin 525 1984 38,700
Sofitel 300 1987 20,300
Sheraton Gateway Suites 297 1986 12,500
Rosemont Suites 296 1987 6,800
</TABLE>
11
<PAGE>
The O'Hare Marriott is managed by MII, and other than limited joint marketing
efforts, the Hotel and the O'Hare Marriott are direct competitors. Host
Marriott also owns a majority interest in the partnership that owns the O'Hare
Marriott. In addition, other hotels in the Chicago area also compete with the
Hotel; however, these differ in terms of size, room rates, facilities, market
orientation and/or location. None of these other hotels are operated as part of
the MII full-service hotel system. New competition is expected to open in the
area in the near future, however, it is expected to have minimal impact on the
Hotel as it appeals to a different segment of the market.
GROUND LEASE
The Hotel is located on a 4.3-acre site that is leased from an unrelated third
party for an initial term expiring in 2014. The Ground Lease may be renewed at
the option of the Partnership for five successive terms of 10 years each. The
lease provides for annual rental during its term equal to the greater of
$300,000 or 3% of annual gross room sales. Under the lease, the Partnership
pays all costs, expenses, taxes and assessments relating to the land, including
real estate taxes. The Partnership has a first right of negotiation in the
event the ground lessor decides to sell the leased premises. Upon expiration or
termination of the Ground Lease, title to the land and all improvements,
including the Hotel, reverts to the ground lessor.
SELECTED OPERATING STATISTICS
The following table shows selected operating statistics for the Hotel:
<TABLE>
<CAPTION>
For the Twenty-Four
Weeks Ended
--------------------
Year Ended December 31,
June 19, June 20, -----------------------------------
1998 1997 1997 1996 1995
--------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Average occupancy......... 82.0% 83.4% 83.2% 84.0% 81.4%
Average daily suite rate.. $159.98 $142.86 $146.83 $128.74 $120.80
REVPAR.................... $131.18 $119.15 $122.16 $108.14 $ 98.33
% REVPAR change........... 10% -- 13.0% 10.0% --
</TABLE>
12
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 19, 1998, the following persons owned more than 5% of the total
number of limited partnership Units: Marriott Suite Hotel Association owned
8.80%; Landmark Capital LLC owned 7.51%; and Michael T. Sullivan owned 7.46%.
No other person owned of record, or to the Partnership's knowledge owned
beneficially, more than 5% of the total number of limited partnership Units.
The General Partner does not own any limited partnership interest in the
Partnership. There are no Units owned by the executive officers and directors
of the General Partner, as a group.
The Partnership is not aware of any arrangements which may, at a subsequent
date, result in a change in control of the Partnership, other than the Host
Marriott Corporation's Conversion to a Real Estate Investment Trust described in
Item 1.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
MOHS Corporation, the General Partner, was incorporated in Delaware in 1988 and
is a wholly owned subsidiary of Host Marriott. The General Partner was
organized solely for the purpose of acting as general partner of the
Partnership.
The Partnership has no directors, officers or employees. The business policy
making functions of the Partnership are carried out through the directors and
executive officers of the General Partner, who are listed below:
<TABLE>
<CAPTION>
Age at
Name Current Position in MOHS Corporation June 19, 1998
- ------------------------- ------------------------------------------- -------------
<S> <C> <C>
Bruce F. Stemerman President and Director 42
Christopher G. Townsend Vice President, Secretary and Director 51
Earla L. Stowe Vice President and Chief Accounting Officer 37
Bruce D. Wardinski Treasurer 38
</TABLE>
BUSINESS EXPERIENCE
Bruce F. Stemerman joined Host Marriott in 1989 as Director, Partnership
Services. He was promoted to Vice President, Lodging Partnerships in 1994 and
to Senior Vice President, Asset Management in 1996. Prior to joining Host
Marriott, Mr. Stemerman spent ten years with Price Waterhouse. He also serves
as a director and an officer of numerous Host Marriott subsidiaries.
Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Senior Attorney. In 1984, Mr. Townsend was made Assistant Secretary of Host
Marriott and in 1986 was made Assistant General Counsel. In 1993, he was made
Senior Vice President, Corporate Secretary and Deputy General Counsel of Host
Marriott. In January 1997, Mr. Townsend was named General Counsel of Host
Marriott. He also serves as a director and an officer of numerous Host Marriott
subsidiaries.
Earla L. Stowe joined Host Marriott in 1982 and held various positions in the
tax department until 1988. She joined the Partnership Services department as an
accountant in 1988 and in 1989 she became an Assistant Manager, Partnership
Services. She was promoted to Manager, Partnership Services in 1991 and to
Director, Asset Management in 1996. She was promoted to Senior Director, Asset
Management in 1998. She also serves as an officer of numerous Host Marriott
subsidiaries.
Bruce D. Wardinski joined Host Marriott in 1987 as a Senior Financial Analyst of
Financial Planning & Analysis, and was named Manager in June 1988. He was
appointed Director, Financial Planning & Analysis in 1989, Director of Project
Finance in January 1990, Senior Director of Project Finance in June 1993, Vice
President, Project Finance in June 1994, and Senior Vice President of
International Development in October 1995. In June 1996, Mr. Wardinski was
named Senior Vice President and Treasurer of Host Marriott. He also serves as
an officer of numerous Host Marriott subsidiaries.
13
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The General Partner is required to devote to the Partnership such time as may be
necessary for the proper performance of its duties, but the officers and the
directors of the General Partner are not required to devote their full time to
Partnership matters. To the extent that any officer or director of the General
Partner or employee of Host Marriott does devote time to the Partnership, the
General Partner is entitled to reimbursement for the cost of providing such
services. Any such costs may include a charge for overhead, but without a
profit to the General Partner. For the fiscal years ended December 31, 1997 and
1996, administrative expenses reimbursed by the Partnership to the General
Partner totaled $59,000 and $119,000, respectively. No administrative expenses
were reimbursed to the General Partner in 1995. For the twenty-four weeks ended
June 19, 1998 and June 20, 1997, $82,000 and $51,000, respectively was
reimbursed to the General Partner by the Partnership.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described below, the Partnership is a party to an ongoing agreement with MII
pursuant to which the Hotel is managed by MII. In the opinion of the General
Partner, the related transactions are as favorable as would have been obtained
from unrelated third parties.
The Partnership entered into a management agreement (the "Management Agreement")
with MII to manage and operate the Hotel. The initial term of the Management
Agreement expires in 2008. The Manager may renew the Management Agreement at
its option, for up to five successive 10-year terms. The Manager is paid a base
management fee equal to 3% of gross Hotel sales. In addition, the Manager is
entitled to an incentive management fee equal to 20% of Net House Profit. The
incentive management fee is payable out of cash flow from operations remaining
after payment of ground rent, debt service, and an 8% annual priority return to
the Partners. Of this amount the Partnership pays 50% of the current year
incentive management fee to the extent of cash available. Fifty percent of any
remaining cash is then applied to 50% of the current year incentive management
fee and unpaid incentive management fees from prior years.
Unpaid incentive management fees are accrued as deferred incentive management
fees due to Marriott International, Inc. in the Partnership's balance sheet (see
Item 13). In accordance with the Management Agreement, in 1989 the Manager
waived its right to any unpaid deferred incentive management fees which were
earned during the period from June 12, 1989 to June 14, 1991. During the first
two quarters of 1998 and 1997, the Manager received $439,000 and $261,000,
respectively, of current incentive management fees. The remaining $20,000 and
$128,000, respectively, of incentive management fees earned were accrued as
deferred incentive management fees payable to Marriott International. During
1997 the Manager received $606,000 of current incentive management fee, while
the remaining $258,000 of incentive management fee earned was accrued as a
deferred incentive management fee payable to Marriott International. In 1996
and 1995, incentive management fees earned and accrued as deferred incentive
management fees totaled $734,000 and $591,000, respectively. No incentive
management fees were paid prior to 1997. As of December 31, 1997 and 1996 and
June 19, 1998, the balance of deferred incentive management fees was $3.6
million, $3.3 million and $3.6 million, respectively.
