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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-28222
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1604506
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(State of Organization) (I.R.S. Employer Identification Number)
10400 Fernwood Road, Bethesda, MD 20817-1109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 380-2070
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes No (Not Applicable. The Partnership became subject to
Section 13 reporting on April 17, 1996.)
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<TABLE>
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed Statement of Operations
Twelve Weeks Ended March 28, 1997 and March 22, 1996 .................................. 3
Condensed Balance Sheet
March 28, 1997 and December 31, 1996................................................... 4
Condensed Statement of Cash Flows
Twelve Weeks Ended March 28, 1997 and March 22, 1996................................... 5
Notes to Condensed Financial Statements.................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................................... 11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Marriott Hotel Properties II Limited Partnership
Condensed Statement of Operations
(Unaudited)
(in thousands, except per Unit amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 28, March 22,
1997 1996
---------------- --------------
<S> <C> <C>
REVENUES
Hotel..................................................................$ 19,538 $ 17,044
Interest income........................................................ 351 442
---------------- -----------------
................................................................... 19,889 17,486
---------------- -----------------
OPERATING COSTS AND EXPENSES
Interest expense....................................................... 4,490 4,010
Depreciation and amortization.......................................... 3,106 2,890
Incentive management fees.............................................. 2,901 2,552
Property taxes......................................................... 1,394 1,298
Base management fees................................................... 1,190 1,080
Ground rent ........................................................... 503 473
Insurance and other.................................................... 228 210
---------------- -----------------
................................................................... 13,812 12,513
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INCOME BEFORE EQUITY IN INCOME OF
SANTA CLARA PARTNERSHIP................................................ 6,077 4,973
EQUITY IN INCOME OF SANTA CLARA PARTNERSHIP................................ 428 347
---------------- -----------------
NET INCOME.................................................................$ 6,505 $ 5,320
================ =================
ALLOCATION OF NET INCOME
General Partner........................................................$ 65 $ 53
Limited Partners....................................................... 6,440 5,267
---------------- -----------------
...................................................................$ 6,505 $ 5,320
================ =================
NET INCOME PER LIMITED PARTNER UNIT (745 Units)............................$ 8,644 $ 7,070
================ =================
</TABLE>
See Notes To Condensed Financial Statements.
3
<PAGE>
Marriott Hotel Properties II Limited Partnership
Condensed Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
March 28, December 31,
1997 1996
------------- ---------------
(unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net...................................................$ 197,466 $ 198,826
Due from Marriott International, Inc.......................................... 11,429 7,447
Deferred financing and organization costs, net................................ 5,896 5,932
Other assets.................................................................. 10,387 10,348
Restricted cash reserves...................................................... 12,815 12,815
Cash and cash equivalents..................................................... 20,413 16,372
------------- ---------------
........................................................................$ 258,406 $ 251,740
============= ===============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
<S> <C> <C>
Mortgage debt..............................................................$ 222,500 $ 222,500
Investment in Santa Clara Partnership...................................... 7,932 8,360
Due to Marriott International, Inc. ...................................... 3,623 2,882
Accounts payable and accrued expenses...................................... 1,238 1,390
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Total Liabilities....................................................... 235,293 235,132
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PARTNERS' CAPITAL
General Partner............................................................ 376 311
Limited Partners........................................................... 22,737 16,297
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Total Partners' Capital................................................. 23,113 16,608
------------- ---------------
........................................................................$ 258,406 $ 251,740
============= ===============
</TABLE>
See Notes To Condensed Financial Statements.
