Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
x Quarterly Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended March 27, 1998
OR
- Transition Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-14381
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1436985
- --------------------------------- ---------------------------------
(State or otherjurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
10400 Fernwood Road
Bethesda, Maryland
20817
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(Address of principal executive offices)
Registrant's telephone number, including area code: 301-380-2070
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __.
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MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Statement of Operations
Twelve Weeks Ended March 27, 1998 and March 28, 1997........1
Condensed Consolidated Balance Sheet
March 27, 1998 and December 31, 1997........................2
Condensed Consolidated Statement of Cash Flows
Twelve Weeks ended March 27, 1998 and March 28, 1997........3
Notes to Condensed Consolidated Financial Statements..........4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................10
Item 6. Exhibits and Reports on Form 8-K.............................10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per unit amounts)
Twelve Weeks Ended
March 27, March 28,
1998 1997
---------------- ---------------
REVENUES
Hotel................................... $ 18,213 $ 18,267
Rental income........................... 9,362 9,286
---------------- ---------------
27,575 27,553
---------------- ---------------
OPERATING COSTS AND EXPENSES
Incentive management fee................ 2,870 2,877
Depreciation and amortization........... 2,446 2,281
Base management fee..................... 1,112 1,100
Ground rent, property taxes and other... 2,221 2,152
---------------- ---------------
8,649 8,410
---------------- ---------------
OPERATING PROFIT.......................... 18,926 19,143
Interest expense........................ (4,723) (5,050)
Other revenue........................... 162 93
---------------- ---------------
INCOME BEFORE MINORITY INTEREST........... 14,365 14,186
MINORITY INTEREST IN INCOME............... 2,698 2,757
---------------- ---------------
NET INCOME ................................ $ 11,667 $ 11,429
================ ===============
ALLOCATION OF NET INCOME
General Partner.......................... $ 117 $ 114
Limited Partners......................... 11,550 11,315
---------------- ---------------
$11,667 $ 11,429
================ ===============
NET INCOME PER LIMITED PARTNER UNIT
(1,000 Units).............................. $ 11,550 $ 11,315
================ ===============
See notes to condensed consolidated financial
statements.
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
March 27, December 31,
1998 1997
(Unaudited)
ASSETS
Property and equipment, net...........$ 221,344 $ 222,216
Due from Marriott International, Inc.
and affiliates...................... 15,821 7,912
Minority interest..................... 7,344 10,042
Other assets.......................... 10,746 10,245
Cash and cash equivalents............. 17,485 10,694
--------------- ---------------
$ 272,740 $ 261,109
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Mortgage debt.........................$ 235,449 $ 235,946
Notes payable and amounts due to
Marriott International, Inc.
and affiliates...................... 4,163 4,987
Accounts payable and accrued interest. 1,572 196
Amounts due to Host Marriott
Corporation......................... 41 132
--------------- ---------------
Total Liabilities................ 241,225 241,261
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PARTNERS' CAPITAL
General Partner....................... 424 307
Limited Partners...................... 31,091 19,541
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Total Partners' Capital.......... 31,515 19,848
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$ 272,740 $ 261,109
=============== ===============
See notes to condensed consolidated financial
statements.
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Twelve Weeks Ended
March 27, March 28,
1998 1997
--------------- ------------
OPERATING ACTIVITIES
Net income.................................$ 11,667 $ 11,429
Noncash items.............................. 5,202 5,158
Changes in operating accounts.............. (6,653) (5,441)
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Cash provided by operating activities... 10,216 11,146
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INVESTING ACTIVITIES
Additions to property and equipment........ (1,574) (882)
Changes in property improvement funds...... (496) (1,850)
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Cash used in investing activities....... (2,070) (2,732)
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FINANCING ACTIVITIES
Repayments to Marriott International, Inc.
and affiliates.......................... (824) (167)
Principal repayments of mortgage debt...... (497) (246)
Payment of financing costs................. (34) --
---------------- ---------------
Cash used in financing activities....... (1,355) (413)
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INCREASE IN CASH AND CASH EQUIVALENTS........ 6,791 8,001
CASH AND CASH EQUIVALENTS at beginning
of period............................... 10,694 1,607
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CASH AND CASH EQUIVALENTS at end
of period...............................$ 17,485 $ 9,608
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest..$ 3,292 $ 4,538
================ ===============
See notes to condensed consolidated financial
statements.
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements have been
prepared by Marriott Hotel Properties Limited Partnership (the
"Partnership") without audit. Certain information and footnote
disclosures normally included in financial statements presented in
accordance with generally accepted accounting principles have been
condensed or omitted from the accompanying statements. The Partnership
believes the disclosures made are adequate to make the information
presented not misleading. However, the condensed consolidated financial
statements should be read in conjunction with the Partnership's
financial statements and notes thereto included in the Partnership's
Form 10-K for the fiscal year ended December 31, 1997.