The Manager is required to provide certain services ("Chain Services") which are
furnished generally on a central or regional basis to all hotels in the Marriott
hotel system. The major cost components included in Chain Services are
computer, reservations, advertising, training and sales costs. Costs and
expenses incurred in providing such services are allocated among all Marriott
hotels managed, owned or leased by MII or its subsidiaries with no profit to
MII. The methods of allocating the costs and expenses are based upon one or a
combination of the following: (i) percent of sales, (ii) total number of hotel
rooms, (iii) total number of reservations booked, and (iv) total number of
management employees. In addition, the Hotel also participates in MII's
Marriott Rewards Program ("MRP") which was formerly called MII's Honored Guest
Awards Program. The cost of this program is charged to all hotels in MII's full
service hotel system based upon the MRP sales of each hotel.
The following table sets forth the amount paid to MII and affiliates for the
twenty-four weeks ended June 19, 1998 and June 20, 1997 and for each of the
years ended December 31, 1997, 1996 and 1995 (in thousands):
14
<PAGE>
<TABLE>
<CAPTION>
For the
Twenty-Four Weeks Ended
----------------------- Year Ended December 31,
June 19, June 20, ----------------------------
1998 1997 1997 1996 1995
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Incentive management fee...... $ 439 $ 261 $ 606 $ -- $ --
Chain services and MRP costs.. 396 344 783 757 649
Base management fee........... 213 195 433 392 351
------ ----- ------ ------ ------
$1,048 $ 800 $1,822 $1,149 $1,000
====== ===== ====== ====== ======
</TABLE>
Pursuant to the Management Agreement, the Partnership provided the Manager with
working capital and supplies to meet the operating needs of the Hotel. This
advance bears no interest and remains the property of the Partnership throughout
the term of the Management Agreement. The Manager converts cash advanced by the
Partnership into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables which are
maintained and controlled by the Manager. The Partnership is required to
advance upon request of the Manager any additional funds necessary to satisfy
the needs of the Hotel as its operations may require from time to time. Upon
termination of the Management Agreement, the Manager will return to the
Partnership any unused working capital and supplies. At December 31, 1997,
$357,000 has been advanced to the Manager for working capital and supplies.
The Management Agreement provides for the establishment of a property
improvement fund for the Hotel to cover (a) the cost of certain non-routine
repairs and maintenance to the Hotel which are normally capitalized; and (b) the
cost of replacements and renewals to the Hotel's property and equipment.
Contributions to the property improvement fund are based on a percentage of
gross sales of the Hotel. In 1997, 1996 and 1995 the Partnership contributed 4%
of gross Hotel sales to the fund. The contribution will remain at 4% of gross
Hotel sales in 1998 and 1999. In 2000 and thereafter, the Management Agreement
requires the Partnership to contribute 5% of gross Hotel sales to the fund. In
1997, 1996 and 1995, the Partnership contributed $577,000, $523,000 and
$468,000, respectively, to the property improvement fund. For the second
quarter year-to-date 1998 and second quarter year-to-date 1997, the Partnership
contributed $284,000 and $260,000, respectively, to the property improvement
fund.
The Management Agreement provides that the Partnership may terminate the
Management Agreement and remove the Manager if specified minimum operating
results are not achieved during any five consecutive years during the term of
the Agreement. The Manager may, however, prevent termination by paying to the
Partnership such amount as is necessary to achieve the above performance
standard.
ITEM 8. LEGAL PROCEEDINGS
Neither the Partnership nor the Hotel are presently subject to any material
litigation nor, to the General Partner's knowledge, is any material litigation
threatened against the Partnership or the Hotel, other than 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.
ITEM 9. MARKET FOR AND DISTRIBUTIONS ON LIMITED PARTNERSHIP UNITS AND RELATED
SECURITY HOLDER MATTERS
There is currently no public market for the Units. Transfers of Units are
subject to approval by the General Partner and certain other restrictions
described in Item 11, "Description of Registrant's Securities." As of June 19,
1998, there were 268 holders of record of the 335 limited partnership Units.
The ability of the Partnership to make cash distributions to the limited
partners is subject to limitations contained in the Partnership Agreement that
are described in Item 11, "Description of Registrant's Securities -
Distributions and Allocations."
The Partnership made no cash distributions to its partners for any of the three
years ended December 31, 1997, 1996 or 1995 or for the twenty-four weeks ended
June 19, 1998.
Units held by non-affiliates of the Partnership for at least three years may be
sold without registration in accordance with the exemptions provided by Rule 144
under the Securities Act of 1933, as amended the (the "Act"). For a discussion
of the restrictions on assignment contained in the Partnership Agreement, see
Item 11, "Description of Registrant's Securities."
15
<PAGE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Between September 15, 1988 and the Closing Date, 335 limited partnership
interests (the "Units") were sold in a private placement offering. See Item 1,
"Business - Organization of the Partnership" for additional information
regarding the Partnership's sale of Units. As of June 19, 1998, there were 269
limited partners including the 268 holders of the 335 Units and MBIP which holds
a 1% limited partner interest. Since the inception of the Partnership, there
have been 64 sales by limited partners involving 57 Units. Six of these sales
occurred during the years of 1995, 1996 and 1997. Fifty-eight of these sales
occurred during the year-to-date period ended June 19, 1998.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES
The 335 limited partnership interests represent 98% of the interests in the
Partnership. The General Partner holds a 1% general partner interest and MBIP
holds a 1% limited partner interest. See Item 1, "Business - Organization of
the Partnership."
DISTRIBUTIONS AND ALLOCATIONS
Partnership allocations and distributions are generally made as follows:
a. Cash available for distribution for each fiscal year will be distributed at
the discretion of the General Partner, but in no event less than once in each
fiscal year, as follows: (i) 100% to the limited partners (excluding MBIP)
until they have received, with respect to such fiscal year, an 8% cumulative
preferred return on the excess of original cash contributions over cumulative
distributions of net refinancing and sales proceeds (invested capital);
(ii) to Host Marriott to repay principal and interest on advances made under
the Debt Service Guarantee, as defined in Note 5 of the financial statements
included in Item 13, if any; and (iii) remaining cash available for
distribution will be distributed as follows:
1) 100% to the General Partner and MBIP until they have received with respect
to such fiscal year an 8% cumulative preferred return on their invested
capital;
2) any remainder shall be distributed as follows: 1% to the General Partner,
1% to MBIP and 98% to the remaining limited partners until aggregate
cumulative distributions of net proceeds from capital transactions and/or
refinancing total $5,982,000; then, 10% to the General Partner, 5% to MBIP
and 85% to the remaining limited partners until cumulative distributions
of net proceeds from capital transactions and/or refinancing total
$11,964,000; then 20% to the General Partner, 10% to MBIP and 70% to the
remaining limited partners.
b. Net proceeds from capital transactions and refinancing are generally
distributed in the following order of priority: (i) 1% to the General
Partner, 1% to MBIP and 98% to the remaining limited partners until they have
received their capital contributions to the extent not previously
distributed; (ii) then, to the limited partners (excluding MBIP) in an amount
equal to their 8% cumulative preferred return on their invested capital;
(iii) then, to the General Partner and MBIP in an amount equal to their 8%
cumulative preferred return on their invested capital; (iv) then, to Host
Marriott to repay any advances made under the Debt Service Guarantee,
together with accrued interest thereon; (v) then, to the Manager to pay any
unpaid deferred incentive management fees, as defined by the Management
Agreement; and (vi) the balance, if any, 20% to the General Partner, 10% to
MBIP and 70% to the remaining limited partners.