4
<PAGE>
Marriott Hotel Properties II Limited Partnership
Condensed Statement of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 28, March 22,
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ...................................................................$ 6,505 $ 5,320
Noncash items................................................................. 2,748 2,705
Change in operating accounts.................................................. (3,393) (2,928)
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Cash provided by operations............................................. 5,860 5,097
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INVESTING ACTIVITIES
Additions to property and equipment, net...................................... (1,746) (1,998)
Change in property improvement fund........................................... (39) 244
Distributions from Santa Clara Partnership.................................... - 973
Additions to restricted cash reserves......................................... - (87)
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Cash used in investing activities....................................... (1,785) (868)
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FINANCING ACTIVITIES
Payment of financing costs.................................................... (34) --
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Cash used in financing activities....................................... (34) --
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INCREASE IN CASH AND CASH EQUIVALENTS............................................ 4,041 4,229
CASH AND CASH EQUIVALENTS at beginning of period................................. 16,372 21,601
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CASH AND CASH EQUIVALENTS at end of period.......................................$ 20,413 $ 25,830
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest...............................................$ 4,572 $ 3,937
============= =============
</TABLE>
See Notes To Condensed Financial Statements.
5
<PAGE>
Marriott Hotel Properties II Limited Partnership
Notes to Condensed Financial Statements
(Unaudited)
1. The accompanying condensed financial statements have been prepared by
Marriott Hotel Properties II Limited Partnership (the "Partnership")
without audit. Certain information and footnote disclosures normally
included in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted from the
accompanying statements. The Partnership believes the disclosures made
are adequate to make the information presented not misleading. However,
the condensed financial statements should be read in conjunction with the
Partnership's financial statements and notes thereto included in the
Partnership's Form 10-K filed on March 31, 1997 for the fiscal year ended
December 31, 1996.
In the opinion of the Partnership, the accompanying condensed unaudited
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
position of the Partnership as of March 28, 1997 and December 31, 1996,
and the results of operations and cash flows for the twelve weeks ended
March 28, 1997 and March 22, 1996. Interim results are not necessarily
indicative of fiscal year performance because of seasonal and
short-term variations.
2. The Partnership owns the New Orleans, San Antonio Rivercenter and San
Ramon Marriott Hotels (the "Hotels"). In addition, the Partnership owns
a 50% limited partnership interest in the Santa Clara Marriott Hotel
Limited Partnership (the "Santa Clara Partnership") which owns the Santa
Clara Marriott Hotel (the "Santa Clara Hotel"). The sole general partner
of the Partnership and the Santa Clara Partnership, with a 1% interest in
each, is Marriott MHP Two Corporation (the "General Partner"), a
wholly-owned subsidiary of Host Marriott Corporation ("Host Marriott").
The remaining 49% interest in the Santa Clara Partnership is owned by HMH
Properties, Inc., a wholly-owned subsidiary of Host Marriott. The
Partnership's income from the Santa Clara Partnership is reported as
Equity in Income of the Santa Clara Partnership. In arriving at Equity
in Income from the Santa Clara Partnership, the Partnership is allocated
100% of the interest expense related to the debt incurred to purchase the
Santa Clara Partnership interest. Summarized financial information
for the Santa Clara Partnership is presented in Note 5.
3. For financial reporting purposes, net income of the Partnership is
allocated 99% to the Limited Partners and 1% to the General Partner.
Significant differences exist between the net income for financial
reporting purposes and the net income reported for Federal income tax
purposes. These differences are due primarily to the use, for income tax
purposes, of accelerated depreciation methods and shorter depreciable
lives of the assets and differences in the timing of recognition of
incentive management fee expense.
4. Hotel revenues represent house profit of the Partnership's Hotels since
the Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Hotels to Marriott Hotel
Services, 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, ground
rent, insurance and other costs, which are disclosed separately in the
condensed statement of operations.
