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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 June 20, 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 and Twenty-Four Weeks Ended June 20, 1997 and June 14, 1996............1
Condensed Consolidated Balance Sheet
June 20, 1997 and December 31, 1996...........................................2
Condensed Consolidated Statement of Cash Flows
Twenty-Four Weeks ended June 20, 1997 and June 14, 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 Twenty-Four Weeks Ended
June 20, June 14, June 20, June 14,
1997 1996 1997 1996
REVENUES
Hotel....................................................$ 12,600 $ 13,201 $ 30,867 $ 28,640
Rental income............................................ 5,720 5,728 15,006 14,267
Interest and other....................................... 192 247 285 310
...................................................... 18,512 19,176 46,158 43,217
OPERATING COSTS AND EXPENSES
Interest................................................. 4,843 4,916 9,893 10,118
Incentive management fee................................. 3,310 1,995 6,187 4,382
Depreciation and amortization............................ 2,280 2,694 4,561 5,387
Base management fee...................................... 924 885 2,024 1,870
Ground rent, property taxes and other.................... 2,216 2,073 4,368 4,103
...................................................... 13,573 12,563 27,033 25,860
INCOME BEFORE MINORITY INTEREST............................. 4,939 6,613 19,125 17,357
MINORITY INTEREST........................................... (1,025) (1,090) (3,782) (3,375)
NET INCOME .................................................$ 3,914 $ 5,523 $ 15,343 $ 13,982
ALLOCATION OF NET INCOME
General Partner..........................................$ 39 $ 55 $ 153 $ 140
Limited Partners......................................... 3,875 5,468 15,190 13,842
......................................................$ 3,914 $ 5,523 $ 15,343 $ 13,982
NET INCOME PER
LIMITED PARTNER UNIT (1,000 Units)..........................$ 3,875 $ 5,468 $ 15,190 $ 13,842
See Notes to Condensed Consolidated Financial Statements.
1
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
June 20, December 31,
1997 1996
(Unaudited)
ASSETS
Property and equipment, net.......................................................$ 219,411 $ 222,491
Minority interest................................................................. 8,344 10,641
Due from Marriott International, Inc. and affiliates.............................. 5,139 9,114
Other assets...................................................................... 8,999 5,588
Cash and cash equivalents......................................................... 14,752 1,607
.............................................................................$ 256,645 $ 249,441
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt ....................................................................$ 226,837 $ 230,959
Note payable and amounts due to Host Marriott Corporation......................... 2,295 2,405
Note payable and amounts due to Marriott
International, Inc. and affiliates........................................... 1,750 4,106
Accounts payable and accrued interest............................................. 772 802
Total Liabilities............................................................ 231,654 238,272
PARTNERS' CAPITAL
General Partner................................................................... 359 221
Limited Partners.................................................................. 24,632 10,948
Total Partners' Capital...................................................... 24,991 11,169
.............................................................................$ 256,645 $ 249,441
See Notes to Condensed Consolidated Financial Statements.