In the opinion of the Partnership, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which
include only normal recurring adjustments) necessary to present fairly
the financial position of the Partnership as of March 27, 1998 and the
results of operations and cash flows for the twelve weeks ended March
27, 1998 and March 28, 1997. Interim results are not necessarily
indicative of fiscal year performance because of seasonal and
short-term variations.
The Partnership owns Marriott's Orlando World Center (the "Orlando
Hotel") and a 50.5% interest in a partnership owning Marriott's Harbor
Beach Resort (the "Harbor Beach Partnership"), whose financial
statements are consolidated herein. The remaining 49.5% general
partnership interest in the Harbor Beach Partnership is reported as
minority interest. All significant intercompany balances and
transactions have been eliminated.
For financial reporting purposes, net profits and net losses of the
Partnership are allocated 99% to the limited partners and 1% to the
general partner. Significant differences exist between the net profits
and net losses for financial reporting purposes and the net profits and
net losses reported for Federal income tax purposes. These differences
are due primarily to the use, for income tax purposes, of accelerated
depreciation methods, shorter depreciable lives of the assets,
differences in the timing of the recognition of management fee expense
and the deduction of certain costs incurred during construction which
have been capitalized in the accompanying condensed consolidated
financial statements.
2. Certain reclassifications were made to the prior quarter financial
statements to conform to the current quarter presentation.
3. Hotel revenues represent house profit from the Orlando Hotel since the
Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Orlando Hotel to
Marriott International, Inc. (the "Manager"). House profit reflects
hotel operating results which flow to the Partnership as property owner
and represents gross hotel sales less property-level expenses,
excluding depreciation and amortization, base and incentive management
fees, property taxes and certain other costs, which are disclosed
separately in the accompanying condensed consolidated statement of
operations.
Hotel revenues consist of hotel operating results for the Orlando Hotel
for the twelve weeks ended (in thousands):
March 27, March 28,
1998 1997
HOTEL SALES
Rooms................. ...........$ 18,736 $ 18,493
Food and beverage................. 14,803 14,584
Other............................. 3,530 3,606
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37,069 36,683
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HOTEL EXPENSES
Departmental Direct Costs
Rooms........................ 3,238 3,072
Food and beverage............ 8,724 8,290
Other hotel operating expenses.... 6,894 7,054
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18,856 18,416
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HOTEL REVENUES......................$ 18,213 $ 18,267
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4. Rental income under the Harbor Beach Partnership operating lease for
the twelve weeks ended was (in thousands):
March 27, March 28,
1998 1997
Basic Rental.......................$ 403 $ 362
Percentage Rental.................. 1,731 1,964
Performance Rental................. 7,228 6,960
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$ 9,362 $ 9,286
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5. On April 15, 1998, the Partnership successfully completed the financing
for the expansion of the Orlando Hotel (the "Construction Loan"). The
lender is obligated to provide up to $88 million to fund costs related
to the construction of a 500-room tower, new parking garage, expansion
of the existing JW's Steakhouse restaurant, redesign of the existing
golf course and constructing 15,000 square feet of additional meeting
space. During the construction period, the Partnership is required to
make interest only payments at the fixed interest rate of 7.48% with
such interest payments funded by the Construction Loan. Upon completion
of the expansion, the Partnership will be required to pay principal and
interest at the fixed interest rate of 7.48% amortized over the
remaining term of the loan. The loan matures on January 1, 2008.
6. On April 17, 1998, Host Marriott Corporation ("Host Marriott"), parent
company of the General Partner of the Partnership, announced that its
Board of Directors has authorized the company to reorganize its
business operations to qualify as a real estate investment trust
("REIT") to become effective as of January 1, 1999. As part of the REIT
conversion, Host Marriott expects to form a new operating partnership
(the "Operating Partnership") and limited partners in certain Host
Marriott full-service hotel partnerships and joint ventures, including
the Partnership, are expected to be given an opportunity to receive, on
a tax-deferred basis, Operating Partnership units in the new Operating
Partnership in exchange for their current partnership interest.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance or achievements of the Partnership to
be different from any future results, performance or achievements expressed
or implied by such forward-looking statements. Although the Partnership
believes 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.
RESULTS OF OPERATIONS
The chart below summarizes REVPAR for first quarter 1997 and 1998:
Twelve Weeks Ended
March 27, March 28,
1998 1997 % Increase
-------------- ---------- -------------
Orlando World Center $ 149 $ 146 1%
Harbor Beach $ 205 $ 197 4%
Combined Average $ 166 $ 161 3%
Total consolidated Partnership revenues for first quarter 1998 increased
slightly to $27.6 million when compared to the same period in 1997 due to
strong operating results at the Orlando World Center and the Harbor Beach
Hotel (the "Hotels"). REVPAR, or revenue per available room, represents the
combination of the average daily room rate charged and the average daily
occupancy achieved and is a commonly used indicator of hotel performance
(although it is not a GAAP, or generally accepted accounting principles,
measure of revenue). The combined average REVPAR for the twelve weeks
ended March 27, 1998 improved 3%, to $166, over the comparable period in
1997 due to a 6% increase in combined average room rate to $193 offset by a
three percentage point decrease in combined average occupancy to 86%.
