Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended June 19, 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 other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
10400 Fernwood Road
Bethesda, Maryland 20817
- -------------------------------- ----------------------------------
(Address of principal executive (Zip Code)
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
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Operations
Twelve and Twenty-Four Weeks Ended June 19, 1998
(Unaudited) and June 20, 1997 (Unaudited)..................3
Condensed Consolidated Balance Sheet
June 19, 1998 (Unaudited) and December 31, 1997............4
Condensed Consolidated Statement of Cash Flows
Twenty-Four Weeks Ended June 19, 1998 (Unaudited)
and June 20, 1997 (Unaudited)..............................5
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................12
Item 6. Exhibits and Reports on Form 8-K..............................12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per Unit amounts)
Twelve Weeks Ended Twenty-Four Weeks Ended
June 19, June 20, June 19, June 20,
1998 1997 1998 1997
--------- --------- --------- --------
REVENUES
Hotel.............................$ 14,744 $ 12,600 $ 32,957 $ 30,867
Rental income..................... 5,649 5,720 15,011 15,006
--------- --------- --------- --------
20,393 18,320 47,968 45,873
--------- --------- --------- --------
OPERATING COSTS AND EXPENSES
Incentive management fees......... 3,458 3,310 6,328 6,187
Depreciation and amortization..... 2,446 2,280 4,892 4,561
Base management fees.............. 983 924 2,095 2,024
Ground rent, property taxes and
other.......................... 2,317 2,216 4,538 4,368
--------- -------- --------- --------
9,204 8,730 17,853 17,140
--------- -------- --------- --------
OPERATING PROFIT..................... 11,189 9,590 30,115 28,733
Interest expense.................. (4,476) (4,843) (9,199) (9,893)
Other revenue..................... 343 192 505 285
--------- -------- --------- --------
INCOME BEFORE MINORITY INTEREST...... 7,056 4,939 21,421 19,125
MINORITY INTEREST IN INCOME.......... (905) (1,025) (3,603) (3,782)
--------- -------- --------- --------
NET INCOME...........................$ 6,151 $ 3,914 $ 17,818 $ 15,343
========= ======== ========= ========
ALLOCATION OF NET INCOME
General Partner...................$ 62 $ 39 $ 178 $ 153
Limited Partners.................. 6,089 3,875 17,640 15,190
--------- -------- --------- ---------
$ 6,151 $ 3,914 $ 17,818 $ 15,343
========= ======== ========= =========
NET INCOME PER LIMITED PARTNER UNIT
(1,000 Units).....................$ 6,089 $ 3,875 $ 17,640 $ 15,190
========= ======== ========= =========
See Notes to Condensed Consolidated Financial Statements.
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
June 19, December 31,
1998 1997
(Unaudited)
ASSETS
Property and equipment, net......................$ 220,939 $ 222,216
Due from Marriott International, Inc. and
affiliates..................................... 9,012 7,912
Minority interest................................ 7,924 10,042
Other assets..................................... 12,022 10,245
Cash and cash equivalents........................ 28,367 10,694
---------- ----------
$ 278,264 $ 261,109
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt ...................................$ 237,183 $ 235,946
Notes payable and amounts due to Marriott
International, Inc. and affiliates............. 3,780 4,987
Accounts payable and accrued interest............ 1,129 196
Amounts due to Host Marriott Corporation......... 21 132
---------- ----------
Total Liabilities........................... 242,113 241,261
---------- ----------
PARTNERS' CAPITAL
General Partner.................................. 470 307
Limited Partners................................. 35,681 19,541
---------- ----------
Total Partners' Capital..................... 36,151 19,848
---------- ----------
$ 278,264 $ 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)
Twenty-Four Weeks Ended
June 19, June 20,
1998 1997
----------- ----------
<C<
OPERATING ACTIVITIES
Net income..................................$ 17,818 $ 15,343
Noncash items............................... 8,614 8,582
Changes in operating accounts............... (370) 1,708
----------- ----------
Cash provided by operating activities..... 26,062 25,633
----------- ----------
INVESTING ACTIVITIES
Additions to property and equipment......... (3,615) (1,481)
Changes in property improvement funds....... (1,802) (3,590)
----------- ----------
Cash used in investing activities......... (5,417) (5,071)
----------- ----------
FINANCING ACTIVITIES
Construction loan advances.................. 2,492 --
Principal repayments of mortgage debt....... (1,255) (4,122)
Capital distributions to partners........... (1,515) (1,514)
Capital distributions to minority interest.. (1,485) (1,485)
Repayments to Marriott International, Inc.