6
<PAGE>
Partnership revenues generated by the Hotels for 1997 and 1996 consist
of (in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 28, March 22,
1997 1996
---------------- -----------------
<S> <C> <C>
HOTEL REVENUES
Rooms...........................................................$ 25,905 $ 23,515
Food and beverage............................................... 11,603 10,394
Other........................................................... 2,161 2,091
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............................................................ 39,669 36,000
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HOTEL EXPENSES
Departmental direct costs
Rooms....................................................... 4,495 4,305
Food and beverage........................................... 7,717 7,051
Other hotel operating expenses.................................. 7,919 7,600
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............................................................ 20,131 18,956
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HOTEL REVENUES.....................................................$ 19,538 $ 17,044
================ =================
</TABLE>
5. Summarized financial information for the Santa Clara Partnership for
1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 28, March 22,
1997 1996
---------------- -----------------
CONDENSED STATEMENT OF OPERATIONS
<S> <C> <C>
REVENUES...........................................................$ 4,987 $ 4,119
OPERATING COSTS AND EXPENSES
Interest expense................................................ 864 643
Depreciation and amortization................................... 670 623
Incentive management fee........................................ 784 627
Base management fee............................................. 326 283
Property taxes.................................................. 122 116
Ground rent, insurance and other................................ 81 69
---------------- -----------------
............................................................ 2,847 2,361
---------------- -----------------
NET INCOME.........................................................$ 2,140 $ 1,758
================ =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 28, December 31,
1997 1996
---------------- -----------------
CONDENSED BALANCE SHEET
<S> <C> <C>
Property and equipment, net........................................$ 30,302 $ 30,144
Due from Marriott International, Inc............................... 2,734 2,170
Other assets....................................................... 1,361 1,230
Cash and cash equivalents.......................................... 3,298 1,933
---------------- -----------------
Total Assets....................................................$ 37,695 $ 35,477
================ =================
Mortgage debt......................................................$ 43,500 $ 43,500
Due to Marriott International, Inc................................. 862 749
Accounts payable and accrued expenses.............................. 487 522
Partners' deficit.................................................. (7,154) (9,294)
---------------- -----------------
Total Liabilities and Partners' Deficit.........................$ 37,695 $ 35,477
================ =================
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions. The General Partner believes
that the Partnership will have sufficient capital resources and liquidity to
continue to conduct its operations in the ordinary course of business, although
there can be no assurance of the Partnership's ability to do so.
MORTGAGE DEBT
The Partnership's mortgage debt consists of a $222.5 million nonrecourse
mortgage loan (the "Mortgage Debt") which accrues interest at a fixed rate of
8.22%. Payments of interest only are required during the first loan year
(October 1996 through September 1997) and then principal amortization based on a
20-year amortization schedule begins with the second loan year. This principal
amortization is expected to improve the financial condition of the Partnership
by reducing the Partnership's long-term indebtedness. The General Partner
expects cash flows from the Partnership Hotels and the Santa Clara Hotel will be
sufficient to provide for the Partnership's debt service.
CAPITAL SOURCES AND USES OF CASH
For the twelve weeks ended March 28, 1997 and March 22, 1996, cash provided by
operations was $5.9 million and $5.1 million, respectively. The increase is
primarily due to the increase in revenues discussed below. During the first
quarter of 1997, $1.8 million was used in investing activities compared with
$868,000 for the same period in 1996. The increase is primarily due to the
inclusion of a distribution from the Santa Clara Partnership in the 1996 figures
which occured subsequent to the end of the first quarter in 1997. Financing
activities used $34,000 during the first quarter. This amount represents payment
of costs incurred in connection with the refinancing of the Mortgage Debt in
1996.
Including the final 1996 distribution made in April 1997, the Partnership
distributed $28,250 per limited partner unit from 1996 operating cash flow. This
represents a 28.3% annual return on invested capital. In addition, concurrent
with the April 1997 distribution, the General Partner made a distribution of
$4,873 per limited partner unit. This distribution represents the excess of the
General Partner Reserve after payment of all transaction costs related to the
Mortgage Debt refinancing, as well as the establishment of an additional month's
debt service reserve pursuant to the loan agreement. This is a one-time
distribution and future distributions are expected to be funded solely from
Partnership operations.
