Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
O Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
OR
G 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
incorporation or organization) Identification No.)
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
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 U No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] (Not Applicable)
Documents Incorporated by Reference
None
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Marriott Hotel Properties Limited Partnership
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TABLE OF CONTENTS
PAGE NO.
PART I
Item 1. Business.................................................1
Item 2. Properties...............................................7
Item 3. Legal Proceedings........................................9
Item 4. Submission of Matters to a Vote of Security Holders......9
PART II
Item 5. Market For Registrant's Limited Partnership Units and
Related Security Holder Matters.........................11
Item 6. Selected Financial Data.................................13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................14
Item 8. Financial Statements and Supplementary Data.............21
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure................................36
PART III
Item 10. Directors and Executive Officers........................36
Item 11. Management Remuneration and Transactions................37
Item 12. Security Ownership of Certain Beneficial Owners and
Management..............................................37
Item 13. Certain Relationships and Related Transactions..........37
PART IV
Item 14. Exhibits, Supplemental Financial Statement Schedules
and Reports on Form 8-K.................................40
PART I
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.
ITEM 1. BUSINESS
Description of the Partnership
Marriott Hotel Properties Limited Partnership (the "Partnership"), a Delaware
limited partnership which was formed on August 22, 1984, owns (i) Marriott's
Orlando World Center Hotel (the "Orlando Hotel") in Orlando, Florida and the 190
acres of land on which it is located, and (ii) a 50.5% interest in Lauderdale
Beach Association (the "Harbor Beach Partnership"), a general partnership which
owns Marriott's Harbor Beach Resort (the "Harbor Beach Hotel") in Fort
Lauderdale, Florida.
The sole general partner of the Partnership, with a 1% interest, is Hotel
Properties Management, Inc. (the "General Partner"), a Delaware corporation and
a wholly-owned subsidiary of Host Marriott Corporation ("Host Marriott"). The
Partnership is engaged solely in the business of owning, operating and leasing
hotels and therefore is engaged in one industry segment. The principal offices
of the Partnership are located at 10400 Fernwood Road, Bethesda, Maryland 20817.
On January 14, 1997, MHP Acquisition Corporation (the "Company"), a wholly-owned
subsidiary of Host Marriott, completed a tender offer for limited partnership
units in the Partnership. The Company purchased 463.75 units for an aggregate
consideration of $37.1 million or $80,000 per unit. Additionally, in a
Partnership vote held in conjunction with the tender offer, the limited partners
approved all of the proposed amendments to the partnership agreement that were
conditions to the tender offer. Subsequent to the tender offer, the Company
purchased 8 units on March 29, 1997 and 1 unit on June 21, 1997. Therefore, as
of December 31, 1997, Host Marriott now indirectly owns, through affiliates,
49.33% of the Partnership.
The Orlando Hotel and the Harbor Beach Hotel (collectively referred to herein as
the "Hotels") are operated as part of the Marriott Hotels, Resorts and Suites
full-service hotel system. The Orlando Hotel is managed by Marriott
International, Inc. ("MII" or the "Manager") under a long-term management
agreement (the "Management Agreement"), and the Harbor Beach Hotel is leased to
Marriott Hotel Services, Inc. ("MHSI" or the "Operating Tenant"), a wholly-owned
subsidiary of MII, under a long-term lease agreement (the "Operating Lease").
The Hotels have the right to use the Marriott name pursuant to the management
and lease agreements and, if these agreements are terminated, the Partnership
and the Harbor Beach Partnership (collectively referred to herein as the
"Partnerships") will lose that right for all purposes (except as part of the
Partnership's name). See Item 13, "Certain Relationships and Related
Transactions."
The Hotels are among the premier resorts in the Marriott system and cater
primarily to meetings/conventions and leisure travelers. Since the Hotels are
located in Florida, operating results are higher during the period from November
through April each year. The Partnership and the Harbor Beach Partnership have
no plans to acquire any new properties or sell any of the existing properties.
See Item 2, "Properties."
The Orlando Hotel was designed as part of the MII network of convention hotels
and thus has extensive meeting and convention facilities. The Orlando Hotel's
business is oriented primarily to professional meeting planners who book
conventions in Orlando. During the past five years, group business has accounted
for most of the business at the Orlando Hotel. For the year ended December 31,
1997, 78% of its business was derived from group demand. The Orlando Hotel
offers group guests award-winning service, approximately 200,000 square feet of
meeting space, all on one level, 18 holes of golf on-site, numerous restaurants
and the flexibility to achieve the guests' desired goals. The group business
segment is comprised of corporate groups, association groups and other market
segments including social groups (weddings), military, religious, fraternal and
international groups. During 1997, the Orlando Hotel experienced an increase in
group occupancy of approximately 13,000 group roomnights; however, this increase
was partially offset by a decrease in transient demand.
The Orlando Hotel added an additional 50,960 square foot ballroom and exhibition
hall in 1990 to enhance the Orlando Hotel's ability to attract guests and large
group business. Host Marriott provided interim financing of up to $14 million to
fund the construction of this ballroom and on June 16, 1992, the ballroom loan
of $13.2 million was converted to a revolving line of credit. The entire
outstanding principal balance of $2.3 million was paid off in 1997. In 1996, the
Orlando Hotel completed the first phase of a rooms renovation. The second phase
of the Orlando Hotel's rooms renovation was completed in September 1997. To fund
costs in excess of funds available in the Orlando Hotel's property improvement
fund, Marriott International Capital Corporation ("MICC"), an affiliate of the
Manager, advanced the Partnership $3.5 million during 1997. The loan requires
payments of principal and interest to be paid from the Orlando Hotel's property
improvement fund. The outstanding principal balance was $3.5 million on December
31, 1997.
The Harbor Beach Hotel has positioned itself to attract both the leisure
traveler and the group meeting planner who is seeking a luxurious resort
experience. The Harbor Beach Hotel offers easy air accessibility, the largest
private beach in the Fort Lauderdale area and the quality and consistency
associated with the Marriott name. The Harbor Beach Hotel's business is split
between business from transient and group guests. For the year ended December
31, 1997, group business comprised 55% of total roomnights compared to 51% in
1996.
During 1994, the Harbor Beach Hotel completed a rooms renovation which
helped the property realize a competitive advantage in the Fort Lauderdale
market. Financing for the rooms renovation was obtained from MICC. The loan
provided financing of up to $2.8 million. As of December 31, 1997, the
outstanding principal balance of the loan was $1.3 million.
Organization of the Partnership
The Partnership was formed on August 22, 1984, to acquire, construct, own and
operate the Orlando Hotel. Host Marriott was the initial General Partner of the
Partnership and Airline Foods, Inc., a wholly-owned subsidiary of Host Marriott,
was the initial limited partner. Between November 1, 1985 and November 27, 1985
(the "Closing Date"), 1,000 limited partnership units (the "Units") were sold in
a private placement for $100,000 a Unit, representing a 99% interest in the
Partnership. The limited partners paid $10,000,000 in cash on the Closing Date
with the remainder due in five annual installments through May 15, 1990. The
limited partners' obligations to make the installment payments were evidenced by
promissory notes (the "Investor Notes") payable to the Partnership and secured
by the Units. Prior to the Closing Date, Marriott Hotel Properties, Inc. was
admitted as General Partner in lieu of Host Marriott, and on the Closing Date,
Airline Foods, Inc. withdrew as a limited partner. In consideration for agreeing
to admit the additional limited partners to the Partnership, Airline Foods, Inc.
was paid $650,000 in cash at closing and received $45,350,000 of Investor Notes.
On April 22, 1992, the General Partner's name was changed from Marriott Hotel
Properties, Inc. to Hotel Properties Management, Inc.
On the Closing Date, the Partnership purchased from affiliates of Host Marriott
(i) a 99% limited partnership interest in the Warner Center Marriott Hotel
Limited Partnership, a Delaware limited partnership (the "Warner Center
Partnership"), which owned the 473-room Warner Center Marriott Hotel (the
"Warner Center Hotel") in Los Angeles, California, for $250,000 in cash and a
$12,750,000 deferred purchase note, and (ii) a 49% general partnership interest
in, and a loan receivable of $3,680,000 from, the Harbor Beach Partnership for
$2,500,000 in cash and a $7,500,000 deferred purchase note. The Partnership also
acquired a 1% interest in the remaining 51% general partner of the Harbor Beach
Partnership on the Closing Date for $150,000. This interest was converted into a
0.5% interest in the Harbor Beach Partnership on July 1, 1986. On April 23,
1987, the Partnership exercised an option acquired on January 1, 1986, to
purchase an additional 2% interest in the remaining general partner of the
Harbor Beach Partnership for $300,000, which was simultaneously converted to a
1% interest in the Harbor Beach Partnership, thereby giving the Partnership a
50.5% ownership interest in the Harbor Beach Partnership.
On November 17, 1993, ownership of the Warner Center Hotel was transferred
through foreclosure to the lender. Simultaneously with the foreclosure, the
Warner Center Partnership was dissolved.
Debt Financing
Upon loan maturity on June 16, 1995, the lender granted the Partnership a
forbearance on the Orlando Hotel mortgage debt (the "Orlando Mortgage Debt"),
extending it through October 31, 1995. On October 31, 1995, the Partnership
successfully completed a modification and extension of this loan. The Orlando
Mortgage Debt was non-recourse to the Partnership and its partners. The Orlando
Mortgage Debt bore a fixed rate of interest of 8.44%, required semi-annual
principal payments, and was scheduled to mature on June 16, 2000. The
outstanding principal balance was $138,479,000 prior to the refinancing, as
discussed below.
On December 31, 1997, the General Partner successfully refinanced the Orlando
Mortgage Debt (the "New Loan"). The Partnership received proceeds of $152
million which was used to pay the outstanding balance on the Orlando Mortgage
Debt and accrued interest totaling $139.3 million, related refinancing costs of
$2.0 million and a prepayment penalty of $1.9 million. The remaining $8.8
million is part of the Partnership's working capital. The New Loan continues to
be non-recourse and requires monthly payments of interest at a fixed rate of
7.48% and principal based on a 30-year amortization schedule. The New Loan
matures on January 1, 2008. In conjunction with the refinancing, the lender is
committed to provide financing of approximately $88 million for construction
costs related to a 500-room expansion of the Orlando Hotel. The New Loan is
collateralized by the Orlando Hotel, all personal property associated with the
Orlando Hotel, the land on which the Orlando Hotel and golf course are located
and an assignment of certain operating agreements.
On March 29, 1994, the Harbor Beach Partnership completed a restructuring of its
$92 million loan (the "Harbor Beach Mortgage Debt"). The Harbor Beach Mortgage
Debt carries a fixed rate of interest of 9.125%. Interest only was due and
payable for the first twelve payments through and including April 1, 1995. On
May 1, 1995, monthly payments of principal and interest in the amount of
$772,600 began and will continue until maturity on May 1, 2000. The loan
amortizes based on a 22-year effective amortization period. As of December 31,
1997, the outstanding principal balance was $83,946,000. The Harbor Beach
Mortgage Debt is non-recourse to the Harbor Beach Partnership and its partners.
The Harbor Beach Mortgage Debt is collateralized by all property and assets of
the Harbor Beach Hotel. No debt service guaranty was provided during the March
1994 restructuring. It is expected that the Harbor Beach Mortgage Debt will be
refinanced at or prior to the maturity thereof, depending upon prevailing market
conditions and interest rates.
Orlando Ballroom Loan
During 1990, Host Marriott provided financing of $13.2 million to fund the
construction of a new ballroom and exhibition hall at the Orlando Hotel (the
"Orlando Ballroom Loan"). As of December 31, 1996, the outstanding principal
balance was $2.3 million. The weighted average effective interest rate for the
year ended December 31, 1997, was 8.4%. The outstanding principal balance was
paid on June 24, 1997.
Harbor Beach Rooms Renovation Loan
On July 21, 1994, the Harbor Beach Partnership entered into a loan agreement
(the "Harbor Beach Rooms Renovation Loan") with MICC in conjunction with a rooms
and suites refurbishment at the Harbor Beach Hotel. The loan provided financing
of up to $2.8 million, plus accrued interest through December 31, 1994, to fund
costs in excess of funds available in the Harbor Beach Partnership's property
improvement fund. This unsecured loan carries a fixed rate of interest of 8% and
matures on December 31, 1999. Payments of principal and interest based upon a
five-year amortization period commenced in January 1995. Under the terms of the
loan, the debt service payments are included as a deduction in determining the
fees paid to MHSI pursuant to the Operating Lease. As of December 31, 1997, the
outstanding principal balance was $1.3 million.
Orlando Rooms Renovation Loan
During 1997, the Partnership entered into a loan agreement (the "Orlando Rooms
Renovation Loan") with MICC in conjunction with a rooms and suites refurbishment
at the Orlando Hotel. The loan provided financing of $3.5 million and requires
monthly payments of principal and interest to be paid from the Orlando Hotel's
property improvement fund. This unsecured loan carries a fixed interest rate of
9% and matures on June 16, 1999. The outstanding principal balance was $3.5
million on December 31, 1997.
Material Contracts
The Partnership has entered into a long-term management agreement with MII for
the Orlando Hotel, and the Harbor Beach Partnership has entered into a long-term
operating lease with MHSI for the Harbor Beach Hotel.
The Orlando Hotel Management Agreement has a 25-year term expiring on March 24,
2011, with renewal terms, at the option of MII, for up to five additional
10-year terms. The Management Agreement provides the Manager with a base
management fee equal to 3% of gross hotel sales. In addition, the Manager is
entitled to an incentive management fee equal to 20% of hotel operating profit
and additional incentive management fees equal to 30% of a defined amount. For
additional information see Item 13, "Certain Relationships and Related
Transactions."
The Harbor Beach Hotel Operating Lease has a 36-year term expiring on October
29, 2020, with renewal terms, at the option of the Operating Tenant, for up to
six additional 10-year terms. The Operating Lease provides that the Operating
Tenant pay annual rental to the Harbor Beach Partnership. The Operating Tenant
retains 50% of operating profit of the Harbor Beach Hotel, as defined, in excess
of performance rental. For additional information see Item 13, "Certain
Relationships and Related Transactions."
Pursuant to the Management Agreement and the Operating Lease, the Hotels are
operated as part of the Marriott Hotels, Resorts and Suites full-service hotel
system. At December 31, 1997, the Marriott full-service hotel system included
326 Marriott Hotels, Resorts and Suites located in 41 states, the District of
Columbia and 33 foreign countries with a total of 124,571 guest rooms.
Full-service hotels operated by MII generally contain between 300 and 500 rooms.
However, the 19 convention hotels (18,500 rooms) operated by MII, including the
Orlando Hotel, are larger and contain up to 1,900 rooms. Room rates generally
range between $95 and $265 per night depending upon location and type of
facility. Marriott full-service hotel facilities typically include swimming
pools, gift shops, convention and banquet facilities, a variety of restaurants
and lounges and parking facilities. The 35 Marriott resort hotels (15,000
rooms), including the Harbor Beach Hotel, have additional recreational
facilities, such as tennis courts and golf courses.
Ground Lease
The Harbor Beach Partnership leases the land on which the Harbor Beach Hotel is
located from an unrelated third party. For a description of the terms of the
ground lease, see Item 2, "Properties."
Competition
Demand in the U.S. lodging industry continues to be strong as a result of an
improved economic environment and a corresponding increase in domestic business
and leisure travel. Also, the upscale full-service hotel segment has benefited
from a continued low room supply growth rate, which is attributable to several
factors including the limited availability of attractive building sites for
full-service hotels and the lack of available financing for new full-service
hotel construction. The cyclical nature of the U.S. lodging industry has been
demonstrated over the past two decades. Low hotel profitability during the
1974-1975 recession led to a prolonged slump in new construction, to high
occupancy rates, and to real price increases in the late 1970s and early 1980s.
Changes in tax and banking laws during the early 1980s precipitated a
construction boom which peaked in 1986 but created an oversupply of hotel rooms
that had not been absorbed fully by increased demand. This caused a significant
decrease in new hotel development the early 1990s which has resulted in a
gradual U.S. hotel supply/demand imbalance.
Current trends in the hotel industry indicate that, through at least 1998, the
outlook for the lodging industry remains positive. Rooms supply growth,
especially for the luxury and upscale segment, is at its highest level over the
past decade. In addition, national occupancies and average daily rates have been
steadily increasing over the past few years.
The inclusion of the Orlando Hotel and the Harbor Beach Hotel within the
nationwide MII full-service hotel system provides advantages of name
recognition, centralized reservations and advertising, system-wide marketing and
promotion, centralized purchasing and training and support services. Additional
competitive information is set forth in Item 2, "Properties," with respect to
the Hotels.
Conflicts of Interest
Because Host Marriott and its affiliates own and/or operate hotels other than
those owned by the Partnerships, potential conflicts of interest exist. With
respect to these potential conflicts of interest, Host Marriott and its
affiliates retain a free right to compete with the Partnerships' Hotels,
including the right to develop competing hotels now and in the future, in
addition to those existing hotels which may compete directly or indirectly.
Under Delaware law, the General Partner has a fiduciary duty to the Partnership
and is required to exercise good faith and loyalty in all its dealings with
respect to Partnership affairs.
Policies with Respect to Conflicts of Interest
It is the policy of the General Partner that the Partnership's relationship with
the General Partner, any of its affiliates or persons employed by the General
Partner are conducted on terms which are fair to the Partnership and which are
commercially reasonable.
The Partnership Agreement provides that agreements, contracts or arrangements
between the Partnership and the General Partner, other than arrangements for
rendering legal, tax, accounting, financial, engineering and procurement
services to the Partnership by the General Partner or its affiliates, will be on
commercially reasonable terms, will be subject to the following conditions:
(a) the General Partner or any affiliate must be actively engaged in the
business of rendering such services or selling or leasing such goods,
independently of its dealings with the Partnership and as an ordinary
ongoing business or must enter into and engage in such business with
Marriott system hotels or hotel owners generally and not exclusively with
the Partnership;
(b) any such agreement, contract or arrangement must be fair to the
Partnership, and reflect commercially reasonable terms and shall be
embodied in a written contract which precisely describes the subject matter
thereof and all compensation to be paid therefor;
(c) no rebates or give-ups may be received by the General Partner or any
affiliate, nor may the General Partner or any affiliate participate in any
reciprocal business arrangements which would have the effect of
circumventing any of the provisions of the Partnership Agreement or the
Harbor Beach Partnership Agreement;
(d) no such agreement, contract or arrangement as to which the limited partners
had previously given approval may be amended in such manner as to increase
the fees or other compensation payable to the General Partner or any
affiliate or to decrease the responsibilities or duties of the General
Partner or any affiliate in the absence of the consent of the limited
partners holding a majority of the Units (excluding those Units held by the
General Partner or certain of its affiliates); and
(e) Any such agreement, contract or arrangement which relates to or secures any
funds advanced or loaned to the Partnership by the General Partner or any
affiliate must reflect commercially reasonable terms.
The Harbor Beach Partnership Agreement contains similar provisions with respect
to the Harbor Beach Partnership.
Employees
The Partnership has no employees; however, employees of the General Partner are
available to perform administrative services for the Partnership. The
Partnership reimburses the General Partner for the cost of providing such
services. See Item 11, "Executive Compensation," for information regarding
payments to the General Partner for the cost of providing administrative
services to the Partnership.
The Hotels are staffed by employees of MII and the Operating Tenant.
ITEM 2. PROPERTIES
As of December 31, 1997, the Partnerships' properties consisted of two hotels,
both of which are currently in full operation and described below.
Orlando World Center Hotel
Location
The Orlando Hotel is a full-service Marriott hotel located on approximately 190
acres of fee-owned land two miles from Walt Disney World Resort and is known as
Marriott's Orlando World Center. It is located approximately 15 miles from the
Orlando International Airport.
Description
The Orlando Hotel opened on March 24, 1986. The Orlando Hotel contains 1,503
guest rooms, including 85 suites, in a 27-story building. Designed as part of
the MII network of convention hotels, it has extensive meeting and convention
facilities totaling 200,000 square feet, all on one level of the hotel,
including (i) a 38,675 square foot grand ballroom, (ii) additional ballroom
space of 40,740 square feet which can be subdivided into meeting rooms and
exhibit space, (iii) a 50,960 square foot ballroom and exhibition hall which was
completed in 1990 and (iv) 14 meeting rooms. Hotel facilities also include nine
restaurants and lounges, an 18-hole championship golf course, eight lighted
tennis courts, four pools, a health club, golf and tennis pro shops, specialty
and gift shops, a game room and parking for 2,100 cars. The Partnership
purchased the Orlando Hotel in 1984 for approximately $211 million. In March
1998, the Partnership announced its plan to construct a 500-room tower with a
new parking garage at the Orlando Hotel.
Competition
The primary competition for the Orlando Hotel comes from the following five
first-class convention and resort lodging-oriented hotels: (i) the Sheraton
Dolphin Hotel with 1,510 guest rooms and 202,000 square feet of meeting space,
(ii) the Westin Swan with 758 guest rooms and 52,000 square feet of meeting
space, (iii) the Peabody Hotel with 891 guest rooms and 54,000 square feet of
meeting space, (iv) the Hyatt Regency Grand Cypress Hotel, with 750 guest rooms
and 65,000 square feet of meeting space and (v) the Coronado Springs Resort,
which opened in July 1997, with 1,967 rooms and 99,000 square feet of meeting
space. In addition, other hotels, including hotels owned by Disney, also compete
with the Orlando Hotel. None of these hotels are operated as part of the MII
full-service hotel system. As a major convention hotel, the Orlando Hotel also
competes with similar facilities throughout the country.
Several new hotel projects are expected to enter the market in the near future,
including hotels by Disney and Loews Corporation. Loews Corporation has plans to
construct two first-class hotels on Universal Studios Florida property of
approximately 800 and 1,300 rooms to be opened by the year 2000. As a result of
the continued expansion of Walt Disney World, the All Star Resort with 3,840
rooms is going to increase to 5,760 rooms. Additionally, the Animal Kingdom
attraction at Walt Disney World is planning to open a hotel by January 1999.
Harbor Beach Hotel
Location
The Harbor Beach Hotel is a full-service Marriott hotel located on a 16.5 acre
tract of leased beach-front property located in Fort Lauderdale, Florida and is
known as Marriott's Harbor Beach Resort. The Hotel is located approximately five
miles from the Fort Lauderdale/Hollywood International Airport.
Description
The Harbor Beach Hotel opened in October 1984 with 624 guest rooms, including 35
suites, in a 15-story building. The Harbor Beach Hotel has approximately 30,000
square feet of meeting and banquet space, including (i) a 14,900 square foot
grand ballroom, (ii) an 8,000 square foot junior ballroom (iii) seven meeting
rooms and (iv) two boardrooms. Hotel facilities also include five restaurants,
three lounges, a 1,100 foot private ocean beach with 50 private cabanas, an
outdoor pool, five tennis courts, a health club, gift shop, tennis pro shop and
parking for 900 cars. The Harbor Beach Partnership purchased the Harbor Beach
Hotel in 1982 for approximately $87 million.
Competition
The primary competition for the Harbor Beach Hotel comes from the following five
first-class hotels: (i) the Hyatt Pier 66 with 388 guest rooms and 22,000 square
feet of meeting space, (ii) the Boca Raton Hotel and Club with 963 guest rooms
and 70,000 square feet of meeting space, (iii) the Marriott Marco Island Resort
and Golf Club with 735 guest rooms and 48,000 square feet of meeting space, (iv)
the Sheraton Bal Harbour with 644 guest rooms and 73,000 square feet of meeting
space and (v) the Breakers with 572 guest rooms and 36,000 square feet of
meeting space. The Marriott Marco Island Resort and Golf Club is managed by MII,
and other than limited joint marketing efforts, the Harbor Beach Hotel and the
Marriott Marco Island Resort are direct competitors. Host Marriott acquired
another competing area hotel, the Fort Lauderdale Marina Hotel, in January 1994.
In addition, other hotels in the Fort Lauderdale area also compete with the
Harbor Beach Hotel; however, these differ from the Harbor Beach Hotel in terms
of size, room rates, facilities, amenities and services offered, market
orientation and/or location. None of these other hotels are operated as part of
the MII full-service hotel system. As a major resort facility, the Harbor Beach
Hotel also competes with similar facilities throughout the country. The Loews
Miami Beach hotel with 800 rooms and 85,000 square feet of meeting space is
scheduled to open in October 1998.
Ground Lease
The Harbor Beach Hotel is located on a site that is leased from an unrelated
third party for an initial term expiring November 30, 2080. The Harbor Beach
Partnership has the option to extend the term for an additional 25 years. The
lease provides for annual rental of $1,560,000 for lease years 1995 through
1999. Thereafter, annual rentals for each succeeding five-year period increase
by an amount equal to 10% of the previous annual rental. Under the lease, the
Harbor Beach Partnership pays all costs, expenses, taxes and assessments
relating to the Harbor Beach Hotel and the underlying land, including real
estate taxes. In the event the ground lessor decides to sell the leased
premises, the Harbor Beach Partnership has a right of first refusal to purchase
the leased premises. Upon expiration or termination of the lease, title to the
Harbor Beach Hotel and all improvements revert to the ground lessor.
ITEM 3. 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 Partnerships.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the limited partners in 1996 or in prior
years. On January 14, 1997, in conjunction with a tender offer (the "Tender
Offer") for limited partnership units by MHP Acquisition Corporation (the
"Purchaser"), the General Partner solicited the consent of the limited partners
of the Partnership to the following amendments to the Partnership Agreement:
- - An amendment that (a) revises the provisions limiting the voting rights of
the General Partner and its affiliates to permit the General Partner and
its affiliates (including the Purchaser) to have full voting rights with
respect to all Units currently held by the General Partner or acquired by
its affiliates except on matters where the General Partner or its
affiliates have an actual economic interest other than as an Unit holder or
general partner (an "Interested Transaction"), and (b) establish special
voting standards with respect to Interested Transactions to permit action
to be taken only if (i) a majority of Units by limited partners other than
the General Partner and its affiliates are present in person or by proxy or
consent for the vote on an Interested Transaction and (ii) the Interested
Transaction is approved by limited partners holding a majority of the
outstanding Units, with all Units actually voted by limited partners other
than the General Partner and its affiliates.
- - An amendment that amends the definition of "Affiliate" to make clear that a
publicly-traded entity (such as Marriott International, Inc.) will not be
deemed an affiliate of the General Partner or any of its affiliates unless
a person or group of persons directly or indirectly owns twenty percent
(20%) or more of the outstanding common stock of both the General Partner
(or its affiliates) and such other entity.
- - An amendment that revises the provisions relating to the authority of the
General Partner to permit the General Partner, without obtaining the
consent of the limited partners, to (i) sell or otherwise transfer to an
independent third party the assets of the Partnership, including the
Orlando Hotel and the Partnership's 50.5% general partnership interest in
the Harbor Beach Partnership, and (ii) vote its interest in the Harbor
Beach Partnership in favor of the sale or other disposition of the Harbor
Beach Hotel to an independent third party.
- - An amendment that (i) revises the provision that permits Unit transfers
only on the first day of a fiscal quarter, so that (a) the Units tendered
pursuant to the Tender Offer and accepted for payment (the "Accepted
Units") are transferred to the Purchaser on the date on which payment for
the accepted Units pursuant to the Tender Offer occurs (the "Closing Date")
and (b) any subsequent transfer of Units by the Purchaser could occur on
the designated closing date, rather than on the first day of a fiscal
quarter; and (ii) revise the provision that prohibits Unit transfers that
result in the assignor or assignee owning a fraction of a Unit other than a
half-Unit to permit fractions of Units to be purchased by the Purchaser
pursuant to the Tender Offer, and the subsequent assignment of such
fractional interests, provided that such fractional interests are assigned
in their entirety.
- - An amendment that revises the provisions relating to the allocation of
profits and losses and cash distributions, so that tendering Unit holders
receive allocations of profit and loss with respect to the Accepted Units
for periods up to and including, but not beyond, the accounting period
ending prior to the Closing Date and do not receive cash distributions with
respect to the Accepted Units made after the Closing Date.
- - Amendments to certain terms and sections of the Partnership Agreement in
order to reflect various U.S. Treasury Department Regulations that have
been issued subsequent to the formation of the Partnership.
- - Amendments to certain terms and sections of the Partnership Agreement in
order to (i) reflect the fact that Host Marriott no longer owns the
management business conducted by Marriott International, Inc., (ii) delete
certain obsolete references to entities and agreements that are no longer
in existence and (iii) update the Partnership Agreement to reflect the
passage of time since the formation of the Partnership.
- - An amendment that permits the General Partner, without the consent of the
limited partners, to make any amendment to the Partnership Agreement as is
necessary to clarify the provisions thereof so long as such amendment does
not affect the rights of the limited partners under the Partnership
Agreement in any material respect.
A majority of the limited partners approved all of the amendments to the
Partnership Agreement.
PART II
ITEM 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS
There is currently no public market for the Units and it is not anticipated that
a public market for the Units will develop. Transfers of Units are limited to
the first day of each fiscal quarter, and are subject to approval by the General
Partner in its sole and absolute discretion and certain other restrictions. As a
result of the Tender Offer, the Purchaser acquired 463.75 Units on January 14,
1997. Subsequent to the tender offer, the Purchaser acquired an additional 9
Units during 1997. As of February 13, 1998, there were 632 holders of record of
the 1,000 limited partnership Units.
