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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended March 28, 1997
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-14381
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 52-1436985
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10400 Fernwood Road
Bethesda, Maryland 20817
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301-380-2070
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes x/ No (Not Applicable).
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MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
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TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statement of Operations
Twelve Weeks Ended March 28, 1997 and March 22, 1996......................1
Condensed Consolidated Balance Sheet
March 28, 1997 and December 31, 1996......................................2
Condensed Consolidated Statement of Cash Flows
Twelve Weeks ended March 28, 1997 and March 22, 1996......................3
Notes to Condensed Consolidated Financial Statements.......................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per unit amounts)
Twelve Weeks Ended
March 28, March 22,
1997 1996
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REVENUES
Hotel..................................................................................$ 18,267 $ 15,439
Rental income.......................................................................... 9,286 8,539
Interest............................................................................... 93 63
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.................................................................................... 27,646 24,041
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OPERATING COSTS AND EXPENSES
Interest............................................................................... 5,050 5,202
Incentive management fee............................................................... 2,877 2,387
Depreciation and amortization.......................................................... 2,281 2,693
Base management fee.................................................................... 1,100 985
Ground rent, property taxes and other.................................................. 2,152 2,030
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.................................................................................... 13,460 13,297
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INCOME BEFORE MINORITY INTEREST.......................................................... 14,186 10,744
MINORITY INTEREST........................................................................ (2,757) (2,285)
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NET INCOME ..............................................................................$ 11,429 $ 8,459
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ALLOCATION OF NET INCOME
General Partner........................................................................$ 114 $ 85
Limited Partners....................................................................... 11,315 8,374
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....................................................................................$ 11,429 $ 8,459
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NET INCOME PER LIMITED PARTNER UNIT (1,000 Units)........................................$ 11,315 $ 8,374
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See Notes to Condensed Consolidated Financial Statements.
1
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
March 28, December 31,
1997 1996
(Unaudited)
ASSETS
Property and equipment, net.......................................................$ 221,092 $ 222,491
Due from Marriott International, Inc. and affiliates.............................. 14,806 9,114
Minority interest................................................................. 7,884 10,641
Other assets...................................................................... 7,350 5,588
Cash and cash equivalents......................................................... 9,608 1,607
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$ 260,740 $ 249,441
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LIABILITIES AND PARTNERS' CAPITAL
Mortgage debt ....................................................................$ 230,713 $ 230,959
Note payable and amounts due to Marriott
International, Inc. and affiliates........................................... 3,925 4,106
Note payable and amounts due to Host Marriott Corporation......................... 2,295 2,405
Accounts payable and accrued interest............................................. 1,209 802
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Total Liabilities............................................................ 238,142 238,272
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PARTNERS' CAPITAL
General Partner................................................................... 335 221
Limited Partners.................................................................. 22,263 10,948
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Total Partners' Capital...................................................... 22,598 11,169
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$ 260,740 $ 249,441
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See Notes to Condensed Consolidated Financial Statements.
2
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Twelve Weeks Ended
March 28, March 22,
1997 1996
OPERATING ACTIVITIES
Net income.............................................................................$ 11,429 $ 8,459
Noncash items.......................................................................... 5,158 5,096
Changes in operating accounts.......................................................... (5,441) (4,739)
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Cash provided by operations......................................................... 11,146 8,816
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INVESTING ACTIVITIES
Changes in property improvement funds and capital reserve escrow....................... (1,850) (1,893)
Additions to property and equipment.................................................... (882) (605)
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Cash used in investing activities................................................... (2,732) (2,498)
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FINANCING ACTIVITIES
Principal repayments of mortgage debt.................................................. (246) (225)
Repayments to Marriott International, Inc. and affiliates.............................. (167) (118)
Payment of financing costs............................................................. -- (14)
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Cash used in financing activities................................................... (413) (357)
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INCREASE IN CASH AND CASH EQUIVALENTS.................................................... 8,001 5,961
CASH AND CASH EQUIVALENTS at beginning of period......................................... 1,607 3,550
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CASH AND CASH EQUIVALENTS at end of period...............................................$ 9,608 $ 9,511
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest..............................................$ 4,538 $ 4,751
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See Notes to Condensed Consolidated Financial Statements.