The General Partner believes that cash from Hotel operations and the reserves
established in conjunction with the refinancing will continue to meet the short
and long-term operational and capital needs of the Partnership. The General
Partner will make its interim cash distribution from 1997 operations on October
31, 1997. This distribution is expected to be comparable to prior year levels
absent the Partnership's General Partner Reserve requirements. In addition, the
General Partner and the manager believe the property improvement fund, as
adjusted in the case of the New Orleans Marriott Hotel, will be adequate for the
future capital repairs and replacement needs of the Hotels. As previously
reported, a 2% increase in the contribution percentage for the New Orleans
Marriott Hotel will be made in 1997 and 1998 to allow for adequate funding of
the combined softgoods and casegoods refurbishment of all rooms scheduled for
1998. This project is expected to cost approximately $13.0 million.
8
<PAGE>
RESULTS OF OPERATIONS
For the first quarter 1997, Hotel revenues increased 15% from $17.0 million in
first quarter 1996 to $19.5 million in 1997. The increase in first quarter
revenues is primarily due to a significant increase in revenues at the New
Orleans Marriott Hotel as discussed below. On a combined basis, REVPAR, or
revenue per available room, increased 12% for the quarter when compared to the
same period in 1996. This increase in REVPAR is primarily due to an 8% increase
in the combined average room rate to approximately $140 combined with a 3.4
percentage point increase in the combined average occupancy to the mid-80's.
The New Orleans Marriott Hotel reported a 30%, or $2,252,000, increase in
revenues for the first quarter when compared to the same period in 1996. The
increase is primarily due to a 17% increase in room revenues coupled with a 49%,
or $521,000, increase in food and beverage revenues. Room revenues increased due
to a 15% increase in REVPAR as average room rate increased 7% to approximately
$145 and average occupancy increased 5.3 percentage points to the low-80's. The
increase in room and food and beverage revenues is primarily due to Super Bowl
XXXI taking place in New Orleans this year. Occupancy was strong due to heavy
demand before, during and after the Super Bowl. Hotel management was able to
maximize room rates during these high occupancy periods. The Hotel's food and
beverage outlets especially benefited from this higher volume. As previously
reported, the remainder of 1997 remains a challenge as there will be fewer
city-wide conventions this year. However, through the employment of strategic
rate structuring, Hotel management is optimistic about achieving strong
operating results throughout the remainder of the year.
Revenues at the Marriott Rivercenter in San Antonio increased 4%, or $304,000,
during the first quarter of 1997. This increase is due to a 7% increase in room
revenues. Room revenues increased due to a 6% increase in REVPAR as average
occupancy increased 3.8 percentage points to the high-80's combined with a
slight increase in average room rate to approximately $145. The increase in
average occupancy is primarily due to an increase in group business, as
city-wide conventions returned to San Antonio this year. In addition, Hotel
management successfully maximized transient occupancy between high group demand
periods. Hotel management is optimistic that 1997 will be another strong year
for the Hotel as advanced roomnights booked through first quarter are exceeding
the prior year's pace.
Revenues at the San Ramon Marriott Hotel increased 5%, or $75,000, for the first
quarter when compared to the same period in 1996 primarily due to a significant
increase in REVPAR. REVPAR increased 8% when compared to 1996 results which was
due to a 12% increase in average room rate to approximately $110 partially
offset by a 2.8 percentage point decrease in average occupancy to the low- 80's.
The increase in average room rate was achieved through an increase in the
corporate rate. Average occupancy decreased due to a rooms renovation project
taking place at the Hotel during the month of January. Hotel management will
look to continue to grow revenues throughout 1997 primarily through aggressive
pricing strategies which will include continued growth of the corporate rate.
The Santa Clara Marriott Hotel reported a 22%, or $907,000, increase in first
quarter revenues when compared to the same period in 1996. The increase is
primarily due to a 30% increase in room revenues partially offset by an 15%
decrease in food and beverage revenues. Room revenues increased due to a 27%
increase in REVPAR as average room rate increased 25% to approximately $145
combined with a slight increase in average occupancy to the mid-80's. Average
room rate increased as a result of Hotel management strictly limiting rate
discounting and increasing the corporate rate in response to continued strong
demand in the transient business segment. Food and beverage revenues decreased
due to the inclusion of two significant pieces of group banquet business in the
prior year results which were not replaced in 1997. Hotel management is
optimistic about the remainder of the year as demand for rooms in the Silicon
Valley is expected to remain high throughout 1997.