In accordance with Sections 4.06 and 4.09 of the Partnership Agreement, cash
available for distribution for any fiscal year will be distributed at least
annually, as soon as practicable after the close of each fiscal year, to the
partners of record at the end of each fiscal quarter during such fiscal year as
follows:
(i) first, through and including the end of the fiscal quarter during which the
General Partner and the limited partners shall have received cumulative
distributions of refinancing and/or sales proceeds ("Capital Receipts")
equal to 50% of their capital contributions (this threshold has not been
met as of December 31, 1997), 1% to the General Partner and 99% to the
limited partners;
(ii) next, through and including the end of the fiscal quarter during which the
General Partner and the limited partners shall have received cumulative
distributions of Capital Receipts equal to their capital contributions, 15%
to the General Partner and 85% to the limited partners; and
(iii) thereafter, 30% to the General Partner and 70% to the limited partners.
Cash available for distribution means, with respect to any fiscal period, the
revenues of the Partnership from all sources during such fiscal period less (i)
all cash expenditures of the Partnership during such fiscal period, including,
without limitation, debt service and any fees for management services and
administrative expenses; and (ii) such reserves as may be determined by the
General Partner, in its sole discretion, to be necessary to provide for the
foreseeable needs of the Partnership, excluding Capital Receipts.
On April 17, 1995, the Partnership made a cash distribution from 1993 and 1994
operations in the amount of $1,600,000 as follows: $16,000 to the General
Partner and $1,584,000 to the limited partners ($1,584 per Unit).
On November 15, 1995, the Partnership made an interim cash distribution from
1995 operations in the amount of $505,050 as follows: $5,050 to the General
Partner and $500,000 to the limited partners ($500 per Unit). On April 17, 1996,
the Partnership made a cash distribution in the amount of $2,915,150, $29,150 to
the General Partner and $2,886,000 to the limited partners ($2,886 per Unit),
representing a final cash distribution from 1995 operations of $2,078,787
($20,787 to the General Partner and $2,058,000 to the limited partners ($2,058
per Unit)) and an interim cash distribution from 1996 operations of $836,363
($8,363 to the General Partner and $828,000 to the limited partners ($828 per
Unit)).
On November 1, 1996, the Partnership made an interim cash distribution from 1996
operations in the amount of $2,105,050 as follows: $21,050 to the General
Partner and $2,084,000 to the limited partners ($2,084 per Unit). On April 14,
1997, the Partnership made a cash distribution of $1,515,150, $15,150 to the
General Partner and $1,500,000 to the limited partners ($1,500 per Unit),
representing a final distribution from 1996 operations of $639,393 ($6,393 to
the General Partner and $633,000 to the limited partners ($633 per Unit)) and an
interim cash distribution from 1997 operations of $875,757 ($8,757 to the
General partner and $867,000 to the limited partners ($867 per Unit)).
On November 1, 1997, the Partnership made an interim cash distribution from 1997
operations in the amount of $6,262,630 as follows: $62,630 to the General
Partner and $6,200,000 to the limited partners ($6,200 per Unit).
In accordance with sections 4.07, 4.08 and 4.09 of the Partnership Agreement,
Capital Receipts not retained by the Partnership will be distributed to the
owners of record on the last day of the fiscal quarter in which the transaction
is completed, as follows:
(i) first, 1% to the General Partner and 99% to the limited partners until the
partners have received cumulative distributions of Capital Receipts equal
to their capital contributions; and
(ii) thereafter, 30% to the General Partners and 70% to the limited partners.
As of December 31, 1997, cumulative distributions of Capital Receipts equaled
$7,379,000 ($74,000 to the General Partner and $7,305,000 to the limited
partners ($7,305 per Unit)).
As of December 31, 1997, the Partnership has distributed a total of $58,914,000
($590,000 to the General Partner and $58,324,000 to the limited partners
($58,324 per Unit)) since inception. These amounts include the distribution of
Capital Receipts as discussed above.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data presents historical operating information
for the Partnership for each of the five years ended December 31, 1997 presented
in accordance with generally accepted accounting principles. In November 1993,
the lender foreclosed on the Warner Center Hotel. Thus, operating results are
not comparable for all years presented (in thousands, except per unit amounts):
1997 1996 1995 1994 1993
Partnership Net income:
Revenues ...........................................$ 76,014 $ 72,753 $ 67,677 $ 59,759 $ 62,204
Net income (loss) before extraordinary
item and minority interest.....................$ 22,056 $ 21,097 $ 14,868 $ 7,834 $ (24,572)
Extraordinary items................................. (3,061) - - - 40,356
Net income before minority interest.................$ 18,995 $ 21,097 $ 14,868 $ 7,834 $ 15,784
Minority interest................................... (2,579) (2,648) (1,718) (523) (1,036)
Net income..........................................$ 16,416 $ 18,449 $ 13,150 $ 7,311 $ 14,748
Net income per limited partner Unit (1,000 Units):
Net income (loss) before extraordinary
item and minority interest.....................$ 21,835 $ 20,887 $ 14,719 $ 7,756 $ (24,326)
Extraordinary items................................. (3,030) - - - 39,952
Minority interest................................... (2,553) (2,622) (1,701) (518) (1,026)
Net income per Unit.................................$ 16,252 $ 18,265 $ 13,018 $ 7,238 $ 14,600
Total assets........................................$ 261,109 $ 249,441 $ 251,217 $ 254,058 $ 257,620
Total obligations...................................$ 241,261 $ 238,272 $ 253,483 $ 267,369 $ 278,242
Cash distributions per limited partner Unit
(1,000 Units)..................................$ 7,700 $ 4,970 $ 2,084 $ - $ -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis addresses the results of operations of the
Partnership for the fiscal years ended December 31, 1997, 1996 and 1995. During
the period from 1995 through 1997 consolidated Partnership Hotel sales increased
from $114.4 million to $128.2 million primarily due to strong group demand in
the Orlando market. Consolidated Partnership Hotel revenues grew from $47.3
million in 1995 to $53.6 million in 1997. Rental income grew from $19.7 million
to $21.6 million during the period from 1995 to 1997 as a result of strong
operating results at the Harbor Beach Hotel.
Growth in the Partnership's Hotels total room sales, and thus hotel revenues and
rental income, is primarily a function of average room rates, as well as control
of hotel operating costs. In addition, due to the amount of meeting/convention
business at the Orlando World Center, food and beverage operations, especially
in the banquet and catering areas, have a direct effect on the Partnership's
hotel revenues. Combined average occupancy for the Partnership's Hotels remained
constant at 79% in 1995 and 1996 and grew slightly to 80% in 1997. Occupancy
grew in 1997 primarily due to an increase in group roomnights from the
association and international markets at the Orlando World Center. The combined
average room rate for the Hotels during this period increased from $139 in 1995
to $156 in 1997 due to continuing strong demand in the Orlando and Ft.
Lauderdale markets. 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 measure of revenue). REVPAR does not include food and
beverage or other ancillary revenues generated by the Partnership's Hotels. The
consolidated REVPAR for the Partnership's Hotels for each of the periods ended
December 31, 1997, 1996, and 1995 was $125, $114 and $110, respectively.
Combined food and beverage sales increased from $65.1 million in 1995 to $72.1
million in 1997 primarily due to an increase in banquet sales.
The Partnership derives substantial operating leverage from increases in Hotel
revenues and rental income, since the majority of operating costs and expenses
of the Partnership are fixed. This operating leverage is offset by variable
expenses related to the Orlando World Center, including base and incentive
management fees under the Orlando World Center Management Agreement. Net
operating cash flow from the Orlando World Center is applied to payment of debt
service on the Orlando Mortgage Debt, current and deferred incentive management
fees payable to MII, debt service on the Orlando Ballroom Loan and cash
distributions to the partners of the Partnership. Net rental income derived from
the Harbor Beach Hotel is applied to payment of debt service on the Harbor Beach
Mortgage Debt, debt service on the Harbor Beach Rooms Renovation Loan, ground
rent pursuant to the terms of the Harbor Beach ground lease and cash
distributions to the partners of the Harbor Beach Partnership. The Partnership's
allocable share of cash distributions from the Harbor Beach Partnership are
distributed to the partners of the Partnership.
Results of Operations
1997 Compared to 1996
Hotel Revenues. Hotel revenues increased approximately $3.1 million, or 6%, over
1996 as a result of continued growth in corporate group business. REVPAR at the
Orlando Hotel increased 11% over 1996 to $118. This higher rate resulted from
increased demand generated by Disney's 25th Anniversary celebration and an
increase in group roomnights from the association and international markets.
Average occupancy increased by two percentage points to 80%. As a result of the
increase in REVPAR, room sales at the Orlando World Center increased $5.0
million, or 8%, over 1996. Food and beverage sales in 1997 increased $3.6
million, or 7.5%, over 1996 primarily due to an 11% increase in banquet sales.
Food and beverage profit increased $1.1 million, or 6%, over 1996 due to the
increase in sales combined with continued emphasis on cost containment. In 1998,
the Orlando World Center expects demand will remain strong and as a result, 1998
hotel revenues are expected to increase.
Direct operating costs and expenses increased $4.9 million, or 7%, over 1996 due
to an increase in certain variable costs related to the increase in room sales
and higher food and beverage costs due to the creation of a special events
department at the Orlando World Center.
Rental Income. Rental income from the Harbor Beach Hotel increased by
approximately $326,000, or 2%, when compared to 1996 as a result of the Hotel's
ability to restrict discounted rates and achieve a higher transient room rate.
The Harbor Beach Hotel experienced an increase in corporate group demand of
almost 5,000 roomnights. REVPAR increased 6% over 1996 due to a 6% increase in
the average room rate to $173. As a result of the increase in REVPAR, room sales
and profit increased 4.5% and 4%, or $1.4 million and $1.1 million,
respectively, over 1996.
Indirect hotel operating costs and expenses. Indirect hotel operating costs and
expenses increased by $3.5 million, or 13%, from $29.6 million in 1996 to $33.1
million in 1997. The principal components of this category are discussed below:
Depreciation and amortization. Depreciation and amortization increased 9% from
$9.7 million in 1996 to $10.6 million in 1997 primarily due to the addition of
furniture and equipment at the Harbor Beach Hotel in 1996.
Incentive management fees. In accordance with the Orlando World Center
Management Agreement, incentive management fees increased by $1.8 million, or
24%, over 1996 as a result of improved operating results at the Orlando World
Center. Cash flow from operations of the Orlando World Center Hotel was
sufficient to pay all incentive management fees earned by the Manager in 1997
and 1996. Additional incentive management fees of $1.4 million were also earned
by the Manager for the first time in 1997.
Base management fees. In accordance with the Orlando World Center Hotel
Management Agreement, base management fees increased 7%, from $3.6 million in
1996 to $3.8 million in 1997, due to improved total sales at the Orlando World
Center Hotel.
Interest expense. Interest expense decreased 5% from $22.0 million in 1996 to
$20.8 million in 1997 primarily due to principal payments on the Orlando
Mortgage Debt prior to refinancing of $7.0 million and repayment of the entire
Orlando Ballroom Loan in 1997.
Minority interest in income. Based on its 50.5% ownership interest, the
Partnership controls the Harbor Beach Partnership and as a result, the accounts
of the Harbor Beach Partnership are consolidated in the consolidated financial
statements of the Partnership. Minority interest in income represents the net
income from the Harbor Beach Partnership allocable to the other general partner
in that Partnership. Minority interest in income decreased 3% in 1997 primarily
due to an increase in depreciation expense partially offset by an increase in
rental income from the Harbor Beach Hotel, as discussed above.
Net income. Net income for 1997 decreased $2.0 million, or 11%, over 1996
primarily due to the $3.1 million extraordinary loss resulting from the
prepayment penalty related to the early extinguishment of the mortgage debt on
the Orlando Hotel and the write-off of deferred financing costs related to that
debt. This loss was partially offset by higher hotel revenues in 1997.
1996 Compared to 1995
Hotel Revenues. Hotel revenues increased approximately $3.3 million, or 7%, over
1995 as a result of continued growth in corporate group and transient business.
REVPAR at the Orlando World Center increased 2% over 1995 to $106. This increase
was a result of the Hotel's ability to restrict discounted rates and achieve a
higher average room rate. The average room rate increased 4% from 1995 to $137.
This increase was slightly offset by a 1.1 percentage point decrease in average
occupancy to 78%. The first half of a rooms renovation project was completed
during 1996, thus decreasing the availability of rooms for sale. As a result of
the increase in REVPAR, room sales at the Orlando World Center increased $2.4
million, or 4%, over 1995. Food and beverage sales in 1996 increased $2.1
million, or 5%, over 1995 primarily due to a 6% increase in banquet sales. Food
and beverage profit increased $1.0 million, or 6%, over 1995 due to the increase
in revenues combined with continued emphasis on cost containment.
Direct hotel operating costs and expenses increased $2.7 million, or 4%, over
1995 due to an increase in certain variable costs related to the increase in
room sales. The ratio of operating costs to room sales declined in 1996 to 58.0%
as compared to 1995 at 58.7%.
Rental Income. Rental income from the Harbor Beach Hotel increased by
approximately $1.6 million, or 8%, when compared to 1995 due to increased
transient demand especially in the leisure segment, the highest average room
rate category. The Harbor Beach Hotel experienced record call volume during
prime season and a significant increase in international travelers. REVPAR
increased 7% over 1995 due to a 5% increase in the average room rate to $164
combined with an increase in average occupancy of 1.9 percentage points to 82%.
Despite a 3% decline in group roomnights, transient roomnights increased 13%
over 1995. As a result of the increase in REVPAR, room sales and profit
increased 9% and 10%, or $2.6 million and $2.3 million, respectively, over 1995.
Indirect hotel operating costs and expenses. Indirect hotel operating costs and
expenses decreased by $1.3 million, or 4%, from $30.9 million in 1995 to $29.6
million in 1996. The principal components of this category are discussed below:
Depreciation and amortization. Depreciation and amortization decreased by $2.0
million, or 17%, when compared to 1995 due to a portion of the Hotels' furniture
and fixtures becoming fully depreciated in 1995.
Incentive management fees. In accordance with the Orlando World Center
Management Agreement, incentive management fees increased by $0.5 million, or
7%, over 1995 as a result of improved operating results at the Orlando World
Center. Cash flow from operations of the Orlando World Center was sufficient to
pay all incentive management fees earned by the Manager in 1996 and 1995.
Base management fees. In accordance with the Orlando World Center Management
Agreement, base management fees increased 5%, from $3.4 million in 1995 to $3.6
million in 1996, due to improved total sales at the Orlando World Center.
Interest expense. Interest expense increased 1% from $21.9 million in 1995 to
$22.0 million in 1996, primarily due to the Orlando Mortgage Debt loan
modification and extension in October 1995. The Orlando Mortgage Debt interest
rate was increased from 7% to 8% in October 1995. The interest rate increase was
offset slightly by principal payments on the Orlando Mortgage Debt of $7.5
million in 1996.
Minority interest in income. Based on its 50.5% ownership interest, the
Partnership controls the Harbor Beach Partnership and as a result, the accounts
of the Harbor Beach Partnership are consolidated in the consolidated financial
statements of the Partnership. Minority interest in income represents the net
income from the Harbor Beach Partnership allocable to the other general partner
in that Partnership. Minority interest in income increased from $1.7 million in
1995 to $2.6 million in 1996, primarily due to the increase in rental income
from the Harbor Beach Hotel, as discussed above.
Net income. Net income for 1996 increased $5.3 million, or 40%, over 1995
primarily due to higher Hotel revenues and rental income, offset by increased
incentive and base management fees and an increase in minority interest in
income.
Capital Resources and Liquidity
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 Hotels, to pay
required principal amortization of the mortgage debt and other debt incurred to
fund costs of capital improvements at the Hotels, financing costs and cash
distributions to the partners.
Total consolidated cash provided by operations was $31.8 million, $27.6 million
and $25.8 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Cash contributed to the property improvement fund of the Hotels,
was $9.1 million, $8.7 million and $7.7 million for the years ended December 31,
1997, 1996 and 1995, respectively. Principal repayments made on the mortgage
debt of the Hotels totaled $8.5 million, $8.9 million and $9.0 million for the
years ended December 31, 1997, 1996 and 1995, respectively. Payment of financing
costs related to the mortgage debt of the Partnership Hotels totaled $2.0
million, $40,000 and $2.3 million for the years ended December 31, 1997, 1996
and 1995, respectively. Cash distributed to the partners was $7.8 million, $5.0
million and $2.1 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Cash distributions paid to minority interest were $2.0 million,
$2.1 million and $1.5 million for the years ended December 31, 1997, 1996 and
1995, respectively.
Pursuant to the refinancing of the Orlando Mortgage Debt, the Partnership
received proceeds of $152.0 million. Of the proceeds, $139.3 million was used to
repay the outstanding principal balance on the Orlando Mortgage Debt and accrued
interest, $2.0 million was used to pay related refinancing costs and $1.9
million was used to pay prepayment penalties. The remaining $8.8 million is held
by the Partnership as working capital.
During 1997, Marriott International Capital Corporation ("MICC"), a wholly-owned
subsidiary of MII, advanced $3.5 million to the Orlando World Center to provide
financing for the rooms and suites refurbishment. Principal repayments to Host
Marriott related to the Orlando Ballroom Loan and the Orlando Rooms Renovation
Loan totaled $2.3 million, $4.1 million and $2.7 million for the years ended
December 31, 1997, 1996 and 1995, respectively. Principal repayments to MICC
related to the Harbor Beach Rooms Renovation Loan totaled $0.6 million, $0.5
million and $0.5 million for each of the years ended December 31, 1997, 1996 and
1995.
The General Partner believes that cash from operations will provide adequate
funds for the operational needs of the Partnership and the Harbor Beach
Partnership for the foreseeable future. The interest rates on the refinanced
Orlando Mortgage Debt and the Harbor Beach Mortgage Debt are fixed at 7.48% and
9.13%, respectively. The Harbor Beach Mortgage Debt matures in the year 2000, at
which time the loan-to-value ratios and debt service coverage of the Harbor
Beach Hotel is expected to enhance the Harbor Beach Partnership's ability to
secure replacement financing.
Property Improvement Funds
The Orlando World Center Management Agreement and the Harbor Beach Hotel
Operating Lease provide for the establishment of a property improvement fund for
each Hotel. Pursuant to these agreements, contributions to the funds are equal
to a percentage of total sales of each Hotel and are used to provide for the
funding of routine capital expenditures and the replacement of furniture,
fixtures and equipment. Upon maturity of the Orlando World Center Mortgage Debt
on June 16, 1995, contributions to the Orlando World Center fund increased from
4% to 5% of total sales. Total contributions to the Orlando World Center fund
were $6.4 million, $6.0 million and $5.1 million for the years ended December
31, 1997, 1996 and 1995, respectively. Total capital expenditures at the Orlando
World Center were $7.9 million, $8.1 million and $4.8 million for the years
ended December 31, 1997, 1996 and 1995, respectively. In addition, principal and
interest paid to MICC on the Orlando Rooms Renovation Loan totaled $100,000 in
1997. The balance of the Orlando World Center fund was $2.9 million as of
December 31, 1997.
Contributions to the Harbor Beach Hotel's property improvement fund are equal to
5% of total hotel sales. Total contributions to the Harbor Beach Hotel fund were
$2.7 million, $2.7 million and $2.6 million for the years ended December 31,
1997, 1996 and 1995, respectively. Total capital expenditures at the Harbor
Beach Hotel were $2.5 million, $1.6 million and $1.3 million for the years ended
December 31, 1997, 1996 and 1995, respectively. The balance of the Harbor Beach
Hotel fund was $3.2 million as of December 31, 1997.
In 1996, the Orlando World Center completed the first phase of a two-phase rooms
renovation project that will enhance the Orlando World Center's ability to
compete in the highly competitive and rapidly expanding Orlando market. The
second phase of the Orlando World Center rooms renovation was completed in
September 1997. To fund costs in excess of funds available in the Orlando World
Center property improvement fund, MICC advanced the Partnership $3.5 million
during 1997. The loan requires payments of principal and interest to be paid
from the Orlando World Center property improvement fund. The loan bears a fixed
interest rate of 9% and matures on June 16, 1999. The outstanding principal
balance was $3.5 million on December 31, 1997. The General Partner expects that
contributions to the Orlando World Center property improvement fund will be
sufficient to repay the advance from MII and will provide a sufficient reserve
for the future capital repair and replacement needs of the Orlando World Center.
During the fourth quarter of 1994, the Harbor Beach Hotel completed a $4.4
million guest rooms and suites renovation. Financing for the project was
provided from the Harbor Beach Hotel's property improvement fund and a $2.8
million unsecured loan from MICC. The loan carries a fixed rate of interest of
8% and is scheduled to mature on December 31, 1999. Payment of principal and
interest based upon a five-year amortization period commenced in January 1995.
Under the terms of the loan, the debt service payments are included as a
deduction in determining the fees paid to the Operating Tenant. As of December
31, 1997, the outstanding principal balance was $1.3 million. The General
Partner expects that contributions to the Harbor Beach Hotel property
improvement fund will be sufficient for the future capital repair and
replacement needs of the Harbor Beach Hotel.
Orlando Mortgage Debt
On January 12, 1993, the Partnership completed a refinancing of the Orlando
World Center mortgage debt (the "Orlando Mortgage Debt"). The refinanced loan
carried a fixed interest rate of 6.705% through maturity on June 16, 1995, and
semi-annual principal amortization was required for the years 1993 through 1995.
The Orlando Mortgage Debt matured on June 16, 1995. Upon maturity of the debt,
the lender granted the Partnership a forbearance on the loan under which, for
the period June 16, 1995 through October 31, 1995, the Partnership paid interest
monthly in arrears at a floating rate equal to the applicable Federal Funds rate
plus 225 basis points. During the forbearance period, the weighted average
interest rate was 7.94%. On October 31, 1995, the Partnership successfully
completed a modification and extension of the Orlando Mortgage Debt. The
mortgage debt carried a fixed interest rate of 8.44%. Under the modified debt,
continued semi-annual amortization of principal is required. The loan was to
mature on June 16, 2000 with unamortized principal of $127.0 million due at that
time. In addition, no debt service guarantee was required to be provided. The
costs associated with the modification and extension totaled approximately $2.3
million and there were no excess proceeds from the transaction available for
distribution. The entire outstanding principal balance of $138.5 million was
repaid on December 31, 1997 with proceeds from the refinancing discussed below.
On December 31, 1997, the Partnership completed the refinancing of the mortgage
debt. The new lenders provided $152 million to pay the outstanding balance on
the existing mortgage and accrued interest of $139.3 million, related financing
costs of $2.0 million, a prepayment penalty of $1.9 million that has been
reflected as part of the extraordinary loss on the accompanying consolidated
statement of operations and the remaining $8.8 million is part of the
Partnership's working capital. The loan requires monthly payments of interest at
a fixed rate of 7.48% and principal based on a 30-year amortization schedule.
The loan matures on January 1, 2008.
The remaining balance of $88 million is available for the construction costs
associated with a 500-room expansion at the Orlando World Center. In connection
with the executed commitment letter, the Partnership advanced $2.4 million to
the lender as a good faith deposit. Upon completion of the $152 million portion
of the loan, the lender returned $600,000 of this deposit. The remaining $1.8
million will be returned to the Partnership upon completion of construction. The
General Partner is currently working with the lender to finalize the documents
related to this construction loan.
Harbor Beach Mortgage Debt
The original $92.0 million Harbor Beach Mortgage Debt from an insurance company
bore interest at a fixed rate of 9.375% and required interest only payments
through July 1988 and monthly payments of principal and interest in the amount
of $765,000 thereafter until maturity on July 1, 1993. The Harbor Beach Mortgage
Debt matured with $89.2 million in principal and interest due at that time. The
lender granted the Harbor Beach Partnership a forbearance of the loan for a fee
of $165,000. Under the agreement, the Harbor Beach Partnership continued to pay
the lender principal and interest at the contract rate of 9.375%.
On March 29, 1994, the Harbor Beach Partnership completed a modification and
extension of the Harbor Beach Mortgage Debt. The modified loan accrues interest
at a fixed rate of 9.125% and is payable monthly in arrears. Interest only was
payable for the first twelve payments through and including April 1, 1995. The
difference between the interest only payment and $772,600 (the "Payment Amount")
was contributed to an escrow account (the "Capital Reserve Escrow") with the
lender to fund capital improvements at the Harbor Beach Hotel. The Payment
Amount represents the amount necessary to amortize the outstanding principal
balance as of March 29, 1994, over a 22-year effective amortization period. The
Harbor Beach Mortgage Debt matures on May 1, 2000 and is collateralized by all
property and assets of the Harbor Beach Hotel. No debt service guarantee was
provided. Interest expense was $7.7 million, $7.9 million and $8.0 million for
the years ended December 31, 1997, 1996 and 1995, respectively. The outstanding
Harbor Beach Mortgage Debt principal balance as of December 31, 1997 and 1996
was $84.0 million and $85.5 million, respectively.
Orlando Ballroom Loan
During 1990, Host Marriott agreed to provide interim financing of up to $14.0
million to fund the construction of a new ballroom and exhibition hall at the
Orlando World Center. Construction was completed in February 1990. On December
31, 1990, the interim financing was converted to a permanent loan from Host
Marriott with $13.2 million advanced. On June 16, 1992, in conjunction with the
refinancing of the Orlando Mortgage Debt, the Orlando Ballroom Loan was
converted to a revolving line of credit with a floating interest rate equal to
the Bankers Trust Company prime rate. Payment of principal and interest on the
Orlando Ballroom Loan is subordinate to the payment of amounts due under the
Orlando Mortgage Debt, repayment of any outstanding debt service guarantee
advances and payment of the first 50% of incentive management fees to MII. As of
December 31, 1996, the outstanding principal balance was $2.3 million. The
remaining outstanding principal was paid on June 24, 1997. At June 24, 1997, the
interest rate was 8.5%. The weighted average interest rate was 8.4% for January
1, 1997 through June 24, 1997, 8.3% for 1996 and 8.8% for 1995.
Orlando Rooms Renovation Loan
During 1997, the Partnership entered into a loan agreement (the "Orlando Rooms
Renovation Loan") with Marriott International Capital Corporation ("MICC"), a
wholly-owned subsidiary of MII, in conjunction with a rooms and suites
refurbishment at the Orlando World Center. The loan provided financing of $3.5
million. The loan requires payments of principal and interest to be paid from
the Orlando World Center property improvement fund. This unsecured loan carries
a fixed interest rate of 9% and matures on June 16, 1999. The outstanding
principal balance was $3,472,000 on December 31, 1997.
Inflation
For the three fiscal years ended December 31, 1997, the rate of inflation has
been relatively low and, accordingly, has not had a significant impact on the
Partnership's consolidated revenues and net income. The Manager and the
Operating Tenant are generally able to pass through increased costs to customers
through higher room rates. In 1997, the increase in average room rates at the
Hotels exceeded those of direct competitors as well as the general level of
inflation. As stated above, the Orlando Mortgage Debt and the Harbor Beach
Mortgage Debt bear fixed interest rates, thereby eliminating exposure to the
impact of future increases in interest rates.