and affiliates........................... (1,175) (296)
Payment of financing costs.................. (34) --
------------ ---------
Cash used in financing activities......... (2,972) (7,417)
------------ ---------
INCREASE IN CASH AND CASH EQUIVALENTS.......... 17,673 13,145
CASH AND CASH EQUIVALENTS at beginning of
period...................................... 10,694 1,607
----------- ----------
CASH AND CASH EQUIVALENTS at end of period.....$ 28,367 $ 14,752
============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest...$ 8,112 $ 9,660
=========== ==========
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 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 June 19, 1998, the results of
operations for the twelve and twenty-four weeks ended June 19, 1998 and
June 20, 1997 and the cash flows for the twenty-four weeks ended June 19,
1998 and June 20, 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 income 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 income and net
losses for financial reporting purposes and the net income 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 year financial
statements to conform to the 1998 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 condensed
consolidated statement of operations.
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 property-level revenues and operating expenses of the Hotels from
its 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 this managed operation in its financial statements. Application
of EITF 97-2 to financial statements as of and for the twelve and
twenty-four weeks ended June 19, 1998 would have increased both revenues
and operating expenses by approximately $18.0 million and $36.9
million, respectively and would have had no impact on net income.
Hotel revenues consist of hotel operating results for the Orlando Hotel for
1998 and 1997 (in thousands):
Twelve Weeks Ended Twenty-Four Weeks Ended
June 19, June 20, June 19, June 20,
1998 1997 1998 1997
---------- --------- --------- ---------
HOTEL SALES
Rooms......................$ 16,431 $ 15,872 $ 35,167 $ 34,365
Food and beverage.......... 13,398 11,892 28,201 26,476
Other...................... 2,950 3,008 6,480 6,614
---------- --------- --------- ---------
32,779 30,772 69,848 67,455
---------- --------- --------- ---------
HOTEL EXPENSES
Departmental Direct Costs
Rooms.................. 3,154 3,405 6,392 6,477
Food and beverage...... 8,096 7,735 16,820 16,025
Other hotel operating
expenses............... 6,785 7,032 13,679 14,086
---------- --------- --------- ---------
18,035 18,172 36,891 36,588
---------- --------- --------- ---------
HOTEL REVENUES..............$ 14,744 $ 12,600 $ 32,957 $ 30,867
========== ========= ========= =========
4. Rental income under the Harbor Beach Partnership operating lease for the
twelve and twenty-four weeks ended was (in thousands):
Twelve Weeks Ended Twenty-Four Weeks Ended
June 19, June 20, June 19, June 20,
1998 1997 1998 1997
--------- --------- ---------- ----------
Basic rental...............$ 403 $ 409 $ 806 $ 771
Percentage rental.......... 1,548 1,549 3,279 3,513
Performance rental......... 3,189 3,457 10,417 10,417
Additional performance
rental................... 509 305 509 305
--------- --------- ---------- -----------
RENTAL INCOME..............$5,649 $ 5,720 $ 15,011 $ 15,006
========= ========= ========== ===========
5. On April 15, 1998, the Partnership successfully completed the financing
for the expansion of the Orlando World Center (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 construction of 15,000 square feet of additional meeting space.
During the construction period, the Partnership is required to make monthly
payments of principal and interest at the fixed interest rate of 7.48% with
such interest payments funded by the Construction Loan. Principal payments
will be funded by hotel operations. 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
Construction Loan. The Construction Loan matures on January 1, 2008. As
of June 19, 1998, the Partnership has received Construction Loan advances
of $2.5 million which were used to pay construction costs.