9
<PAGE>
Interest Expense. Interest expense increased slightly for the first quarter when
compared to the same period in 1996 due to an increase in the interest rate on
the Partnership's Mortgage Debt as a result of the refinancing.
Incentive Management Fees. Incentive management fees increased slightly when
compared to the same period in 1996 due to improved hotel operating results.
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Partnership to be different
from any future results, performance or achievements expressed or implied by
such forwardlooking 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. The Partnership undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
relect any future events or circumstances.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership and the Partnership Hotels are involved in routine litigation
and administrative proceedings arising in the ordinary course of business, some
of which are expected to be covered by liability insurance and which
collectively are not expected to have a material adverse effect on the business,
financial condition or results of operations of the Partnership.
On April 23, 1996, MacKenzie Patterson Special Fund 2, L.P. ("MacKenzie
Patterson"), a limited partner of the Partnership, filed a purported
class-action lawsuit in the Circuit Court for Montgomery County, Maryland,
against the Partnership, as a nominal defendant, MHPII Acquisition Corp., a
wholly-owned subsidiary of Host Marriott, Host Marriott, the General Partner and
the directors of the General Partner, alleging, among other things, that the
defendants had violated their fiduciary duties in connection with the tender
offer. The complaint sought certification as a class-action, to enjoin the Offer
and the Consent Solicitation, and damages. Subsequently, MacKenzie Patterson
dismissed the Montgomery County action and refiled in Delaware State Chancery
Court. In separate lawsuits, filed on April 24, 1996, in Delaware State Chancery
Court and on May 10, 1996, in the Circuit Court for Palm Beach County, Florida,
two other limited partners of the Partnership sought similar relief. The
Chancery Court consolidated the two Delaware lawsuits and on June 12, 1996,
entered an order denying the Delaware plaintiffs' motion to enjoin the Offer and
Consent Solicitation. The defendants have moved to dismiss this consolidated
action and to stay discovery. Oral argument on the motion to dismiss was
scheduled for April 23, 1997. The defendants removed the Florida action to
federal court in Florida and filed motions to dismiss, or in the alternative, to
stay the action pending resolution of the Delaware action. The District Court
denied these motions, but required the plaintiffs to file a second amended
complaint. As previously stated, the Partnership is named only as a nominal
defendant in this lawsuit. Accordingly, final resolution of this matter will not
have any adverse effect on the business, financial condition or results of
operations of the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits- None
b. Reports on Form 8-K- None
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARRIOTT HOTEL PROPERTIES II
LIMITED PARTNERSHIP
By: MARRIOTT MHP TWO CORPORATION
General Partner
Date: By:
-----------------------------
Patricia K. Brady
Vice President and Chief Accounting Officer
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARRIOTT HOTEL PROPERTIES II
LIMITED PARTNERSHIP
By: MARRIOTT MHP TWO CORPORATION
General Partner
Date: May 12, 1997 By: /s/Patricia K. Brady
---------------------------
Patricia K. Brady
Vice President and Chief Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
first quarter Form 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000845240
<NAME> MARRIOTT HOTEL PROPERTIES II L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-28-1997
<CASH> 33,228
<SECURITIES> 16,283<F1>
<RECEIVABLES> 11,429
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,940
<PP&E> 296,622
<DEPRECIATION> (99,156)
<TOTAL-ASSETS> 258,406
<CURRENT-LIABILITIES> 12,793
<BONDS> 222,500
0
0
<COMMON> 0
<OTHER-SE> 23,113
<TOTAL-LIABILITY-AND-EQUITY> 258,406
<SALES> 0
<TOTAL-REVENUES> 20,317<F2>
<CGS> 0
<TOTAL-COSTS> 9,322
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,490
<INCOME-PRETAX> 6,505
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,505
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THIS IS OTHER ASSETS
<F2>THIS INCLUDES EQUITY IN INCOME OF SANTA CLARA PSHIP
</FN>
</TABLE>