Seasonality
Demand, and thus occupancy and room rates, is affected by normally recurring
seasonal patterns. Demand tends to be higher during the months of 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index Page
Report of Independent Public Accountants......................... 22
Consolidated Statement of Operations............................. 23
Consolidated Balance Sheet....................................... 24
Consolidated Statement of Cash Flows............................. 25
Statement of Changes in Partners' Capital (Deficit).............. 26
Notes to Consolidated Financial Statements....................... 27
Report of Independent Public Accountants
TO THE PARTNERS OF MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheet of Marriott Hotel
Properties Limited Partnership (a Delaware limited partnership) and subsidiaries
as of December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements and the schedule referred to below are the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
these financial statements and this schedule based on our audits. We did not
audit the 1995 financial statements of Lauderdale Beach Association, which
statements reflect total assets and total revenues of 25 percent and 29 percent
in 1995, respectively, of the consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for that entity, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Marriott Hotel Properties Limited
Partnership and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at
14(a)(2) is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
March 11, 1998
Consolidated Statement of Operations
Marriott Hotel Properties Limited Partnership and Subsidiaries
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands, except per Unit amounts)
1997 1996 1995
REVENUES
Hotel (Note 3)......................................................$ 53,574 $ 50,523 $ 47,251
Rental income (Note 8).............................................. 21,637 21,311 19,747
Interest and other.................................................. 803 919 679
76,014 72,753 67,677
OPERATING COSTS AND EXPENSES
Interest (including interest paid to related parties of $0.3 million,
$0.7 million and $1.0 million in 1997, 1996 and 1995, respectively) 20,842 22,007 21,864
Depreciation and amortization....................................... 10,601 9,693 11,739
Incentive management fees to MII and affiliates..................... 9,308 7,518 7,047
Base management fees to MII and affiliates.......................... 3,846 3,609 3,431
Property taxes...................................................... 3,336 3,059 3,104
Ground rent, insurance and other.................................... 6,025 5,770 5,624
53,958 51,656 52,809
INCOME BEFORE EXTRAORDINARY ITEM....................................... 22,056 21,097 14,868
EXTRAORDINARY ITEM:
Loss on extinguishment of debt...................................... (3,061) - -
INCOME BEFORE MINORITY INTEREST........................................ 18,995 21,097 14,868
MINORITY INTEREST IN INCOME............................................ (2,579) (2,648) (1,718)
NET INCOME ............................................................$ 16,416 $ 18,449 $ 13,150
ALLOCATION OF NET INCOME
General Partner.....................................................$ 164 $ 184 $ 132
Limited Partners.................................................... 16,252 18,265 13,018
$ 16,416 $ 18,449 $ 13,150
INCOME BEFORE EXTRAORDINARY ITEM PER
LIMITED PARTNER UNIT (1,000 Units)..................................$ 21,835 $ 20,886 $ 14,719
NET INCOME PER LIMITED PARTNER UNIT (1,000 Units)......................$ 16,252 $ 18,265 $ 13,018
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Balance Sheet
Marriott Hotel Properties Limited Partnership and Subsidiaries
December 31, 1997 and 1996
(in thousands)
1997 1996
ASSETS
Property and equipment, net........................................................$ 222,216 $ 222,491
Minority interest.................................................................. 10,042 10,641
Due from Marriott International, Inc. and affiliates............................... 7,912 9,114
Property improvement funds......................................................... 6,056 3,542
Deferred financing costs, net...................................................... 2,130 1,787
Loan deposit....................................................................... 1,800 -
Prepaid ground rent ............................................................... 259 259
Cash and cash equivalents.......................................................... 10,694 1,607
$ 261,109 $ 249,441
LIABILITIES AND PARTNERS' CAPITAL
Mortgage debt......................................................................$ 235,946 $ 230,959
Notes payable and amounts due to Marriott International, Inc. and affiliates....... 4,987 4,106
Accounts payable and accrued interest.............................................. 196 802
Note payable and amounts due to Host Marriott Corporation.......................... 132 2,405
Total Liabilities............................................................. 241,261 238,272
PARTNERS' CAPITAL
General Partner
Capital contribution.......................................................... 1,010 1,010
Capital distributions......................................................... (590) (512)
Cumulative net losses......................................................... (113) (277)
307 221
Limited Partners
Capital contributions, net of offering costs of $10,978....................... 89,022 89,022
Investor notes receivable..................................................... - (47)
Capital distributions......................................................... (58,324) (50,618)
Cumulative net losses......................................................... (11,157) (27,409)
19,541 10,948
Total Partners' Capital....................................................... 19,848 11,169
$ 261,109 $ 249,441
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statement of Cash Flows
Marriott Hotel Properties Limited Partnership and Subsidiaries
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
OPERATING ACTIVITIES
Net income ...................................................................$ 16,416 $ 18,449 $ 13,150
Extraordinary item............................................................ 3,061 - -
Income before extraordinary item.............................................. 19,477 18,449 13,150
Noncash items:
Depreciation and amortization............................................... 10,601 9,693 11,739
Minority interest in income................................................. 2,579 2,648 1,718
Amortization of deferred financing costs as interest........................ 519 519 1,041
Loss on disposal of property and equipment.................................. - 6 48
Changes in operating accounts:
Payment of deferred incentive management fees............................... (2,046) (1,474) (1,972)
Due from Marriott International, Inc........................................ 1,202 (1,964) (360)
Accounts payable and accrued interest....................................... (595) (292) 325
Due to Host Marriott Corporation............................................ 21 47 62
Prepaid ground rent and other receivables................................... - - 4
Cash provided by operating activities.................................... 31,758 27,632 25,755
INVESTING ACTIVITIES
Additions to property and equipment........................................... (10,326) (9,732) (6,123)
Changes in property improvement funds......................................... (2,514) 821 (1,748)
Withdrawal from capital reserve escrow........................................ - - 949
Cash used in investing activities........................................ (12,840) (8,911) (6,922)
FINANCING ACTIVITIES
Proceeds from mortgage debt................................................... 152,000 - -
Repayments of mortgage debt and capital lease obligations..................... (147,013) (8,901) (8,970)
Capital distributions to partners............................................. (7,777) (5,007) (2,105)
Proceeds from (repayments of) notes payable to Marriott International, Inc.... 2,909 (486) (485)
Repayments to Host Marriott Corporation....................................... (2,294) (4,126) (2,727)
Payment of financing costs.................................................... (2,004) (40) (2,254)
Capital distributions to minority interest.................................... (1,980) (2,104) (1,485)
Payment of prepayment penalty................................................. (1,919) - -
Payment of loan deposit....................................................... (1,800) - -
Collection of investor notes receivable....................................... 47 - -
Cash used in financing activities........................................ (9,831) (20,664) (18,026)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................$ 9,087 $ (1,943) $ 807
CASH AND CASH EQUIVALENTS at beginning of year.................................. 1,607 3,550 2,743
CASH AND CASH EQUIVALENTS at end of year........................................$ 10,694 $ 1,607 $ 3,550
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest................................$ 20,894 $ 21,390 $ 20,893
The accompanying notes are an integral part of these consolidated financial
statements.
Statement of Changes in Partners' Capital (Deficit)
Marriott Hotel Properties Limited Partnership and Subsidiaries
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
General Limited
Partner Partners Total
Balance, December 31, 1994.............................$ (24) $ (13,287) $ (13,311)
Net income.......................................... 132 13,018 13,150
Capital distributions............................... (21) (2,084) (2,105)
Balance, December 31, 1995............................. 87 (2,353) (2,266)
Net income.......................................... 184 18,265 18,449
Capital distributions............................... (50) (4,964) (5,014)
Balance, December 31, 1996............................. 221 10,948 11,169
Net income.......................................... 164 16,252 16,416
Investor note payments.............................. - 47 47
Capital distributions............................... (78) (7,706) (7,784)
Balance, December 31, 1997.............................$ 307 $ 19,541 $ 19,848
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to Consolidated Financial Statements
Marriott Hotel Properties Limited Partnership and Subsidiaries
December 31, 1997 and 1996
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Marriott Hotel Properties Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed on August 22, 1984, to acquire, construct, own
and operate the 1,503-room Marriott Orlando World Center Hotel (the "Orlando
World Center"). The Orlando World Center is managed as part of the Marriott
Hotels, Resorts and Suites full-service hotel system by Marriott International,
Inc. (the "Manager" or "MII").
Between November 1, 1985 and November 27, 1985 (the "Closing Date"), 1,000
limited partnership interests (the "Units"), representing a 99% interest in the
Partnership, were sold in a private placement. The limited partners paid
$10,000,000 in cash on the Closing Date with the remainder due in five annual
installments through May 15, 1990. The limited partners' obligations to make the
installment payments were evidenced by promissory notes totaling $45,350,000
payable to the Partnership and secured by the Units. The general partner is
Hotel Properties Management, Inc. (the "General Partner"), a wholly-owned
subsidiary of Host Marriott Corporation, with a 1% general partnership interest.
On the Closing Date, the Partnership purchased from affiliates of Host Marriott
(i) a 99% limited partnership interest in the Warner Center Marriott Hotel
Limited Partnership (the "Warner Center Partnership"), which owned the 473-room
Warner Center Marriott Hotel (the "Warner Center Hotel") in Los Angeles,
California and (ii) a 49% general partnership interest in, and a loan receivable
of $3,680,000 from, Lauderdale Beach Association (the "Harbor Beach
Partnership"), a general partnership that owns Marriott's 624-room Harbor Beach
Resort (the "Harbor Beach Hotel") in Ft. Lauderdale, Florida. As a result of
certain transactions, the Partnership now owns a 50.5% interest in the Harbor
Beach Partnership. The Harbor Beach Hotel is leased to Marriott Hotel Services,
Inc. (the "Operating Tenant"), a wholly-owned subsidiary of MII. On November 17,
1993, the lender foreclosed on the Warner Center Hotel. The foreclosure was
followed by the dissolution of the Warner Center Partnership.
On January 14, 1997, MHP Acquisition Corporation (the "Company"), a wholly-owned
subsidiary of Host Marriott, completed a tender offer for limited partnership
units in the Partnership. The Company purchased 463.75 units for an aggregate
consideration of $37.1 million or $80,000 per unit. Additionally, in a
Partnership vote held in conjunction with the tender offer, the limited partners
approved all of the proposed amendments to the partnership agreement that were
conditions to the tender offer. Subsequent to the tender offer, the Company
purchased an additional 8 units on March 29, 1997 and one unit on June 21, 1997.
Combined with its prior ownership position, Host Marriott now indirectly owns,
through affiliates, 49.33% of the Partnership.
Partnership Allocations and Distributions
The Partnership generally allocates net profits and losses, cash available for
distribution and tax credits as follows: (i) first, 1% to the General Partner
and 99% to the limited partners until cumulative distributions of sale and
refinancing proceeds ("Capital Receipts") equal to 50% of capital contributions
have been distributed; (ii) next, 15% to the General Partner and 85% to the
limited partners until cumulative distributions of Capital Receipts equal to all
capital contributions have been distributed; and (iii) thereafter, 30% to the
General Partner and 70% to the limited partners.
Capital Receipts not retained by the Partnership will generally be distributed
(i) first, 1% to the General Partner and 99% to the limited partners until the
General Partner and the limited partners (collectively the "Partners") have
received cumulative distributions of Capital Receipts equal to their capital
contributions; and (ii) thereafter, 30% to the General Partner and 70% to the
limited partners.
Gains are generally allocated (i) first, to Partners with negative capital
accounts, (ii) next, in amounts necessary to bring each Partner's capital
account balance equal to their invested capital, defined as the excess of
paid-in capital contributions over cumulative distributions of Capital Receipts,
and (iii) thereafter, 30% to the General Partner and 70% to the limited
partners.
Upon the sale of substantially all of the assets, gains and sales proceeds will
be distributed based on a specific allocation, as stated in the partnership
agreement, in order to provide the limited partners (if proceeds are sufficient)
a 15% cumulative return, as defined, to the extent not previously received from
cash distributions.
For financial reporting purposes, net losses of the Partnership are allocated 1%
to the General Partner and 99% to the limited partners.
The Harbor Beach Partnership generally allocates profits and losses, cash
distributions, gains and losses, and Capital Receipts in the ratio of ownership
interests.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership's records are maintained on the accrual basis of accounting and
its fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Working Capital and Supplies
Pursuant to the terms of the management agreement discussed in Note 8, the
Partnership is required to provide the Manager with working capital and supplies
to meet the operating needs of the Orlando World Center. The Manager converts
cash advanced by the Partnership into other forms of working capital consisting
primarily of operating cash, inventories, and trade receivables and payables
which are maintained and controlled by the Manager. Upon the termination of the
management agreement, the Manager is required to convert working capital and
supplies into cash and return it to the Partnership. As a result of these
conditions, the individual components of working capital and supplies controlled
by the Manager are not reflected in the accompanying consolidated balance sheet.
As of December 31, 1997 and 1996, $4,707,000 has been advanced to the Manager
for working capital and supplies which is included in Due from Marriott
International, Inc. on the accompanying consolidated balance sheet. The supplies
advanced to the Manager are recorded at their estimated net realizable value. As
of December 31, 1997 and 1996, accumulated amortization related to the
revaluation of these supplies totaled $762,000.
Revenues and Expenses
Hotel Revenues represents 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 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,
real and personal property taxes, ground and equipment rent, insurance and
certain other costs, which are disclosed separately in the consolidated
statement of operations (see Note 3).
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF 97-2, "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.
The Partnership is assessing the impact of EITF 97-2 on its policy of excluding
the property-level revenues and operating expenses of the Hotels from its
consolidated statements of operations (see Note 3). If the Partnership concludes
that EITF 97-2 should be applied to the Hotels, it would include operating
results of those managed operations in its consolidated financial statements.
Application of EITF 97-2 to consolidated financial statements as of and for the
year ended December 31, 1997, would have increased both revenues and operating
expenses by approximately $74.6 million and would have had no impact on
operating profit or net income.
Principles of Consolidation
The consolidated financial statements for the years ended December 31, 1997,
1996 and 1995 include the accounts of the Partnership and the Harbor Beach
Partnership (collectively the "Partnerships"). The 49.5% general partnership
interest in the Harbor Beach Partnership owned by an unrelated party is reported
as minority interest. All significant intercompany balances and transactions
have been eliminated.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization are
computed using the straight-line method over the following estimated useful
lives of the assets, less a 10% estimated residual value on the original
building cost and land improvements related to the Orlando World Center:
Land improvements 40 to 50 years
Building and improvements 40 to 50 years
Leasehold improvements 40 years
Furniture and equipment 3 to 10 years
All property and equipment is pledged as security for the mortgage debt
described in Note 6.
The Partnership and the Harbor Beach Partnership assess the impairment of their
real estate properties based on whether estimated future undiscounted cash flow
from such properties on an individual hotel basis will be less than their net
book value. If a property is impaired, its basis is adjusted to fair market
value.
Deferred Financing Costs
Prior to 1997, deferred financing costs consisted of costs incurred in
connection with the October 31, 1995 refinancing of the Orlando Mortgage Debt,
described in Note 6. Deferred financing costs associated with this refinancing
totaled $2,316,000. On December 31, 1997, the Partnership refinanced the Orlando
Mortgage Debt and incurred financing costs of $2,004,000. The deferred financing
costs are amortized over the period of the debt using the straight-line method
which approximates the effective interest rate method. The net deferred
financing costs associated with the 1995 refinancing of $1,142,000 were
amortized on December 31, 1997 and are reflected as part of the extraordinary
loss on the consolidated statement of operations. Deferred financing costs
associated with the restructuring of the Harbor Beach Mortgage Debt (see Note 6)
amounted to $350,000. Accumulated amortization of deferred financing costs was
$224,000 and $879,000 at December 31, 1997 and 1996, respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes, but rather allocates its profits and losses to the individual partners.
Significant differences exist between the net income for financial reporting
purposes and the net income reported in the Partnership's tax return. 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 base and incentive management
fee expense and the expensing of certain costs incurred during construction
which have been capitalized in the accompanying financial statements. As a
result of these differences, the excess of the tax basis in net Partnership
liabilities over the net liabilities reported in the accompanying financial
statements amounted to $109,961,000 and $100,739,000 as of December 31, 1997 and
1996, respectively.
Statement of Financial Accounting Standards
In 1996, the Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Adoption of SFAS No. 121 has not had an
effect on the consolidated financial statements.
NOTE 3. HOTEL REVENUES
Hotel Revenues consist of hotel operating results for the Orlando World Center
for the three years ended December 31, 1997 (in thousands):
1997 1996 1995
HOTEL SALES
Rooms............................................................$ 64,277 $ 59,289 $ 56,881
Food and beverage................................................ 51,424 47,852 45,708
Other............................................................ 12,517 13,157 11,762
128,218 120,298 114,351
HOTEL EXPENSES
Departmental Direct Costs
Rooms......................................................... 12,801 12,201 11,665
Food and beverage............................................. 32,391 29,968 28,784
Other hotel operating expenses................................... 29,452 27,606 26,651
74,644 69,775 67,100
HOTEL REVENUES.......................................................$ 53,574 $ 50,523 $ 47,251
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
1997 1996
Land and improvements.................................................................$ 31,074 $ 31,074
Building and improvements............................................................. 152,560 152,361
Leasehold improvements................................................................ 82,871 80,841
Furniture and equipment............................................................... 77,943 69,846
344,448 334,122
Less accumulated depreciation......................................................... (122,232) (111,631)
$ 222,216 $ 222,491
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The fair
values of financial instruments not included in this table are estimated to be
equal to their carrying amounts (in thousands):
As of December 31, 1997 As of December 31, 1996
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
Mortgage debt............................................$ 235,946 $ 237,725 $ 230,959 $ 233,468
Note payable due to Host Marriott Corporation............$ - $ - $ 2,294 $ 2,294
Incentive management fees payable to
Marriott International, Inc...........................$ - $ - $ 2,046 $ 2,046
Notes payable due to Marriott International, Inc.........$ 4,802 $ 4,748 $ 1,893 $ 1,847
The estimated fair value of mortgage debt is based on the expected future debt
service payments discounted at estimated market rates. Notes payable due to Host
Marriott Corporation and Marriott International, Inc. and incentive management
fees payable to Marriott International, Inc. are valued based on the expected
future payments from operating cash flow discounted at risk adjusted rates.
NOTE 6. DEBT
The Partnerships have entered into various long-term loan agreements to provide
non-recourse mortgage financing for the Hotels. Combined mortgage debt
maturities, at December 31, 1997 are (in thousands):
1998....................................$ 2,965
1999.................................... 3,346
2000.................................... 82,049
2001.................................... 1,748
2002.................................... 1,884
Thereafter.............................. 143,954
$ 235,946
Orlando Mortgage
On January 12, 1993 (the "Closing Date"), the General Partner refinanced the
Orlando World Center mortgage debt (the "Orlando Mortgage Debt"). On the Closing
Date, the Partnership paid $29.3 million to the lender which was applied $12.0
million to the outstanding principal balance, $13.5 million to interest due
through the Closing Date and $3.8 million to financing costs. The Orlando
Mortgage Debt carried a fixed rate of interest of 6.705% and required
semi-annual principal amortization totaling $22 million through its maturity on
June 16, 1995 (the "Maturity Date").
On the Maturity Date, the lender granted the Partnership a forbearance on the
loan extending it from June 16, 1995 through October 31, 1995. The Partnership
paid interest monthly in arrears at a floating rate equal to the applicable
Federal Funds rate plus 225 basis points. During the forbearance period, the
weighted average interest rate was 7.94%. On October 31, 1995, the Partnership
successfully completed a modification and extension of the Orlando Mortgage
Debt. The mortgage debt carried a fixed rate of interest of 8.44% and required
semi-annual amortization of principal. The loan was due to mature on June 16,
2000 with unamortized principal of $127.0 million due at that time. No debt
service guarantee was provided. As of December 31, 1997 and December 31, 1996,
the outstanding principal balance was $138,479,000 and $145,479,000,
respectively. The outstanding principal balance was repaid on December 31, 1997
with proceeds from the refinancing discussed below.
On October 31, 1997, the General Partner executed a commitment letter with two
new lenders to refinance the Orlando World Center's mortgage debt. The new loan
provides a total borrowing capacity of $240 million.
On December 31, 1997, the Partnership completed the refinancing of the mortgage
debt. The new lenders provided $152 million to pay the outstanding balance on
the existing mortgage and accrued interest of $139.3 million, related financing
costs of $2.0 million, a prepayment penalty of $1.9 million that has been
reflected as part of the extraordinary loss on the accompanying consolidated
statement of operations and the remaining $8.8 million is part of the
Partnership's working capital. The loan requires monthly payments of interest at
a fixed rate of 7.48% and principal based on a 30-year amortization schedule.
The loan matures on January 1, 2008.
The remaining balance of $88 million is available for the construction costs
associated with a 500-room expansion at the Orlando World Center. In connection
with the executed commitment letter, the Partnership advanced $2.4 million to
the lender as a good faith deposit. Upon completion of the $152 million portion
of the loan, the lender returned $600,000 of this deposit. The remaining $1.8
million will be returned to the Partnership upon completion of construction. The
General Partner is currently working with the lender to finalize the documents
related to this construction loan.
The refinanced mortgage debt is secured by the Orlando World Center, the land on
which the Orlando World Center and golf course are located and an assignment of
certain operating agreements.
Harbor Beach Mortgage
The original Harbor Beach loan agreement provided $86.6 million for construction
of the Harbor Beach Hotel. On June 30, 1986, this debt was refinanced with a
major insurance company. The $92 million replacement loan (the "Harbor Beach
Mortgage Debt") bore interest at a fixed rate of 9.375% and required payments of
interest only through July 1988 and monthly payments of principal and interest
in the amount of $765,000 thereafter until maturity on July 1, 1993. Upon
maturity, the lender granted the Harbor Beach Partnership a forbearance of the
loan for a fee of $165,000. Under the forbearance agreement, the Harbor Beach
Partnership continued to pay the lender through March 29, 1994, payments of
principal and interest in accordance with the terms of the Harbor Beach Mortgage
Debt.
On March 29, 1994 (the "Closing Date"), the Harbor Beach Partnership completed
the restructuring of the Harbor Beach Mortgage Debt. The restructured mortgage
debt carries a fixed rate of interest of 9.125% (the "Contract Interest Rate")
and is payable monthly in arrears. Interest only at the Contract Interest Rate
was due and payable for the first twelve payments through and including April 1,
1995. For the period from the Closing Date through April 1, 1995, the difference
between the interest only payment and $772,600 (the "Payment Amount") was
contributed to an escrow account with the lender to fund capital improvements at
the Harbor Beach Hotel. The Payment Amount represents the amount necessary to
amortize the outstanding principal balance, as of the Closing Date, over a
22-year effective amortization period. The loan matures on May 1, 2000. The
restructured mortgage debt is collateralized by all property and assets of the
Harbor Beach Hotel. No debt service guarantee was provided. As of December 31,
1997 and 1996, the outstanding principal balance was $83,946,000 and
$85,480,000, respectively.
Orlando Ballroom Loan
During 1990, Host Marriott agreed to provide interim financing of up to $14
million to fund the construction of a new ballroom and exhibition hall at the
Orlando World Center. Construction was completed in February 1990. On December
31, 1990, the interim financing was converted to a permanent loan from Host
Marriott with $13.2 million advanced. Interest only, at the Bankers Trust
Company prime rate, was payable from the Partnership's cash flow after debt
service. On June 16, 1992, in conjunction with the refinancing of the Orlando
Mortgage Debt, the Orlando ballroom loan was converted from a term loan to a
revolving line of credit with a floating interest rate equal to the Bankers
Trust Company prime rate. As of December 31, 1996, the outstanding principal
balance was $2,294,000. The remaining outstanding principal balance was paid in
full on June 24, 1997. The weighted average effective interest rate for the
period from January 1, 1997 through June 24, 1997 and for the years ended
December 31, 1996 and 1995 was 8.4%, 8.3% and 8.8%, respectively (rate as of
June 24, 1997 and December 31, 1996 was 8.5% and 8.3%, respectively).
Orlando Rooms Renovation Loan
During 1997, the Partnership entered into a loan agreement (the "Orlando Rooms
Renovation Loan") with Marriott International Capital Corporation ("MICC"), a
wholly-owned subsidiary of MII, in conjunction with a rooms and suites
refurbishment at the Orlando World Center. The loan provided financing of $3.5
million. The loan requires payments of principal and interest to be paid from
the Orlando World Center property improvement fund. This unsecured loan carries
a fixed interest rate of 9% and matures on June 16, 1999. The outstanding
principal balance was $3,472,000 on December 31, 1997.
Harbor Beach Rooms Renovation Loan
On July 21, 1994, the Harbor Beach Partnership entered into a loan agreement
with MICC in conjunction with a rooms and suites refurbishment at the Harbor
Beach Hotel. The loan provided financing of up to $2.8 million, plus accrued
interest through December 31, 1994, to fund costs in excess of funds available
in the Harbor Beach Partnership's property improvement fund. This unsecured loan
carries a fixed rate of interest of 8%. Accrued interest totaling $64,000 was
rolled into the principal balance at December 31, 1994. Payments of principal
and interest based upon a five-year amortization period commenced in January
1995. Under the terms of the loan, the debt service payments are included as a
deduction in determining the fees paid to the Operating Tenant, as described in
Note 8. As of December 31, 1997 and 1996, the outstanding principal balance was
$1,330,000 and $1,893,000, respectively. Interest earned by MICC was $128,000,
$171,000 and $211,000 in 1997, 1996 and 1995, respectively.
NOTE 7. LEASES
The Harbor Beach Partnership, through an assignment of a lease on January 15,
1982, acquired all rights to a 99-year lease with a 25-year renewal option for
the land on which the Harbor Beach Hotel is located. On April 28, 1993, the
lessor sold its rights under the lease to an unrelated party. A provision under
the sale of the lease provided for the early refund to the Harbor Beach
Partnership of the remaining $1,250,000 balance of an initial $2,500,000
security deposit paid to the lessor and a $500,000 payment to facilitate the
modification of the lease.
Lease payments are made quarterly in advance in accordance with a lease year
that operates from December 1 through November 30. The annual rental is
$1,560,000 for lease years 1995 through 1999. After lease year 1999, annual
rentals for each succeeding five-year period increase by an amount equal to 10%
of the previous annual rental.
Minimum annual rentals during the term of the ground lease are (in thousands):
Year
1998.................................................$ 1,560
1999................................................. 1,573
2000................................................. 1,716
2001................................................. 1,716
2002................................................. 1,716
Thereafter........................................... 311,043
Total Minimum Lease Payments.........................$ 319,324
NOTE 8. MANAGEMENT AND OPERATING LEASE AGREEMENTS
The Partnership has entered into a long-term management agreement with the
Manager, and the Harbor Beach Partnership has entered into a long-term operating
lease with the Operating Tenant. The Hotels are operated as part of the Marriott
Hotels, Resorts and Suites full-service hotel system. Significant provisions
under the agreements are as follows:
Orlando World Center. The management agreement provides for an initial term of
25 years, commencing with the opening of the Orlando World Center (March 24,
1986), and five 10-year renewals at the Manager's option. The Manager is paid a
base management fee of 3% of gross hotel sales and is also entitled to an
incentive management fee equal to 20% of operating profit, as defined, and an
additional incentive management fee equal to 30% of the following amount: (i)
80% of operating profit in each fiscal year less (ii) the greater of (a)
$25,000,000 or (b) debt service plus $7,000,000. Payment of the incentive
management fee is subordinate to debt service and retention of specified amounts
of operating profit by the Partnership. Unpaid incentive management fees are
deferred without interest and are payable from future operating cash flow, as
defined, but are due upon termination of the management agreement only if the
termination is the result of a default by the Partnership. Unpaid incentive
management fees as of December 31, 1996 were $2,046,000 which were paid in 1997.
Therefore, there were no unpaid incentive management fees as of December 31,
1997. In addition, based on higher cash flow from the Orlando Hotel, the Manager
earned additional incentive management fees in 1997 which were paid during the
year.
Under the management agreement, the Manager is required to furnish the Orlando
World Center with certain services ("Chain Services") which are generally
provided on a central or regional basis to all hotels in the Marriott
full-service hotel system. Chain Services include central training, advertising
and promotion, a national reservation system, computerized payroll and
accounting services, and such additional services as needed which may be more
efficiently performed on a centralized basis. Costs and expenses incurred in
providing such services are allocated among all domestic full-service hotels
managed, owned or leased by MII or its subsidiaries. In addition, the Hotel
participates in MII's Marriott Rewards Program ("MRP"). This program was
formerly known as the Honored Guest Awards Program ("HGA"). The cost of this
program is charged to all hotels in the Marriott hotel system based upon the MRP
sales at each hotel. The total amount of Chain Services and MRP costs allocated
to the Orlando World Center was $3,149,000, $3,588,000, and $3,336,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Harbor Beach Hotel. The operating lease provides for an initial 36-year term
commencing with the opening of the Harbor Beach Hotel (October 29, 1984), with
options to renew for six successive 10-year periods based on certain defined
conditions. The annual rental paid to the Harbor Beach Partnership includes the
following:
- - basic rental: annual rental payable under the land lease and insurance
costs
- - percentage rental: determined by multiplying the applicable percentage set
annually by the Harbor Beach Partnership by revenues
- - performance rental: first $9,720,000 of operating profit of the Harbor
Beach Hotel, as defined
- - additional performance rental: 50% of operating profit of the Harbor Beach
Hotel, as defined, in excess of $9,720,000
- - contingent rental: up to 50% of operating profit of the Harbor Beach Hotel,
as defined, in excess of $9,720,000 if the aggregate annual rental is
otherwise insufficient to cover debt service.
Pursuant to the terms of the Harbor Beach rooms renovation loan (see Note 6),
the annual performance rental is adjusted upward by the annual debt service
required under the loan. For the five-year period beginning with 1995 and ending
in 1999, annual performance rental is increased by $696,557 to $10,416,557.
Subsequent to year-end 1999, performance rental will return to $9,720,000.
Percentage rental is intended to cover the cost of utilities, repairs and
maintenance, and the required contribution to the property improvement fund (5%
of sales) and is therefore adjusted annually in order to equal the actual
applicable costs. Any payments of contingent rental reduce future payments of
additional performance rental (subject to limitations) in subsequent years. No
contingent rental has been accrued as of December 31, 1997 and 1996.
Rental income under the Harbor Beach Partnership operating lease for the three
years ended December 31, 1997 was (in thousands):
1997 1996 1995
Basic Rental.........................................................$ 1,712 $ 1,694 $ 1,616
Percentage Rental.................................................... 6,284 6,240 5,921
Performance Rental................................................... 10,417 10,417 10,417
Additional Performance Rental........................................ 3,224 2,960 1,793
$ 21,637 $ 21,311 $ 19,747
Cost and accumulated depreciation of the rental property were $103,110,000 and
$41,299,000 at December 31, 1997, and $100,647,000 and $37,279,000,
respectively, at December 31, 1996.
Property Improvement Funds
The management agreement and the operating lease provide for the establishment
of a property improvement fund for each of the Hotels. Contributions to the
property improvement funds are equal to five percent of gross sales of each
hotel. Contributions to the fund for the Orlando World Center totaled $6,411,000
and $6,015,000 for the years ended December 31, 1997 and 1996, respectively.
Contributions to the fund for the Harbor Beach Hotel totaled $2,730,000 and
$2,729,000 for the years ended December 31, 1997 and 1996, respectively.
NOTE 9. COMPARATIVE LEASED HOTEL OPERATING RESULTS
The Harbor Beach Hotel is a leased property whose income to the Partnership is
included in the consolidated statement of operations as rental income. The
following is a comparative summary of hotel operating results for the Harbor
Beach Hotel for the three years ended December 31, 1997 (in thousands):
1997 1996 1995
HOTEL SALES
Rooms....................................................................$ 32,322 $ 30,939 $ 28,384
Food and beverage........................................................ 20,668 20,764 19,366
Other.................................................................... 5,089 5,016 4,857
58,079 56,719 52,607
HOTEL EXPENSES
Departmental Direct Costs
Rooms................................................................. 5,882 5,566 5,332
Food and beverage..................................................... 12,937 12,664 12,140
Other hotel operating expenses........................................... 22,395 22,151 21,219
HOTEL REVENUES.............................................................$ 16,865 $ 16,338 $ 13,916
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Partnership has no directors or officers. The business policy making
functions of the Partnership are carried out through the directors and executive
officers of Hotel Properties Management, Inc., the General Partner, who are
listed below:
Current Position in Hotel
Name Properties Management, Inc. Age
Bruce F. Stemerman President, Treasurer and Director 42
Robert E. Parsons, Jr. Vice President and Director 43
Earla L. Stowe Vice President and Chief Accounting Officer 36
Christopher G. Townsend Vice President, Secretary and Director 51
Business Experience
Bruce F. Stemerman was elected President of the General Partner in November 1995
and Treasurer of the General Partner in 1996. He was Director and Chief
Accounting Officer of the General Partner from October 1993 to October 1996 and
was Vice President--Finance from October 1993 to November 1995. Mr. Stemerman
joined Host Marriott in 1989 as Director--Partnership Services. He was promoted
to Vice President--Lodging Partnerships in 1994 and became Senior Vice
President--Asset Management in 1996. Prior to joining Host Marriott, Mr.