6. On April 17, 1998, Host Marriott, parent company of the General Partner
of the Partnership, announced that its Board of Directors authorized
Host Marriott 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 formed 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 limited partnership
interests. The Operating Partnership units would be redeemable by the
limited partner for freely traded Host Marriott shares (or the cash
equivalent thereof) at any time after one year from the closing of the
merger. In connection with the REIT conversion, on June 2, 1998, the
Operating Partnership filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission. Limited partners will be able to vote
on this Partnership's participation in the merger later this year through a
consent solicitation.
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 and as such may
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance or achievements of the Partnership to be
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Although the Partnership believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, it can give no assurance that its expectations will
be attained. These risks are detailed from time to time in the Partnership's
filings with the Securities and Exchange Commission. The Partnership undertakes
no obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
RESULTS OF OPERATIONS
The chart below summarizes REVPAR, or revenue per available room, for 1998 and
1997:
Twelve Weeks Ended
June 19, June 20,
1998 1997 % Increase
--------- --------- ---------
Orlando World Center $ 130 $ 125 4%
Harbor Beach $ 148 $ 143 3%
Combined Average $ 136 $ 131 4%
Twenty Four Weeks Ended
June 19, June 20,
1998 1997 % Increase
---------- --------- ---------
Orlando World Center $ 139 $ 136 2%
Harbor Beach $ 177 $ 170 4%
Combined Average $ 150 $ 146 3%
Total consolidated Partnership revenues for the second quarter and year-to-date
ended June 19, 1998, increased 11% and 5%, respectively, when compared to the
comparable periods ended June 20, 1997. The increase for second quarter was a
result of an increase in sales coupled with a decrease in operating expenses at
the Orlando Hotel. Year-to-date operating results were also strong for both the
Orlando Hotel and the Harbor Beach Hotel (the "Hotels"). REVPAR 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
measurement of revenue). On a combined basis, second quarter and year-to-date
REVPAR increased 4% and 3%, respectively, primarily due to increases in average
room rate. For the second quarter, the combined average room rate improved 6%
over the same period in 1997 to $161, while the combined average occupancy
decreased one percentage point to 85%. On a year-to-date basis, the combined
average room rate increased 5% over the comparable period in 1997 to $177 while
the combined average occupancy decreased two percentage points to 85%.
Hotel revenues. Second quarter and year-to-date revenues reported by the Orlando
Hotel increased 17% and 7%, respectively, over the same period of 1997. REVPAR
for second quarter increased 4% over the comparable period in 1997 to $130 as a
result of a one percentage point increase in occupancy to 86% and a 3% increase
in average room rate to $152. As a result of group sales efforts shifting focus
from association groups to corporate groups, second quarter food and beverage
sales increased 13% over last year. In addition, second quarter other hotel
operating expenses decreased 4% from last year primarily due to decreased
reservation costs. The strong year-to-date performance was a result of a 2%
increase in REVPAR to $139. This increase was attributed to a 4% increase in
average room rate to $162 offset by a one percentage point decrease in occupancy
to 86%. The hotel achieved its increase in average room rate as a result of rate
increases across all segments and the hotel's ability to restrict discounted
transient room rates. The decrease in occupancy was primarily due to a decrease
in group roomnights.
Rental income. Second quarter and year-to-date rental income from the Harbor
Beach Hotel decreased 1% and remained stable, respectively, over 1997. As a
result of additional amounts retained by the operating tenant, second quarter
1998 rental income decreased slightly from the same period in 1997.
For the second quarter, REVPAR increased 3% over 1997 to $148 as a result of a
10% increase in average room rate to $183 offset by a five percentage point
decrease in occupancy to 82%. On a year-to-date basis, REVPAR increased 4% to
$177 when compared to the comparable period in 1997. This increase was due to a
10% increase in average room rate to $215 offset by a five percentage point
decrease in occupancy to 82%. The year-to-date improvement in REVPAR was
primarily a result of a 16% increase in the group rate.