c. Taxable income for each fiscal year generally will be allocated as follows:
(i) in the same percentages and amounts that cash available for distribution
is distributed to such partners for such fiscal year; (ii) the balance, if
any, shall be allocated in the same manner as a.(iii)2) above. Tax losses
for each fiscal year shall be allocated 69% to the General Partner, 1% to
MBIP and 30% to the remaining limited partners. In any event, for each
fiscal year at least 1% of taxable or income or tax losses, as the case may
be, shall be allocated to each the General Partner and MBIP.
d. Taxable income from capital transactions and refinancings generally will be
allocated as follows: (i) first, to the partners whose capital accounts have
negative balances until such negative balances are brought to zero;
(ii) then, 1% to the General Partner, 1% to MBIP and 98% to the remaining
limited partners until the partners' capital accounts are equal to
16
<PAGE>
their initial capital contribution less all distributions of net proceeds
from capital transactions and/or refinancings ("Adjusted Capital
Contributions"); (iii) then, to the limited partners (excluding MBIP) in an
amount equal to their 8% cumulative preferred return for such year, less any
amounts previously distributed; (iv) then, to the General Partner and MBIP in
an amount equal to their 8% cumulative preferred return for such year; and
(v) the balance, if any, 20% to the General Partner, 10% to MBIP and 70% to
the remaining limited partners.
e. Tax losses from capital transactions or refinancings shall be allocated as
follows: (i) first, to the partners with positive capital accounts, pro rata
in amounts as will result in the elimination of the positive capital accounts
of such partners; and (ii) the remainder, if any, 20% to the General Partner,
10% to MBIP and 70% to the remaining limited partners.
In any event, for each fiscal year, at least 1% of the taxable income or tax
losses from capital transactions or refinancings shall be allocated to each
the General Partner and MBIP.
f. For financial reporting purposes, profits and losses are allocated among the
Partners based on their ownership interests.
Upon dissolution of the Partnership, the General Partner shall liquidate the
assets of the Partnership. The proceeds of such liquidation shall be applied
and distributed in the following order of priority: (i) to the payment of
Partnership debt and other liabilities, including any loans or advances that may
have been made by any of the partners or the Partnership; (ii) to the payment of
the expenses of the liquidation; (iii) to the establishment, for such period
deemed reasonably necessary, of such reserves deemed reasonably necessary to
provide for contingent and unforeseen liabilities or obligations of the
Partnership; and (iv) to the General Partner and limited partners in proportion
to the net balances in their respective capital accounts.
AUTHORITY OF THE GENERAL PARTNER
Under the Partnership Agreement, the General Partner has broad management
discretion over the business of the Partnership and with regard to the operation
of the Hotel. No limited partner may take any part in the conduct or control of
the Partnership's business. The authority of the General Partner is limited in
certain respects.
Without the unanimous consent of all the limited partners, the General Partner
does not have authority to:
(i) do any act in contravention of the Partnership Agreement;
(ii) except as otherwise provided in the Partnership Agreement, voluntarily
take any action that will cause the dissolution of the Partnership;
(iii) confess a judgment against the Partnership that is material in amount
when compared to Partnership assets;
(iv) convert property of the Partnership to its own use or assign any rights
in specific Partnership property for other than a Partnership purpose;
(v) admit any other person as a General Partner or admit a person as an
additional or substitute limited partner except as otherwise provided in
the Partnership Agreement;
(vi) knowingly perform any act that would subject any limited partner to
liability as a general partner in any jurisdiction or to any other
liability except as provided in the Rhode Island Revised Uniform Limited
Partnership Act (the "Partnership Act") or the Partnership Agreement; or
(vii) commingle Partnership funds with those of any other Person, as defined.
Without the consent of the holders of a majority of the Units, the General
Partner does not have authority to:
(i) acquire hotel properties in addition to the Hotel;
(ii) sell or otherwise dispose of or consent to the sale or disposition of
the Partnership's assets;
17
<PAGE>
(iii) effect any amendment to any agreement, contract or arrangement with the
General Partner or any affiliate which would reduce the responsibility
or duties of, or would increase the compensation payable to the General
Partner or any of its affiliates or which would otherwise adversely
affect the rights of the limited partners; or
(iv) voluntarily withdraw as General Partner, unless the General Partner
obtains the consent of the limited partners and provides an additional
or successor General Partner approved by the limited partners and the
Partnership receives an opinion of its counsel to the effect that such
withdrawal would not affect the Partnership's federal tax filing status.
RESTRICTIONS ON ASSIGNMENTS OF UNITS
A limited partner generally has the right to assign a Unit to another person or
entity, subject to certain conditions and restrictions. An assignment of a Unit
is subject to the following restrictions: (i) no assignment may be made if,
when added to all other prior assignments and transfers of interests in the
Partnership within the preceding 12 months, such assignment would result in the
Partnership, in the opinion of legal counsel, being deemed terminated for
Federal income tax purposes; (ii) the General Partner may prohibit any
assignment that, in the opinion of legal counsel, would require the filing of a
registration statement under the Securities Act of 1933 or otherwise would
violate any Federal or state securities laws or regulations (including investor
suitability standards) applicable to the Partnership; (iii) except in the case
of a transfer of a limited partner's entire interest, no assignment may be made
that would result in either the assignor or the assignee owning a fraction of a
Unit (other than a one-half Unit), except for assignment by gift, inheritance,
or family dissolution or assignments to affiliates of the assignor; (iv) no
assignment may be made if, in the opinion of legal counsel, it would result in
the Partnership being treated as an association taxable as a corporation; (v) no
assignment may be made if, in the opinion of legal counsel, it would preclude
the Partnership from either obtaining or retaining an alcoholic beverage license
for the Hotel; and (vi) no assignment may be made if the transfer would result
in more than five percent of the total Units having been assigned during such
taxable year.
The Partnership will not recognize for any purpose any assignment of any Units
unless (i) an instrument is executed making such assignment, signed by both the
assignor and the assignee, and a duly executed application for assignment and
admission as substituted limited partner is executed indicating the written
acceptance by the assignee of all the terms and provisions of the Partnership
Agreement and (ii) the General Partner has determined that such assignment is
permitted under the Partnership Agreement. No assignee of a limited partner's
Units will be entitled to become a substituted limited partner unless: (i) the
General Partner gives written consent, (ii) the transferring limited partner
files with the Partnership a duly executed and acknowledged written assignment
that the General Partner deems necessary to effect such admission, (iii) the
assignee executes a counterpart of the Partnership Agreement and such other
documents as the General Partner may require, and (iv) the assignee pays all
reasonable expenses incurred in connection with his admission as a substituted
limited partner. An assignee only becomes a substituted limited partner when
the General Partner has reflected the admission of such person as a limited
partner in the books and records of the Partnership.
Any person who is the assignee of any of the Units of a limited partner, but who
does not become a substituted limited partner is entitled to all the rights of
an assignee of a limited partner interest under the Partnership Act, including
the right to receive distributions from the Partnership and the share of net
profits, net losses, gain, loss and recapture income attributable to the Units
assigned to the person, but shall not be deemed to be a holder of Units for any
other purpose under the Partnership Agreement.
AMENDMENTS
Amendments to the Partnership Agreement may be made by the General Partner with
the consent of the limited partners holding a majority of the outstanding Units.
However, without the consent of the majority of the holders of the Units and the
partners to be adversely affected by the amendment, no amendment to the
Partnership Agreement may be made, which would (i) convert a limited partner's
interest into a general partner's interest; (ii) modify the limited liability of
a limited partner; or (iii) alter the interest of a partner in taxable income,
tax losses, or distributions of cash available for distribution or distributable
proceeds from capital transactions, or other cash distributions or reduce the
percentage of partners which is required to consent to any action under the
Partnership Agreement. The General Partner may make an amendment to the
Partnership Agreement, without the consent of the limited partners, if such
amendment is necessary solely to clarify the provisions of the Partnership
Agreement so long as such amendment does not adversely affect the rights of the
limited partners under the Partnership Agreement.