Stemerman spent ten years with Price Waterhouse. He also serves as a director
and an officer of numerous Host Marriott subsidiaries.
Robert E. Parsons, Jr. has been a Vice President of the General Partner since
November 1995 and a Director of the General Partner since September 1988. From
1988 to October 1995, Mr. Parsons was President of the General Partner. Mr.
Parsons joined Host Marriott's Corporate Financial Planning staff in 1981, was
made Director-Project Finance of Host Marriott's Treasury Department in 1984,
and in 1986 he was made Vice President-Project Finance of Host Marriott's
Treasury Department. He was made Assistant Treasurer of Host Marriott in 1988.
Mr. Parsons was named Senior Vice President and Treasurer of Host Marriott in
1993. He was named Executive Vice President and Chief Financial Officer of Host
Marriott in October 1995. He also serves as a director and an officer of
numerous Host Marriott subsidiaries.
Earla L. Stowe was appointed to Vice President and Chief Accounting Officer of
the General Partner on October 8, 1996. Ms. Stowe joined Host Marriott
Corporation in 1982 and held various positions in the tax department until 1988.
She joined Partnership Services as an accountant in 1988 and in 1989 she became
an Assistant Manager-Partnership Services. She was promoted to
Manager-Partnership Services in 1991 and to Director-Asset Management in June,
1996. She also serves as an officer of numerous Host Marriott subsidiaries.
Christopher G. Townsend has been Vice President and Director of the General
Partner since September 1988. Mr. Townsend joined Host Marriott's Law Department
in 1982 as a Senior Attorney. In 1984, Mr. Townsend was made Assistant Secretary
of Host Marriott and in 1986 was made Assistant General Counsel. In 1993, he was
made Senior Vice President, Corporate Secretary and Deputy General Counsel of
Host Marriott. In January 1997, he was made General Counsel of Host Marriott. He
also serves as a director and an officer of numerous Host Marriott subsidiaries.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
As noted in Item 10 above, the Partnership has no directors or officers nor does
it have any employees. Under the Partnership Agreement, however, the General
Partner has the exclusive right to conduct the business and affairs of the
Partnership subject only to the Management Agreement described in Items 1 and
13. The General Partner is required to devote to the Partnership such time as
may be necessary for the proper performance of its duties, but the officers and
the directors of the General Partner are not required to devote their full time
to the performance of such duties. No officer or director of the General Partner
devotes a significant percentage of time to Partnership matters. To the extent
that any officer or director does devote time to the Partnership, the General
Partner is entitled to reimbursement for the cost of providing such services.
Any such costs may include a charge for overhead, but without a profit to the
General Partner. For the fiscal years ending December 31, 1997, 1996 and 1995,
administrative expenses reimbursed to the General Partner totaled $204,000,
$126,000 and $129,000, respectively. For information regarding all payments made
by the Partnership to Host Marriott and subsidiaries, see Item 13 "Certain
Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to the Tender Offer, an affiliate of Host Marriott and the General
Partner, acquired 463.75 Units representing a 46.4% limited partnership interest
in the Partnership and subsequently purchased an additional 9 Units in 1997. The
General Partner owns a total of 10.5 Units representing a 1.05% limited
partnership interest in the Partnership. Therefore, Host Marriott and affiliates
own 483.25 Units representing a 48.33% limited partnership interest in the
Partnership.
There are no Units owned by the executive officers and directors of the General
Partner, as a group.
The officers and directors of MII, as a group, own the following units:
Amount and Nature of
Title of Class Beneficial Ownership Percent of Class
Limited Partnership Units 3.0 Units 0.3%
There are no Units owned by individuals who are directors of both the General
Partner and MII.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management and Operating Lease Agreements
As described below, the Partnerships are parties to important ongoing agreements
with MII pursuant to which the Orlando Hotel is managed by MII and the Harbor
Beach Hotel is leased to MHSI.
Orlando Hotel Management Agreement
The Partnership entered into the Management Agreement with MII to manage and
operate the Orlando Hotel. The Management Agreement is for a term of 25 years
from the opening date with renewal terms, at the option of MII, of up to five
additional 10-year periods. The Management Agreement provides the Manager with a
base management fee equal to 3% of gross hotel sales. In addition, the Manager
is entitled to receive incentive management fees equal to 20% of hotel operating
profit and additional incentive fees equal to 30% of the following amount: (i)
80% of hotel operating profit less (ii) the greater of (a) $25 million or (b)
debt service plus $7 million. Payment of the incentive management fee is
subordinate to debt service and retention of specified amounts of hotel
operating profit by the Partnership.
Unpaid incentive management fees ("Deferred Incentive Management Fees") accrue
without interest and are payable from future hotel operating cash flow available
following payment of any then current incentive management fees and retention of
specified amounts of hotel operating profit by the Partnership. As of December
31, 1996, Deferred Incentive Management Fees were $2,046,000 which were paid in
1997.
The Manager is required to furnish the Orlando Hotel with certain services
("Chain Services") that are generally provided on a central or regional basis to
all hotels in the MII full-service hotel system. The major cost components
included in Chain Services are computer, reservations, advertising, training and
sales costs. Costs and expenses incurred in providing such services are
allocated among all domestic full-service hotels managed, owned or leased by MII
or its subsidiaries with no profit to MII. The methods of allocating the costs
and expenses are based upon one or a combination of the following: (i) percent
of sales, (ii) total number of hotel rooms, (iii) total number of reservations
booked, and (iv) total number of management employees. In addition, the Hotel
participates in MII's Marriott Rewards Program ("MRP"). This program was
formerly known as the Honored Guest Awards Program ("HGA"). The cost of this
program is charged to all hotels in the Marriott hotel system based upon the MRP
sales at each hotel. The total amount of Chain Services and MRP costs allocated
to the Orlando World Center was $3,149,000, $3,588,000, and $3,336,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
The Management Agreement also provides for the establishment of a property
improvement fund for the Orlando Hotel to cover the cost of certain non-routine
repairs and maintenance to the hotel which are normally capitalized and the cost
of replacements and renewals to the hotel property and improvements.
Contributions to the property improvement fund are 5% of gross hotel sales.
Pursuant to the Management Agreement, the Partnership provided the Manager with
working capital and supplies to meet the operating needs of the Orlando Hotel.
This advance bears no interest and remains the property of the Partnership
throughout the term of the Management Agreement. The Partnership is required to
advance upon request of the Manager any additional funds necessary to maintain
the working capital and supplies at levels determined by the Manager to be
necessary to satisfy the needs of the hotel as its operations may require from
time to time. Upon termination of the Management Agreement, the Manager will
return to the Partnership any unused working capital and supplies. At the
inception of the Partnership, $4.7 million was advanced to the Manager for
working capital and supplies.
The Management Agreement also provides that the Partnership may terminate the
agreement and remove the Manager if, during any three consecutive fiscal years
after fiscal year 1992, the average of hotel operating profit fails to equal or
exceed the lesser of (i) 10% of the original cost of the hotel or (ii) the sum
of the average annual amount of the interest portion of the Orlando Mortgage
Debt plus $5 million. The Manager may, however, prevent termination by paying to
the Partnership such amounts as are necessary to achieve the above performance
standards.
Harbor Beach Hotel Operating Lease
The Harbor Beach Partnership entered into the Operating Lease with MHSI, a
subsidiary of MII, to operate the Harbor Beach Hotel. The Operating Lease is for
a term of 36 years from the opening of the hotel with renewal terms, at the
option of MHSI, of up to six additional 10-year periods. The annual rental paid
to the Harbor Beach Partnership includes the following:
Basic rental: annual rental payable under the land lease and insurance costs.
Percentage rental: determined by multiplying the applicable percentage set
annually by the Harbor Beach Partnership by revenues.
Performance rental: first $9,720,000 of operating profit of the Harbor Beach
Hotel, as defined.
Additional performance rental: 50% of operating profit of the Harbor Beach
Hotel, as defined, in excess of $9,720,000.
Contingent rental: up to 50% of operating profit of the Harbor Beach Hotel, as
defined, in excess of $9,720,000 if the aggregate annual rental is otherwise
insufficient to cover debt service.
Pursuant to the terms of Harbor Beach rooms renovation loan, the annual
performance rental is adjusted upward by the annual debt service required under
the loan. For the five-year period beginning with 1995 and ending in 1999,
annual performance rental is increased by $696,557 to $10,416,557. Subsequent to
year-end 1999, performance rental will return to $9,720,000.
Percentage rental is adjusted annually to equal the costs it was intended to
cover. Any payments of contingent rental reduce future payments of additional
performance rental (subject to limitations) in subsequent years.
The following table sets forth the rental income under the Harbor Beach
operating lease for the years ended December 31, 1997, 1996 and 1995 (in
thousands):
Year Ended December 31,
1997 1996 1995
Basic rental..............................................................$ 1,712 $ 1,694 $ 1,616
Percentage rental......................................................... 6,284 6,240 5,921
Performance rental........................................................ 10,417 10,417 10,417
Additional performance rental............................................. 3,224 2,960 1,793
Total rental income....................................................$ 21,637 $ 21,311 $ 19,747
The Operating Lease provides that the Harbor Beach Partnership may terminate the
Operating Lease and remove the Operating Tenant if the payments of performance
rental in any three consecutive fiscal years beginning with fiscal year 1991 are
less than $7.2 million. The Operating Tenant may, however, prevent termination
by paying to the Harbor Beach Partnership such amounts as are necessary to
achieve the above performance standards.
Payments to Host Marriott, MII and their Affiliates
The following table sets forth amounts paid by the Partnerships to Host
Marriott, MII and their subsidiaries for the years ended December 31, 1997, 1996
and 1995 (in thousands):
Year Ended December 31,
1997 1996 1995
Payments to Host Marriott and affiliates:
Cash distributions........................................................$ 3,797 $ 102 $ 43
Interest and principal paid on Orlando Ballroom Loan...................... 2,429 4,604 3,531
Administrative expenses................................................... 204 126 129
$ 6,430 $ 4,832 $ 3,703
Payments to MII and affiliates:
Incentive management fees.................................................$ 9,308 $ 8,992 $ 9,019
Base management fees...................................................... 3,846 3,609 3,431
Chain services and MRP costs.............................................. 3,149 3,588 3,336
Deferred incentive management fees........................................ 2,046 - -
Interest and principal paid on Harbor Beach Rooms Renovation Loan......... 697 643 697
Interest and principal paid on Orlando Rooms Renovation Loan.............. 100 - -
$ 19,146 $ 16,832 $ 16,483
PART IV
ITEM 14. EXHIBITS, SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) List of Documents Filed as Part of This Report
(1) Financial Statements All financial statements of the registrant as set
forth under Item 8 of this Report on Form 10-K.
(2) Financial Statement Schedules The following financial information is filed
herewith on the pages indicated.
III.Real Estate and Accumulated Depreciation
All other schedules are omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes
thereto.
(3) EXHIBITS
Exhibit # Description
2.a. Purchase Agreement between Airline Foods, Inc. and Marriott Hotel
Properties Limited Partnership dated November 27, 1985, to acquire the 99%
limited partner interest in the Partnership. Incorporated by reference from
Exhibit 2a. of the amended registration statement on Form 10 dated
September 29, 1986.
2.b. Purchase Agreement between Airline Foods, Inc. and Marriott Hotel
Properties Limited Partnership dated November 27, 1985, to acquire the 99%
limited partner interest in the Warner Center Partnership. Incorporated by
reference from Exhibit 2b. of the amended registration statement on Form 10
dated September 29, 1986.
2.c. Purchase Agreement between Host International, Inc. and Marriott Hotel
Properties Limited Partnership dated November 27, 1985, to acquire a 49%
interest in the Harbor Beach Partnership. Incorporated by reference from
Exhibit 2c. of the amended registration statement on Form 10 dated
September 29, 1986.
2.d. [reference to Warner Center Foreclosure Documents]
3.a. Amended and Restated Agreement of Limited Partnership of Marriott Hotel
Properties Limited Partnership dated November 27, 1985. Incorporated by
reference from Exhibit 3a. of the amended registration statement on Form 10
dated September 29, 1986.
3.b. Amended and Restated Partnership Agreement of Lauderdale Beach Association
dated July 1, 1986. Incorporated by reference from Exhibit 3c. of the 1986
Form 10-K.
3.c. Certificate of Incorporation and By-Laws of Marriott Orlando Capital
Corporation dated April 30, 1987. Incorporated by reference from Exhibit
3d. of the 1987 Form 10-K.
10.a.Management Agreement between Marriott Hotel Properties Limited Partnership
and Marriott Hotels, Inc. dated October 25, 1985. Incorporated by reference
from Exhibit 10a. of the amended registration statement on Form 10 dated
September 29, 1986.
10.b.Lease between Lauderdale Beach Association and Marriott Hotels, Inc. dated
October 26, 1984, subsequently assigned to Marriott Hotel Services, Inc. on
January 1, 1985. Incorporated by reference from Exhibit 10c. of the amended
registration statement on Form 10 dated September 29, 1986.
10.c.Letter dated June 16, 1987, between Marriott Hotels, Inc., Marriott Hotel
Properties Limited Partnership and The Sanwa Bank Limited, amending Exhibit
10a. Incorporated by reference from Exhibit 10d. of the 1987 Form 10-K.
*10.d. Assignment and Assumption of Lease Agreement dated April 28, 1993 between
Holiday Hotel Corporation, Poinsettia Corporation, Lubbock Corporation and
The Northwestern Mutual Life Insurance Company. Ground Lease Agreement
between Holiday Hotel Corporation, Poinsettia Corporation, Lubbock
Corporation and Cavendish Properties, Inc., dated November 30, 1981, and
amendments dated January 30, 1982, December 21, 1982 and June 30, 1986,
respectively. Assignment of Lease dated January 30, 1982, between Cavendish
Properties, Inc. and Lauderdale Beach Association.
*10.e. Real Estate Purchase Agreement dated January 25, 1993, between Holiday
Hotel Corporation, Poinsettia Corporation, Lubbock Corporation and The
Northwestern Mutual Life Insurance Company.
*10.f. Amended and Restated Loan Agreement between Marriott Hotel Properties
Inc. and Marriott Hotel Properties Limited Partnership dated April 9, 1991.
*10.g. Loan Agreement between Marriott Properties, Inc. and Marriott Hotel
Properties Limited Partnership dated April 17, 1991, and amendments thereto
dated December 31, 1991 and June 1, 1992, respectively.
*10.h. Amended and Restated Term Loan Agreement between Lauderdale Beach
Association and Aetna Life Insurance Company dated July 1, 1993.
*10.i. Loan Agreement between Marriott International Capital Corporation and
Lauderdale Beach Association dated July 21, 1994.
*10.j. Amended and Restated Term Loan Agreement between Marriott Hotel
Properties Limited Partnership and The Sanwa Bank Limited dated June 16,
1995.
10.k.Amended and Restated Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing Statement between Marriott Hotel Properties
Limited Partnership and Teachers Insurance and Annuity Association of
America and John Hancock Mutual Life Insurance Company dated December 31,
1997.
27. Financial Data Schedule
* Incorporated by reference from the 1995 Form 10-K/A.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during 1997.
SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 30, 1998.
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
By: HOTEL PROPERTIES MANAGEMENT, INC.
General Partner
By: Earla L. Stowe
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on , 1998.
Signature Title
(HOTEL PROPERTIES MANAGEMENT, INC.)
President, Treasurer and Director
Bruce F. Stemerman (Principal Executive Officer)
Vice President and Director
Robert E. Parsons, Jr. (Principal Financial Officer)
Vice President, Secretary and Director
Christopher G. Townsend
SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 30, 1998.
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
By: HOTEL PROPERTIES MANAGEMENT, INC.
General Partner
By: /s/ Earla L. Stowe
Earla L. Stowe
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on , 1998.
Signature Title
(HOTEL PROPERTIES MANAGEMENT, INC.)
/s/ Bruce F. Stemerman President, Treasurer and Director
Bruce F. Stemerman (Principal Executive Officer)
/s/ Robert E. Parsons, Jr. Vice President and Director
Robert E. Parsons, Jr. (Principal Financial Officer)
/s/ Christopher G. Townsend Vice President, Secretary and Director
Christopher G. Townsend
SCHEDULE III
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
Initial Costs Gross Amount at December 31, 1997
Subsequent Date of
Buildings & Costs Buildings & Accumulated Completion of Date Depreciation
Debt Land Improvements Capitalized Land Improvements Total Depreciation Construction Acquired Life
Orlando World Center
Orlando, Florida $152,000 $27,447 $135,351 $18,479 $28,717 $152,560 $181,277 $38,936 1986 1985 40 to 50
years
Harbor Beach Resort
Ft. Lauderdale,
Florida 83,946 1,837 63,806 19,585 2,357 82,871 85,228 25,868 1984 1985 40 years
Total $235,946 $29,284 $199,157 $38,064 $31,074 $235,431 $266,505 $64,804
SCHEDULE III
Page 2 of 2
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
Notes:
1995 1996 1997
(a) The changes in the total cost of land, buildings and improvements for the
three years ended December 31, 1997 were as follows:
Balance at beginning of year........................................$ 260,320 $ 262,400 $ 264,276
Capital expenditures............................................. 2,080 1,953 2,229
Dispositions..................................................... - (77) -
Balance at end of year..............................................$ 262,400 $ 264,276 $ 266,505
(b) The changes in accumulated depreciation and amortization for the three years
ended December 31, 1997 were as follows:
Balance at beginning of year........................................$ 46,626 $ 53,410 $ 58,841
Depreciation and amortization.................................... 6,784 5,508 5,963
Dispositions and other .......................................... - (77) -
Balance at end of year..............................................$ 53,410 $ 58,841 $ 64,804
(c) The aggregate cost of land, buildings and improvements for Federal income
tax purposes was approximately $190,340 at December 31, 1997.
TABLE OF CONTENTS
SECTION PAGE
RECITALS.......................................................................1
ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION........................2
Section 1.1. Definitions.........................................2
Section 1.2. Rules of Construction...............................2
ARTICLE II GRANTING CLAUSES.............................................2
Section 2.1. Conveyances and Encumbrance of Property.............2
Section 2.2. Habendum Clause.....................................5
Section 2.3. Security Agreement..................................5
Section 2.4. Conditions to Grant.................................6
ARTICLE III OBLIGATIONS SECURED..........................................6
Section 3.1. The Obligations.....................................6
Section 3.2. Future Advances.....................................6
ARTICLE IV TITLE AND AUTHORITY..........................................6
Section 4.1. Title to the Property...............................6
Section 4.2. Authority...........................................7
Section 4.3. No Foreign Person...................................7
Section 4.4. Litigation..........................................7
ARTICLE V PROPERTY STATUS, MAINTENANCE AND LEASES......................7
Section 5.1. Status of the Property..............................7
Section 5.2. Maintenance of the Property.........................8
Section 5.3. Change in Use.......................................8
Section 5.4. Waste...............................................8
Section 5.5. Inspection of the Property..........................8
Section 5.6. Leases and Rents....................................8
Section 5.7. Equipment Leases....................................9
Section 5.8. Parking.............................................9
Section 5.9. Separate Tax Parcel.................................9
Section 5.10. Changes in Zoning or Restrictive Covenants..........9
Section 5.11. Lender=s Right to Appear...........................10
ARTICLE VI IMPOSITIONS AND ACCUMULATIONS...............................10
Section 6.1. Impositions........................................10
Section 6.2. Accumulations......................................11
Section 6.3. Changes in Tax Laws................................12
ARTICLE VII INSURANCE, CASUALTY, CONDEMNATION AND RESTORATION...........12
Section 7.1. Insurance Coverages................................12
Section 7.2. Casualty and Condemnation..........................13
Section 7.3. Application of Proceeds............................14
Section 7.4. Conditions to Availability of
Proceeds for Restoration........................14
Section 7.5. Restoration........................................16
ARTICLE VIII COMPLIANCE WITH LAW AND AGREEMENTS..........................17
Section 8.1. Compliance with Law................................17
Section 8.2. Compliance with Property Documents. ..............17
Section 8.3. Compliance with Agreements.........................17
Section 8.4. ERISA Compliance...................................17
Section 8.5. Section 6045(e) Filing.............................17
Section 8.6. Hotel Operating Agreement..........................18
ARTICLE IX ENVIRONMENTAL...............................................20
Section 9.1. Environmental Representations and Warranties.......20
Section 9.2. Environmental Covenants............................20
ARTICLE X FINANCIAL REPORTING.........................................21
Section 10.1. Financial Reporting................................21
Section 10.2. Waiver.............................................22
ARTICLE XI EXPENSES AND DUTY TO DEFEND.................................22
Section 11.1. Payment of Expenses................................22
Section 11.2. Duty to Defend.....................................23
ARTICLE XII TRANSFERS LIENS AND ENCUMBRANCES............................23
Section 12.1. Prohibitions on Transfers, Liens and Encumbrances..23
Section 12.2. Permitted Transfers................................24
Section 12.3. Right to Contest Liens.............................24
ARTICLE XIII ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS........25
Section 13.1. Further Assurances.................................25
Section 13.2. Estoppel Certificates..............................25
Section 13.3. Credit Enhancements................................25
Section 13.4. Sale/Leaseback.....................................26
ARTICLE XIV DEFAULTS AND REMEDIES.......................................26
Section 14.1. Events of Default..................................26
Section 14.2. Remedies...........................................27
Section 14.3. General Provisions Pertaining to Remedies..........28
Section 14.4. General Provisions Pertaining to
Agreement-in-Possession or Receiver.............28
Section 14.5. General Provisions Pertaining to Foreclosures. ...29
Section 14.6. Application of Proceeds............................30
Section 14.7. Tenant Holding Over................................30
ARTICLE XV LIMITATION OF LIABILITY.....................................30
Section 15.1. Limitation of Liability............................30
ARTICLE XVI WAIVERS.....................................................32
Section 16.2. Waiver of Notice...................................32
Section 16.3. Waiver of Marshalling and Other Matters............32
Section 16.4. Waiver of Trial by Jury............................32
Section 16.5. Waiver of Counterclaim.............................32
Section 16.6. General Waiver.....................................32
ARTICLE XVII NOTICES.....................................................33
Section 17.1. Notices............................................33
ARTICLE XVIII MISCELLANEOUS...............................................34
Section 18.1. Applicable Law.....................................34
Section 18.2. Limitations of Law.................................34
Section 18.3. Usury Limitations..................................34
Section 18.4. Lender=s Discretion................................35
Section 18.5. Unenforceable Provisions...........................35
Section 18.6. Survival of Borrower=s Obligations.................35
Section 18.7. No Third Party Beneficiaries.......................35
Section 18.8. Partial Releases, Extensions, Waivers..............35
Section 18.9. Service of Process.................................36
Section 18.10. Entire Agreement...................................36
Section 18.11. No Oral Amendment..................................36
Section 18.12. Severability.......................................36
Section 18.13. Covenants Run With The Land........................36
Section 18.14. Time of the Essence................................36
Section 18.15. Subrogation........................................36
Section 18.16. Successors and Assigns.............................36
Section 18.17. Duplicates and Counterparts........................36
EXHIBIT A LEGAL DESCRIPTION...........................................39
EXHIBIT B DEFINITIONS.................................................40
EXHIBIT C RULES OF CONSTRUCTION.......................................47
SCHEDULE 1 LEASED EQUIPMENT............................................49
AMENDED AND RESTATED
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING STATEMENT
THIS AMENDED AND RESTATED MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING STATEMENT (this Mortgage), is made this
31st day of December, 1997, is by MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
(Borrower), a Delaware limited partnership having its principal place of
business at 10400 Fernwood Road, Bethesda, Maryland 20817-1109, in favor of
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA (TIAA), a New York
corporation having an address at 730 Third Avenue, New York, New York 10017, and
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY (Hancock), a Massachusetts
corporation having an address at 200 Clarendon Street, John Hancock Place,
Boston, Massachusetts 02117 (TIAA and Hancock are referred to herein
collectively as Lender).
RECITALS:
Borrower executed and delivered to The Sanwa Bank Limited, acting by and
through its New York Branch (Sanwa), that certain Mortgage Note, dated January
12, 1993, in the stated principal amount of $180,087,250.92 (the Original Note).
The Original Note was renewed by Assignor=s execution and delivery to Sanwa of
that certain Renewal Mortgage Note, dated as of June 16, 1995, in the stated
principal sum of $156,978,523. 36 (the Renewal Note). The indebtedness evidenced
by the Original Note, as renewed by the Renewal Note, is referred to herein as
the Original Loan.
In order to secure the Original Note, Borrower granted to Sanwa that
certain Mortgage and Security Agreement, dated as of January 12, 1993, and
recorded in the Office of the Clerk of Circuit Court of Orange County, Florida
(the Clerk=s Office), in Official Records Book 4512, page 3134 (the Original
Mortgage). Upon execution of the Renewal Note, Borrower granted to Sanwa that
certain Amended and Restated Mortgage and Security Agreement, dated as of June
16, 1995, and recorded in the Clerk=s Office in Official Records Book 4967, page
2144 (the Renewal Mortgage), which amended and restated the terms of the
Original Mortgage without enlarging the principal amount of Original Loan.
Sanwa has sold the Original Loan to Lender as evidenced by that certain
Assignment of Renewal Mortgage Note, Amended and Restated Mortgage and Security
Agreement and Loan Documents from Sanwa to Lender, dated of even date herewith
and recorded prior to the recording of this Mortgage in the Clerk=s Office.
Pursuant to that certain Amendment to Amended and Restated Mortgage and
Security Agreement and Notice of Future Advance of even date herewith and
recorded prior to the recording of this Mortgage in the Clerk=s Office (the
Notice of Future Advance), Lender has made an additional loan to Borrower in the
principal amount of $13,521,476.64 (the Additional Loan). The Additional Loan is
evidenced by that certain Future Advance Promissory Note executed and delivered
by Borrower to Lender, dated of even date herewith, in the stated principal
amount of the Additional Loan.
The Renewal Note and the Future Advance Note (referred to herein
collectively as the Prior Notes), and the indebtedness evidenced thereby (the
Principal), have been consolidated pursuant to that certain Consolidation and
Note Split Agreement by and among Borrower and Lender, dated of even date
herewith, and, as so consolidated, are being renewed, amended and restated
pursuant to one or more promissory notes executed by Borrower and delivered to
Lender of even date herewith (collectively, the Note), promising to pay the
Principal with interest thereon to the order of the Lender until the Monetary
Obligations (as defined below) have been paid in full, with the balance, if any,
of the Monetary Obligations being due and payable on January 1, 2008 (the
Maturity Date).
Documentary stamp and intangibles taxes have been paid on the Principal as
follows: (i) documentary stamp and intangibles taxes on the Original Loan were
duly paid and affixed to the Original Mortgage upon the filing thereof in the
Clerk=s Office; (ii) documentary stamp and intangibles taxes were not due upon
the filing of the Renewal Mortgage pursuant to Florida Statues Section 201.09,
Florida Administrative Code Rule No. 12B-4.054, and Florida Statutes Section
199.145(4) because the Renewal Note did not enlarge the existing principal
balance of the Original Loan; and (iii) documentary stamp and intangibles taxes
on the Additional Loan were duly paid and affixed to the Notice of Future
Advance upon the filing of the Notice of Future Advance in the Clerk=s Office.
Accordingly, no documentary stamp or intangibles are due upon the filing of this
Mortgage.
Borrower and Lender now desire to renew, amend and restate the terms of the
Original Mortgage in order to secure the Loan as evidenced by the Note and to
otherwise modify the terms, conditions and covenants of the Original Mortgage in
the manner hereinafter set forth.
AGREEMENT
NOW THEREFORE, the undersigned, in consideration of the foregoing recitals,
the sum of Ten Dollars, and other valuable considerations, the receipt and
sufficiency whereof are hereby acknowledged, and in order to secure the
indebtedness and other obligations of Borrower under the Note, this Mortgage and
all other documents evidencing or securing the Loan, including future advances
(as provided herein), agrees that all of the provisions of the Original Mortgage
are hereby modified and amended to read in their entirety, without disrupting
the assignment granted therein, as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1. Definitions. Capitalized terms used in this Mortgage are
defined in Exhibit B or in the text with a cross-reference in Exhibit B.
Section 1.2. Rules of Construction. This Mortgage will be interpreted in
accordance with the rules of construction set forth in Exhibit C.