Operating costs and expenses. The Partnership's operating costs and expenses
decreased 5% to $9.2 million and 4% to $17.1 million, for the twelve and
twenty-four weeks ended June 19, 1998, respectively, when compared to the
comparable periods in 1997. The principal components of this category are
discussed below:
Depreciation and amortization. Depreciation and amortization increased
approximately $0.2 million or 7%, for second quarter 1998 as compared to the
same quarter in 1997. On a year-to-date basis, depreciation and amortization
increased approximately $0.3 million, or 7% as compared to 1997. The increase is
primarily due to the completion of the rooms renovation project at the Orlando
Hotel during fourth quarter 1997.
Operating profit. As a result of changes in revenues and expenses discussed
above, operating profit for the second quarter 1998 increased by $1.6 million to
$11.2 million compared to the same period in 1997. On a year-to-date basis,
operating profit increased by $1.4 million to $30.1 million over the same period
in 1998.
Interest expense. Interest expense for second quarter and year-to-date decreased
8% and 7%, respectively, as compared to the comparable periods in 1997 due to
the refinancing of the Orlando Hotel's mortgage debt at a lower interest rate in
1997.
Minority interest. Based upon its 50.5% ownership interest, the
Partnership controls the Harbor Beach Partnership and, as a result, the
condensed consolidated financial statements of the Partnership include the
accounts of the Harbor Beach Partnership. Minority interest represents the net
income from the Harbor Beach Partnership allocable to the co-general partner.
Minority interest in income decreased from $3.8 million year-to-date 1997 to
$3.6 million year-to-date 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 second quarter 1998, the Partnership achieved net income of $6.2
million, an increase of $2.2 million over the same period in 1997. On a
year-to-date basis, net income increased $2.5 million to $17.8 million over the
comparable period in 1997. This increase was primarily due to increases in hotel
revenues and rental income and 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, required
principal amortization of the mortgage debt and other debt incurred to fund
costs of the capital improvements at the Hotels and cash distributions to the
partners.
Total cash provided by operations for the twenty-four weeks ended June 19, 1998
and June 20, 1997, was $26.1 million and $25.6 million, respectively. The
increase was primarily due to an increase in hotel revenues and rental income
when compared to 1997.
For the twenty-four weeks ended June 19, 1998 and June 20, 1997, cash used in
investing activities was $5.4 million and $5.1 million, respectively, consisting
primarily of an increase in additions to property and equipment. This is
primarily due to the commencement of the Orlando Hotel expansion project in May
1998.
For the twenty-four weeks ended June 19, 1998 and June 20, 1997, cash used
in financing activities was $3.0 million and $7.4 million, respectively. The
decrease in cash used in financing activities was primarily the result of a
decrease in principal repayments on the mortgage debt and the receipt of
construction loan advances. During the twenty-four weeks ended June 19, 1998,
the Partnership distributed $1.5 million to its partners ($1,500 per limited
partner unit). This distribution represented $540 per limited partner unit from
1997 operations and $960 per limited partner unit related to first quarter 1998
operations. In addition, on August 4, 1998, the Partnership distributed
$8,080,808 ($8,000 per limited partner unit) from 1998 operations.
SEASONALITY
Demand, and thus occupancy and room rates, is affected by normally recurring
seasonal patterns. Demand tends to be higher during the months of November
through April than during the remainder of the year. This seasonality tends to
affect the results of operations, increasing hotel revenues and rental income
during these months. In addition, this seasonality may also increase the
liquidity of the Partnership during these months.
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 Partnerships.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b. Reports on Form 8-K
1. 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.
2. A Form 8-K was filed with the Securities and Exchange Commission on
June 19, 1998. In this filing, Item 5 Other Events discloses that the
general partner sent the limited partners of the Partnership a letter
to inform them of the proposed reorganization of Host Marriott's
business operations to qualify as a real estate investment trust and
provide them with the estimated exchange value per Partnership unit.
A copy of the letter 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
July 31, 1998 By: /s/ Earla L. Stowe
------------------
Earla L. Stowe
Vice President and Chief Accounting Officer