18
<PAGE>
MEETINGS AND VOTING
The limited partners cannot participate in the management or control of the
Partnership or its business. The Partnership Agreement, however, extends to the
limited partners the right under certain conditions to vote on or approve
certain Partnership matters. Any action that is required or permitted to be
taken by the limited partners may be taken either at a meeting of the limited
partners or without a meeting if approvals in writing setting forth the action
so taken are signed by limited partners owning not less than the minimum number
of Units that would be necessary to authorize or take such action at a meeting
at which all of the limited partners were present and voted. Meetings of the
limited partners may be called by the General Partner and shall be called by the
General Partner upon receipt of a request in writing signed by holders of 10% or
more of the Units held by the limited partners. Limited partners may vote
either in person or by proxy at meetings. Limited partners holding more than
50% of the total number of all outstanding Units constitute a quorum at a
meeting of the limited partners. Matters submitted to the limited partners for
determination will be determined by the affirmative vote of the limited partners
holding a majority of the outstanding Units, except that a unanimous vote of the
limited partners will be required for certain actions requiring unanimous
consent referred to in "Authority of the General Partner."
The Partnership Agreement does not provide for annual meetings of the limited
partners and none have been held, nor does the General Partner anticipate
calling such meetings.
OTHER MATTERS
If at any time any agreement (including the Management Agreement) pursuant to
which operating management of the Hotel is vested in the General Partner or an
affiliate of the General Partner provides that the Partnership has a right to
terminate such agreement as a result of the failure of the operation to attain
economic objectives, as specifically defined, the limited partners, without the
consent of the General Partner, may, upon the affirmative vote of the holders of
a majority of the Units, take action to exercise the right of the Partnership to
terminate such agreements.
The limited partners may also, by a vote of the holders of a majority of the
Units, remove the General Partner (but only if a new general partner is elected)
if the General Partner has committed and not remedied any act of fraud, bad
faith, gross negligence or breach of fiduciary duties in carrying out its duties
as the General Partner. Notwithstanding the foregoing, however, such a removal
of the General Partner or the Manager, if exercised, would be an event of
default under the loan documentation evidencing the Mortgage Debt, and would
permit the lender or its assignee to accelerate the maturity of the loan. Thus,
the termination right could only be exercised with the consent of the lender or
its assignee.
The Partnership Agreement provides that limited partners will not be personally
liable for the losses of the Partnership beyond the amount committed by them to
the capital of the Partnership. In the event that the Partnership is unable
otherwise to meet its obligations, the limited partners might, under applicable
law, be obligated under some circumstances to return distributions previously
received by them, with interest, to the extent such distributions constituted a
return of the capital contributions at the time when creditors had valid claims
outstanding against the Partnership.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except as specifically provided in the Partnership Act, the General Partner is
liable for the obligations of the Partnership in the same manner as a partner
would be liable in a partnership without limited partners to persons other than
the Partnership and the other partners. Generally speaking, any such partner is
fully liable for any and all of the debts or other obligations of the
partnership as and to the extent the partnership is either unable or fails to
meet such obligations. Thus, the assets of the General Partner may be reached
by creditors of the Partnership to satisfy obligations or other liabilities of
the Partnership, other than nonrecourse liabilities, to the extent the assets of
the Partnership are insufficient to satisfy such obligations or liabilities.
The Partnership Act provides that: "Subject to such standards and restrictions,
if any, as set forth in its partnership agreement, a limited partnership may,
and shall have the power to, indemnify and hold harmless any partner or other
person from and against any and all claims and demands whatsoever." The
Partnership Agreement provides that the General Partner and its affiliates will
not be liable to the Partnership or the limited partners for any loss suffered
as a result of any act or omission of the General Partner or its affiliates
provided (i) such acts or omissions were determined by the General Partner or
its affiliates, in good faith, to be in the best interest of the Partnership and
(ii) the conduct of the General Partner or its affiliates did not constitute
negligence or misconduct.
19
<PAGE>
The Partnership Agreement also provides that the General Partner and its
affiliates will be indemnified out of Partnership assets against any loss
suffered as a result of any act or omission determined by the General Partner or
its affiliates, in good faith, to be in the best interest of the Partnership so
long as such conduct did not constitute negligence or misconduct. The
Partnership, however, may indemnify the General Partner or its affiliates for
losses, judgments, liabilities and expenses incurred in successfully defending
or settling claims arising out of alleged securities laws violations only if
certain specific additional requirements are met. The Partnership Agreement
provides that any indemnification obligation shall be paid solely out of the
assets of the Partnership.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to partners and controlling persons of the registrant
pursuant to the foregoing provisions or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid in the successful defense or any action, suit or proceeding) is asserted
against the registrant by such a person in connection with the securities
registered hereby, and if the Securities and Exchange Commission is still of the
same opinion, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
20
<PAGE>
ITEM 13. FINANCIAL STATEMENTS
The following financial information is included on the pages indicated:
<TABLE>
<CAPTION>
Index Page
- ----- ----
<S> <C>
Report of Independent Public Accountants....................................... 22
Statement of Operations for the Years Ended December 31, 1997, 1996 and 1995... 23
Balance Sheet as of December 31, 1997 and 1996................................. 24
Statement of Changes in Partners' Capital (Deficit)............................ 25
Statement of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995... 26
Notes to Financial Statements.................................................. 27
Condensed Statement of Operations for the Twenty-Four Weeks Ended June 19, 1998
and June 20, 1997 (Unaudited)................................................. 33
Condensed Balance Sheet as of June 19, 1998 (Unaudited) and December 31, 1997.. 34
Condensed Statement of Cash Flows for the Twenty-Four Weeks Ended June 19, 1998
and June 20, 1997 (Unaudited)................................................. 35
Notes to Condensed Financial Statements (Unaudited)............................ 36
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PARTNERS OF MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.:
We have audited the accompanying balance sheet of Mutual Benefit Chicago
Marriott Suite Hotel Partners, L.P. (a Rhode Island limited partnership) as of
December 31, 1997 and 1996 and the related statements of operations, changes in
partners' capital (deficit) and cash flows for the three years in the period
ended December 31, 1997. These financial statements and the schedule referred
to below are the responsibility of the General Partner's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mutual Benefit Chicago Marriott
Suite Hotel Partners, L.P. as of December 31, 1997 and 1996 and the results of
its operations and its cash flows for the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements as a whole. The schedule listed in the index at Item 15(a)
is presented for purposes of complying with the rules of the Securities and
Exchange Commission and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 23, 1998
22
<PAGE>
STATEMENT OF OPERATIONS
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Hotel revenues (Note 3).................... $ 6,568 $ 5,660 $ 4,913
------- ------- -------
OPERATING COSTS AND EXPENSES
Real estate taxes and other................ 1,295 1,139 1,172
Incentive management fee................... 864 734 591
Depreciation............................... 835 1,234 1,644
Base management fee........................ 433 392 351
Ground rent................................ 341 308 300
Administrative and other................... 127 81 67
------- ------- -------
3,895 3,888 4,125
------- ------- -------
OPERATING PROFIT............................ 2,673 1,772 788
Interest expense........................... (2,150) (2,406) (2,526)
Interest income............................ 59 69 83
------- ------- -------
NET INCOME (LOSS)........................... $ 582 $ (565) $(1,655)
======= ======= =======
ALLOCATION OF NET INCOME (LOSS)
General Partner............................ $ 6 $ (6) $ (17)
MBIP Interest.............................. 6 (6) (17)
Limited Partner Unit Holders............... 570 (553) (1,621)
------- ------- -------
$ 582 $ (565) $(1,655)
======= ======= =======
NET INCOME (LOSS) PER LIMITED PARTNER UNIT
