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 September 12, 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
(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
Condensed Consolidated Statement of Operations
Twelve and Thirty-Six Weeks Ended September 12, 1997 and September 6, 1996....1
Condensed Consolidated Balance Sheet
September 12, 1997 and December 31, 1996......................................2
Condensed Consolidated Statement of Cash Flows
Thirty-Six Weeks Ended September 12, 1997 and September 6, 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....................................................10
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 Thirty-Six Weeks Ended
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
--------------- --------------- --------------- --------------
REVENUES
Hotel............................................$ 8,159 $ 6,582 $ 39,026 $ 35,222
Rental income.................................... 1,955 1,829 16,961 16,096
Interest and other............................... 302 385 587 695
--------------- --------------- --------------- ---------------
10,416 8,796 56,574 52,013
--------------- --------------- --------------- ---------------
OPERATING COSTS AND EXPENSES
Interest......................................... 4,723 4,980 14,616 15,098
Depreciation and amortization.................... 2,280 2,740 6,841 8,127
Incentive management fee......................... 959 807 7,146 5,189
Base management fee.............................. 731 626 2,755 2,496
Ground rent, property taxes and other............ 2,186 2,108 6,554 6,211
--------------- --------------- --------------- ---------------
10,879 11,261 37,912 37,121
--------------- --------------- --------------- ---------------
(LOSS) INCOME BEFORE
MINORITY INTEREST................................ (463) (2,465) 18,662 14,892
MINORITY INTEREST................................... 780 934 (3,002) (2,441)
--------------- --------------- --------------- ---------------
NET INCOME (LOSS)...................................$ 317 $ (1,531) $ 15,660 $ 12,451
=============== =============== =============== ===============
ALLOCATION OF NET INCOME (LOSS)
General Partner..................................$ 4 $ (15) $ 157 $ 125
Limited Partners................................. 313 (1,516) 15,503 12,326
--------------- --------------- --------------- ---------------
$ 317 $ (1,531) $ 15,660 $ 12,451
=============== =============== =============== ===============
NET INCOME (LOSS) PER LIMITED PARTNER
UNIT (1,000 Units)...............................$ 313 $ (1,516) $ 15,503 $ 12,326
=============== =============== =============== ===============
See Notes to Condensed Consolidated Financial Statements.
1
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
September 12, December 31,
1997 1996
(Unaudited)
ASSETS
Property and equipment, net............................................................$ 223,352 $ 222,491
Minority interest...................................................................... 9,124 10,641
Due from Marriott International, Inc. and affiliates................................... 6,876 9,114
Other assets........................................................................... 5,616 5,588
Cash and cash equivalents.............................................................. 13,041 1,607
-------------- --------------
$ 258,009 $ 249,441
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Mortgage debt..........................................................................$ 226,452 $ 230,959
Accounts payable and accrued interest.................................................. 3,367 802
Notes payable and amounts due to Marriott International, Inc. and affiliates........... 2,835 4,106
Note payable and amounts due to Host Marriott Corporation.............................. -- 2,405
-------------- --------------
Total Liabilities................................................................... 232,654 238,272
-------------- --------------
PARTNERS' CAPITAL
General Partner........................................................................ 363 221
Limited Partners....................................................................... 24,992 10,948
-------------- --------------
Total Partners' Capital............................................................. 25,355 11,169
-------------- --------------
$ 258,009 $ 249,441
============== ==============
See Notes to Condensed Consolidated Financial Statements.