3
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements have been
prepared by Marriott Hotel Properties Limited Partnership (the
"Partnership") without audit. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been condensed or omitted
from the accompanying statements. The Partnership believes the disclosures
made are adequate to make the information presented not misleading.
However, the condensed consolidated financial statements should be read in
conjunction with the Partnership's financial statements and notes thereto
included in the Partnership's Form 10-K for the fiscal year ended December
31, 1996.
In the opinion of the Partnership, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of the Partnership as of March 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.
The Partnership owns Marriott's Orlando World Center and a 50.5% interest
in a partnership owning Marriott's Harbor Beach Resort (the "Harbor Beach
Partnership"), whose financial statements are consolidated herein. The
remaining 49.5% general partnership interest in the Harbor Beach
Partnership is reported as minority interest. All significant intercompany
balances and transactions have been eliminated.
For financial reporting purposes, net income of the Partnership are
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, 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
consolidated financial statements.
2. Hotel revenues represent house profit from the Orlando Hotel since the
Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Orlando 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
consolidated statement of operations.
4
Hotel revenues consist of hotel operating results for the Orlando Hotel
for the twelve weeks ended (in thousands):
March 28, March 22,
1997 1996
HOTEL SALES
Rooms..................................................................$ 18,493 $ 16,450
Food and beverage...................................................... 14,584 12,684
Other.................................................................. 3,606 3,713
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36,683 32,847
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HOTEL EXPENSES
Departmental Direct Costs
Rooms............................................................... 3,072 3,148
Food and beverage................................................... 8,290 7,590
Other hotel operating expenses......................................... 7,054 6,670
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18,416 17,408
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HOTEL REVENUES.............................................................$ 18,267 $ 15,439
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3. Rental Income under the Harbor Beach Partnership operating lease for the
twelve weeks ended was (in thousands):
March 28, March 22,
1997 1996
Basic Rental..............................................................$ 362 $ 373
Percentage Rental......................................................... 1,964 1,831
Performance Rental........................................................ 6,960 6,335
Additional Performance Rental............................................. - -
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$ 9,286 $ 8,539
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5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total consolidated Partnership revenues for first quarter 1997 increased 15%
over the comparable period in 1996 due to strong operating results at the
Hotels. REVPAR, or revenue per available room, 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. The combined REVPAR for the
Hotels for the twelve-week period ended March 28, 1997 improved 10%, to $161,
over the comparable period in 1996 due to an increase in combined average
occupancy to 89% along with a 6% increase in combined average room rate to $182.
Hotel Revenues. For the twelve weeks ended March 28, 1997, Hotel
revenues increased $2.8 million, or 18%, over the comparable period in 1996 to
$18.3 million primarily due to an increase in association group business. REVPAR
at the Orlando Hotel increased 13% over the same period in 1996 to $146 due to
an 8% increase in average room rate to $164 and an increase in occupancy from
86% to 89%. As a result of the increase in group business, food and beverage
sales and profit increased $1.9 million, or 15%, and $1.2 million, or 24%,
respectively, for the twelve weeks ended March 28, 1997 when compared to the
same period in 1996. Marketing efforts at the Orlando Hotel are focused on
attracting short-term group demand, as well as leisure transient demand for the
summer months. Demand is expected to remain strong in the leisure transient
segment, as a result of Disney's 25th anniversary celebration during 1997.
Rental Income. For the twelve weeks ended March 28, 1997, rental income
from the Harbor Beach Hotel increased by approximately $0.7 million, or 9%, when
compared to the same period in 1996 primarily due to an increase in leisure
transient demand. REVPAR for first quarter 1997 increased 5% over the prior year
to $197 due to a 1.2 percentage point increase in average occupancy to 87% and a
4% increase in average room rate to $227. Food and beverage sales and profit
increased slightly to $6.1 million and $2.7 million, respectively. The Harbor
Beach Hotel is expecting group business to strengthen throughout the remainder
of the year as advance bookings in this segment for the full year are
approximately 6,000 room nights ahead of the prior year. Demand is expected to
remain strong in the leisure transient segment allowing the Harbor Beach Hotel
to restrict the number of discounted rooms sold.