(335 Units)................................ $ 1,701 $(1,651) $(4,839)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
BALANCE SHEET
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Property and equipment, net............................................. $ 23,784 $ 23,640
Property improvement fund............................................... 402 329
Deferred financing costs, net........................................... 428 512
Due from Marriott International, Inc.................................... 507 487
Cash and cash equivalents............................................... 841 733
-------- --------
$ 25,962 $ 25,701
======== ========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage debt........................................................... $ 24,475 $ 25,361
Deferred incentive management fees due to Marriott International, Inc... 3,587 3,329
Note payable to Marriott International, Inc............................. 528 --
Accounts payable and accrued expenses................................... 193 414
-------- --------
Total Liabilities.................................................... 28,783 29,104
-------- --------
PARTNERS' DEFICIT
General Partner
Capital contribution................................................... 120 120
Capital distributions.................................................. (23) (23)
Cumulative net losses.................................................. (107) (113)
-------- --------
(10) (16)
-------- --------
Limited Partners
Capital contribution, net of offering costs of $1,512.................. 10,249 10,249
Capital distributions.................................................. (2,819) (2,819)
Cumulative net losses.................................................. (10,241) (10,817)
-------- --------
(2,811) (3,387)
-------- --------
Total Partners' Deficit.............................................. (2,821) (3,403)
-------- --------
$ 25,962 $ 25,701
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
-------- --------- --------
<S> <C> <C> <C>
Balance, December 31, 1994........................... $ 17 $(1,200) $(1,183)
Net loss........................................... (34) (1,621) (1,655)
---- ------- -------
Balance, December 31, 1995........................... (17) (2,821) (2,838)
Transfer of MBIP 1% GP interest to 1% LP interest.. 11 (11) --
Net loss........................................... (10) (555) (565)
---- ------- -------
Balance, December 31, 1996........................... (16) (3,387) (3,403)
Net income......................................... 6 576 582
---- ------- -------
Balance, December 31, 1997........................... $(10) $(2,811) $(2,821)
==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
STATEMENT OF CASH FLOWS
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 582 $ (565) $(1,655)
Noncash items:
Depreciation.............................................. 835 1,234 1,644
Deferred incentive management fees........................ 258 734 591
Amortization of deferred financing costs as interest...... 124 33 46
Deferred interest on mortgage loan........................ 63 -- --
Changes in operating accounts:
Accounts payable and accrued expenses..................... 39 (607) 30
Due from Marriott International, Inc...................... (20) (31) (20)
------- ------- -------
Cash provided by operating activities.................... 1,881 798 636
------- ------- -------
INVESTING ACTIVITIES
Additions to property and equipment, net.................... (979) (1,013) (492)
Change in property improvement fund......................... (73) 496 6
------- ------- -------
Cash used in investing activities........................ (1,052) (517) (486)
------- ------- -------
FINANCING ACTIVITIES
Repayment of mortgage debt.................................. (886) (139) --
Proceeds from note payable to Marriott International, Inc... 528 -- --
Payment of financing costs.................................. (363) (203) --
------- ------- -------
Cash used in financing activities........................ (721) (342) --
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. 108 (61) 150
CASH AND CASH EQUIVALENTS at beginning of year................ 733 794 644
------- ------- -------
CASH AND CASH EQUIVALENTS at end of year...................... $ 841 $ 733 $ 794
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest............................. $ 1,947 $ 2,947 $ 2,482
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P. (the "Partnership"),
a Rhode Island limited partnership, was formed in 1988 to acquire and own the
256 suite Marriott Suites O'Hare Hotel (the "Hotel") located near the O'Hare
International Airport in Rosemont, Illinois. The Hotel, which opened on
November 28, 1988, is managed by Marriott International, Inc. ("MII") as part of
its full service hotel system.
In 1989, 335 limited partnership interests (the "Units"), representing a 98%
interest in the Partnership, were sold pursuant to a private placement offering
at $35,000 per Unit. Each general partner contributed $119,500 in cash for
their respective 1% general partner interests. Under the purchase and sale
agreement, Host Marriott Corporation ("Host Marriott") agreed to reduce the
purchase price of the Hotel up to an aggregate total of $3,000,000 to the extent
that the Hotel did not provide cash flow, after payment of ground rent and debt
service, equivalent to $1,000,000 for each of the three years ended June 19,
1992 (the "Cash Flow Guaranty"). A total of $2,476,000 was paid to the
Partnership under the Cash Flow Guaranty. The price adjustments were allocated
as a reduction of the carrying value of the Partnership's property and equipment
in the accompanying balance sheet.
On August 23, 1996, MB Investment Properties, Inc. ("MBIP") withdrew as a
general partner of the Partnership and converted its 1% interest to a limited
partner. At December 31, 1997 the sole general partner is MOHS Corporation
("MOHS"), a Delaware corporation and subsidiary of Host Marriott.
Partnership Allocations and Distributions
Partnership allocations and distributions are generally made as follows:
(a) Cash available for distribution is distributed (i) first, 100% to the
limited partners (excluding MBIP) until they have received an annual 8%
cumulative preferred return on their invested capital; (ii) to Host Marriott
to repay principal and interest on advances made under the Debt Service
Guarantee, as defined in Note 5, if any; and (iii) 100% to the general
partner and MBIP until they have received an annual 8% cumulative preferred
return on their invested capital. The balance, if any, shall be distributed
(i) 1% to the general partner, 1% to MBIP and 98% to the remaining limited
partners until the general partner and the limited partners (collectively,
the "Partners") have received cumulative distributions of net proceeds from
capital transactions and/or refinancing equal to $5,982,000; (ii) next, 10%
to MOHS, 5% to MBIP and 85% to the remaining limited partners until the
Partners have received cumulative distributions of net proceeds from capital
transactions and/or refinancing equal to $11,964,000; and (iii) thereafter,
20% to MOHS, 10% to MBIP and 70% to the remaining limited partners.
(b) Net proceeds from capital transactions and refinancing are generally
distributed in the following order of priority: (i) first, 1% to the
general partner, 1% to MBIP and 98% to the remaining limited partners until
the Partners have received their initial capital contribution to the extent
not previously distributed; (ii) then, to the limited partners (excluding
MBIP) in an amount equal to their 8% cumulative preferred return on their
invested capital; (iii) then, to the general partner and MBIP in an amount
equal to their 8% cumulative preferred return on their invested capital;
(iv) then, to Host Marriott to repay any advances made under the Debt
Service Guarantee, together with accrued interest thereon; (v) then, to MII
to pay any unpaid deferred incentive management fee; and (vi) the balance,
if any, 20% to MOHS, 10% to MBIP and 70% to the remaining limited partners.
(c) For financial reporting purposes, profits and losses are allocated among the
Partners based on their ownership interests.
27
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenues and Expenses
Revenues represent house profit from the Hotel because the Partnership has
delegated substantially all of the operating decisions related to the generation
of house profit of the Hotel to MII. House profit reflects the net revenues
flowing to the Partnership as property owner and represents hotel operating
results less property-level expenses, excluding depreciation and amortization,
base management fee, real estate taxes, ground rent, insurance and certain other
costs, which are disclosed separately in the statement of operations (see Note
3).
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 is assessing the impact of EITF 97-2 on its policy of excluding
the property level revenues and operating expenses of its hotel from its
statements of operations. If the Partnership concludes that EITF 97-2 should be
applied to the Hotel, it would include operating results of the managed
operation in its financial statements. Application of EITF 97-2 to financial
statements as of and for the year ended December 31, 1997, would have increased
both revenues and operating expenses by approximately $7.9 million and would
have had no impact on the operating profit or net income.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the useful lives of the assets as follows:
Leasehold improvements 40 years
Furniture and equipment 7 years
All property and equipment is pledged to secure the Amended and Restated
Mortgage Debt defined in Note 5.
The Partnership assesses impairment of the Hotel based on whether estimated
undiscounted future cash flows from the Hotel will be less than its net book
value. If the Hotel is impaired, its basis is adjusted to fair market value.