Hotel Revenues. For the twelve weeks ended March 27, 1998, hotel revenues
remained stable at $18.2 million when compared to the same period in 1997.
First quarter 1998 REVPAR at the Orlando Hotel increased slightly over the
same period in 1997 from $146 to $149 due to a 4% increase in average room
rate to $171 offset by a two percentage point decrease in occupancy to 87%.
Marketing efforts at the Orlando Hotel are focused on attracting short-term
group demand, as well as leisure transient demand for the summer months.
Demand is expected to remain strong in the leisure transient segment.
Rental Income. For the twelve weeks ended March 27, 1998, rental income
from the Harbor Beach Hotel increased slightly to $9.4 million when
compared to the same period in 1997. REVPAR for first quarter 1998
increased 4% over the same period in 1997 to $205 due to a 9% increase in
average room rate to $247 offset by a four percentage point decrease in
average occupancy to 83%.
Operating costs and expenses. Indirect hotel operating costs and expenses
increased 3% to $8.6 million for the twelve weeks ended March 27, 1998 when
compared to the same period in 1997. The principal reason for the increase
in this category is discussed below:
Depreciation and amortization. Depreciation and amortization increased 7%
to $2.4 million for first quarter 1998. The increase is primarily due to
the completion of the rooms renovation project at the Orlando Hotel during
fourth quarter 1997.
Operating profit. Operating profit decreased slightly to $19 million in
first quarter 1998 when compared to the same period in 1997.
Interest expense. Consolidated interest expense for first quarter 1998
decreased 6% to $4.7 million due to the refinancing of the Orlando World
Center's mortgage debt at a lower interest rate in 1997.
Minority interest in income. Based upon its 50.5% ownership interest, the
Partnership controls the Harbor Beach Partnership, and as a result, the
condensed consolidated financial statements of the Partnership include the
accounts of the Harbor Beach Partnership. Minority interest in income
represents the net income from the Harbor Beach Partnership allocable to
the co-general partner of that Partnership. Minority interest in income
decreased from $2.8 million in first quarter 1997 to $2.7 million in first
quarter 1998 primarily due to a slight decrease in net income from the
Harbor Beach Partnership due to an increase in depreciation expense.
Net income. For first quarter 1998, net income increased 2% to $11.7
million when compared to the same period in 1997. This increase was
primarily due to the decrease in interest expense, as discussed above.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have historically been funded through
loan agreements with independent financial institutions, Host Marriott
Corporation ("Host Marriott") and its affiliates or Marriott International,
Inc. (the "Manager") and its affiliates. The general partner believes that
the Partnership will have sufficient capital resources and liquidity to
continue to conduct its business in the ordinary course.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is from operations. Its
principal uses of cash are to fund the property improvement funds of the
Hotels, pay the required principal amortization of the mortgage debt and
other debt incurred to fund costs of the capital improvements at the Hotels
and pay cash distributions to the partners.
Total consolidated cash provided by operations for the twelve weeks ended
March 27, 1998 and March 28, 1997, was $10.2 million and $11.1 million,
respectively. The variance was primarily due to an increase in the
receivable from the Manager when compared to first quarter 1997.
For the twelve weeks ended March 27, 1998 and March 28, 1997, cash used in
investing activities was $2.1 million and $2.7 million, respectively,
consisting of additions to property and equipment and cash contributed to
the property and improvement funds of the Hotels.
For the twelve weeks ended March 27, 1998 and March 28, 1997, cash used in
financing activities was $1.4 million and $0.4 million, respectively,
consisting of principal repayments on the mortgage debt and payments to the
Manager and affiliates on the rooms renovation loans for the Hotels.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Partnerships nor the Hotels are presently subject to any
material litigation nor, to the General Partner's knowledge, is any
material litigation threatened against the Partnerships or the Hotels,
other than routine litigation and administrative proceedings arising in the
ordinary course of business, some of which are expected to be covered by
liability insurance and which collectively are not expected to have a
material adverse effect on the business, financial condition or results of
operations of the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b. Reports on Form 8-K
A Form 8-K was filed with the Securities and Exchange Commission on May 8,
1998. In this filing, Item 5 Other Events discloses the announcement by
Host Marriott, parent company of the General Partner of the Partnership,
that Host Marriott's Board of Directors has authorized Host Marriott to
reorganize its business operations to qualify as a real estate investment
trust, effective as of January 1, 1999. A copy of the press release was
included as an Item 7 - Exhibit in this Form 8-K filing.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARRIOTT HOTEL PROPERTIES
LIMITED PARTNERSHIP
By: HOTEL PROPERTIES MANAGEMENT, INC.
General Partner
May 11, 1998 By: /s/ Earla L. Stowe
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Earla L. Stowe
Vice President and Chief Accounting Officer