ARTICLE II
GRANTING CLAUSES
Section 2.1. Conveyances and Encumbrance of Property. Borrower irrevocably
grants, bargains, sells, mortgages, conveys, assigns and pledges to Lender, and
grants to Lender a security interest in, the following property, rights,
interests and estates now or hereafter owned or held by Borrower (the Property)
for the uses and purposes set forth in this Mortgage forever:
(a) all tracts, pieces, or parcels of land located in Orange County,
Florida, more particularly described in Exhibit A attached hereto and by this
reference made a part hereof (the Land);
(b) all buildings and improvements located on the Land (the Improvements);
(c) all easements; rights of way or use, including any rights of ingress
and egress; streets, roads, ways, alleys and passages; strips and gores; sewer
rights; water, water rights, water courses, riparian rights and drainage rights;
air rights and development rights; oil and mineral rights; and tenements,
hereditaments and appurtenances, in each instance adjoining or otherwise
relating to the Land or the Improvements;
(d) all present and future leases, subleases, licenses and other agreements
relating to the use and occupancy of the Land and Improvements (including any
use or occupancy arrangements created pursuant to Section 365(h) of Title 11 of
the United States Code (the Bankruptcy Code) or otherwise in connection with the
commencement or continuance of any bankruptcy, reorganization, arrangement,
insolvency, dissolution, receivership or similar proceedings, or any assignment
for the benefit of creditors, in respect of any tenant or other occupant of the
Land and the Improvements) (the Leases), together with all present and future
rents, prepaid rents, percentage, participation or contingent rents, deficiency
rents, issues, profits, proceeds, royalties, revenues, parking fees, security
deposits and other consideration under the Leases, from Hotel Operations or
otherwise derived from the use and occupancy of the Land or the Improvements,
including contributions to expenses by tenants, and all other fees, charges,
accounts, accounts receivable or payments payable to or for the benefit of
Borrower (the Rents), all as more particularly set forth in the Assignment, the
provisions of the Assignment being incorporated in this Mortgage by reference
and to the extent that under Law revenues from Hotel Operations do not
constitute Rents, all present and future revenues from Hotel Operations,
including all fees, charges, accounts, accounts receivable or other payments for
the use or occupancy of rooms and other public facilities in the Hotel,
including deposits made in connection with Hotel Operations (the Hotel Revenues)
all of which are and will remain the property of Borrower whether collected and
held directly by Borrower or collected and held by Hotel Operator and, to the
extent portions of Rents and Hotel Revenues are distributed to Borrower under
the Hotel Operating Agreement, all distributions to Borrower of Rents and Hotel
Revenues (Owner=s Distributions) subject, however, to any right conferred on
Borrower or the Hotel Operator under this Mortgage, the Assignment or the Hotel
Operating Agreement to collect and apply the Rents and Hotel Revenues or to
distribute the Owner=s Distributions, as the case may be;
(e) all materials intended for construction, re-construction, alteration or
repair of the Improvements, such materials to be deemed included in the Land and
the Improvements immediately on delivery to the Land; all fixtures and personal
property that are attached to, contained in or used from time to time in
connection with the Land or the Improvements (excluding personal property owned
by tenants under the Leases), including: furniture, fixtures and equipment;
furnishings; machinery; motors; elevators; fittings; refrigerators; office
systems and equipment; plumbing; heating, ventilating and air conditioning
systems and equipment; maintenance and landscaping equipment; lighting, cooking,
laundry, dry cleaning, refrigerating, incinerating and sprinkler systems and
equipment; telecommunications systems and equipment; computer or word processing
systems and equipment; security systems and equipment; guest room fixtures,
furniture and furnishings; sheets and bedding; restaurant, dining, coffee shop,
cocktail lounge and lobby fixtures, furniture and furnishings; kitchen fixtures
and equipment, and all other furniture, furnishings and equipment required for
the operation of the meeting and banquet rooms, including dishes, glassware,
cooking utensils, linens, carpeting and draperies; pool fixtures and equipment
and outdoor area furniture; health club, spa or sport facility fixtures,
equipment, furniture and furnishings, any transportation vehicles, including
golf carts; and all other fixtures, equipment, furniture and machinery now or
hereafter used in connection with the operation of the Hotel and the conduct of
the Hotel Operations (the Fixtures and Personal Property);
(f) all ground leases, grants of easements or rights-of-way, permits,
declarations of covenants, conditions and restrictions, disposition and
development agreements, planned unit development agreements, cooperative,
condominium or similar ownership or conversion plans, management, leasing or
parking agreements or other material documents affecting the Land and
Improvements (the Property Documents);
(g) all inventory (including all goods, merchandise, raw materials,
incidentals, office supplies and packaging materials and all food and beverage
inventory, including all foodstuffs, condiments and supplies used in connection
with the operation of all food service facilities of Hotel Operations and all
alcoholic and non-alcoholic beverages held for sale to and consumption by guests
and other users of the Hotel) held for sale, lease or resale or furnished or to
be furnished under contracts of service, or used or consumed from time to time
in the operation of the Property, all documents of title evidencing any part of
any of the foregoing and all returned or repossessed goods arising from or
relating to any sale or disposition of inventory, subject to Borrower=s and
Hotel Operator=s right to sell or otherwise dispose of inventory in the ordinary
course of the business of operating the Hotel;
(h) all intangible personal property arising out of the operation of the
Property, including choses in action, causes of action, corporate and other
business records, inventions, designs, promotional materials, blueprints, plans,
specifications, patents, patent applications, trademarks, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, claims for
refunds or rebates of taxes, pension and insurance surpluses, refunds or rebates
of taxes and any letter of credit, guarantee, claim, security interest or other
security held by or granted to Borrower to secure payment by an account debtor
of any of the accounts of Borrower arising out of the operation of the Property,
and documents covering all of the foregoing; all documents, instruments, money,
deposit accounts, funds deposited in accounts established with a bank, savings
and loan, trust company or other financial institution in connection with the
use and operation of the Property, including any reserve accounts or escrow
accounts, and all investments of the funds and all other general intangibles;
all present and future rights of Borrower to payment for Hotel Operations,
including accounts and accounts receivable and rights to payment for fees,
charges, accounts or other payments for the use or occupancy of guest rooms and
other public facilities in the Hotel and any other present and future accounts
and accounts receivable and rights of Borrower to payment with respect to
Borrower=s interest in the Land and Improvements and the proceeds of all of the
accounts, accounts receivable and rights to payment, whether or not yet earned
by performance, and whether or not evidenced by a document including all present
and future rights to payment from any consumer credit or charge card
organization or entity (such as the organizations or entities which sponsor or
administer the American Express, Carte Blanche, Diners Club, Visa, Discover and
Master Charge/Master Card cards), subject however, to the right conferred on
Borrower or the Hotel Operator under this Mortgage, the Assignment or the Hotel
Operating Agreement to collect and apply any accounts receivable;
(i) all awards and other compensation paid after the date of this Mortgage
for any permanent or temporary taking by exercise of the right of eminent domain
(including any transfer in lieu of or in anticipation of an exercise of the
right of eminent domain), of the Property, including severance, damage to the
Property or decrease in the value of the Property and change in grade of streets
(the Condemnation Awards);
(j) all proceeds of and all unearned premiums on the Policies (the
Insurance Proceeds);
(k) to the extent assignable, all licenses, certificates of occupancy,
contracts, equipment leases, management agreements, operating agreements
(including the Current Hotel Operating Agreement and all future Hotel Operating
Agreements), operating covenants, franchise and license agreements, permits and
variances relating to the Property;
(l) all books, records and other information, wherever located, which are
in Borrower=s possession, custody or control or to which Borrower is entitled at
law or in equity and which are related to the Property, including all computer
or other equipment used to record, store, manage, manipulate or access the
information;
(m) all deposits held from time to time by the Accumulations Depository to
provide reserves for Taxes and Assessments, together with interest thereon, if
any (the Accumulations);
(n) all after-acquired title to or remainder or reversion in any of the
Property; all additions, accessions and extensions to, improvements of and
substitutions or replacements for any of the Property; all products and all cash
and non-cash proceeds, immediate or remote, of any sale or other disposition of
any of the Property, excluding sales or other dispositions of inventory in the
ordinary course of the business of operating the Property; and all additional
lands, estates, interests, rights or other property acquired by Borrower after
the date of this Mortgage for use in connection with the Property, all without
the need for any additional mortgage, assignment, pledge or conveyance to
Lender;
(o) all deposits or other pledges of funds held from time to time by Lender
or any escrow holder for the benefit of Lender in accordance with the terms of
this Mortgage or the Hotel Operating Agreement; and
(p) to the extent not otherwise specifically described in the foregoing
subsections, all of the specifically enumerated items of personal property
attached as Exhibit B to the Florida UCC-1 and/or UCC-3 Financing Statements of
even date with this Mortgage made by Borrower as Debtor or Sanwa as Assignor in
favor of Lender as Secured Party to be filed in the records of the Secretary of
State and Orange County, Florida.
Section 2.2. Habendum Clause. The Property is conveyed to Lender to have
and to hold forever in fee simple.
Section 2.3. Security Agreement. This Mortgage is a real property mortgage
and also a security agreement and a financing statement within the meaning of
the Uniform Commercial Code of Florida. The Property includes both real and
personal property and all of Borrower=s other right, title and interest, whether
tangible or intangible, in the Property. By executing and delivering this
Mortgage, Borrower grants to Lender, as security for the Obligations, a security
interest in the Property to the full extent that any of the Property may be
subject to the Uniform Commercial Code of Florida. One or more financing
statements have been or will be executed by Borrower and Lender or by Lender or
Borrower alone and filed in the manner required to perfect a security interest
under the Uniform Commercial Code of Florida. Compliance with the requirements
of the Uniform Commercial Code of Florida, will not be construed to alter in any
manner the rights of Lender under this Mortgage or under any laws of the
jurisdiction where the Property is located, and such compliance is declared to
be solely for the protection of Lender if compliance is necessary to perfect,
preserve or protect the priority of Lender=s security interest in and to any of
the Property.
Section 2.4. Conditions to Grant. This Mortgage is made on the express
condition that if Borrower pays and performs the Obligations in full in
accordance with the Loan Documents, unless expressly provided otherwise in the
Loan Documents, the Loan Documents will be released at Borrower=s expense.
ARTICLE III
OBLIGATIONS SECURED
Section 3.1. The Obligations. This Mortgage secures the payment when due,
whether on the Maturity Date, Acceleration or otherwise, of all amounts payable
under the Loan Documents (the Monetary Obligations) and the timely performance
of all other obligations and covenants to be performed under the Loan Documents
(the Nonmonetary Obligations).
Section 3.2. Future Advances. Future Advances. This Mortgage also secures
all future or additional advances as may be made by Lender to Borrower, whether
the future advances are obligatory or are made at Lender=s option to Borrower
for any purpose, provided that all future or additional advances must be made
within twenty (20) years from the date of this Mortgage, or within any lesser
period of time as may be provided hereafter by Law as a prerequisite for the
sufficiency of actual notice or record notice of the optional future or
additional advances as against the rights of creditors or subsequent purchasers
for valuable consideration, to the same extent as if such future advances as
against the rights of creditors or subsequent purchasers for valuable
consideration, to the same extent as if such future advances were made on the
date hereof. The total amount of the Monetary Obligations may decrease or
increase from time to time, but the total unpaid balance secured at any one time
will not exceed twice the face amount of the Note and any disbursements made for
the payment of taxes, levies or insurance on the Property.
ARTICLE IV
TITLE AND AUTHORITYARTICLE
Section 4.1. Title to the Property
(a) Except for the equipment under those equipment leases listed on
Schedule 1 and the equipment under any additional equipment leases Borrower
enters into after the date of this Mortgage in accordance with the criteria set
forth below, Borrower has and will continue to have good and marketable title in
fee simple absolute to the Land, the Improvements and the Fixtures and Personal
Property, free and clear of liens, encumbrances and charges, subject only to the
Permitted Exceptions and, to Borrower=s knowledge, there are no facts or
circumstances that might give rise to a lien, encumbrance or charge.
(b) Borrower owns and will continue to own all of the other Property free
and clear of all liens, encumbrances and charges whatsoever, subject only to the
Permitted Exceptions.
(c) Subject only to the Permitted Exceptions, this Mortgage is and will
remain a valid and enforceable first lien on and security interest in the
Property and Borrower will warrant and forever defend title to the Property
against the claims of all persons.
Section 4.2. Authority
(a) Borrower is and will continue to be (i) duly organized, validly
existing and in good standing under the Laws of the State of Delaware, and (ii)
duly registered and in good standing in each state where it conducts business.
(b) Borrower has and will continue to have all necessary approvals, whether
governmental or otherwise, and full right, power and authority to (i) own and
operate the Property and carry on Borrower=s business as now conducted or as
proposed to be conducted, (ii) execute and deliver the Loan Documents, (iii)
grant, mortgage, warrant, convey, assign and pledge the Property to Lender
pursuant to the provisions of this Mortgage and (iv) perform the Obligations.
(c) The execution and delivery of the Loan Documents and the performance of
the Obligations do not and will not conflict with or result in a default by
Borrower under any Laws or any Property Documents and do not and will not
conflict with or result in a default under any agreement binding upon Borrower.
(d) The Loan Documents constitute and will continue to constitute valid and
binding obligations of Borrower.
4.3. No Foreign Person. Borrower is not a foreign person within the meaning
of Section 1445(f)(3) of the Code.
4.4. Litigation. Except as otherwise disclosed to Lender in writing, there
are no Proceedings or, to Borrower=s knowledge, investigations against or
affecting Borrower or the Property and, to Borrower=s knowledge, there are no
facts or circumstances that might give rise to a Proceeding or investigation
against or affecting Borrower or the Property the result of which would have a
materially adverse impact on the financial condition of the Borrower or the
operation of the Property.
ARTICLE V
PROPERTY STATUS, MAINTENANCE AND LEASES
Section 5.1. Status of the Property.
(a) Borrower has obtained and will maintain in full force and effect all
certificates, licenses, permits and approvals issued or required by the
Government or by any other entity having jurisdiction over the Property or
Borrower and necessary for the Permitted Use, for occupancy and operation of the
Property and for the conduct of Borrower=s business.
(b) The Property is and will continue to be serviced by all public
utilities required for the Permitted Use of the Property.
(c) All roads and streets necessary for service of and access to the
Property for the current or contemplated use of the Property have been completed
and are and will continue to be serviceable, physically open and dedicated to
and accepted by the Government for use by the public or owned and maintained by
Borrower.
(d) The Improvements are free from material damage caused by a Casualty.
(e) All costs and expenses of labor, materials, supplies and equipment used
in the construction of the Improvements have been paid in full.
(f) Other than as contemplated under the Commitment Letter or permitted
under the Tri-Party Agreement, Borrower will not erect any new buildings,
structures or building additions on the Property without Lender=s prior consent.
Section 5.2. Maintenance of the Property.
(a) Subject to ordinary wear and tear and the provisions of this Mortgage
regarding Casualty and Condemnation, Borrower will maintain the Property in good
and safe condition, suitable for the Permitted Use, and, to the extent necessary
to maintain the Property in good and safe condition, suitable for the Permitted
Use, will replace the Fixtures and Personal Property with property at least
equal in quality and condition to that being replaced.
(b) Except as specifically provided in this Mortgage, Borrower shall not
sell, mortgage, encumber, transfer, lease or otherwise dispose of any of the
Property or any interest therein, or offer to do so, without the prior written
consent of Lender, or permit anything to be done that might impair the value of
any of the Property, except that Borrower shall be entitled to remove any items
of Property which are replaced on the date of their removal with items of
Property of at least equal suitability and value, free of all liens, security
interests and encumbrances.
5.3. Change in Use. Borrower will use and permit the use of the Property
for the Permitted Use and for no other purpose.
5.4.Waste. Borrower will not commit or permit any Waste or otherwise alter,
demolish, or remove or permit the alteration, demolition or removal of any of
the Property except than as may be permitted by the provisions of this Mortgage
or the Tri-Party Agreement.
Section 5.5. Inspection of the Property. Subject to the rights of tenants
of the Property and guests and other users of the Hotel, Lender has the right to
enter and inspect the Property on reasonable prior notice, except in the case of
an emergency, when no prior notice is necessary. Lender has the right to engage
an independent expert at Borrower=s expense at any time after an Event of
Default to review and report on Borrower=s compliance with Borrower=s
obligations under this Mortgage to maintain the Property, comply with Law and
refrain from Waste. Lender has the right at any other time to engage an
independent expert for the same purposes but at Lender=s expense.
Section 5.6. Leases and Rents.
(a) Pursuant to the Assignment, Borrower is assigning to Lender the Leases,
the Rents and the Hotel Revenues. Borrower will lease the Property in accordance
with the provisions of the Assignment.
(b) All proposed Leases shall be subject to the prior approval of the
Lender; provided, however, a proposed Lease which demises less than 1,000 square
feet of the existing retail space within the Hotel shall not require the prior
approval of Lender. Borrower shall observe and perform all the obligations
imposed upon the lessor under such Leases and, upon request, shall promptly send
to Lender copies to Lender of all notices of default which Borrower shall send
or receive thereunder. With respect to Leases in excess of 1,000 square feet,
Borrower (i) shall not do or permit to be done anything to impair the value of
such Leases as security for the Debt; (ii) shall enforce all of the terms,
covenants and conditions contained in such Leases upon the part of the lessee
thereunder to be observed or performed, short of termination thereof; (iii)
shall not collect any of the Rents more than one (1) month in advance; (iv)
shall not execute any other assignment of lessor's interest in such Leases or
the Rents; (v) shall not alter, modify or change any material terms of such
Leases without the prior written consent of Lender, or cancel or terminate such
Leases or accept a surrender thereof or convey or transfer or suffer or permit a
conveyance or transfer of the Property or of any interest therein so as to
effect a merger of the estates and rights of, or a termination or diminution of
the obligations of, lessees thereunder; (vi) shall not alter, modify or change
any material terms of any guaranty of such Leases or cancel or terminate such
guaranty without the prior written consent of Lender; and (viii) shall not
consent to any assignment of or subletting under such Leases not in accordance
with their terms, without the prior written consent of Lender.
Section 5.7. Equipment Leases. Borrower will not enter into new equipment
leases without Lender=s prior consent, provided that so long as there is no
Event of Default, Borrower may, without Lender=s prior consent, enter into,
amend, waive, cancel, or surrender any such equipment leases so long as the
following conditions are met: (i) the annual lease payments for such lease do
not exceed $350,000 (for the purposes of this requirement, all cross-defaulted
and cross-collateralized leases shall be aggregated); (ii) the aggregate annual
lease payments for all equipment leases then in effect do not exceed one percent
(1%) of the gross revenues of the Hotel; and (iii) the aggregate annual lease
payments for all equipment leases then in effect will not cause the Debt Service
Coverage Ratio to be less than 1.5 to 1. Borrower will promptly deliver to
Lender copies of any notices of default or of termination Borrower receives or
delivers relating to any equipment lease whose annual lease payment is greater
than $350,000.
Section 5.8. Parking. Borrower will provide, maintain, police and light
parking areas within the Property, together with any sidewalks, aisles, streets,
driveways, sidewalk cuts and rights-of-way to and from the adjacent public
streets in a manner consistent with the Permitted Use, and sufficient to
accommodate the greatest of (i) the number of passenger vehicles required to be
maintained by Law; (ii) the requirements of the Leases and the Property
Documents affecting the Property; or (iii) 1,000 spaces. The parking areas at
the Property will be reserved and used exclusively for ingress, egress and
parking for Borrower and tenants of the Property, hotel guests and employees,
customers and invitees.
Section 5.9. Separate Tax Parcel. The Property is and will remain assessed
for real estate tax purposes as one or more wholly independent tax parcel or
parcels, separate from any property that is not part of the Property.
Section 5.10. Changes in Zoning or Restrictive Covenants. Borrower will not
(i) initiate, join in or consent to any change in any Laws pertaining to zoning,
restrictive covenant or other restriction modifying the uses which may be made
of the Property; (ii) except as set forth in the Permitted Exceptions, permit
the Property to be used to qualify for fulfillment of any Governmental
requirements for the construction or maintenance of any improvements on property
that is not part of the Property; or (iii) impair the integrity of the Property
as legally subdivided zoning lots separate and apart from all other property.
Section 5.11. Lender=s Right to Appear. Lender has the right to appear in
and defend any Proceeding brought regarding the Property and to bring any
Proceeding, which Lender, in its sole discretion, determines should be brought
to protect Lender=s interest in the Property.
ARTICLE VI
IMPOSITIONS AND ACCUMULATIONS
Section 6.1. Impositions
(a) Borrower will pay each Imposition at least 15 days before the date (the
Imposition Penalty Date) that is the earlier of (i) the date on which the
Imposition becomes delinquent and (ii) the date on which any penalty, interest
or charge for non-payment of the Imposition accrues, provided that there is no
Event of Default Borrower will pay each Imposition on or before the Imposition
Penalty Date but provided, however, that if Borrower fails to pay any
installment of Taxes or Assessments on or before the applicable Imposition
Penalty Date, Borrower=s right to pay Impositions less than 15 days before the
Imposition Penalty Date will be automatically revoked for the remainder of the
term of this Mortgage.
(b) At least 10 days before each Imposition Penalty Date for Taxes or
Assessments, Borrower will deliver to Lender a receipted bill or other evidence
of payment of the Taxes or Assessments, provided that so long as there is no
Event of Default, Borrower may deliver to Lender the receipted bill or other
evidence of payment not more than 10 days after each Imposition Penalty Date,
provided further that if Borrower fails to pay any installment of Taxes or
Assessments on or before the applicable Imposition Penalty Date, Borrower=s
right to deliver to Lender the receipt or other evidence of payment not later
than 10 days after the Imposition Penalty Date will be automatically revoked for
the remainder of the term of this Mortgage.
(c) Notwithstanding the provisions of subsections (a) and (b) above,
Borrower, at its own expense, may contest any Taxes or Assessments, provided
that the following conditions are met:
(i) not less than 10 days prior to the initiation of such contest, Borrower
delivers to Lender notice of the proposed contest;
(ii) the contest is by a Proceeding promptly initiated and conducted
diligently and in good faith;
(iii) there is no Event of Default;
(iv) the Proceeding suspends the collection of the contested Taxes or
Assessments or Borrower pays all of the contested Taxes or Assessments;
(v) the Proceeding is permitted under and is conducted in accordance with
the Property Documents;
(vi) the Proceeding precludes imposition of criminal penalties and sale or
forfeiture of the Property and Lender will not be subject to any civil suit; and
(vii) Borrower has set aside adequate reserves for the payment of the
contested Taxes or Assessments, together with all interest and penalties, unless
Borrower has paid all of the contested Taxes or Assessments.
(d) If any Taxes or Assessments are payable in installments, Borrower will
nevertheless pay the Taxes and/or Assessments in their entirety on the day the
first installment becomes due and payable or a lien, unless Lender, in its sole
discretion, approves payment of the Taxes and/or Assessments in installments.
Section 6.2. Accumulations. So long there exists no Event of Default
hereunder, Borrower shall be permitted to escrow for Taxes and Assessments in
accordance with the terms of the Hotel Operating Agreement; upon an Event of
Default, and if required by Lender, the following provisions shall apply:
(a) On the first day of each calendar month thereafter during the Term,
Borrower will make a deposit (the Accumulations Deposits) in an amount equal to
approximately one-twelfth of the estimated annual Taxes and Assessments, as
reasonably determined by Lender or its designee into an account with Lender or a
mortgage servicer or financial institution designated or approved by Lender to
receive, hold and disburse the Accumulations in accordance with this Section
(the Accumulations Depository). At least 45 days before each Imposition Penalty
Date (or, if later, within 10 days of Borrower=s receipt of such bills),
Borrower will deliver to the Accumulations Depository any bills and other
documents that are necessary to pay the Taxes, Assessments and Ground Rent. If
required by Lender, Borrower shall also make an initial deposit which would
equal the sum of the sum of the Accumulations Deposits which Borrower would have
been required to make if it had been escrowing for Taxes and Assessments the
entire calendar year prior to first deposit under this subsection (a).
(b) The Accumulations will be applied to the payment of Taxes and
Assessments. Any excess Accumulations after payment of Taxes and Assessments
will be returned to Borrower or credited against the next succeeding future
payments of the Accumulations, at Lender=s election or as required by Law. If
the Accumulations are not sufficient to pay Taxes and Assessments, Borrower will
pay the deficiency to the Accumulations Depository within 5 days of demand from
Lender. At any time after an Event of Default occurs, the Accumulations may be
applied as a credit against any portion of the Monetary Obligations as selected
by Lender in accordance with the terms of this Mortgage.
(c) The Accumulations Depository will hold the Accumulations as additional
security for the Obligations until applied in accordance with the provisions of
this Mortgage. If Lender is not the Accumulations Depository, the Accumulations
Depository will deliver the Accumulations to Lender upon Lender=s demand at any
time after an Event of Default.
(d) If the Property is sold or conveyed other than by foreclosure or
transfer in lieu of foreclosure, all right, title and interest of Borrower to
the Accumulations will automatically, and without necessity of further
assignment, be held for the account of the new owner, subject to the provisions
of this Section.
(e) The Accumulations Depository shall deposit the Accumulations into a
separate interest bearing account in the name of Lender as secured party, all in
accordance with an agreement by and among Borrower, Lender and Accumulations
Depository to be entered into following the triggering of Borrower=s obligations
to pay the Accumulations to Lender under this Section. Lender has the right to
pay, or to direct the Accumulations Depository to pay, any Imposition unless
Borrower is contesting the Imposition in accordance with the provisions of this
Mortgage, in which event any payment of the Imposition either will be made under
protest in the manner prescribed by Law or will be withheld.
(f) If Lender assigns this Mortgage, Lender will pay, or cause the
Accumulations Depository to pay, the unapplied balance of the Accumulations to
or at the direction of the assignee. Simultaneously with the payment, Lender and
the Accumulations Depository will be released from all liability with respect to
the Accumulations and Borrower will look solely to the assignee with respect to
the Accumulations. When the Obligations have been fully satisfied, any unapplied
balance of the Accumulations (together with any interest thereon) will be
returned to Borrower.
Section 6.3. Changes in Tax Laws. If a Government deducts the Monetary
Obligations from the value of the Property for the purpose of taxation or
imposes a tax, either directly or indirectly, on the Monetary Obligations, any
Loan Document or Lender=s interest in the Property, Borrower will pay the tax
with interest and penalties, if any. If Lender determines that Borrower=s
payment of the tax may be unlawful, unenforceable, usurious or taxable to
Lender, Lender may accelerate the Loan on 60 days= prior notice unless the tax
must be paid within the 60-day period, in which case, Lender may accelerate the
Loan within the lesser period. Nothing set forth in this Section 6.3 shall be
deemed or construed as requiring Borrower to pay any income, franchise or
similar tax based upon Lender=s income.
ARTICLE VII
INSURANCE, CASUALTY, CONDEMNATION AND RESTORATION
Section 7.1. Insurance Coverages.
(a) Borrower will maintain or will cause the Hotel Operator to maintain
such insurance coverages and endorsements in form and substance and in amounts
as Lender may require in its reasonable discretion, from time to time. Lender
hereby acknowledges that the insurance coverages and endorsements in effect on
the date hereof with respect to the Property are sufficient under the state of
facts known to Lender as of the date hereof.
(b) The property insurance companies issuing the Policies (the Insurers)
must be authorized to do business in the State or Commonwealth where the
Property is located, must carry an A.M. Best Company, Inc. policy holder rating
of A- or better and an A.M. Best Company, Inc. financial category of Class X or
better and must be otherwise satisfactory to Lender. Notwithstanding the
requirements set forth above, Lender will not be responsible for the solvency of
any Insurer.
(c) The insurance, including renewals, required under this Section will be
issued on valid and enforceable policies and endorsements reasonably
satisfactory to Lender taking into account such policies and endorsements
commonly carried by owners of similar properties (the Policies). The Property
Policy will contain a standard waiver of subrogation and a replacement cost
endorsement and will provide that Lender will receive not less than 30 days=
prior written notice of any cancellation, termination or non-renewal of a Policy
or any material change other than an increase in coverage and that Lender will
be named under a standard mortgage endorsement as loss payee. Borrower has
disclosed to Lender that Borrower or the Hotel Operator has a deductible for the
property under insurance policies and has a self insurance retention on the
liability policies. Notwithstanding anything to the contrary in this Article,
Borrower or Hotel Operator will be permitted to continue such self-insurance at
the levels disclosed to Lender. Any proposed change in the self-insurance
arrangements disclosed to Lender in connection with closing the Loan will be
subject to Lender=s consent, which such consent will not be unreasonably
withheld if such arrangements are consistent with other similar hotels under the
same brand owned by Borrower and managed by the Hotel Operator, and Lender
reasonably determines that such arrangements are sufficient to protect the
security for the Loan.
(d) Notwithstanding Lender=s rights under this Article, Lender will not be
liable for any loss, damage or injury resulting from the inadequacy or lack of
any insurance coverage.
(e) Borrower will comply with the provisions of the Policies and with the
requirements, notices and demands imposed by the Insurers and applicable to
Borrower or the Property.
(f) Borrower will pay the Insurance Premiums for each Policy on or before
the due dates thereof, but in no event less than 30 days before the expiration
date of the Policy being replaced or renewed, and will deliver to Lender an
original certificate of insurance specifying the property location and also
specifying full replacement value coverage, not less than 10 days prior to the
expiration date of the Policy.
(g) Borrower will not carry separate insurance concurrent in kind or form
or contributing in the event of loss with any other insurance carried by
Borrower.
(h) Borrower will give the Insurers prompt notice of any change in
ownership of the Property. This subsection does not affect the prohibitions on
transfers set forth in this Mortgage.
(i) All Policies shall provide that if the Property is sold at a
foreclosure sale or otherwise is transferred so as to extinguish the
Obligations, all of Borrower=s right, title and interest in and to the Policies
will automatically continue to protect the purchaser or transferee, so long as
the Hotel Operator remains the same.
Section 7.2. Casualty and Condemnation.
(a) Borrower will give Lender notice of any Casualty in excess of
$250,000.00 immediately after it occurs and will give Lender notice of the
commencement of any Proceeding in Condemnation immediately after Borrower
receives notice of commencement. Borrower will immediately deliver to Lender
copies of all documents Borrower delivers or receives relating to the Casualty
or the Proceeding, as the case may be.