Deferred Financing Costs
Deferred financing costs represent the costs incurred in connection with
obtaining debt financing and are amortized over the term thereof. The original
mortgage debt (see Note 5) matured on June 12, 1996. Deferred financing costs
associated with that debt, totaling $320,000, were fully amortized at December
31, 1996 and were subsequently written off in 1997. Costs associated with the
mortgage debt refinancing (see Note 5) totaled $566,000 and will be amortized
over the term of the loan. Accumulated amortization of deferred financing costs
at December 31, 1997 and 1996 totaled $138,000 and $334,000, respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
28
<PAGE>
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements because the Partnership does not pay income
taxes but rather allocates profits and losses to the Partners in accordance with
the partnership agreement. Significant differences exist between the net income
for financial reporting purposes and the net income as reported on the
Partnership's tax return. These differences are due primarily to the use, for
income tax purposes, of accelerated depreciation methods and shorter depreciable
lives of the assets. As a result of these differences, the excess of the tax
basis in the net Partnership liabilities over the net Partnership liabilities
reported in the accompanying financial statements was $896,000 and $969,000,
respectively as of December 31, 1997 and 1996.
Statement of Financial Accounting Standards
In 1996, the Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Adoption of SFAS No. 121 did not have an
effect on its financial statements.
NOTE 3. REVENUES
Hotel revenues consist of Hotel operating results for the three years ended
December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
HOTEL SALES
Rooms........................... $11,336 $10,224 $ 9,100
Food and beverage............... 2,588 2,337 2,092
Other........................... 505 509 497
------- ------- -------
14,429 13,070 11,689
------- ------- -------
HOTEL EXPENSES
Departmental direct costs
Rooms........................ 2,541 2,509 2,311
Food and beverage............ 2,088 1,896 1,722
Other hotel operating expenses.. 3,232 3,005 2,743
------- ------- -------
7,861 7,410 6,776
------- ------- -------
HOTEL REVENUES.................... $ 6,568 $ 5,660 $ 4,913
======= ======= =======
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Leasehold improvements......... $ 26,453 $ 26,015
Furniture and equipment........ 8,768 8,227
-------- --------
35,221 34,242
Less accumulated depreciation.. (11,437) (10,602)
-------- --------
$ 23,784 $ 23,640
======== ========
</TABLE>
29
<PAGE>
NOTE 5. DEBT
Mortgage Debt
The Partnership entered into a loan agreement on June 12, 1989 with a bank to
provide non-recourse mortgage debt of $25.5 million (the "Mortgage Debt") to
finance the acquisition of the Hotel. The Mortgage Debt initially bore interest
at a floating interest rate. On August 11, 1989 the Partnership exercised its
option to fix the interest rate at 9.575% until maturity on June 12, 1996.
Interest on the Mortgage Debt was payable on the last day of March, June,
September and December of each year. No amortization of principal was required
prior to maturity or the sale or refinancing of the Hotel.
The Mortgage Debt matured on June 12, 1996 (the "Maturity Date"). On September
24, 1996 (the "Closing Date"), the Partnership completed a refinancing of the
Mortgage Debt (the "Amended and Restated Mortgage Debt"). The lender granted
the Partnership a forbearance of the loan for the period between the Maturity
Date and the Closing Date. During the forbearance period from the Maturity Date
until August 15, 1996 the Partnership continued to pay interest at the contract
rate of 9.575%. Thereafter, until the Closing Date, the Partnership paid
interest at a rate of 10.575%. The Amended and Restated Mortgage Debt matures
on June 12, 2001 and carries a floating interest rate of 200 basis points over
the three-month London Interbank Offered Rate ("LIBOR"), with an option to fix
the interest rate during the first two years of the loan term. The weighted
average interest rate from the Closing Date through December 31, 1996, was
7.62%. The weighted average interest rate for 1997 was 7.69%. The restructured
loan requires minimum quarterly amortization payments based on a 20-year
schedule. Additionally, all excess cash flow after payment of ground rent,
required principal and interest payments, incentive management fee, partnership
administrative expenses and refinancing costs is to be applied toward principal
amortization. On June 24, 1997 the Partnership paid $305,000 from excess cash
flow generated during 1996 toward additional principal amortization. The
Partnership made a $766,000 principal payment in June 1998 from excess cash flow
generated during 1997.
As of the Closing Date, the lender deferred a $128,000 restructuring fee and
$302,000 of expenses incurred by the lender in connection with restructuring the
Mortgage Debt. On December 24, 1996, the Partnership paid $107,000 of lender's
expenses. A total of $323,000 was accrued as deferred financing costs which is
included in accounts payable and accrued expenses on the balance sheet for the
year ended December 31, 1996. This accrued liability was paid in April 1997.
Scheduled debt maturities under the Amended and Restated Mortgage Debt are as
follows (in thousands):
1998 $ 627
1999 676
2000 728
2001 22,444
-------
$24,475
=======
The Amended and Restated Mortgage Debt is secured by the Hotel, an assignment of
the Partnership's interest under the Ground Lease (as defined in Note 6), an
assignment of the Hotel management agreement, and by the grant of a security
interest in the Partnership's cash accounts and the personal property and
fixtures of the Hotel.
Debt Guarantees
No debt service guarantee was provided on the Amended and Restated Mortgage
Debt. However, MOHS reaffirmed its guarantee to the lender, that in the event
of a foreclosure, proceeds payable to the lender would be at least $5,000,000.
Roof and Facade Loan
Marriott International Capital Corporation ("MICC"), a subsidiary of MII,
provided $605,000 in available loan proceeds for the completion of the facade
and roof restoration project at the Hotel. As of December 31, 1997, $528,000
has been disbursed under the loan. The loan matures in June 2000, bears
interest at 9% and will be repaid from the Partnership's cash flow from
operations after defined priorities. Payments of approximately $19,000 in
principal and interest began in June 1998.
Simultaneous with the execution of the loan agreement between the Partnership
and MICC, Host Marriott purchased a 50% participation interest in the loan from
MICC. Pursuant to the participation agreement, Host Marriott reimbursed MICC
for 50% of the loan advances made to-date and will continue to reimburse MICC
for 50% of any additional advances. Upon the final loan
30
<PAGE>
disbursement, Host Marriott will be reimbursed by MICC for 50% of the loan
repayments as they are made by the Partnership to MICC.
NOTE 6. GROUND LEASE
In 1989, the leasehold interest in the land upon which the Hotel is located was
assigned to the Partnership by Host Marriott. The lease was created on June 16,
1986 pursuant to a ground lease (the "Ground Lease") from the landlord to Host
Marriott. The initial term of the Ground Lease expires in 2014. The Ground
Lease may be renewed at the option of the Partnership for five successive terms
of ten years each. Upon expiration or termination of the Ground Lease, title to
the Hotel and all improvements revert to the lessor. Rent expense under the
Ground Lease is calculated at an amount equal to the greater of a minimum rental
of $300,000 per year or a percentage rental equal to 3% of annual gross room
sales. Ground rent expense for 1997, 1996 and 1995 was $341,000, $308,000 and
$300,000, respectively.
NOTE 7. MANAGEMENT AGREEMENT
The Partnership entered into a hotel management agreement (the "Management
Agreement") with MII (the "Manager") to manage the Hotel as part of MII's full
service hotel system. The Management Agreement has an initial term expiring in
2008. The Manager may renew the Management Agreement, at its option, for five
successive ten-year terms. The Partnership may terminate the Management
Agreement if specified minimum operating results are not achieved. However, the
Manager may prevent termination by paying the Partnership the amount by which
the minimum operating results were not achieved.
The Management Agreement provides for annual payments of (i) the base management
fee equal to 3% of gross sales from the Hotel, and (ii) the incentive management
fee equal to 20% of net house profit, as defined. Payment of the incentive
management fee is subordinated to the prior payment of required principal and
interest payments, ground rent and an 8% annual priority return to the
Partnership. Unpaid incentive management fees are reflected as deferred
incentive management fees payable to MII in the accompanying balance sheet. The
incentive management fee earned in 1997 was $864,000. Of this amount, $606,000
was paid to the Manager and $258,000 was accrued as unpaid deferred incentive
management fees. Unpaid incentive management fees earned in 1996 and 1995 were
$734,000 and $591,000, respectively. The balance of deferred incentive
management fees at December 31, 1997 and 1996 was $3.6 million and $3.3 million,
respectively.