2
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Twenty-Four Weeks Ended
June 20, June 14,
1997 1996
(in thousands)
OPERATING ACTIVITIES
Net income.............................................................................$ 15,343 $ 13,982
Noncash items.......................................................................... 8,582 9,001
Changes in operating accounts.......................................................... 1,708 (3,344)
Cash provided by operations......................................................... 25,633 19,639
INVESTING ACTIVITIES
Changes in property improvement funds and capital reserve escrow....................... (3,590) (1,968)
Additions to property and equipment.................................................... (1,481) (2,689)
Cash used in investing activities................................................... (5,071) (4,657)
FINANCING ACTIVITIES
Principal repayments of mortgage debt.................................................. (4,122) (568)
Capital distributions to partners...................................................... (1,514) (2,908)
Capital distributions to minority interest............................................. (1,485) (1,485)
Repayments to Marriott International, Inc. and affiliates.............................. (296) (239)
Repayments to Host Marriott Corporation................................................ - (80)
Payment of financing costs............................................................. - (40)
Cash used in financing activities................................................... (7,417) (5,320)
INCREASE IN CASH AND CASH EQUIVALENTS.................................................... 13,145 9,662
CASH AND CASH EQUIVALENTS at beginning of period......................................... 1,607 3,550
CASH AND CASH EQUIVALENTS at end of period...............................................$ 14,752 $ 13,212
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest..............................................$ 9,660 $ 6,885
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 June 20, 1997, and the results
of operations for the twelve and twenty-four weeks ended June 20, 1997 and
June 14, 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 Lauderdale Beach Association, the partnership owning Marriott's Harbor
Beach Hotel, whose financial statements are consolidated herein. The
remaining 49.5% general partnership interest in the Lauderdale Beach
Association is reported as minority interest. All significant intercompany
balances and transactions have been eliminated.
For financial reporting purposes, net profits and net losses of the
Partnership are allocated 99% to the limited partners and 1% to Hotel
Properties Management, Inc. (the "General Partner"), an affiliate of Host
Marriott Corporation ("Host Marriott"). 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 consolidated financial
statements.
2. Hotel revenues represent house profit from the Orlando World Center since
the Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Orlando World Center 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 World
Center for the twelve and twenty-four weeks ended (in thousands):
Twelve Weeks Ended Twenty-Four Weeks Ended
June 20, June 14, June 20, June 14,
1997 1996 1997 1996
HOTEL SALES
Rooms.........................................$ 15,872 $ 14,545 $ 34,365 $ 30,995
Food and beverage 11,892 11,733 26,476 24,417
Other......................................... 3,008 3,200 6,614 6,913
........................................... 30,772 29,478 67,455 62,325
HOTEL EXPENSES
Departmental Direct Costs
Rooms...................................... 3,405 2,912 6,477 6,060
Food and beverage 7,735 6,965 16,025 14,555
Other hotel operating expenses 7,032 6,400 14,086 13,070
........................................... 18,172 16,277 36,588 33,685
HOTEL REVENUES...................................$ 12,600 $ 13,201 $ 30,867 $ 28,640
3. Rental income under the Lauderdale Beach Association operating lease for
the twelve and twenty-four weeks ended was (in thousands):
Twelve Weeks Ended Twenty-Four Weeks Ended
June 20, June 14, June 20, June 14,
1997 1996 1997 1996
Basic rental....................................$ 409 $ 378 $ 771 $ 751
Percentage rental 1,549 1,440 3,513 3,271
Performance rental 3,457 3,910 10,417 10,245
Additional performance rental 305 - 305 -
RENTAL INCOME...................................$ 5,720 $ 5,728 $ 15,006 $ 14,267
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 that 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.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions, Host Marriott and its
affiliates or Marriott International, Inc. 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.
Total consolidated cash provided by operations for the twenty-four weeks ended
June 20, 1997, and June 14, 1996, was $25.6 million and $19.6 million,
respectively. The increase was primarily due to an increase in hotel revenues
and rental income when compared to 1996. See discussion of results of operations
below. This increase was partially offset by payments to the Manager of deferred
incentive management fees and additional incentive management fees of $2.0
million and $1.4 million, respectively, in second quarter 1997. Payment of
incentive management fees are subordinate to debt service and the retention of
certain amounts of operating profit by the Partnership. Based on higher
Partnership cash flow, the Manager earned additional incentive management fees
for the first time.
For the twenty-four weeks ended June 20, 1997 and June 14, 1996, cash used in
investing activities was $5.1 million and $4.7 million, respectively, consisting
primarily of an increase in the cash contributed to the property improvement
funds of the Hotels.
6
For the twenty-four weeks ended June 20, 1997 and June 14, 1996, cash used in
financing activities was $7.4 million and $5.3 million, respectively. The
increase was primarily the result of an increase in principal repayments on the
mortgage debt.