(b) Following an Event of Default and during the continuation thereof,
Borrower authorizes Lender, at Lender=s option, to act on Borrower=s behalf to
collect, adjust and compromise any claims for loss, damage or destruction under
the Policies on such terms as Lender determines. Borrower will execute and
deliver to Lender all documents requested by Lender or as may be required to
confirm the authorization.
(c) If Lender elects not to act on Borrower=s behalf as provided in this
Section, then Borrower promptly will file and prosecute all claims (including
Lender=s claims) relating to the Casualty and will defend (including defense of
Lender=s interest) any Proceeding in Condemnation. Borrower will have the
authority to settle or compromise the claims or Proceeding, as the case may be,
provided that Lender has approved any compromise or settlement that exceeds
$500,000.00. Any check for Insurance Proceeds or Condemnation Awards, as the
case may be (the Proceeds) will be made payable by check drawn by the Insurer to
Lender and Borrower, as their interests may appear. Borrower will endorse the
check to Lender immediately upon Lender presenting the check to Borrower for
endorsement or, if Borrower receives the check first, will endorse the check
immediately upon receipt and forward it to Lender. If any Proceeds are paid
directly to Borrower, Borrower immediately will deposit the Proceeds with
Lender, to be applied or disbursed in accordance with the provisions of this
Mortgage. Lender will be responsible for only Proceeds actually received and
held by Lender.
Section 7.3. Application of Proceeds. After deducting the reasonable costs
incurred by Lender in collecting the Proceeds, Lender may, in its sole
discretion, (i) apply the Proceeds as a credit against any portion, as selected
by Lender in its sole discretion, of the Monetary Obligations; (ii) apply the
Proceeds to restore the Improvements, provided that Lender will not be obligated
to see to the proper application of the Proceeds and provided further that any
amounts released for Restoration will not be deemed a payment on the Monetary
Obligations; or (iii) deliver the Proceeds to Borrower.
Section 7.4. Conditions to Availability of Proceeds for Restoration7.4.
Conditions to Availability of Proceeds for Restoration.
(a) Notwithstanding the provisions of Section 7.3, Lender will make the
Proceeds (less any reasonable costs incurred by Lender in collecting the
Proceeds) available for Restoration after a Casualty or a Condemnation (a
Destruction Event), provided that the following conditions are met and only in
accordance with the conditions for disbursements set forth in Section 7.5:
(i) Marriott Hotel Properties Limited Partnership or a Permitted
Transferee, if any, continues to be the owner of the Hotel at the time of the
Destruction Event and at all times thereafter until the Proceeds have been fully
disbursed;
(ii) no Event of Default under the Loan Documents exists at the time of the
Destruction Event;
(iii) all Property Documents in effect immediately prior to the Destruction
Event that are essential to the use and operation of the Property continue in
full force and effect notwithstanding the Destruction Event;
(iv) if the Destruction Event is a Condemnation, Borrower delivers to
Lender evidence satisfactory to Lender that the Improvements can be Restored to
an economically and architecturally viable unit;
(v) if Borrower intends to restore the Property to its condition
immediately prior to the Destruction Event, Borrower delivers to Lender evidence
satisfactory to Lender that the Proceeds are sufficient to complete Restoration
or if the Proceeds are insufficient to complete Restoration, Borrower first
deposits with Lender funds (Additional Funds) that when added to the Proceeds
will be sufficient to complete Restoration;
(vi) if Borrower intends to restore the Property to a condition other than
as it was immediately prior to the Destruction Event, Borrower delivers to
Lender a detailed scope of the work, the plans and specifications for such
improvements, engineering studies, budgets, and/or other evidence reasonably
satisfactory to Lender that the Proceeds (plus any Additional Funds committed by
Borrower) are sufficient to complete such work and that such work will result in
improvements which are architecturally integrated with the existing
Improvements.
(vii) Lender is satisfied that the proceeds of any business interruption
insurance in effect together with other available income from the Property and
any funds deposited by Borrower to cover any shortfall are sufficient to pay
Debt Service Payments after paying the Impositions, Insurance Premiums,
reasonable and customary operating expenses and capital expenditures until
Restoration is complete;
(viii) Lender is satisfied that Restoration will be completed on or before
the date (the Restoration Completion Date) that is the earliest of: (i) 12
months prior to the Maturity Date if such Destruction Event has caused a
reduction in the gross revenues of the Hotel of fifteen percent (15%) or more;
(ii) 18 months after the Destruction Event; (iii) the earliest date required for
completion of Restoration under any Lease or any Property Document, or (iv) any
date required by Law; and
(ix) the annual gross revenue from the Property for the 12-month period
immediately preceding the Destruction Event, was providing annual Debt Service
Coverage Ratio of 1.15, and Lender determines, based on projections reasonably
satisfactory to Lender, that within 18 months after Restoration the annual gross
revenue from the Property will provide annual Debt Service Coverage Ratio of
1.15 or Lender will apply an amount from the Proceeds to reduction of Principal
in order to reduce the Debt Service Payments sufficiently for a Debt Service
Coverage Ratio of 1.15 to be achieved based on the Projections delivered to
Lender. The reduced Debt Service Payments will be calculated using the Fixed
Interest Rate and an amortization schedule that will achieve the same
proportionate amortization of the reduced Principal over the then remaining Term
as would have been achieved if the Principal and originally scheduled Debt
Service Payments had not been reduced. Borrower will execute any documentation
that Lender deems reasonably necessary to evidence the reduced Principal and
debt service payments.
(b) If the total Proceeds for any Destruction Event do not exceed $500,000
and Lender elects or is obligated by Law or under this Section to make the
Proceeds available for Restoration, Lender will disburse to Borrower the entire
amount received by Lender and Borrower will commence and complete Restoration
promptly. If the Proceeds for any Destruction Event exceed $500,000 and Lender
elects or is obligated by Law or under this Section to make the Proceeds
available for Restoration, Lender will deliver the Proceeds and any Additional
Funds (the Restoration Funds) to Lender=s Correspondent for deposit in an
interest bearing account to be disbursed upon Borrower=s request as Restoration
progresses (but not more often than once each calendar month), provided that
with respect to each request there is no default under the Loan Documents and,
upon Lender=s request, Borrower delivers to Lender and Lender=s Correspondent
satisfactory evidence of the costs of Restoration incurred prior to the date of
the request, with all supporting documentation, including waivers of mechanics
liens, contractor=s and architect=s affidavits and appropriate title
endorsements. If Lender requests, Borrower will deliver to Lender prior to
commencing Restoration, for Lender=s approval, plans and specifications and
detailed budget for the Restoration. Subject to Force Majeure delays and to
Lender=s making the Proceeds available for Restoration, Borrower will commence
Restoration as soon as practicable after the Destruction Event and will complete
Restoration on or before the Restoration Completion Date.
Section 7.5. Restoration. If Lender elects or is obligated by Law or this
Mortgage to make the Proceeds available for Restoration, the following
provisions apply:
(a) Borrower will pay all costs of Restoration whether or not the
Restoration Funds are sufficient and, if at any time during Restoration, Lender
determines that the undisbursed balance of the Restoration Funds is insufficient
to complete Restoration, Borrower will deposit with Lender, as part of the
Restoration Funds, an amount equal to the deficiency within 30 days of receiving
notice of the deficiency from Lender.
(b) Lender may elect at any time prior to or during the course of
Restoration to retain, at Borrower=s expense, an independent engineer or other
consultant to review any plans and specifications required by Lender, to inspect
Restoration as it progresses, and to provide reports. If any matter included in
a report by the engineer or consultant is unsatisfactory to Lender, Lender may
suspend disbursement of the Restoration Funds until the unsatisfactory matters
contained in the report are resolved to Lender=s satisfaction.
(c) If Borrower fails to commence or complete Restoration in accordance
with this Article, among other remedies, Lender may elect to restore the
Improvements on Borrower=s behalf and reimburse itself out of the Restoration
Funds for costs and expenses incurred by Lender in restoring the Improvements,
or Lender may elect to apply the Restoration Funds as a credit against any
portion, as selected by Lender, of the Monetary Obligations.
(d) If an Event of Default under the Loan Documents occurs after the
Destruction Event, then Lender will have no further obligation to make any
remaining Proceeds available for Restoration, may withdraw the remaining
Restoration Funds from the account being administered by Lender=s Correspondent
and may apply any remaining Restoration Funds Proceeds as a credit against any
portion, as selected by Lender in its sole discretion, of the Monetary
Obligations.
(e) If Borrower fails to pay all of Lender=s expenses incurred in
connection with a Destruction Event or Restoration, among other remedies, Lender
may from time to time reimburse itself out of the Restoration Funds.
ARTICLE VIII
COMPLIANCE WITH LAW AND AGREEMENTS
Section 8.1. Compliance with Law. Borrower, the Property and the use of the
Property comply and will continue to comply in all material respects with Law
and with all agreements and conditions necessary to preserve and extend all
rights, licenses, permits, privileges, franchises and concessions (including
zoning variances, special exceptions and non-conforming uses) relating to the
Property or Borrower. Borrower will notify Lender of the commencement of any
investigation or Proceeding relating to a possible violation of Law immediately
after Borrower receives notice thereof and will deliver to Lender copies of all
documents Borrower receives or delivers in connection with the investigation or
Proceeding. Borrower will not alter the Property in any manner that would
increase Borrower=s responsibilities for compliance with Law.
Section 8.2. Compliance with Property Documents. To Borrower=s knowledge,
there are no defaults, events of defaults or events which, with the passage of
time or the giving of notice, would constitute an event of default under the
Property Documents. Borrower will pay and perform all of its obligations under
the Property Documents as and when required by the Property Documents. Borrower
will use commercially reasonable efforts to cause all other parties to the
Property Documents to pay and perform their obligations under the Property
Documents as and when required by the Property Documents. Borrower will not
amend or waive any provisions of the Property Documents; cancel or surrender any
of the Property Documents; or release or discharge or permit the release or
discharge of any party to or entity bound by any of the Property Documents,
without, in each instance, Lender=s prior approval. Borrower will promptly
deliver to Lender copies of any notices of default or of termination Borrower
receives or delivers relating to any Property Document.
Section 8.3. Compliance with Agreements. Borrower shall observe and perform
each and every term to be observed or performed by Borrower pursuant to the
terms of any agreement affecting or pertaining to the Hotel, and shall not
suffer or permit any delinquency on its part to exist, except such action as may
be done in the ordinary course of business of operating a first-class
hotel/resort property, including modification, waiver or termination of any of
the terms thereof.
Section 8.4. ERISA Compliance.
(a) Borrower is not and will continue not to be an employee benefit plan as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974
(ERISA) that is subject to Title I of ERISA or a plan as defined in Section
4975(e)(1) of the Code that is subject to Section 4975 of the Code, and
Borrower=s assets do not and will not constitute plan assets of one or more such
plans for purposes of Title I of ERISA or Section 4975 of the Code.
(b) Borrower is not and will continue not to be a governmental plan within
the meaning of Section 3(32) of ERISA, and transactions by or with Borrower do
not and will not be subject to any Laws regulating investments of and fiduciary
obligations with respect to governmental plans.
Section 8.5. Section 6045(e) Filing. Borrower will deliver to Lender either
(i) a copy of a completed Form 1099-B, Statement for Recipients of Proceeds from
Real Estate, Broker and Barter Exchange Proceeds prepared by Borrower=s attorney
or other person responsible for the preparation of the form, together with a
certificate from the person who prepared the form that, to the best of the
person=s knowledge, the form has been accurately prepared and that the form will
be filed timely, or (ii) a certification from Borrower that the Loan is a
refinancing of the Property or is otherwise not required to be reported to the
Internal Revenue Service pursuant to Section 6045(e) of the Code. Borrower will
indemnify, defend and hold Lender harmless from all loss, cost, damage and
expense (including, without limitation, attorneys= fees and disbursements and
costs incurred in the investigation, defense and settlement of claims) that
Lender may incur, directly or indirectly, in connection with the assertion
against Lender of any claim relating to the failure of Borrower to comply with
this Section.
Section 8.6. Hotel Operating Agreement
(a) The Current Hotel Operating Agreement is in full force and effect, has
not been amended and represents the entire agreement among its parties
respecting the operation and management of the Hotel, and there are no defaults,
events of default or events which, with the passage of time or the giving of
notice, would constitute a default or event of default under the Current Hotel
Operating Agreement.
(b) Borrower will pay and perform all of Borrower=s obligations under the
Hotel Operating Agreement as and when required under the Hotel Operating
Agreement.
(c) Borrower will use commercially reasonable efforts to cause Hotel
Operator to pay and perform all of Hotel Operator=s obligations under the Hotel
Operating Agreement as and when required under the Hotel Operating Agreement.
(d) Upon expiration or termination of any Hotel Operating Agreement,
Borrower will not renew the expired or terminated agreement or enter into a
replacement Hotel Operating Agreement without, in each instance, Lender=s prior
approval, which may be withheld in Lender=s sole discretion, and Borrower will
deliver to Lender for Lender=s review copies of any proposed renewal or
replacement Hotel Operating Agreement not less than 30 days prior to the
proposed execution of the agreement and will deliver to Lender, within 5
Business Days after demand, any additional information Lender reasonably
requests relating to the renewal or replacement Hotel Operating Agreement.
(e) Within 2 Business Days of delivery or receipt by Borrower, Borrower
will deliver to Lender copies of any notices of default or of termination
Borrower delivers or receives relating to the Hotel Operating Agreement and
within 5 Business Days of delivery or receipt by Borrower, Borrower will deliver
to Lender copies of all monthly, quarterly and annual financial reports, the
annual operating and capital expenditure plans and any revisions thereof.
(f) Borrower is assigning to Lender the Current Hotel Operating Agreement
and any future Hotel Operating Agreement. The Current Hotel Operator has
consented to, and any future Hotel Operators will consent to, the assignment. If
Lender determines that the Hotel Operator is not performing its obligations or
is otherwise in default under a Hotel Operating Agreement on a material matter
that adversely affects Hotel Operations, then immediately upon notice from
Lender, Borrower will pursue rights and remedies available to Borrower under the
Hotel Operating Agreement including any right to terminate.
(g) Each future Hotel Operating Agreement with any Hotel Operator other
than the Current Hotel Operator (directly or by separate agreement in form and
content satisfactory to Lender) will provide among other things that:
(i) the Hotel Operating Agreement is subject and subordinate to the lien of
this Mortgage and to Lender=s rights under the Loan Documents;
(ii) upon foreclosure or transfer by deed in lieu of foreclosure, Lender,
or any purchaser at a foreclosure sale, will have the right, exercisable in its
sole discretion within 6 months after the date a foreclosure of this Mortgage is
final or the date a deed in lieu of foreclosure is delivered, as the case may
be, to confirm the continuation of the Hotel Operating Agreement in accordance
with its terms or to terminate the Hotel Operating Agreement without payment of
any termination fee;
(iii) until the Hotel Operating Agreement is terminated and thereafter if
the Hotel Operating Agreement is not terminated after foreclosure or transfer by
deed in lieu of foreclosure, the Hotel Operator will continue to operate and
manage the Hotel in accordance with the provisions of the Hotel Operating
Agreement so long as Lender continues to discharge the obligations of the Hotel
Owner under such Hotel Operating Agreement;
(iv) the Hotel Operator=s right to receive any fees under the Hotel
Operating Agreement will be non-cumulative and will be subject and subordinate
to Lender=s rights to receive Debt Service Payments or any other payments to be
made to Lender pursuant to the Loan Documents;
(v) after approval by Lender, the Hotel Operating Agreement will not be
amended, extended, assigned or terminated without Lender=s approval which may be
withheld in Lender=s sole discretion;
(vi) the Hotel Operator will deliver to Lender copies of all notices of
default or of termination that the Hotel Operator gives under the Hotel
Operating Agreement and will accept cure of any default from Lender and will not
terminate the Hotel Operating Agreement without giving Lender an additional
notice and 30-day period to cure and if the default cannot be cured without
Lender=s taking possession of the Property, the cure period will be extended for
as long as is necessary for Lender to complete a foreclosure or deed in lieu of
foreclosure of this Mortgage and for a reasonable period of time thereafter,
provided that Lender promptly commences and completes the foreclosure or deed in
lieu of foreclosure transaction and promptly thereafter commences and completes
the cure;
(vii) after foreclosure or transfer by deed in lieu of foreclosure, Lender
or the transferee of the Property will not be liable for any defaults of
Borrower or any other previous owner under the Hotel Operating Agreement, will
not be liable for repayment of any loans made by Hotel Operator to Borrower or
to any other entity and will have no liability under the Hotel Operating
Agreement from and after the date Lender or the transferee of the Property
transfers the Property; and
(viii) if Lender gives the Hotel Operator notice that there is an Event of
Default, the Hotel Operator will remit all Rent and Hotel Revenues directly to
Lender or as Lender may direct.
(h) Borrower will indemnify, defend and hold Lender harmless against any
liability, loss, cost, damage or expense which Lender may incur under the Hotel
Operating Agreement or under or by reason of this Mortgage prior to the exercise
by Lender of any of its remedies under this Mortgage.
ARTICLE IX
ENVIRONMENTAL
Section 9.1. Environmental Representations and Warranties.
(a) Except as disclosed in the Environmental Report, during the period
Borrower has owned the Property and as of the date of this Mortgage:
(i) to Borrower=s knowledge, no Environmental Activity has occurred or is
occurring on the Property other than the use or storage of de minimis quantities
of Hazardous Materials in compliance with all Environmental Laws and in the
ordinary course of business; and
(ii) to Borrower=s knowledge, no Environmental Activity has occurred or is
occurring on any property in the vicinity of the Property from which there is a
material risk that Hazardous Materials will migrate, leach, flow, drain, seep,
blow or drift onto the Property.
(b) Except as disclosed in the Environmental Report, to Borrower=s
knowledge, at all times prior to acquisition of the Property by Borrower:
(i) no Environmental Activity occurred on the Property other than the use
or storage of de minimis quantities of Hazardous Materials in compliance with
all Environmental Laws and in the ordinary course of business; and
(ii) no Environmental Activity occurred on any property in the vicinity of
the Property from which there is a material risk that Hazardous Materials will
migrate, leach, flow, drain, seep, blow or drift onto the Property.
(c) For the purposes of this Section, the phrase use of the Property
includes use by Tenants and the phrase on the Property means on, in, above and
below the Property.
Section 9.2. Environmental Covenants.
(a) No Environmental Activity will occur on the Property other than the use
or storage of de minimis quantities of Hazardous Materials used in compliance
with all Environmental Laws and in the ordinary course of business.
(b) Borrower will notify Lender immediately upon Borrower=s becoming aware
of (i) any actual, suspected or threatened violation of Environmental Laws with
respect to the Property or with respect to any property in the vicinity of the
Property, and (ii) any Environmental Activity with respect to the Property or
with respect to any property in the vicinity of the Property. Borrower will
promptly deliver to Lender copies of all documents delivered to or received by
Borrower regarding the matters set forth in this subsection, including notices
of Proceedings, or investigations or concerning Borrower=s status as a
potentially responsible person. Borrower=s notification of Lender in accordance
with the provisions of this subsection will not be deemed to excuse any Event of
Default resulting from the violation or Environmental Activity that is the
subject of the notice.
(c) From time to time at Lender=s request, Borrower will deliver to Lender
any information known and documents available to Borrower relating to the
environmental condition of the Property.
(d) Lender may perform an assessment of the environmental condition of the
Property and of Borrower=s compliance with this Section at any time for
reasonable cause or after an Event of Default. In connection with the
assessment: (i) Lender may enter and inspect the Property and perform tests of
the air, soil, ground water and building materials; (ii) Borrower will cooperate
and use best efforts to cause tenants and other occupants of the Property to
cooperate with Lender; (iii) Borrower will accept custody of and arrange for
lawful disposal of any Hazardous Materials required to be disposed of as a
result of the tests; (iv) Lender will have no liability to Borrower with respect
to the results of the assessment except for Lender=s negligence or willful
misconduct; and (v) Lender will not be responsible for any damage to the
Property resulting from the negligence or other misconduct of Lender=s
consultants in performing the tests described in this subsection. Upon request
by Borrower, Lender will cause its consultants to provide to Borrower
certificate of insurances evidencing liability coverage prior to commencement of
work at the Property by such consultant(s).
(e) If Lender has reasonable cause to believe that there is Environmental
Activity at the Property, Lender may elect in its sole discretion to release
from the lien of this Mortgage any portion of the Property affected by such
Environmental Activity.
ARTICLE X
FINANCIAL REPORTING
Section 10.1. Financial Reporting.
(a) Borrower will deliver to Lender within 120 days after the close of each
Fiscal Year, an annual, consolidating financial statement (the Annual Financial
Statement) of the Borrower for the preceding Fiscal Year, which will include a
reasonably detailed balance sheet, statements of income and expenses, changes in
partners= capital and cash flow for such Fiscal Year, including comparative
statements from the figures for the immediately preceding Fiscal Year. Each
Annual Financial Statement will be:
(i) audited by a CPA;
(ii) accompanied by an opinion of the CPA that, in all material respects,
the Annual Financial Statement fairly presents the financial position of the
Borrower;
(iii) prepared in accordance with GAAP consistently applied.
(b) Borrower will deliver to Lender within 90 days after the close of each
Fiscal Year a certificate of Borrower disclosing any contracts with affiliates
of Borrower in connection with the Property.
(c) If Lender requests, Borrower will deliver to Lender within 10 days
after Borrower=s receipt from the Hotel Operator, an income and expense
statement for the Property certified by Borrower for each 4-week accounting
period of Borrower.
(d) If Lender requests, Borrower will deliver to Lender within 15 Business
Days of the request:
(i) a Certified Rent Roll prepared not more than 5 Business Days before
delivery; and
(ii) an income and expense statement for the Property certified by Borrower
and prepared for the period requested by Lender or, if not specified, then for
the period commencing the later of the beginning of the Fiscal Year in which the
request is made or the date of the last certified income and expense statement
delivered to Lender and continuing through the last day of the four week
accounting period preceding the request.
(e) Borrower will deliver to Lender promptly any other information with
respect to the operation and management of Borrower and the Property as Lender
may request from time to time.
(f) Borrower will keep full and accurate Financial Books and Records for
each Fiscal Year. Borrower will permit Lender or Lender=s accountants or
auditors to inspect or audit the Financial Books and Records from time to time
and with reasonable notice. Borrower will maintain the Financial Books and
Records for each Fiscal Year for not less than 3 years after the date Borrower
delivers to Lender the Annual Financial Statement and the other financial
certificates, statements and information to be delivered to Lender for the
Fiscal Year. Financial Books and Records will be maintained at either the
Property or Borrower=s address set forth in the section entitled Notices or at
any other location as may be approved by Lender.
Section 10.2. Waiver. Borrower hereby waives any defense or right of offset
to the Obligations, and any claim or counterclaim against Lender, arising out of
any discussions between Borrower and Lender regarding any Hotel Operating Plan
or revised Hotel Operating Plan delivered to Lender or the resolution of any
disagreements relating to the Hotel Operating Plan or revised Hotel Operating
Plan, including, without limitation, any such defense, right of offset, claim or
counterclaim alleging in substance, that by virtue of such delivery, discussions
or resolution, Lender has interfered with, influenced or controlled Borrower or
the operations at the Property.
ARTICLE XI
EXPENSES AND DUTY TO DEFEND
Section 11.1. Payment of Expenses11.1. Payment of Expenses.
(a) Except as otherwise set forth in the Loan Documents, Borrower will pay
all expenses incurred by Lender or otherwise payable in connection with the
Loan, the Property or Borrower, including expenses relating to (i) the
preparation, execution, acknowledgment, delivery and recording or filing of the
Loan Documents; (ii) any Proceeding; (iii) any inspection, assessment, survey
and test required to be paid by Borrower under the Loan Documents; (iv) any
Destruction Event; (v) the preservation of Lender=s security, the exercise of
any rights or remedies available at Law or in equity and the exercise of the
Remedies. Lender=s expenses will include Lender=s attorneys= fees.
(b) Borrower will pay all expenses relating to the Loan, together with any
applicable interest, premiums or penalties, when due or immediately on demand.
If Lender pays any expenses relating to the Loan following Borrower=s failure to
pay such expenses, the amount paid will bear interest at the Default Interest
Rate from the date of demand for payment through and including the date Borrower
reimburses Lender and will be secured by this Mortgage.
Section 11.2. Duty to Defend. If Lender or any of its trustees, officers,
participants, employees or affiliates is a party in any Proceeding relating to
the Property, Borrower or the Loan, Borrower will defend and hold harmless the
party with attorneys and other professionals retained by Borrower and approved
by Lender; provided, however, that Borrower shall not be responsible for any
such fees in a Proceeding in which the final determination is that Lender was
solely liable as a result of its own gross negligence or willful misconduct. At
its option, Lender may engage its own attorneys and other professionals, at
Borrower=s expense, to defend or assist in the defense of the party. In all
events, case strategy will be determined by Lender if Lender so elects, and no
Proceeding will be settled without Lender=s prior approval which may be withheld
in its sole discretion.
ARTICLE XII
TRANSFERS LIENS AND ENCUMBRANCES
Section 12.1. Prohibitions on Transfers, Liens and Encumbrances...
(a) Borrower acknowledges that in making the Loan, Lender is relying to a
material extent on the business expertise and net worth of Borrower and
Borrower=s general partner or principals and on the continuing interest that
each of them has, directly or indirectly, in the Property. Accordingly, except
as specifically set forth in this Mortgage, Borrower (i) will not, and will not
permit its general partner or principals to, effect a Transfer without Lender=s
prior approval, which may be withheld in Lender=s sole discretion and (ii) will
keep the Property free from all liens and encumbrances other than the lien of
this Mortgage and the Permitted Exceptions. A Transfer is defined as any sale,
grant, lease (other than bona fide third-party space leases with tenants),
conveyance, assignment or other transfer of, or any encumbrance or pledge
against, the Property, any interest in the Property, any interest of Borrower=s
partners, members, stockholders or principals in the Property, or any change in
Borrower=s composition, in each instance whether voluntary or involuntary,
direct or indirect, by operation of law or otherwise and including the grant of
an option or the execution of an agreement relating to any of the foregoing
matters.
(b) Borrower represents, warrants and covenants that:
(i) Borrower is a Delaware limited partnership whose sole general partner
is Hotel Properties Management, Inc., a Delaware corporation that owns 1.04% of
the partnership interests in Borrower, and Borrower=s remaining limited partners
own 98.96% of the partnership interests in Borrower as follows:
MHP Acquisition Corporation 47.00%
Outside Limited Partners 51.96%
Outside Limited Partners means limited partners who/which are not
Affiliates (as defined below) of Host Marriott Corporation.
(ii) Upon Lender=s request, Borrower shall deliver to Lender, Borrower=s
partnership documents and other evidence of its composition and control.
Section 12.2. Permitted Transfers. Notwithstanding the prohibitions
regarding Transfers, limited partnership interests in the Borrower owned by
anyone other than an Affiliate (as defined below) may be freely transferred
without Lender=s prior approval. Partnership interests owned by an Affiliate may
be transferred to any other Affiliate. For purposes of this Section 12.2, an
Affiliate or Affiliates shall mean (A) Host Marriott Corporation, a Delaware
corporation, (B) any person a majority of the voting stock (or other ownership
interests) of which is owned or controlled by Host Marriott Corporation, and (C)
any person a majority of the voting stock (or other ownership interests) of
which is owned or controlled by Host Marriott Corporation and a person described
in the foregoing clause (B). For purposes of the foregoing, control shall mean
the possession of the power to direct or cause the direction of the management
or policies of a person whether through ownership of voting securities, contract
or otherwise.
Section 12.3. Right to Contest Liens. Borrower, at its own expense, may
contest the amount, validity or application, in whole or in part, of any
mechanic=s, materialmen=s or environmental liens in which event Lender will
refrain from exercising any of the Remedies, provided that the following
conditions are met:
(i) Borrower delivers to Lender, within 30 days of the filing of the lien,
notice of the proposed contest;
(ii) the contest is by a Proceeding promptly initiated and conducted in
good faith and with due diligence;
(iii) there is no Event of Default other than an Event of Default in
connection with the lien;
(iv) the Proceeding suspends enforcement of collection, imposition of
criminal penalties and sale or forfeiture of the Property;
(v) the Proceeding is permitted under and is conducted in accordance with
the provisions of any Property Document;
(vi) Borrower sets aside and pledges to Lender adequate reserves to pay the
claim giving rise to the lien, together with all interest and penalties, unless
Borrower pays under protest the claim giving rise to the lien or delivers to
Lender a bond satisfactory to Lender;
(vii) With respect to an environmental lien, Borrower is using best efforts
to mitigate or prevent any deterioration of the Property resulting from the
alleged violation of any Environmental Laws or the alleged Environmental
Activity.
ARTICLE XIII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 13.1. Further Assurances. Borrower will execute, acknowledge and
deliver to Lender or to any other entity Lender designates any additional or
replacement documents and perform any additional actions that Lender determines
are reasonably necessary to evidence, perfect or protect Lender=s first lien on
and prior security interest in the Property or to carry out the intent or
facilitate the performance of the provisions of the Loan Documents.
Section 13.2.Estoppel Certificates.