Indirect hotel operating costs and expenses. Indirect hotel operating
costs and expenses increased 4% to $8.4 million for the twelve weeks ended March
28, 1997 when compared to the same period in 1996. The principal components of
this category are discussed below:
Incentive management fees. Incentive management fees increased
approximately $490,000, or 20.5%, for first quarter 1997 as compared to the same
quarter in 1996. The increase was a result of an increase in Hotel revenues at
the Orlando Hotel.
6
Depreciation and amortization. Depreciation and amortization decreased
approximately $412,000, or 15.3%, for first quarter 1997 as compared to the same
quarter in 1996. The decrease is due to several furniture and fixtures becoming
fully depreciated in 1996.
Base management fees. Base management fees increased approximately
$115,000, or 11.7%, over the same period in 1996 due to improvement in total
sales at the Orlando Hotel.
Ground rent, property taxes and other. Ground rent, property taxes and
other expense increased approximately $122,000, or 6.0%, for first quarter 1997
when compared to the same period in 1996 primarily due to a $47,000, or 5.7%,
increase in property taxes for the Orlando Hotel combined with a $25,000, or
113.7%, increase in equipment rental and a $36,000 or 8.0% increase in repairs
and maintenance expense for the Harbor Beach Hotel.
Interest expense. Interest expense for first quarter 1997 decreased
2.9% to $5.1 million due to reduced principal balances on the mortgage debt of
the Hotels resulting from required principal amortization during 1996.
Minority interest. Based upon its 50.5% ownership interest, the
Partnership controls the Harbor Beach Partnership, and as a result, the
condensed consolidated financial statements of the Partnership include the
accounts of the Harbor Beach Partnership. Minority interest represents the net
income from the Harbor Beach Partnership allocable to the co-General Partner.
Minority interest increased from $2.3 million in first quarter 1996 to $2.8
million in first quarter 1997 primarily due to the increase in rental income
from the Harbor Beach Hotel, as discussed above.
Net income. For first quarter 1997, the Partnership achieved net income
of $11.4 million, an increase of $2.9 million over the same period in 1996. This
increase was primarily due to higher Hotel revenues and rental income offset by
increases in both base and incentive management fees and minority interest.
CAPITAL RESOURCES AND LIQUIDITY
General
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions, Host Marriott Corporation
("Host Marriott") and its affiliates or Marriott International, Inc. ("MII") and
its affiliates. The General Partner believes that the Partnership will have
sufficient capital resources and liquidity to continue to conduct its business
in the ordinary course.
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 funds of the Orlando World
Center and the Harbor Beach Hotel (the "Hotels"), required principal
amortization of the mortgage debt and other debt incurred to fund costs of the
capital improvements at the Hotels and cash distributions to the partners.
7
Total consolidated cash provided by operations for the twelve weeks ended March
28, 1997, and March 22, 1996, was $11.1 million and $8.8 million, respectively.
The variance was primarily due to an increase in Hotel revenues and rental
income when compared to first quarter 1996. See discussion of results of
operations above.
For the twelve weeks ended March 28, 1997 and March 22, 1996, cash used in
investing activities was $2.7 million and $2.5 million, respectively, consisting
primarily of cash contributed to the property and improvement funds of the
Hotels.
For the twelve weeks ended March 28, 1997 and March 22, 1996, cash used in
financing activities was $0.4 million for both years, consisting primarily of
principal repayments on the mortgage debt and payments to Marriott
International, Inc. on the rooms renovation loan for the Harbor Beach Hotel.
SEASONALITY
Demand, and thus occupancy and room rates, is affected by normally recurring
seasonal patterns. Demand tends to be higher during the months of November
through April than during the remainder of the year. This seasonality tends to
affect the results of operations, increasing the revenue and rental income
during these months. In addition, this seasonality may also increase the
liquidity of the Partnership during these months.
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Partnership to be different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. 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.
8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Partnerships nor the Hotels are presently subject to any material
litigation nor, to the General Partner's knowledge, is any material litigation
threatened against the Partnerships or the Hotels, 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.
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARRIOTT HOTEL PROPERTIES
LIMITED PARTNERSHIP
By: HOTEL PROPERTIES MANAGEMENT, INC.
General Partner
/s/Earla L. Stowe
May 5, 1997 By: --------------------------------
Earla L. Stowe
Vice President and
Chief Accounting Officer