Pursuant to the terms of the Management Agreement, the Partnership is required
to provide the Manager with working capital and supplies to meet the operating
needs of the Hotel. The Manager converts cash advanced by the Partnership into
other forms of working capital consisting primarily of operating cash,
inventories, and trade receivables and payables which are maintained and
controlled by the Manager. Upon termination of the Management Agreement, the
working capital and supplies will be returned to the Partnership. The
individual components of working capital and supplies controlled by the Manager
are not reflected in the Partnership's balance sheet. As of December 31, 1997
and 1996, $357,000 has been advanced to the Manager for working capital and
supplies and is reflected in Due from Marriott International, Inc. on the
accompanying balance sheet.
Pursuant to the terms of the Management Agreement, the Manager is required to
furnish the Hotel with certain services ("Chain Services") which are generally
provided on a central or regional basis to all hotels in MII's full service
hotel system. Chain Services include central training, advertising and
promotion, a national reservation system and such additional services, as
needed, which may be more efficiently performed on a centralized basis. Costs
and expenses incurred in providing such services are allocated among all
domestic full service hotels managed, owned or leased by MII or its
subsidiaries. In addition, the Hotel also participates in MII's Marriott's
Rewards Program ("MRP"), which was formerly called MII's Honored Guest Awards
Program. The cost of this program is charged to all hotels in MII's hotel
system based upon the MRP sales at each hotel. The total amount of Chain
Services and MRP costs charged to the Partnership was $783,000, $757,000 and
$649,000 for 1997, 1996 and 1995, respectively.
The Management Agreement provides for the establishment of a property
improvement fund for the Hotel which provides for the replacement of furniture,
fixtures and equipment. Contributions to the property improvement fund are
based on a percentage of gross Hotel sales equal to 4% for 1995 through 1999 and
5% thereafter. Contributions to the property improvement fund for 1997, 1996
and 1995 were $577,000, $523,000 and $468,000, respectively.
31
<PAGE>
NOTE 8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The
estimated fair values of financial instruments not included in this table are
estimated to be equal to their carrying amounts (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1997 As of December 31, 1996
----------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Mortgage Debt.. $24,475 $24,700 $25,361 $25,200
</TABLE>
The estimated fair value of the Mortgage Debt is based on the expected future
debt service payments discounted at estimated market rates.
32
<PAGE>
CONDENSED STATEMENT OF OPERATIONS
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
For the Twenty-Four Weeks Ended
---------------------------------
June 19, June 20,
1998 1997
---------------- ---------------
<S> <C> <C>
HOTEL REVENUES (Note 2).............. $ 3,358 $2,952
------- ------
OPERATING COSTS AND EXPENSES
Real estate taxes and other......... 594 579
Depreciation........................ 467 385
Incentive management fee............ 459 389
Base management fee................. 213 195
Ground rent and administrative...... 213 168
------- ------
1,946 1,716
------- ------
OPERATING PROFIT..................... 1,412 1,236
Interest expense.................... (1,006) (999)
Interest income..................... 31 29
------- ------
NET INCOME........................... $ 437 $ 266
======= ======
ALLOCATION OF NET INCOME
General Partner..................... $ 4 $ 3
MBIP Limited Partner Interest....... 4 3
Limited Partner Unit Holders........ 429 260
------- ------
$ 437 $ 266
======= ======
NET INCOME PER LIMITED PARTNER UNIT
(335 Units)......................... $ 1,281 $ 776
======= ======
</TABLE>
See Notes to Condensed Financial Statements.
33
<PAGE>
CONDENSED BALANCE SHEET
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 19, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net............................................. $23,733 $23,784
Due from Marriott International, Inc.................................... 652 507
Other assets............................................................ 658 830
Cash and cash equivalents............................................... 1,667 841
------- -------
$26,710 $25,962
======= =======
LIABILITIES AND PARTNERS' DEFICIT
Mortgage debt........................................................... $24,322 $24,475
Deferred incentive management fees due to Marriott International, Inc... 3,607 3,587
Accounts payable and accrued expenses................................... 602 193
Note payable to Marriott International, Inc............................. 563 528
------- -------
Total Liabilities...................................................... 29,094 28,783
------- -------
PARTNERS' DEFICIT
General Partner......................................................... (6) (10)
MBIP Limited Partner Interest........................................... (6) (10)
Limited Partner Unit Holders............................................ (2,372) (2,801)
------- -------
Total Partners' Deficit................................................ (2,384) (2,821)
------- -------
$26,710 $25,962
======= =======
</TABLE>
See Notes to Condensed Financial Statements.
34
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Twenty-Four Weeks Ended
---------------------------------
June 19, June 20,
1998 1997
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 437 $ 266
Noncash items............................................... 572 597
Changes in operating accounts............................... 235 213
------ ------
Cash provided by operating activities...................... 1,244 1,076
------ ------
INVESTING ACTIVITIES
Additions to property and equipment......................... (416) (440)
Change in property improvement fund......................... 116 196
------ ------
Cash used in investing activities.......................... (300) (244)
------ ------
FINANCING ACTIVITIES
Principal repayments of mortgage debt....................... (153) (336)
Proceeds from note payable to Marriott International, Inc... 35 --
Payment of financing costs.................................. -- (141)
------ ------
Cash used in financing activities.......................... (118) (477)
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS........................ 826 355
CASH AND CASH EQUIVALENTS at beginning of period............. 841 733
------ ------
CASH AND CASH EQUIVALENTS at end of period................... $1,667 $1,088
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest............................. $ 484 $ 481
====== ======
</TABLE>
See Notes to Condensed Financial Statements.
35
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
(UNAUDITED)
1. The accompanying condensed financial statements have been prepared by Mutual
Benefit Chicago Marriott Suite Hotel Partners, L.P. (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 financial statements should be read in conjunction with the
Partnership's financial statements and notes thereto for the fiscal year
ended December 31, 1997 included in the Partnership's Form 10.
In the opinion of the Partnership, the accompanying unaudited condensed
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
the Partnership as of June 19, 1998, and the results of operations and cash
flows for the twenty-four weeks ended June 19, 1998 and June 20, 1997.
Interim results are not necessarily indicative of fiscal year performance
because of seasonal and short-term variations.
For financial reporting purposes, net profits and net losses of the
Partnership are allocated 1% to MOHS Corporation (the "General Partner"), a
wholly owned subsidiary of Host Marriott Corporation ("Host Marriott"), 1% to
Mutual Benefit Investment Properties ("MBIP"), a limited partner, and 98% to
the remaining limited partners. Significant differences exist between the
net profits and net losses for financial reporting purposes and the net
profits and net losses reported for Federal income tax purposes. These
differences are due primarily to the use, for income tax purposes, of
accelerated depreciation methods, shorter depreciable lives of the assets,
differences in the timing of the recognition of management fee expense and
the deduction of certain costs incurred during construction which have been
capitalized in the accompanying condensed financial statements.
2. Hotel revenues represent house profit from the Hotel since the Partnership
has delegated substantially all of the operating decisions related to the
generation of house profit of the Hotel to Marriott International, Inc. (the
"Manager"). House profit reflects hotel operating results which flow to the
Partnership as property owner and represents gross hotel sales less property-
level expenses, excluding depreciation and amortization, base and incentive
management fees, property taxes and certain other costs, which are disclosed
separately in the condensed statement of operations.
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 is assessing the impact of EITF 97-2 on its policy of
excluding the property level revenues and operating expenses of its hotel
from its statements of operations. If the Partnership concludes that
EITF 97-2 should be applied to the Hotel, it would include operating results
of the managed operation in its financial statements. Application of EITF 97-
2 to the condensed financial statements as of and for the twenty-four weeks
ended June 19, 1998, would have increased both revenues and operating
expenses by approximately $3.7 million and would have had no impact on the
operating profit or net income.