(a) Within 10 days of Lender=s request, Borrower will deliver to Lender or
to any entity Lender designates a certificate certifying (i) the original
principal amount of the Note; (ii) the unpaid principal amount of the Note;
(iii) the Fixed Interest Rate; (iv) the amount of the then current Debt Service
Payments; (v) the Maturity Date; (vi) the date a Debt Service Payment was last
made; (vii) that, except as may be disclosed in the statement, there are no
defaults or events which, with the passage of time or the giving of notice,
would constitute an Event of Default; (viii) that the Loan Documents are valid,
legal and binding obligations and have not been modified except as disclosed in
the statement; and (ix) there are no offsets or defenses against the Obligations
except as may be disclosed in the statement.
(b) If Lender requests, Borrower promptly will use all reasonable efforts
to deliver to Lender or to any entity Lender designates a certificate from each
party to any Property Document, certifying that the Property Document is in full
force and effect with no defaults or events which, with the passage of time or
the giving of notice, would constitute an event of default under the Property
Document by any party and that the party claims no defense or offset against the
performance of its obligations under the Property Document.
(c) If Lender requests, Borrower will use all reasonable efforts to deliver
to Lender or to any entity designated by Lender, promptly after the request, a
certificate from the Hotel Operator(s) certifying to any facts regarding the
Hotel Operating Agreement as Lender may reasonably require, including that the
Hotel Operating Agreement is in full force and effect with no defaults or events
which, with the passage of time or the giving of notice, would constitute an
event of default under the Hotel Operating Agreement by any party that the Hotel
Operator(s) claim(s) no defense or offset against the performance of its
obligations under the Hotel Operating Agreement.
Section 13.3. Credit Enhancements. Borrower will maintain in good standing
all credit enhancements delivered to Lender in connection with the Loan
throughout the Term or such shorter period as Borrower and Lender may have
agreed to in writing. Credit enhancements include any letters of credit,
pledges, guarantees or indemnities delivered to Lender in connection with the
Loan but excluding any letters of credit, promissory notes or cash deposits
delivered to Lender as good faith or standby fees in connection with Lender=s
agreement to make the Loan. If the provider of any credit enhancement document
becomes insolvent, commences or is the subject of a Proceeding in bankruptcy or
ceases to exist, Borrower will deliver to Lender within 5 Business Days of the
date insolvency is known, the Proceeding in bankruptcy is filed or the cessation
occurs, a replacement credit enhancement document from an alternate provider
satisfactory to Lender, in form and content substantially similar to the credit
enhancement document being replaced and otherwise satisfactory to Lender.
Section 13.4. Sale/Leaseback. If Borrower sells the Property and the
Property is leased back to Borrower and this Mortgage is subordinate to any
Leases or if Lender entered into non-disturbance agreements with respect to any
Leases, then the lease to Borrower and any deed to secure debt or mortgage
encumbering the lease will be subordinate to the Leases or non-disturbance
agreements will be entered into with respect to the Leases.
ARTICLE XIV
DEFAULTS AND REMEDIES
Section 14.1. Events of Default. The term Event of Default means the
occurrence of any of the following events:
(a) if Borrower fails to pay any amount due, as and when required, under
any Loan Document and the failure continues for a period of 5 days, or if
Borrower fails to pay the Loan in full on the Maturity Date;
(b) if Borrower makes an assignment for the benefit of creditors or
generally is not paying, or is unable to pay, or admits in writing its inability
to pay, its debts as they become due;
(c) if Borrower makes a general assignment for the benefit of creditors or
if Borrower or any other party commences any Proceeding (A) relating to
bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, in
each instance with respect to Borrower; (B) seeking to have an order for relief
entered with respect to Borrower; (C) seeking attachment, distraint or execution
of a judgment with respect to Borrower; (D) seeking to adjudicate Borrower as
bankrupt or insolvent; (E) seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to Borrower or Borrower=s debts; or (F) seeking appointment of a receiver,
trustee, custodian, conservator or other similar official for Borrower or for
all or any substantial part of Borrower=s assets, provided that if the
Proceeding is commenced by a party other than Borrower, Borrower will have 120
days to dismiss or discharge the Proceeding;
(d) if Borrower is in default beyond any applicable grace and cure period
under any other mortgage, deed of trust, deed to secure debt or other security
agreement encumbering the Property, whether junior or senior to the lien of this
Mortgage;
(e) an event of default by Borrower beyond any applicable grace and cure
period under the Hotel Operating Agreement;
(f) if a Transfer occurs except in accordance with the provisions of this
Mortgage;
(g) if Borrower abandons the Property or ceases to conduct its business at
the Property other than in connection with a Destruction Event;
(h) if there is a default in the performance of any other provision of any
Loan Document or if there is any inaccuracy or falsehood in any representation
or warranty contained in any Loan Document which is not remedied within 30 days
after Borrower receives notice thereof from Lender, provided that if the
default, inaccuracy or falsehood is of a nature that it cannot be cured within
the 30-day period and during that period Borrower commences to cure, and
thereafter diligently continues to cure, the default, inaccuracy or falsehood,
then the 30-day period will be extended for a reasonable period not to exceed
180 days after the notice to Borrower.
Section 14.2. Remedies.
(a) If an Event of Default occurs, Lender may take any of the following
actions without notice or demand, as it deems advisable to protect and enforce
its rights against Borrower and in and to the Property, including, the following
actions, each of which may be pursued concurrently or otherwise, at such time
and in such order as Lender may determine, in its sole discretion and without
impairing or otherwise affecting the other rights and remedies of Lender (the
Remedies):
(i) declare all or any portion of the Monetary Obligations immediately due
and payable (Acceleration);
(ii) pay or perform any Obligation;
(iii) institute a Proceeding for the specific performance of any
Obligation;
(iv) enter on the Land and Improvements, take possession of the Property,
dispossess Borrower and exercise Borrower=s rights with respect to the Property,
either in Borrower=s name or otherwise;
(v) apply for the appointment of a receiver, custodian, trustee, liquidator
or conservator of the Property to be vested with the fullest powers permitted by
Law, without bond being required, which appointment may be made ex parte, as a
matter of right and without regard to the value of the Property, the amount of
the Monetary Obligations or the solvency of Borrower or any other person liable
for the payment or performance of the Obligations;
(vi) institute a Proceeding for the foreclosure of this Mortgage;
(vii) with or without entry, to the extent permitted and pursuant to the
procedures provided by applicable law, institute proceedings for the partial
foreclosure of this Mortgage for the portion of the Monetary Obligations then
due and payable, subject to the continuing lien of this Mortgage for the balance
of the Monetary Obligations not then due;
(viii) exercise any and all rights and remedies granted to a secured party
under the Uniform Commercial Code; and
(ix) pursue any other remedy available to Lender at Law, in equity or
otherwise.
(b) If an Event of Default occurs, the license granted to Borrower in the
Loan Documents to collect Rents and Hotel Revenues or receive Owner=s
Distributions will terminate automatically without any action required of
Lender.
Section 14.3. General Provisions Pertaining to Remedies.
(a) The Remedies are cumulative and may be pursued concurrently or
otherwise, at such time and in such order as Lender may determine in its sole
discretion and without presentment, demand, protest or further notice of any
kind, all of which are expressly waived by Borrower.
(b) The enumeration in the Loan Documents of specific rights or powers will
not be construed to limit any general rights or powers or impair Lender=s rights
with respect to the Remedies.
(c) If Lender exercises any of the Remedies, Lender will not be deemed a
mortgagee-in-possession unless it is in actual possession of the Property.
(d) Lender will not be liable for any act or omission of Borrower in
connection with the exercise of the Remedies.
(e) Lender=s right to exercise any Remedy will not be impaired by Lender=s
delay in exercising or failure to exercise the Remedy in one or more instances
and will not be construed as extending any cure period or constitute a waiver of
the default or Event of Default.
(f) If an Event of Default occurs, Lender=s payment or performance or
acceptance of payment or performance will not be deemed a waiver or cure of the
Event of Default.
(g) Lender=s acceptance of partial payment will not extend or affect any
grace period or constitute a waiver of a default or Event of Default or affect
or rescind an Acceleration but will be credited against the unpaid Monetary
Obligations.
(h) Lender may rescind any Acceleration by delivery of notice thereof to
Borrower.
Section 14.4. General Provisions Pertaining to Agreement-in-Possession or
Receiver.
(a) If an Event of Default occurs, any court of competent jurisdiction may,
upon application, appoint a receiver of the Property and Borrower approves the
appointment of the receiver. Borrower agrees that the appointment may be made ex
parte and as a matter of right to Lender, either before or after sale of the
Property, without further notice, and without regard to the solvency or
insolvency, at the time of application for such receiver, of the person or
persons, if any, liable for the payment of the Monetary Obligations and without
regard to the value of the Property or whether the Property is occupied as a
homestead and without bond being required of the applicant.
(b) The receiver will have all the powers that may be necessary or that are
usual in similar cases for the protection, possession and operation of the
Property and all the powers and duties of Lender as a mortgagee-in-possession as
provided in this Mortgage and may continue to exercise all the usual powers and
duties until the date of confirmation of sale of the Property, unless the
receivership is terminated prior to the sale.
(c) In addition to all other available rights Lender or the receiver may
have and in addition to the Remedies, Lender or the receiver may take any of the
following actions:
(i) take possession and control of the Property;
(ii) require Borrower to deliver to Lender or the receiver all security
deposits, the Books and Records and all original counterparts of the Leases,
Hotel Operating Agreement and Property Documents in the possession of Borrower;
(iii) collect, sue for and give receipts for the Rents and, after paying
all expenses of collection, including reasonable receiver=s, broker=s and
attorney=s fees, apply the net collections as provided in this Mortgage;
(iv) make, modify, enforce, terminate or accept surrender of Leases and
evict tenants;
(v) appear in and defend any Proceeding brought in connection with the
Property and bring any Proceeding, in the name and on behalf of Borrower, that
Lender, in its sole discretion, determines should be brought to protect the
Property and Lender=s interest in the Property; and
(vi) perform any act in the place of Borrower that Lender or the receiver
deems necessary to preserve the value, marketability or rentability of the
Property, to increase the income or to protect Lender=s interest in the
Property.
Section 14.5. General Provisions Pertaining to Foreclosures. The following
provisions will apply to any Proceeding to foreclose and to any sale of the
Property pursuant to a judgment of foreclosure:
(i) Lender=s right to institute a Proceeding to foreclose will not be
exhausted by a Proceeding or a sale that is defective or not completed;
(ii) a sale pursuant to a judgment of foreclosure and sale may be postponed
or adjourned by public announcement at the time and place appointed for the sale
without further notice;
(iii) the Property may be sold as an entirety or in parcels, at one or more
sales, at the time and place and on terms that Lender deems expedient in its
sole discretion;
(iv) if a portion of the Property is sold pursuant to this Article, the
Loan Documents will remain in full force and effect with respect to any
unmatured portion of the Obligations and this Mortgage will continue as a valid
and enforceable first lien on and security interest in the remaining portion of
the Property, subject only to the Permitted Exceptions, without loss of priority
and without impairment of any of Lender=s rights and remedies with respect to
the unmatured portion of the Obligations;
(v) Lender may bid for and acquire the Property at a sale and, in lieu of
paying cash, may credit the amount of Lender=s bid against the Obligations after
deducting from the amount of Lender=s bid the expenses of the sale, costs of
enforcement and other amounts that Lender is authorized to deduct at Law, in
equity or otherwise; and
(vi) Lender=s receipt of the proceeds of a sale will be sufficient
consideration for the portion of the Property sold and Lender will apply the
proceeds as set forth in this Mortgage.
Section 14.6. Application of Proceeds. Lender may apply the proceeds of any
sale of the Property pursuant to a judgment of foreclosure and sale and any
other amounts collected by Lender in connection with the exercise of the
Remedies to payment of the Monetary Obligations in such priority and proportions
as Lender may determine in its sole discretion or in such priority and
proportions as required by Law.
Section 14.7. Tenant Holding Overenant Holding Over. As long as the
Monetary Obligations remain unpaid, possession of the Property by Borrower, or
any person claiming under Borrower, is as tenant under Lender. If the Property
is sold in foreclosure, Borrower and any person claiming possession under
Borrower will, at the option of the purchaser at such sale, become tenants
holding over and will deliver possession immediately to the purchaser, or be
summarily dispossessed in accordance with Laws applicable to tenants holding
over, provided that if the Property is sold in foreclosure, Lender may, at its
option, sell the Property at the sale subject to any Leases Lender designates in
any advertisement of sale required under this Mortgage or by Law.
ARTICLE XV
LIMITATION OF LIABILITY
Section 15.1. Limitation of Liability.
(a) Notwithstanding any provision in the Loan Documents to the contrary,
except as set forth in subsections (b) and (c), the Obligations shall be
non-recourse to Borrower and its partners, Borrower and its partners shall have
no personal liability for any monetary damages or money judgment arising out of
any failure to perform the Obligations, and in the event of Acceleration after
an Event of Default, if Lender seeks to enforce the collection of the Monetary
Obligations, Lender will foreclose on the Property and any other collateral held
by Lender. If a lesser sum is realized from a foreclosure and sale of the
Property, than the then outstanding Monetary Obligations, Lender will not
institute any Proceeding against Borrower or its partners for or on account of
the deficiency, except as set forth in subsections (b) and (c), provided,
however, Lender may seek a deficiency judgment in connection with any
foreclosure or sale upon foreclosure in order to preserve Lender=s ability to
realize on any other portion of the Property that is not subject to the
particular foreclosure or sale by foreclosure, provided further Lender may not
enforce such deficiency judgment except against the remaining Property.
(b) The limitation of liability in subsection (a) will not affect or impair
(i) the lien created by this Mortgage; (ii) the validity of the Obligations or
the Loan Documents; (iii) Lender=s rights under any Loan Document that are
expressly recourse or any of Lender=s other rights or remedies under the Loan
Documents, at law or in equity; (iv) Lender=s right to present, collect on or
otherwise enforce any letter of credit or other credit enhancement held by
Lender in connection with the Obligations; or (v) Borrower=s liability for all
Indemnified Expenses (defined in the Environmental Indemnity dated of even date
with this Mortgage held by Lender) imposed on, incurred by, or asserted or
awarded against Lender.
(c) The following are excluded and excepted from the limitation of
liability in subsection (a) and Lender may recover personally against Borrower
for the following:
(i) all losses suffered and liabilities and expenses incurred by Lender
relating to any fraud or intentional misrepresentation by Borrower or any of
Borrower=s general partners in connection with (A) the performance of any of
Lender=s conditions to making the Loan; (B) any inducements to Lender to make
the Loan; (C) the execution and delivery of the Loan Documents; (D) the making
of any representations or warranties; or (E) Borrower=s performance of the
Obligations;
(ii) all Rents derived from the Property after a default under the Loan
Documents and all moneys that, on the date a default occurs, are on deposit in
one or more accounts used by or on behalf of Borrower relating to the operation
of the Property, except to the extent properly applied to payment of Debt
Service Payments, Impositions, Insurance Premiums, and any reasonable and
customary expenses incurred by Borrower in the operation, maintenance and
leasing of the Property or delivered to Lender;
(iii) all security deposits held by Borrower and not refunded to Tenants,
applied in accordance with the Leases or Law or delivered to Lender, and all
advance rents collected by Borrower and not applied in accordance with the
Leases or delivered to Lender;
(iv) the replacement cost of any Fixtures and Personal Property removed by
Borrower or at its instruction from the Property after a default occurs;
(v) all losses suffered and liabilities and expenses incurred by Lender
relating to any acts or omissions by Borrower that result from Waste;
(vi) all protective advances and other payments made by Lender pursuant to
express provisions of the Loan Documents to protect Lender=s security interest
in the Property, but only to the extent that the Rents and Hotel Revenues
received after the Event of Default would have been sufficient to permit
Borrower to make the payment and Borrower failed to do so;
(vii) all mechanic=s or similar liens relating to work performed on or
materials delivered to the Property prior to a foreclosure sale of the Property,
but only to the extent Lender had advanced funds to pay for the work or
materials;
(viii) all Proceeds that are not applied in accordance with this Mortgage
or not paid to Lender as required under this Mortgage;
(ix) all losses suffered and liabilities and expenses incurred by Lender
relating to forfeiture or threatened forfeiture of the Property by the
Government pursuant to the Racketeer Influenced and Corrupt Organizations Act or
any similar Laws;
(x) all losses suffered and liabilities and expenses incurred by Lender
relating to any default by Borrower under any of the provisions of this Mortgage
relating to ERISA;
(xi) all losses suffered and liabilities and expenses incurred by Lender
relating to or resulting from the failure to pay intangibles or documentary
stamp taxes which may be required on the Loan; and
(x) all losses suffered and liabilities and expenses incurred by Lender
relating to a defect in title resulting from the encroachment of the Hotel on
the access and utility easements benefitting Sabal Palms Condominiums; provided,
however, that this subsection (x) shall cease and be of no further force or
effect upon relocation of such easements to the current location of the road and
utility lines servicing such property.
(d) Nothing in subparagraph (a) above will be deemed (i) to be a waiver of
any right which Lender may have under any bankruptcy law of the United States or
the State of Florida to file a claim for the full amount of the Loan or to
require that all of the collateral securing the Loan will continue to secure all
of the Obligations; (ii) to impair the right of Lender as mortgagee or secured
party to commence an action to foreclose any lien or security interest or sell
the Property; or (iii) to modify, diminish or discharge the liability of any
guarantor under any guaranty. Nothing under subparagraph (a) above will be
deemed to be a waiver of any right which Lender may have under Section 506(a),
506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a
claim for the full amount of the Obligations or to require that all collateral
shall continue to secure all of the Obligations owing to Lender in accordance
with the Loan Documents.
ARTICLE XVI
WAIVERS
Section 16.1. Waiver of Statute of Limitations. BORROWER WAIVES THE RIGHT
TO CLAIM ANY STATUTE OF LIMITATIONS AS A DEFENSE TO BORROWER=S PAYMENT AND
PERFORMANCE OF THE OBLIGATIONS.
Section 16.2. Waiver of Notice. BORROWER WAIVES THE RIGHT TO RECEIVE ANY
NOTICE FROM LENDER WITH RESPECT TO THE LOAN DOCUMENTS EXCEPT FOR THOSE NOTICES
THAT LENDER IS EXPRESSLY REQUIRED TO DELIVER PURSUANT TO THE LOAN DOCUMENTS.
Section 16.3. Waiver of Marshalling and Other Matters. BORROWER WAIVES THE
BENEFIT OF ANY RIGHTS OF MARSHALLING OR ANY OTHER RIGHT TO DIRECT THE ORDER IN
WHICH ANY OF THE PROPERTY WILL BE SOLD, AVAILABLE TO ANY ENTITY IF THE PROPERTY
IS SOLD PURSUANT TO A JUDGMENT OF FORECLOSURE AND SALE. BORROWER ALSO WAIVES THE
BENEFIT OF ANY LAWS RELATING TO APPRAISEMENT, VALUATION, STAY, EXTENSION,
REINSTATEMENT, MORATORIUM, HOMESTEAD AND EXEMPTION RIGHTS OR A SALE IN INVERSE
ORDER OF ALIENATION AND ANY RIGHT BORROWER MAY HAVE TO REQUIRE LENDER TO OBTAIN
ANY BOND.
Section 16.4. Waiver of Trial by Jury. BORROWER WAIVES TRIAL BY JURY IN ANY
PROCEEDING BROUGHT BY, OR COUNTERCLAIM ASSERTED BY, LENDER RELATING TO THE LOAN.
Section 16.5. Waiver of Counterclaim. BORROWER WAIVES THE RIGHT TO ASSERT A
COUNTERCLAIM, OTHER THAN COMPULSORY OR MANDATORY COUNTERCLAIMS, IN ANY
PROCEEDING LENDER BRINGS AGAINST BORROWER RELATING TO THE LOAN, INCLUDING ANY
PROCEEDING TO ENFORCE REMEDIES.
Section 16.6. General Waiver. BORROWER ACKNOWLEDGES THAT (A) BORROWER AND
BORROWER=S PARTNERS, MEMBERS OR PRINCIPALS ARE KNOWLEDGEABLE BORROWERS OF
COMMERCIAL FUNDS AND EXPERIENCED REAL ESTATE DEVELOPERS OR INVESTORS WHO HAVE
READ AND UNDERSTAND FULLY THE EFFECT OF THE ABOVE PROVISIONS, (B) LENDER WOULD
NOT MAKE THE LOAN WITHOUT THE PROVISIONS OF THIS ARTICLE AND (C) THE LOAN IS A
COMMERCIAL OR BUSINESS LOAN UNDER THE LAWS OF THE STATE OF FLORIDA, NEGOTIATED
BY LENDER AND BORROWER AND THEIR RESPECTIVE ATTORNEYS AT ARMS LENGTH. THE
FOREGOING ACKNOWLEDGMENT IS MADE WITH THE INTENT THAT LENDER AND ANY SUBSEQUENT
HOLDER OF THE NOTE WILL RELY ON THE ACKNOWLEDGMENT.
ARTICLE XVII
NOTICES
Section 17.1......Notices. All acceptances, approvals, consents, demands,
notices, requests and other communications (the Notices) required or permitted
to be given under the Loan Documents must be in writing and sent by certified
mail, return receipt requested or by nationally recognized overnight delivery
service providing evidence of the date of delivery, with all charges prepaid,
addressed to the appropriate party at its address listed below:
If to Lender: .........First Fidelity Mortgage Corporation
Two Ravinia Drive, Suite 1600
Atlanta, Georgia 30346
Attn: Mr. J. Kell Martin
With copies to: .........Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Director, Portfolio
Management/Southeast
Application #FL 887
Mortgage #000404700
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Vice President and Chief
Counsel - Mortgage & Real Estate Law
Application #FL 887
Mortgage #000404700
John Hancock Mutual Life Insurance Company
200 Clarendon Street
John Hancock Place
Boston, Massachusetts 02117
Attn: Mr. David Henderson
Application # 517092
John Hancock Mutual Life Insurance Company
200 Clarendon Street
John Hancock Place
Boston, Massachusetts 02117
Attn: Thomas S. O=Keefe, Esq.
Application # 517092
Sutherland, Asbill & Brennan LLP
Suite 2300, 999 Peachtree Street
Atlanta, Georgia 30309
Attn: H. Edward Hales, Jr.
If to Borrower: .........Marriott Hotel Properties
Limited Partnership
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Law Department, 923
with a copy to: Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Asset Management Department, 908
Lender and Borrower each may change from time to time the address to which
Notices must be sent, by notice given in accordance with the provisions of this
Section. All Notices given in accordance with the provisions of this Section
will be deemed to have been given 3 Business Days after having been deposited in
any mail depository regularly maintained by the United States postal service, if
sent by certified mail, or 1 Business Day after having been deposited with a
nationally recognized overnight delivery service, if sent by overnight delivery.
ARTICLE XVIII
MISCELLANEOUS
Section 18.1. Applicable Law. This Mortgage is deemed to be a contract
entered into pursuant to the Laws of the State of Florida and will in all
respects be governed, construed, applied and enforced in accordance with the
Laws of the State of Florida.
Section 18.2. Limitations of Law. All obligations, rights, remedies and
waivers contained in the Loan Documents will be construed as being limited to
the extent required by Law.
Section 18.3. Usury Limitations. Borrower and Lender intend to comply with
all Laws with respect to the charging and receiving of interest. Any amounts
charged or received by Lender for the use or forbearance of the Principal, to
the extent permitted by Law will be amortized and spread throughout the Term
until payment in full so that the rate or amount of interest charged or received
by Lender on the Principal does not exceed the maximum rate of interest, if any,
permitted by law to be charged with respect to the Loan (the Maximum Interest
Rate). If any amount charged or received under the Loan Documents that is deemed
to be interest is determined to be in excess of the amount permitted to be
charged or received at the Maximum Interest Rate, the excess will be deemed to
be a prepayment of Principal when paid, without premium, and any portion of the
excess not capable of being so applied will be refunded to Borrower.
Section 18.4. Lender=s Discretion. Wherever under this Mortgage Lender has
the right to approve or determine any matter, Lender=s approval or determination
will be in Lender=s reasonable discretion unless expressly provided to the
contrary. Wherever under this Mortgage any matter is required to be satisfactory
to Lender, Lender=s determination that the matter is satisfactory will be in
Lender=s reasonable discretion unless expressly provided to the contrary.
Section 18.5. Unenforceable Provisions. If any provision in the Loan
Documents is found to be illegal or unenforceable or would operate to invalidate
and Loan Document, then the provision will be deemed expunged and the Loan
Documents will be construed as though the provision was not contained in the
Loan Documents and the remainder of the Loan Documents will remain in full force
and effect.
Section 18.6. Survival of Borrower=s Obligations. Borrower=s
representations, warranties and covenants contained in this Mortgage will
continue in full force and effect and survive (i) satisfaction of the
Obligations; (ii) release of the lien of this Mortgage; (iii) assignment or
other transfer of all or any portion of Lender=s interest in the Loan Documents
or the Property; (iv) Lender=s exercise of any of the Remedies or any of
Lender=s other rights under the Loan Documents; (v) a Transfer; (vi) amendments
to the Loan Documents; and (vii) any other act or omission that might otherwise
be construed as a release or discharge of Borrower. Notwithstanding the
foregoing, nothing contained in this Section shall be construed to obligate
Borrower to continue to make payments of principal and interest under the Note
from and after the satisfaction thereof, whether by payment, foreclosure, or
otherwise.
Section 18.7. No Third Party Beneficiaries.
(a) Lender is not a partner of or joint venturer with Borrower or any other
entity as a result of the Loan or Lender=s rights under the Loan Documents. Each
Loan Document is an agreement between the parties to that Loan Document for the
mutual benefit of the parties and no entities other than the parties to that
Loan Document will be a third party beneficiary or will have any claim against
Lender or Borrower by virtue of the Loan Document. Any actions taken by Lender
under the Loan Documents will be taken for Lender=s protection only, and Lender
has not and will not be deemed to have assumed any responsibility to Borrower or
to any other entity by virtue of Lender=s actions.
(b) All conditions to Borrower=s performance of its obligations under the
Loan Documents are imposed solely for the benefit of Lender. No entity other
than Lender will have standing to require satisfaction of the conditions in
accordance with their provisions or will be entitled to assume that Lender will
refuse to perform its obligations in the absence of strict compliance with any
of the conditions.
Section 18.8. Partial Releases, Extensions, Waivers. Lender may: (i)
release any part of the Property or any entity obligated for the Obligations;
(ii) extend the time for payment or performance of any of the Obligations or
otherwise amend the provisions for payment or performance by agreement with any
entity that is obligated for the Obligations or that has an interest in the
Property; (iii) accept additional security for the payment and performance of
the Obligations; and (iv) waive any entity=s performance of an Obligation or
waive the exercise of any Remedy. Lender may exercise any of the foregoing
rights without notice, without regard to the amount of any consideration given,
without affecting the priority of this Mortgage, without releasing any entity
not specifically released from its obligations under the Loan Documents, without
releasing any guarantor(s) or surety(ies) of the Obligations, without effecting
a novation of the Loan Documents and, with respect to a waiver, without waiving
future performance of the Obligation or exercise of the Remedy waived.
Section 18.9. Service of Process. Borrower irrevocably consents to service
of process by registered or certified mail, postage prepaid, return receipt
requested, to Borrower at its address set forth in the Article entitled Notices.
Section 18.10. Entire Agreement. Oral agreements or commitments to lend
money, to extend credit or to forbear from enforcing repayment of a debt,
including promises to extend or renew the debt, are not enforceable. Any
agreements between Borrower and Lender relating to the Loan are contained in the
Loan Documents, which contain the complete and exclusive statement of the
agreements between Borrower and Lender, except that Borrower and Lender may
later agree in writing to amend the Loan Documents.
Section 18.11. No Oral Amendment. The Loan Documents may not be amended,
waived or terminated orally or by any act or omission made individually by
Borrower or Lender but may be amended, waived or terminated only by a written
document signed by the party against which enforcement of the amendment, waiver
or termination is sought.
Section 18.12. Severability. The invalidity, illegality or unenforceability
of any provision of any of the Loan Documents will not affect any other
provisions of the Loan Documents, which will be construed as if the invalid,
illegal or unenforceable provision never had been included.
Section 18.13. Covenants Run With The Land. All of the covenants of this
Mortgage run with the Land.
Section 18.14. Time of the Essence. Time is of the essence with respect to
Borrower=s payment and performance of the Obligations.
Section 18.15. Subrogation. If the Principal or any other amount advanced
by Lender is used directly or indirectly to pay off, discharge or satisfy all or
any part of an encumbrance affecting the Property, then Lender is subrogated to
the encumbrance and to any security held by the holder of the encumbrance, all
of which will continue in full force and effect in favor of Lender as additional
security for the Obligations.
Section 18.16. Successors and Assigns. The Loan Documents bind the parties
to the Loan Documents and their respective successors, assigns, heirs,
administrators, executors, agents and representatives and inure to the benefit
of Lender and its successors, assigns, heirs, administrators, executors, agents
and representatives.
Section 18.17. Duplicates and Counterparts. Duplicate counterparts of this
Mortgage may be executed and each is deemed an original. This Mortgage may be
executed in counterparts that together constitute a single document.
IN WITNESS WHEREOF, Borrower has executed and delivered this Amended and
Restated Mortgage, Deed to Secure Debt, Assignment, Security Agreement and
Fixture Filing as of the date first set forth above.