Capital Expenditures
The second phase of a rooms renovation at the Orlando World Center is scheduled
to begin in the third quarter of 1997. The Partnership secured a $3.5 million
loan from Marriott International Capital Corporation, an affiliate of Marriott
International, Inc., to fund costs in excess of funds available in the Orlando
World Center property improvement fund. The loan requires monthly payments of
principal and interest to be paid from the Orlando World Center property
improvement fund beginning November 1997. The loan bears interest at a fixed
rate of 9% and requires monthly amortization payments which vary through loan
maturity in June 1998.
Cash Distributions
On April 7, 1997, the Partnership made a cash distribution of $1,500 per limited
partner unit. This distribution represented $633 per limited partner unit from
1996 operations and $867 per limited partner unit related to first quarter 1997
operations. Based on current forecasts, the Partnership estimates an additional
cash distribution from 1997 operations of the Orlando World Center and the
Lauderdale Beach Association of approximately $6,200 per limited partner unit.
This cash distribution is projected for November 1997.
RESULTS OF OPERATIONS
Total consolidated Partnership revenues for the second quarter and year-to-date
ended June 20, 1997 decreased 3% and increased 7%, respectively, when compared
to the same periods ended June 14, 1996. The decline for second quarter was a
result of increased operating expenses at the Orlando World Center. Year-to-date
operating results, however, were strong for both the Orlando World Center and
the Harbor Beach Hotel. 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
(although it is not a GAAP measurement of revenue). On a combined basis, second
quarter and year-to-date REVPAR increased 8% and 9%, respectively, due to
increases in average room rate and average occupancy. For the second quarter,
combined average room rate improved 4% over the same period in 1996 to $152, and
combined average occupancy increased 3.1 percentage points to 86%. On a
year-to-date basis, combined average room rate increased 6% over the comparable
period in 1996 to $168 and combined average occupancy increased 2.9 percentage
points to 87%.
Hotel Revenues
Second quarter and year-to-date revenues reported by the Orlando World Center
decreased 5% and increased 8%, respectively, over 1996. REVPAR for second
quarter increased 9% over the comparable period in 1996 to $125 as a result of a
3.3 percentage point increase in occupancy to 85% and a 5% increase in average
7
room rate to $147. The increase in REVPAR, however, was offset by an increase in
hotel operating expenses. As a result of higher food and labor costs associated
with large association groups, food and beverage profit decreased 13%. In
addition, other hotel operating expenses were up 10% from last year primarily
due to increased utility costs and general and administrative costs. The strong
year-to-date performance was a result of an 11% increase in REVPAR to $136. This
increase was attributed to a 3.3 percentage point increase in occupancy to 87%
and a 7% increase in average room rate to $156. The hotel achieved its increase
in average room rate as a result of rate increases across all segments and the
hotel's ability to restrict discounted transient room rates. The increase in
occupancy was primarily due to growth in association group business.
Marketing efforts are concentrated on attracting short-term group demand as well
as leisure demand for the remaining summer months. Disney's 25th anniversary
celebration has created strong demand in the leisure transient segment. In order
to further enhance the hotel's ability to compete in the continuously expanding
Orlando market, the final phase of a two-phase rooms renovation is scheduled to
be completed by September 1997.
Recently the hotel has received several awards in recognition for its superior
service to convention, corporate and association guests including the "Pinnacle
Award" from Successful Meetings Magazine and the "Paragon Award" from Corporate
Meetings and Incentive Magazine. Its golf pro shop was also rated one of the
"Top 100 Pro Shops in the Country" by Golf Shop Operations Magazine.
Rental Income
Second quarter and year-to-date rental income from the Harbor Beach Hotel
declined slightly and improved 5%, respectively, over 1996. Pursuant to the
Lauderdale Beach Association operating lease, the calculation of rental income
is based on the level of operating profit, as defined, of the Harbor Beach
Hotel. The Lauderdale Beach Association receives Performance Rental equal to the
first $10.4 million of annual operating profit of the Harbor Beach Hotel.