2
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Thirty-Six Weeks Ended
September 12, September 6,
1997 1996
(in thousands)
OPERATING ACTIVITIES
Net income.............................................................................$ 15,660 $ 12,451
Noncash items.......................................................................... 10,203 10,927
Changes in operating accounts.......................................................... 2,516 1,030
-------------- --------------
Cash provided by operations......................................................... 28,379 24,408
-------------- --------------
INVESTING ACTIVITIES
Additions to property and equipment.................................................... (7,703) (7,728)
Changes in property improvement funds and capital reserve escrow......................... (260) 1,588
-------------- --------------
Cash used in investing activities................................................... (7,963) (6,140)
-------------- --------------
FINANCING ACTIVITIES
Principal repayments of mortgage debt.................................................. (4,507) (4,920)
Repayments to Host Marriott Corporation................................................ (2,295) (269)
Capital distributions to partners...................................................... (1,514) (2,908)
Capital distributions to minority interest............................................. (1,485) (1,485)
Proceeds from note payable to Marriott International, Inc. and affiliates.............. 1,200 --
Repayments to Marriott International, Inc. and affiliates.............................. (428) (362)
Collection of investor notes receivable................................................ 47 --
Payment of financing costs............................................................. -- (40)
-------------- --------------
Cash used in financing activities................................................... (8,982) (9,984)
-------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS.................................................... 11,434 8,284
CASH AND CASH EQUIVALENTS at beginning of period......................................... 1,607 3,550
-------------- --------------
CASH AND CASH EQUIVALENTS at end of period...............................................$ 13,041 $ 11,834
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest..............................................$ 11,623 $ 12,271
============== ==============
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 September 12, 1997, and the
results of operations for the twelve and thirty-six weeks ended September
12, 1997 and September 6, 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 the 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 thirty-six weeks ended (in thousands):
Twelve Weeks Ended Thirty-Six Weeks Ended
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
------------ ------------ ------------ -------------
HOTEL SALES
Rooms $.................................... 11,328 $ 10,180 $ 45,693 $ 41,175
Food and beverage........................... 10,450 8,595 36,926 33,012
Other....................................... 2,605 2,087 9,219 9,000
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24,383 20,862 91,838 83,187
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HOTEL EXPENSES
Departmental Direct Costs
Rooms.................................... 2,605 2,433 9,082 8,493
Food and beverage........................ 7,026 5,829 23,051 20,384
Other hotel operating expenses.............. 6,593 6,018 20,679 19,088
------------ ------------ ------------ -------------
16,224 14,280 52,812 47,965
------------ ------------ ------------ -------------
HOTEL REVENUES................................$ 8,159 $ 6,582 $ 39,026 $ 35,222
============ ============ ============ =============
3. Rental income under the Lauderdale Beach Association operating lease
for the twelve and thirty-six weeks ended was (in thousands):
Twelve Weeks Ended Thirty-Six Weeks Ended
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
------------ ------------ ------------ -------------
Basic rental..................................$ 403 $ 383 $ 1,174 $ 1,134
Percentage rental............................. 1,017 928 4,530 4,199
Performance rental............................ -- 172 10,417 10,417
Additional performance rental................. 535 346 840 346
------------ ------------ ------------ -------------
RENTAL INCOME.................................$ 1,955 $ 1,829 $ 16,961 $ 16,096
============ ============ ============ =============
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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 thirty-six weeks ended
September 12, 1997, and September 6, 1996, was $28.4 million and $24.4 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 the
Orlando World Center 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 thirty-six weeks ended September 12, 1997 and September 6, 1996, cash
used in investing activities was $8.0 million and $6.1 million, respectively,
consisting primarily of an increase in the cash contributed to the property
improvement funds of the Hotels.
For the thirty-six weeks ended September 12, 1997 and September 6, 1996, cash
used in financing activities was $9.0 million and $10.0 million, respectively.
The decrease was primarily the result of cash provided by Marriott
International, Inc. and affiliates (see discussion of capital expenditures
below) and decreases in cash distributions to partners and principal repayments
on the mortgage debt, partially offset by the repayment of the remaining balance
of the Orlando ballroom loan of $2.3 million in the third quarter of 1997.
6
Capital Expenditures
The second phase of a rooms renovation at the Orlando World Center was completed
in September 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 1999.
During the third quarter of 1997, Marriott International Capital Corporation
advanced the Partnership $1.2 million. The Partnership does not anticipate any
shortfalls in the property improvement fund of the Orlando World Center until
the year 2000 or the property improvement fund of the Harbor Beach Hotel until
1999.
Cash Distributions
In October 1997, the Partnership made a cash distribution of $6,200 per limited
partner unit. This distribution consisted of $5,700 per limited partner unit
from the operations of the Orlando World Center and $500 per limited partner
unit from the Partnership's share of cash available from operations of the
Harbor Beach Hotel. Year-to-date 1997 cash distributions have totaled $7,700 per
limited partner unit.
RESULTS OF OPERATIONS
Total consolidated Partnership revenues for the third quarter and year-to-date
ended September 12, 1997 increased 18% and 9%, respectively, over the comparable
periods in 1996. This was due to strong operating results at 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, third quarter and year-to-date REVPAR increased 14% and 9%, respectively,
due to increases in average room rate and average occupancy. For the third
quarter, combined average room rate improved 11% over the same period in 1996 to
$123, and combined average occupancy increased 1.8 percentage points to 75%. On
a year-to-date basis, combined average room rate increased 6% over the
comparable period in 1996 to $154 and combined average occupancy increased 2.6
percentage points to 83%.