Signed, sealed and delivered MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP,
in the presence of: a Delaware limited partnership
By Hotel Properties Management, Inc.,
a Delaware corporation
Name:
--------------------
By: /s/ James L. Franci
Print Name: James L. Francis
Its Vice President
Name:
--------------------
STATE OF
--------------------------
COUNTY OF
--------------------------
The foregoing instrument was acknowledged before me this ___ day of
December, 1997, by _________________________ as ____ President of Hotel
Properties Management, Inc., a Delaware corporation, as the sole general partner
of Marriott Hotel Properties Limited Partnership, a Delaware limited
partnership. He is personally known to me or has produced
_________________________ as identification.
Print Name:
Notary Public
[NOTARY SEAL] My Commission Expires:
EXHIBIT A
LEGAL DESCRIPTION
A parcel of land lying within Sections 28, 33, and 34, Township 24 South,
Range 28 East, Orange County, Florida, being more particularly described as
follows:
BEGINNING at Northwest corner of Section 34, Township 24 South, Range 28
East, Orange County, Florida; thence N89(Degree)56'22"E along the North line of
said Section 34 for 1630.01 feet to the West line of Area "B", ROYAL PALMS
CONDOMINIUM as recorded in Condominium Book 16, Page 144, Public Records Orange
County, Florida; thence along the West line of said Area "B" the following four
courses; thence S00(Degree)02'50"E for 50.24 feet; thence S76(Degree)36'22"W for
8.23 feet to the point of curvature of a curve concave Southeasterly; thence
Southwesterly along the arc of said curve having a radius of 143.00 feet and a
chord bearing of S54(Degree)54'19"W, through a central angle of 43(Degree)24'07"
for 108.32 feet to the point of intersection with a non-tangent line; thence
S89(Degree)56'22"W for 33.41 feet to the North-east corner of Area "G", ROYAL
PALMS CONDOMINIUM as recorded in Condominium Book 15, Page 91, Public Records
Orange County, Florida; thence continue S89(Degree)56'22"W along the North line
of said Area "G" for 90.48 feet to the North-west corner of said Area "G";
thence S00(Degree)02'50"E along the West line of said Area "G" for 28.16 feet to
the Northeast corner of Area "E", ROYAL PALMS CONDOMINIUM as recorded in
Condominium Book 15, Page 91, Public Records Orange County, Florida; thence
S89(Degree)59'31"W along the North line of said Area "E" for 49.28 feet to a
point of intersection with a non-tangent curve concave Northwesterly; thence
leaving said North line, run Southwesterly along the arc of said curve having a
radius of 36.00 feet and a chord bearing of S39(Degree)39'27"W, through a
central angle of 60(Degree)41'57" for 38.14 feet to the point of tangency;
thence S70(Degree)00'25"W for 118.55 feet to the point of curvature of a curve
concave Southeasterly; thence Southwesterly along the arc of said curve having a
radius of 144.00 feet and a chord bearing of 47(Degree)39'07"W, through a
central angle of 44(Degree)42'36" for 112.37 feet to the point of tangency;
thence S25(Degree)17'49"W for 129.17 feet to the point of curvature of a curve
concave Easterly; thence Southeasterly along the arc of said curve having a
radius of 30.00 feet and a chord bearing of S19(Degree)46'19"E, through a
central angle of 90(Degree)08'16" for 47.20 feet to the point of tangency;
thence S64(Degree)50'27"E for 65.89 feet; thence S39(Degree)40'08"E for 2.35
feet to a point of intersection with a non-tangent curve concave Easterly;
thence Southeasterly along the arc of said curve having a radius of 21.33 feet
and a chord bearing of S22(Degree)00'08"W, through a central angle of
90(Degree)12'33" for 33.59 feet to the point of reverse curvature of a curve
concave Westerly; thence Southerly along the arc of said curve having a radius
of 18.67 feet and a chord bearing of S04(Degree)36'29"W, through a central angle
of 55(Degree)25'26" for 18.06 feet to a point of reverse curvature of a curve
concave Northeasterly; thence Southeasterly along the arc of said curve having a
radius of 21.33 feet and a chord bearing of S49(Degree)08'17"E, through a
central angle of 162(Degree)54'58" for 60.66 feet to the point of reverse
curvature of a curve concave Southerly; thence Northeasterly along the arc of
said curve having a radius of 18.67 feet and a chord bearing of
N77(Degree)06'57"E, through a central angle of 55(Degree)25'26" for 18.06 feet
to a point of reverse curvature of a curve concave Northwesterly; thence
Northeasterly along the arc of said curve having a radius of 21.33 feet and a
chord bearing of N52(Degree)31'54"E, through a central angle of
104(Degree)35'33" for 38.94 feet to the point of intersection with a non-tangent
line; thence N89(Degree)58'58"E for 147.58 feet to a point of intersection with
a non-tangent curve concave Northwesterly and being a point on the South line of
said Area "E', ROYAL PALMS CONDOMINIUM; thence Northeasterly the South line of
said Area "E", along the arc of said curve having a radius of 732.58 feet and a
chord bearing of N45(Degree)37'46"E, through a central angle of 00(Degree)54'44"
for 11.66 feet to the Southwest corner of Area "B", ROYAL PALMS CONDOMINIUM as
recorded in Condominium Book 16, Page 144, Public Records Orange County,
Florida; thence along the South line of said Area "B" the following four
courses; thence S52(Degree)50'29"E for 71.41 feet; thence N89(Degree)56'29"E for
90.29 feet; thence N74(Degree)59'58"E for 163.63 feet; thence N30(Degree)00'01"E
for 150.00 feet to the Southeast corner of Area "F", ROYAL PALMS CONDOMINIUM as
recorded in Condominium Book 15, Page 91, Public Records Orange County, Florida;
thence along the East line of said Area "F" the following five courses; thence
N30(Degree)00'01"E for 63.64 feet; thence N44(Degree)00'34"E for 33.15 feet;
thence N11(Degree)36'45"W for 24.61 feet; thence N40(Degree)19'50"E for 19.55
feet; thence N00(Degree)03'38"W for 49.94 feet to the Southwest corner of Area
"A", ROYAL PALMS CONDOMINIUM as recorded in Condominium Book 15, Page 91, Public
Records Orange County, Florida; thence along the South line of said Area "A" the
following two courses; thence N89(Degree)56'22"E for 109.51 feet; thence
S45(Degree)03'36"E for 162.94 feet to the Northwest corner of Area "C", ROYAL
PALMS CONDOMINIUM as recorded in Condominium Book 16, Page 42, Public Records
Orange County, Florida; thence along the West line of said Area "C" the
following three courses; thence S03(Degree)18'22"W for 101.06 feet; thence
S36(Degree)36'35"W for 75.55 feet; thence S08(Degree)23'25"E for 200.32 feet to
a point on the South line of the North 2 of the Northeast 1/4 of the Northwest
1/4 of Section 34, Township 24 South, Range 28 East, Orange County, Florida;
thence N89(Degree)54'25"E along said South line and along the South line of Area
"C", ROYAL PALMS CONDOMINIUM for 119.16 feet to a point on the West line of Area
"D", ROYAL PALMS CONDOMINIUM as recorded in Condominium Book 16, Page 69, Public
Records Orange County, Florida; thence S00(Degree)05'35"E along the West line of
said Area "D" for 49.00 feet to the South line of said Area "D"; thence along
the South line of said Area "D" the following four courses; thence
N89(Degree)54'25"E for 311.32 feet; thence S37(Degree)06'03"E for 86.48 feet;
thence S82(Degree)06'36"E for 35.64 feet; thence N52(Degree)53'57"E for 78.00
feet to a point on the Westerly right-of-way line of State Road No. 535 as shown
on the preliminary State of Florida Department of Transportation right-of-way
Map Section 75000-2528; thence departing the South line of said Area "D", ROYAL
PALMS CONDOMINIUM, S37(Degree)06'03"E along said West right-of-way line for
70.41 feet to a point on the West line of the Northwest 1/4 of the Northeast 1/4
of said Section 34; thence S00(Degree)05'58"W along said West line for 555.81
feet to the Southwest corner of the Northwest 1/4 of the Northeast 1/4 of said
Section 34; thence N89(Degree)50'57"E along the South line of the Northwest 1/4
of the Northeast 1/4 of Section 34 for 297.93 feet to a point on the
aforementioned right-of-way line of State Road No. 535; thence
S27(Degree)45'52"W along said West right-of-way line for 103.89 feet to a point
on the North right-of-way line of State Road No.536 as shown on the
aforementioned right-of-way map; thence along said right-of-way the following
nine courses; thence N86(Degree)56'56"W for 946.89 feet; thence
N88(Degree)56'18"W for 600.80 feet; thence N85(Degree)58'50"W for 2687.55 feet;
thence N78(Degree)33'11"W for 518.52 feet to a point of intersection with a
non-tangent curve concave Northeasterly; thence Westerly and Northerly along the
arc of said curve having a radius of 740.00 feet and a chord bearing of
N40(Degree)44'50"W, through a central angle of 82(Degree)28'00" for 1065.09 feet
to the point of intersection with a non-tangent line; thence N00(Degree)56'39"W
for 376.89 feet to the South line of Section 28, Township 24 South, Range 28
East, Orange County, Florida; thence continue along aforementioned right-of-way
line N00(Degree)59'09"W for 552.72 feet to a point of intersection with a
non-tangent curve concave Easterly; thence Northerly along the arc of said curve
having a radius of 900.00 feet and a chord bearing of N19(Degree)29'10"E,
through a central angle of 38(Degree)00'00" for 596.90 feet to the point of
intersection with a non-tangent line; thence N36(Degree)53'33"E for 279.66 feet
to the Northwest corner of lands conveyed by Warranty Deed as recorded in
Official Records Book 3330, Page 1280, Public Records Orange County, Florida;
thence departing said Easterly right-of-way line of Interstate 4 (State Road
#400), S89(Degree)47'18"E along the North line of said conveyed lands for
1246.98 feet to a point of intersection with a non-tangent curve concave
Northerly; thence Easterly along said conveyed lands along the arc of said curve
having a radius of 415.00 feet and a chord bearing of S80(Degree)23'45"E,
through a central angle of 31(Degree)41'10" for 229.50 feet to the point of
intersection with the Westerly line of that parcel described in Official Records
3287, Page 1946, Public Records Orange County, Florida; thence
S00(Degree)24'05"W along said Westerly line for 956.50 feet to the South line of
said parcel; thence S89(Degree)43'50"E along said South parcel line for 660.00
feet to the East line of said parcel and the East line of Section 28, Township
24 South, Range 28 East, Orange County, Florida; thence S00(Degree)24'05"W along
said East Section line for 330.92 feet to the POINT OF BEGINNING.
LESS THE FOLLOWING (SABAL PALMS CONDOMINIUM)
SABAL PALMS CONDOMINIUM as recorded in Condominium Book 14, Page 55, Public
Records Orange County, Florida, being more particularly described as follows:
Commence at the Southeast corner of Section 28, Township 24 South, Range 28
East, Orange County, Florida; thence N89(Degree)54'15"W along the South line of
said Section 28 for 1720.86 feet; thence N00(Degree)05'45"E for 111.08 feet to
the POINT OF BEGINNING and being a point of the boundary line of SABAL PALMS
CONDOMINIUM as recorded in Condominium Book 14, Page 55, Public records Orange
County, Florida; thence along the Boundary of said SABAL PALMS CONDOMINIUM the
following courses; thence N28(Degree)02'24"W for 323.96 feet; thence
N60(Degree)54'13"W for 26.21 feet; thence N14(Degree)32'25"W for 189.43 feet;
thence N28(Degree)02'24"W for 108.97 feet; thence N28(Degree)10'01"E for 287.01
feet; thence S81(Degree)17'50"E for 645.17 feet; thence S19(Degree)24'36"E for
180.15 feet; thence S09(Degree)09'54"W for 169.98 feet; thence
S89(Degree)56'22"W for 247.00 feet; thence S00(Degree)03'38"E for 220.82 feet;
thence S89(Degree)56'22"W for 110.95 feet; thence S44(Degree)56'22"W for 246.80
feet to the POINT OF BEGINNING.
The above-described property contains 181.633 acres (7,911,938 square
feet).
TOGETHER WITH perpetual, non-exclusive drainage easements described in
Declarations of Drainage Easement recorded in Official Records Book 3287, page
1939 and Official Records Book 3846, page 0757, both of the Public Records of
Orange County, Florida.
EXHIBIT B
DEFINITIONS
Acceleration is defined in Section 14.2(a)(i).
Accumulations is defined in Section 2.1(m).
Accumulations Deposits is defined in Section 6.2(a).
Accumulations Depository is defined in Section 6.2(a).
Additional Funds is defined in Section 7.4(a)(v).
Additional Loan is defined in the Recitals.
Affiliate is defined in Section 12.2.
Annual Financial Statement is defined in Section 10.1(a).
Assessments is defined as all present and future assessments levied, assessed
or imposed against the Property.
Assignment is defined as the Assignment of Leases, Rents and Hotel Revenues
dated of even date with this Mortgage made by Borrower for the benefit of
Lender.
Bankruptcy Code is defined in Section 2.1(d).
Borrower is defined in the introductory paragraph.
Business Days is defined as any day on which commercial banks are not
authorized or required by Law to close in New York, New York.
Casualty is defined as damage or destruction to the Improvements by fire or
other casualty.
Certified Rent Roll is defined as a rent roll for the Property certified by
Borrower.
Clerk=s Office is defined in the Recitals.
Code is defined as the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
Commitment Letter shall mean that certain Loan Application and Commitment
Agreement with respect to the Loan agreed to by Borrower on October 31, 1997,
and thereafter accepted by Lender.
Condemnation is defined as the permanent or temporary taking of all or any
portion of the Property, or any interest therein or right accruing thereto, by
the exercise of the right of eminent domain (including any transfer in lieu of
or in anticipation of the exercise of the right), or any similar injury or
damage to or decrease in the value of the Property, including severance and
change in the grade of any streets.
Condemnation Awards is defined in Section 2.1(i).
Condemnation Proceeding is defined as a Proceeding that could result in a
Condemnation.
CPA is defined as an independent certified public accountant satisfactory to
Lender.
Current Hotel Operator is defined as New Marriott MI, Inc., a Delaware
corporation, as successor-in-interest to Marriott International, Inc., a
Delaware corporation.
Current Hotel Operating Agreement is defined as the Hotel Management Agreement
Orlando World Center Marriott Hotel between Borrower and Marriott International,
Inc., affecting the Property dated October 25, 1985, as amended by First
Amendment to Orlando World Center Management Agreement (FF&E Reserve), dated
April 12, 1991, and as assigned by that certain Assignment and Assumption
Agreement dated December 29, 1997, from Marriott International, Inc., to the
Current Hotel Operator.
Debt Service Coverage Ratio is defined as a ratio calculated by dividing
Qualifying Net Operating Income by Debt Service.
Debt Service is defined as the combined amount of annual principal and
interest due under the Loan.
Debt Service Payments is defined as the monthly installments of principal and
interest payable by Borrower to Lender as set forth in the Note.
Default Interest Rate is 9.48% per annum.
Destruction Event is defined in Section 7.4(a).
Environmental Activity is defined is defined as any actual, suspected or
threatened abatement, cleanup, disposal, generation, handling, manufacture,
possession, release, remediation, removal, storage, transportation, treatment or
use of any Hazardous Material. The actual, suspected or threatened presence of
any Hazardous Material, including any actual, suspected or threatened
noncompliance with any Environmental Laws, will be deemed Environmental
Activity.
Environmental Laws is defined as all Laws pertaining to health, safety,
protection of the environment, natural resources, conservation, wildlife, waste
management, Environmental Activities and pollution.
Environmental Report is defined as the reports listed on Schedule 1 attached
to the Environmental Indemnity of even date with this Mortgage given by
Borrower.
ERISA is defined in Section 8.4(a).
Event of Default is defined in Section 14.1.
Financial Books and Records is defined as detailed accounts of the income and
expenses of the Property and of Borrower and all other data, records and
information that either are specifically referred to in Article X or are
necessary to the preparation of any of the statements, reports or certificates
required under Article X and includes all supporting schedules prepared or used
by the CPA in auditing the Annual Financial Statement or in issuing its opinion.
Fiscal Year is defined as a period of fifty-two (52) or fifty-three (53)
weeks, as applicable, which ends at midnight on the Friday which is closest to
December 31 in each calendar year and which begins on the Saturday immediately
following the expiration of the preceding period, or the such other period as
may be designated by Borrower from time to time and approved by Lender, such
approval not to be unreasonably withheld.
Fixed Interest Rate is defined as 7.48% per annum.
Fixtures and Personal Property is defined in Section 2.1(e).
Force Majeure is defined as any act or event beyond Borrower=s control that
has a significant adverse impact on Borrower=s performance of the Nonmonetary
Obligations, including action or inaction of the Government, acts of war, acts
or events caused exclusively by violence of nature without the interference of
any human agency, riots and other civil commotion, shortages of critical
materials or supplies, strikes or similar labor disturbances and terrorism.
GAAP is defined as generally accepted accounting principles, consistently
applied.
Government is defined as any federal, state or municipal governmental or
quasi-governmental authority including any subdivision or agency of any of them
and any entity to which any of them has delegated authority.
Gross Revenue is defined in the Tri-Party Agreement.
Ground Rent is defined as the fixed and any contingent ground rent next due
under any present or future ground lease affecting the Property.
Hazardous Materials is defined as any by-product, chemical, compound,
contaminant, pollutant, product, substance, waste or other material (i) that is
hazardous or toxic or (ii) the abatement, cleanup, discharge, disposal,
emission, exposure to, generation, handling, manufacture, possession, presence,
release, removal, remediation, storage, transportation, treatment or use of
which is controlled, prohibited or regulated by any Environmental Laws,
including asbestos, petroleum and petroleum products and polychlorinated
biphenyls.
Hotel is defined as the Improvements located on the Property and Fixtures and
Personal Property being operated on the date of this Mortgage as transient
lodging facilities.
Hotel Operating Agreement is defined as the Current Hotel Operating Agreement
or any future operating agreements for the Hotel approved by Lender.
Hotel Operations is defined as all of the operations and services conducted at
or in connection with the Hotel, including rentals of guest rooms and suites;
and of office or retail space; operation of banquet rooms, catering services,
meeting rooms, restaurants, coffee shops, bars, cocktail lounges, nightclubs,
retail space, sports facilities, golf courses, tennis courts, pro shops, health
clubs, exercise rooms, barber shops, beauty parlors and vending machines;
swimming pool; parking; concierge services; checkrooms; valet services; video
rentals; in-room movies and entertainment programs; telephone and
telecommunication services and facilities; business center operations; mini-bar
operations; limousine and other transportation services and room service
operations.
Hotel Operator is defined as Current Hotel Operator or any future operators of
the Hotel.
Hotel Revenues is defined in Section 2.1(d).
Imposition Penalty Date is defined in Section 6.1(a).
Impositions is defined as all Taxes, Assessments, Ground Rent, water and sewer
rents, personal property taxes, if any, levies, permit, inspection and license
fees and other dues, charges or impositions, including all charges and license
fees for the use of vaults, chutes and similar areas adjoining the Land,
maintenance and similar charges and charges for utility services, in each
instance whether now or in the future, directly or indirectly, levied, assessed
or imposed on the Property or Borrower and whether levied, assessed or imposed
as excise taxes or income taxes.
Improvements is defined in Section 2.1(b).
Insurance Premiums is defined as all present and future premiums and other
charges due and payable on policies of fire, rental value and other insurance
covering the Property and required pursuant to the provisions of this Mortgage.
Insurance Proceeds is defined in Section 2.1(j).
Insurers is defined in Section 7.1(b).
Interest is defined as the amount of interest payable under the Note at the
Fixed Interest Rate and any other sums which could be deemed to be interest
under Law.
Land is defined in Section 2.1(a).
Law is defined as all present and future codes, constitutions, determinations,
laws, orders, ordinances, requirements and statutes, as amended, of any
Government that affect or that may be interpreted to affect the Property,
Borrower or the Loan, including amendments and all guidance documents, rules,
publications and regulations promulgated thereunder.
Leases is defined in Section 2.1(d).
Lender is defined in the introductory paragraph.
Lender=s Correspondent is defined as First Fidelity Mortgage Corporation.
Loan is defined in the Recitals.
Loan Documents is defined as the Note, this Mortgage, the Assignment and all
documents now or hereafter executed by Borrower or held by Lender relating to
the Loan, including all amendments, and expressly including the Tri-Party
Agreement referenced in the Rules of Construction to this Mortgage.
Maturity Date is defined in the Recitals.
Monetary Obligations is defined in Section 3.1.
Mortgage is defined in the preamble.
Nonmonetary Obligations is defined in Section 3.1.
Note is defined in the Recitals.
Note Payments is defined in the Note.
Notices is defined in Section 17.1.
Notice of Future Advance is defined in the Recitals.
Obligations is defined as the Monetary Obligations and the Nonmonetary
Obligations.
Original Loan is defined in the Recitals.
Original Mortgage is defined in the Recitals.
Original Note is defined in the Recitals.
Owner=s Distributions is defined in Section 2.1(e).
Permitted Exceptions is defined as the matters shown in Schedule B, Part 1
and 2 of the title insurance policy or policies insuring the lien created by
this Mortgage.
Permitted Transfers is defined in Section 12.2(a).
Permitted Use is defined as use for the management and operation of a
luxury-class hotel and uses incidentally and directly related to such use, but
excluding any casino or other gambling establishment.
Policies is defined in Section 7.1(c).
Principal is defined in Recital B.
Prior Notes is defined in the Recitals.
Proceeding is defined as a pending or threatened action, claim or litigation
before a legal, equitable or administrative tribunal, including all appellate
proceedings.
Proceeds is defined in Section 7.2.
Property is defined in Section 2.1.
Property Documents is defined in Section 2.1(f).
Qualifying Net Operating Income is defined as gross revenues of the Property
for the twelve (12) month period ending with the month most recently preceding
the month in which a Debt Service Coverage determination is to be made, and
deducting therefrom the following: (i) ordinary and necessary operating expenses
(including a base management fee of 3.00% of gross revenues, but not including
incentive management fees and additional incentive management fees); (ii) a
reserve for FF&E equal to the greater of five percent (5.0%) of gross revenues
of the Hotel or the actual amount funded in to such reserve by the Hotel
Operator pursuant to the Hotel Operating Agreement; (iii) all debt service
payments paid with respect to FF&E financings as permitted under the Tri-Party
Agreement (except to the extent funded from such FF&E reserve and permitted
under the Tri-Party Agreement); and (iv) all periodic payments with respect to
equipment leases permitted under the Mortgage (except to the extent funded from
such FF&E reserve and permitted under the Tri-Party Agreement).
Remedies is defined in Section 14.2(a).
Renewal Mortgage is defined in the Recitals.
Rents is defined in Section 2.1(d).
Restore or Restored or Restoration is defined as the restoration of the
Property after a Destruction Event pursuant to the terms of Subsections
7.4(a)(v) and (vi) in a first-class workmanlike manner using materials
substantially equivalent in quality and character to those used for the original
improvements, in accordance with Law and free and clear of all liens,
encumbrances or other charges other than this Mortgage and the Permitted
Exceptions.
Restoration Completion Date is defined in Section 7.4(a)(viii).
Restoration Funds is defined in Section 7.4(b).
Sanwa is defined in the Recitals.
Taxes is defined as all present and future real estate and personal property
taxes levied, assessed or imposed against the Property.
Term is defined as the scheduled term of this Mortgage commencing on the date
Lender makes the first disbursement of the Loan and terminating on the Maturity
Date.
TIAA is defined in the Recitals.
Transfer is defined in Section 12.1(a).
Tri-Party Agreement is defined as the Tri-Party Overriding Agreement by and
among Borrower, Lender and Hotel Operator, dated of even date herewith.
Waste is defined as neglect or misconduct resulting in material damage to or
the diminution in value of the Property, but not including ordinary depreciation
due to age and normal use over time or the failure to pay property taxes.
EXHIBIT C
RULES OF CONSTRUCTION
(a) References in any Loan Document to numbered Articles or Sections are
references to the Articles and Sections of that Loan Document. References in any
Loan Document to lettered Exhibits are references to the Exhibits attached to
that Loan Document, all of which are incorporated in and constitute a part of
that Loan Document. Article, Section and Exhibit captions used in any Loan
Document are for reference only and do not describe or limit the substance,
scope or intent of that Loan Document or the individual Articles, Sections or
Exhibits of that Loan Document.
(b) The terms include, including and similar terms are construed as if
followed by the phase without limitation.
(c) The terms Land, Improvements, Fixtures and Personal Property,
Condemnation Awards, Insurance Proceeds, Property, Monetary Obligations and
Obligations are construed as if followed by the phrase or any part thereof.
(d) Any agreement by or duty imposed on Borrower in any Loan Document to
perform any obligation or to refrain from any act or omission constitutes a
covenant on Borrower=s part and includes a covenant by Borrower to cause its
partners, members, principals, agents, representatives and employees to perform
the obligation or to refrain from the act or omission in accordance with the
Loan Documents. Any statement or disclosure contained in any Loan Document about
facts or circumstances relating to the Property, Borrower or any other matter
affecting the Property constitutes a representation and warranty by Borrower
made as of the date of the Loan Document in which the statement or disclosure is
contained.
(e) The term to Borrower=s knowledge is construed as meaning to the best of
Borrower=s knowledge after diligent inquiry into records and/or reports within
its possession.
(f) The singular of any word includes the plural and the plural includes
the singular. The use of any gender includes all genders.
(g) The terms person, party and entity include natural persons, firms,
partnerships, limited liability companies and partnerships, corporations and any
other public or private legal entity.
(h) The term provisions includes terms, covenants, conditions, agreements
and requirements.
(i) The term amend includes modify, supplement, renew, extend, replace or
substitute and the term amendment includes modification, supplement, renewal,
extension, replacement and substitution.
(j) The term attorneys= fees is limited to reasonable attorneys= fees
incurred by Lender for any Proceeding (including a proceeding in Bankruptcy
Court), fees for paralegals or legal assistants and any other fees, expenses or
costs charged or incurred by Lender=s attorneys.
(k) Reference to any specific Law or to any document or agreement,
including the Leases, the Property Documents the and the Hotel Operating
Agreement includes any future amendments to or replacements of the Law, document
or agreement, as the case may be.
(l) No inference in favor of or against a party with respect to any
provision in any Loan Document may be drawn from the fact that the party drafted
the Loan Document.
(m) The term certificate means the sworn statement of the party giving the
certificate, made by a duly authorized person affirming the truth and accuracy
of every statement in the certificate. A certificate delivered by Borrower must
be given by Borrower=s managing general partner or a qualified officer of
Borrower satisfactory to Lender. Any document that is certified means the
document has been appended to a certificate of the party certifying the document
that affirms the truth and accuracy of everything in the document being
certified.
(n) The parties hereto acknowledge that (i) many of the Nonmonetary
Obligations of Borrower under the Loan Documents are, in fact, performed by the
Hotel Operator pursuant to the Hotel Operating Agreement (as the same may be
modified by the Tri-Party Agreement) and (ii) Borrower has delegated to the
Hotel Operator, through the Hotel Operating Agreement, broad authority and
discretionary powers with respect to the operation of the Hotel. Lender hereby
agrees that, notwithstanding anything to the contrary which may be contained in
any of the Loan Documents, to the extent that any Nonmonetary Obligation of
Borrower under the Loan Documents is performed by the Hotel Operator pursuant to
the Hotel Operating Agreement (as the same may be modified by the Tri-Party
Agreement), Lender shall accept such performance by the Hotel Operator as the
fulfillment of such Nonmonetary Obligation, and Borrower shall not be deemed in
default of such Nonmonetary Obligation if Hotel Operator fully and faithfully
performs such obligation on the part of Borrower.
(o) Any all notices to be delivered to the Lender hereunder shall be given
to the Lender=s Correspondent, and such delivery shall constitute delivery to
the Lender for the purposes of this Mortgage. Borrower shall be entitled to
conclusively rely on any written statement delivered to Borrower by Lender=s
Correspondent as to the matters contained in this Mortgage.
(p) To the extent any of the terms or provisions of this Mortgage conflict
with or are inconsistent with the terms of any other Loan Document such that
Borrower is incapable of simultaneous performance of such provisions, then the
terms of this Mortgage shall be deemed to control.
SCHEDULE 1
LEASED EQUIPMENT
Lessor Term Description Annual Payments Capital Lease
M&SD 9/96-8/98 Telephone System 42,000 N
MiniBar Systems 6/96-6/01 Mini Bars 117,575 N
IBM Leasing 7/96-7/01 Computer System 87,780 N
IBM Leasing 7/96-7/01 Computer Hardware 35,952 C
------------------------------------------------
AMENDED AND RESTATED
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING STATEMENT
------------------------------------------------
Orlando World Center Marriott Resort
Orlando, Orange County, Florida
December 31, 1997
This instrument prepared by and,
after recording, should be returned to:
H. Edward Hales, Jr., Esq.
SUTHERLAND, ASBILL & BRENNAN LLP
999 Peachtree Street, Northeast
Atlanta, Georgia 30309-3996
Telephone: (404) 853-8000
THIS AMENDED AND RESTATED MORTGAGE AND SECURITY AGREEMENT AMENDS AND
RESTATES THAT CERTAIN MORTGAGE AND SECURITY AGREEMENT RECORDED IN OFFICIAL
RECORDS BOOK 4512, PAGE 3134, OF THE PUBLIC RECORDS OF ORANGE COUNTY, FLORIDA,
AND SECURES THE NOTE REFERRED TO HEREIN. THE NOTE RENEWS AND RESTATES THE PRIOR
NOTES REFERRED TO HEREIN, WITHOUT ENLARGING THE COMBINED PRINCIPAL BALANCE
THEREOF, AND, THEREFORE, IS EXEMPT FROM FLORIDA DOCUMENTARY STAMP TAXES PURSUANT
TO FLORIDA STATUTES SECTION 201.09 AND FLORIDA ADMINISTRATIVE CODE RULES NO.
12B-4.054 AND IS EXEMPT FROM FLORIDA INTANGIBLE TAXES PURSUANT TO FLORIDA
STATUTES SECTION 199.145(4).