36
<PAGE>
Hotel revenues consist of hotel operating results as follows (in thousands):
<TABLE>
<CAPTION>
Twenty-Four Weeks Ended
-----------------------
June 19, June 20,
1998 1997
----------- ----------
<S> <C> <C>
HOTEL SALES
Rooms........................... $5,642 $5,106
Food and beverage............... 1,222 1,171
Other........................... 242 232
------ ------
7,106 6,509
------ ------
HOTEL EXPENSES
Departmental Direct Costs
Rooms......................... 1,198 1,145
Food and beverage............. 1,001 946
Other hotel operating expenses.. 1,549 1,466
------ ------
3,748 3,557
------ ------
HOTEL REVENUES................... $3,358 $2,952
====== ======
</TABLE>
3. On April 17, 1998, Host Marriott Corporation ("Host Marriott"), parent
company of the General Partner of the Partnership, announced that its Board
of Directors authorized Host Marriott to reorganize its business operations
to qualify as a real estate investment trust ("REIT") to become effective as
of January 1, 1999. As part of the REIT conversion, Host Marriott formed a
new operating partnership (the "Operating Partnership"), and limited partners
in certain Host Marriott full-service hotel partnerships and joint ventures,
including the Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P., are
expected to be given an opportunity to receive, on a tax-deferred basis,
Operating Partnership units in the Operating Partnership in exchange for
their current limited partnership interests. The Operating Partnership units
would be redeemable by the limited partner for freely traded Host Marriott
shares (or the cash equivalent thereof) at any time after one year from the
closing of the merger. In connection with the REIT conversion, on June 2,
1998, the Operating Partnership filed a Registration Statement on Form S-4
with the Securities and Exchange Commission. Limited partners will be able
to vote on this Partnership's participation in the merger later this year
through a consent solicitation.
37
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 15. FINANCIAL STATEMENTS, SUPPLEMENTARY SCHEDULE AND EXHIBITS
(a) The financial statements filed as a part of this Form 10 are
listed in Item 13.
Supplementary Financial Statement Schedule - Mutual Page
Benefit Chicago Marriott Suite Hotel Partners, L.P. ----
III. Real Estate and Accumulated Depreciation 40
Schedules I through V inclusive, other than those listed above, are omitted
because of the absence of conditions under which they are required or because
the required information is included in the financial statements or notes
thereto.
(b) Exhibits
3.1 Amended and Restated Agreement of Limited Partnership of Mutual
Benefit Chicago Marriott Suite Hotel Partners, L.P., dated June
12, 1989.
10.1 Management Agreement by Mutual Benefit Chicago Marriott Suite
Hotel Partners, L.P. (Partnership) and Marriott Hotels, Inc.
(Management Company) dated June 12, 1989.
10.2 Amended and Restated Assignment of Management Agreement by and
among Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P.
(Borrower), Marriott International, Inc. (Manager) and National
Bank of Canada (Lender) dated September 24, 1996.
10.3 Amended and Restated Loan Agreement by and between Mutual Benefit
Chicago Marriott Suite Hotel Partners, L.P. as Borrower and
National Bank of Canada, New York Branch as Lender dated as of
September 24, 1996.
10.4 Amended and Restated Secured Promissory Note made by Mutual
Benefit Chicago Marriott Suite Hotel Partners, L.P. in favor of
National Bank of Canada dated September 24, 1996.
10.5 Amended and Restated Leasehold Mortgage dated as of September
24, 1996 from Mutual Benefit Chicago Marriott Suite Hotel
Partners, L.P. (Borrower) to National Bank of Canada (Lender).
10.6 Reaffirmation of Foreclosure Guaranty by and between MOHS
Corporation (Guarantor) and National Bank of Canada (Lender)
dated September 24, 1996.
10.7 Security Agreement as of September 24, 1996 by Mutual Benefit
Chicago Marriott Suite Hotel Partners, L.P. and National Bank of
Canada.
10.8 Loan Modification Agreement by and between National Bank of
Canada (Lender) and Mutual Benefit Chicago Marriott Suite Hotel
Partners, L.P. (Borrower) dated June 19, 1997.
10.9 Marriott Hotel Ground Lease Between Simon-Rosemont Developers
(Landlord) and Marriott Corporation (Tenant) dated June 16, 1986.
10.10 Assignment of Lease between Marriott Corporation ("Assignor")
and Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P.
("Assignee") dated June 12, 1989.
10.11 Assignment of Leases and Rents from Mutual Benefit Chicago
Marriott Suite Hotel Partners, L.P. (Borrower) to National Bank
of Canada (Lender) dated September 24, 1996.
27 Financial Data Schedule
38
<PAGE>
SCHEDULE III
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE HOTEL PARTNERS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Costs Gross Amount at December 31, 1997
------------- ---------------------------------
Subsequent
Building & Costs Building & Accumulated
Description Debt Improvements Capitalized Improvements Depreciation
- ----------------- ------- ------------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Marriott Suites
O'Hare Hotel $24,475 $25,878 $575 $26,453 $5,359
======= ============= =========== ================ ===============
</TABLE>
<TABLE>
<CAPTION>
Date of
Completion of Date Depreciation
Construction Acquired Life
------------- -------- ------------
<S> <C> <C> <C>
Marriott Suites
O'Hare Hotel 1988 1989 40 years
</TABLE>
<TABLE>
<CAPTION>
Notes:
- --------------------------------
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
(a) Reconciliation of Real Estate:
Balance at beginning of year....................... $25,968 $26,002 $26,015
Capital Expenditures............................... 34 13 438
Dispositions....................................... -- -- --
------- ------- -------
Balance at end of year............................... $26,002 $26,015 $26,453
======= ======= =======
(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year......................... $3,404 $4,053 $4,704
Depreciation......................................... 649 651 655
------ ------ ------
Balance at end of year............................... $4,053 $4,704 $5,359
====== ====== ======
(c) The aggregate cost of buildings and
improvements for Federal income tax purposes
is approximately $26.5 million at December 31, 1997.
</TABLE>
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10 to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 7th day of August
1998.
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE
HOTEL PARTNERS, L.P.
By: MOHS Corporation
General Partner
/s/ Earla L. Stowe
-------------------------------------
Earla L. Stowe
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the date indicated above.
Signature Title
(MOHS Corporation)
/s/ Bruce F. Stemerman President and Director
- --------------------------- (Principal Executive Officer)
Bruce F. Stemerman
/s/ Christopher G. Townsend Vice President, Secretary and Director
- ---------------------------
Christopher G. Townsend
/s/ Bruce Wardinski Treasurer
- ---------------------------
Bruce Wardinski
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10 to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 7th day of August
1998.
MUTUAL BENEFIT CHICAGO MARRIOTT SUITE
HOTEL PARTNERS, L.P.
By: MOHS Corporation
General Partner
-------------------------------------
Earla L. Stowe
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the date indicated above.
Signature Title
(MOHS Corporation)
President and Director
- --------------------------- (Principal Executive Officer)
Bruce F. Stemerman
Vice President, Secretary and Director
- ---------------------------
Christopher G. Townsend
Treasurer
- ---------------------------
Bruce Wardinski
41
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form 10
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 841
<SECURITIES> 0
<RECEIVABLES> 507
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 830
<PP&E> 35,221
<DEPRECIATION> (11,437)
<TOTAL-ASSETS> 25,962
<CURRENT-LIABILITIES> 4,308
<BONDS> 24,475
0
0
<COMMON> 0
<OTHER-SE> (2,821)
<TOTAL-LIABILITY-AND-EQUITY> 25,962
<SALES> 0
<TOTAL-REVENUES> 6,568
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,150
<INCOME-PRETAX> 582
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 582
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