Hotel Revenues
Third quarter and year-to-date revenues reported by the Orlando World Center
increased 24% and 11%, respectively, over 1996. REVPAR for third quarter
increased 13% over the comparable period in 1996 to $90 as a result of a 1.3
percentage point increase in occupancy to 72% and a 9% increase in average room
7
rate to $124. These increases are primarily attributable to increases in short
term demand by small groups and the Disney 25th Anniversary celebration. As a
result of the increase in REVPAR, rooms profit for the quarter increased $1.0
million over 1996, an increase of 13%. Due to strong group business, food and
beverage sales and profit for the quarter increased $1.9 million or 22% and $0.7
million or 24%, respectively, over the same periods in 1996. The strong
year-to-date performance was a result of an 11% increase in REVPAR to $121. This
increase was attributed to a 2.7 percentage point increase in occupancy to 82%
and a 7% increase in average room rate to $147. 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.
The hotel's marketing efforts are concentrated on capitalizing on the strong
group demand. To meet this increasing demand, the hotel is hiring additional
personnel to focus on attracting more group business. The hotel also continues
its promotional efforts in the transient market through direct mailings,
newspaper advertisements, and trade publication advertisements. In September
1997, the final phase of the rooms renovation project was completed. This will
enhance the hotel's ability to compete in the continuously expanding Orlando
market.
During the third quarter of 1997, the hotel received the "Gold Key Award" from
Meetings and Conventions magazine in recognition for its superior service to
convention, corporate and association guests.
Rental Income
Third quarter and year-to-date rental income from the Harbor Beach Hotel
improved 7% and 5%, respectively, over 1996 primarily due to increases in
REVPAR. For the third quarter, REVPAR increased 16% over 1996 to $96 as a result
of a 2.9 percentage point increase in occupancy to 81% combined with a 11%
increase in average room rate to $119. The hotel benefited from an increase in
higher rated leisure transient demand, increasing roomnights in this category by
41% and the transient average rate by $16 over the same period in 1996. The
hotel was also able to increase its group average rate by $13 and benefited from
several large group advance bookings in third quarter. As a result of the
increase in REVPAR, room sales and profit for the quarter increased $0.7 million
and $0.6 million, respectively, over 1996. On a year-to-date basis, REVPAR
increased 8% to $146 when compared to the same period in 1996. This increase was
due to a 5% increase in average room rate to $172 and a 2.3 percentage point
increase in occupancy to 85%. These increases are the result of an increase in
room rates across all segments as well as increased group roomnights.
The hotel is continuing its cluster advertising with the Marina Marriott Hotel
and is currently targeting large groups that can be accommodated by both
properties. In addition, it is hiring more personnel to ensure the optimal use
of its meeting space. The hotel continues to be recognized for its superior
service to convention, corporate and association guests. Recently, the hotel was
awarded the "Gold Key Award" from Meetings and Conventions magazine and the
"Award of Excellence" from Corporate and Incentive Travel magazine.
Indirect Hotel Operating Costs and Expenses
Indirect hotel operating costs and expenses decreased 2% to $6.2 million and
increased 6% to $23.3 million, for the twelve and thirty-six weeks ended
September 12, 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 $0.2 million, or 19%, and $2.0 million, or 38%, for third quarter
and year-to-date 1997, respectively, as compared to the same periods in 1996.
The year-to-date increase was primarily 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 $0.4 million, or 17%, for third quarter 1997 as compared to the
same quarter in 1996. On a year-to-date basis, depreciation and amortization
decreased approximately $1.3 million or 16% as compared to 1996. The decrease
was a result of furniture and fixtures becoming fully depreciated in 1996.
Interest expense
Interest expense for third quarter and year-to-date decreased 5% and 3%,
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.
8
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 $2.4 million year-to-date 1996 to $3.0 million year-to-date 1997
primarily due to the increase in rental income from the Harbor Beach Hotel, as
discussed above.
Net income
For third quarter 1997, the Partnership achieved net income of $0.3 million, an
increase of $1.8 million over the same period in 1996. On a year-to-date basis,
net income increased $3.2 million to $15.7 million over the same period in 1996.
These increases were primarily due to increases in hotel revenues and rental
income.
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.
9
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.
10
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
October 20, 1997 By: --------------------------------
Earla L. Stowe
Vice President and
Chief Accounting Officer