Operating profit in excess of the $10.4 million is split 50% to the Lauderdale
Beach Association, which is considered Additional Performance Rental and 50% to
the operating tenant. During the second quarter of 1997, the Lauderdale Beach
Association began earning Additional Performance Rental (see Note 3) which in
1996 was not earned until the third quarter. As a result of additional amounts
retained by the operating tenant, second quarter 1997 rental income decreased
slightly from the same period in 1996. For the second quarter, REVPAR increased
6% over 1996 to $143 as a result of a 2.8 percentage point increase in occupancy
to 87% combined with a 3% increase in average room rate to $166. On a
year-to-date basis, REVPAR increased 6% to $170 when compared to the same period
in 1996. This increase was due to a 3% increase in average room rate to $196 and
a 2.1 percentage point increase in occupancy to 87%. The year-to-date
improvement in REVPAR was primarily a result of a 5,700 roomnight or 16%
increase in corporate group business.
The hotel is continuing its cluster advertising with other Marriott hotels in
the area. In addition, it is marketing its "Strictly Pleasure Promotion" in
order to attract current group customers as future transient customers.
Recently, the hotel was awarded the "Pinnacle Award" from Successful Meetings
Magazine, for its superior service to convention, corporate, and association
guests.
8
Indirect Hotel Operating Costs and Expenses
Indirect hotel operating costs and expenses increased 14% to $8.7 million and 9%
to $17.1 million, for the twelve and twenty-four weeks ended June 20, 1997,
respectively, when compared to the same periods in 1996. The principal
components of this category are discussed below:
Incentive management fees. Incentive management fees increased
approximately $1.3 million, or 65.9%, and $1.8 million, or 41.2%, for second
quarter and year-to-date 1997, respectively, as compared to the same periods in
1996. The increase was a result of additional incentive management fees of $1.4
million being paid in second quarter 1997.
Depreciation and amortization. Depreciation and amortization decreased
approximately $414,000, or 15%, for second quarter 1997 as compared to the same
quarter in 1996. On a year- to-date basis, depreciation and amortization
decreased approximately $826,000 or 15% as compared to 1996. The decrease was a
result of furniture and fixtures becoming fully depreciated in 1996.
Interest expense
Interest expense for second quarter and year-to-date decreased 1.5% and 2.2%,
respectively, as compared to the same periods in 1996 due to reduced principal
balances on the mortgage debt of the Hotels resulting from required principal
amortization.
Minority interest
Based upon its 50.5% ownership interest, the Partnership controls the Lauderdale
Beach Association, and as a result, the condensed consolidated financial
statements of the Partnership include the accounts of the Lauderdale Beach
Association. Minority interest represents the net income from the Lauderdale
Beach Association allocable to the co-general partner. Minority interest
increased from $3.4 million year-to-date 1996 to $3.8 million year-to-date 1997
primarily due to the increase in rental income from the Harbor Beach Hotel, as
discussed above.
Net income
For second quarter 1997, the Partnership achieved net income of $3.9 million, a
decrease of $1.6 million over the same period in 1996. This decrease was
primarily due to a decrease in hotel revenues combined with an increase in
incentive management fees. On a year-to-date basis, net income increased $1.3
million to $15.3 million over the same period in 1996. This increase was due to
increases in hotel revenues and rental income partially offset by an increase in
incentive management fees.
9
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 hotel revenues and rental income
during these months. In addition, this seasonality may also increase the
liquidity of the Partnership during these months.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither Marriott Hotel Properties Limited Partnership nor the Lauderdale Beach
Association (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 Partnerships.
11
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
July 23, 1997 By: --------------------------------
Earla L. Stowe
Vice President and
Chief Accounting Officer