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Courtyard by Marriott II Limited Partnership
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TO THE LIMITED PARTNERS OF
COURTYARD BY MARRIOTT II
LIMITED PARTNERSHIP
Presented for your review is the 1999 Annual Report for Courtyard by Marriott II
Limited Partnership (the "Partnership"). A discussion of the Partnership's
performance and hotel operations is included in the Form 10-K, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations which is included herein. The estimated 2000 tax information is also
included in this letter. Finally, the Partnership's Supplementary Unaudited
Information is contained in Item 13, Certain Relationships and Related
Transactions, of the Partnership's Form 10-K. As in the past, we encourage you
to review the information contained in this report.
Litigation Update
On March 9, 2000, Host Marriott Corporation ("Host Marriott"), Marriott
International Inc. ("MII") and others (collectively, the "Defendants") entered
into a settlement agreement with counsel to the plaintiffs to resolve the
litigation filed by limited partners in several partnerships sponsored by Host
Marriott, including the Partnership. The settlement is subject to numerous
conditions, including partnership agreement amendments, participation
thresholds, court approval and various consents.
Under the terms of the settlement, the limited partners of the Partnership who
elect to participate would be paid $147,959 per Unit, or a pro rata portion
thereof, in exchange for the conveyance of all limited partner Units to a joint
venture to be formed between affiliates of Host Marriott and MII, dismissal of
the litigation, and a complete release of all claims. This amount will be
reduced by the amount of attorneys' fees and expenses awarded by the court to
the plaintiffs' lawyers. We understand that the plaintiffs' lawyers intend to
request from the court an award of attorneys' fees and reimbursement of costs
and expenses of approximately $28,600 per Unit. In the event the Texas court
approves the plaintiffs' lawyers request, each participating limited partner
could expect to receive a net amount of approximately $119,000 per Unit, or a
pro rata portion thereof for fractional Units.
Limited partners who opt out of the settlement would have their interests in the
Partnership converted into the right to receive the appraised value of their
interests in cash (excluding any amount related to their claims against the
Defendants) and will retain their individual claims against the Defendants. The
Defendants may terminate the settlement if the holders of more than 10% of the
Partnership's 1,470 limited partner Units choose not to participate, if the
holders of more than 10% of the limited partner units in any one of the other
partnerships involved in the settlement choose not to participate or if certain
other conditions are not satisfied. The Manager will continue to manage the
Partnership's Hotels under long-term agreements.
The details of the settlement will be contained in a court-approved notice and
purchase offer/consent solicitation to be sent to the Partnership's limited
partners. For additional information, see Item 3, Legal Proceedings, in the
Partnership's Form 10-K included herein.
Transfer and Sale of Limited Partnership Units
During the period of the pending settlement, transfers due to sales of the
Partnership Units have been suspended. Please contact the General Partner prior
to signing any sale agreements or if you have any questions regarding the
transfer or sale of Partnership Units.
Cash Distributions
For 1999, cash distributions to the limited partners were $7,000 per limited
partner unit, including the final distribution for 1999 of $2,500 made in
February 2000. Since inception, the Partnership has distributed $70,845 per
limited partner unit.
Partnership Debt
As previously reported, the Partnership's debt consists of a combination of
commercial mortgage backed securities and senior notes. During 1999, the
Partnership repaid $15.4 million on the commercial mortgage backed securities
resulting in a balance of $355.8 million as of December 31, 1999. The $127.4
million senior notes require no principal payments prior to maturity.
Hotel Operations
The combined operations of the Partnership's 70 Hotels improved in 1999 due to
increased demand in the lodging industry. In 1999, Hotel revenues increased $8.7
million, or 3.1% to $293 million, when compared to 1998 due to increased room
revenues. Room revenues increased $7 million, or 2.7%, in 1999 to $265.1 million
primarily due to a 2% increase in REVPAR, or revenue per available room. The
chart below summarizes REVPAR for the combined Partnership Hotels for the years
1997 through 1999 and the percentage increase from the prior year.
1999 1998 1997
- ------------------- ------------------------------- -----------------
REVPAR % Increase REVPAR % Increase REVPAR % Increase
------ ------------- ------ ------------- ------ ----------
$70.38 2% $68.72 4% $65.92 7%
On a combined basis, REVPAR for 1999 increased 2% due to a $2 or 2.4% increase
in the combined average room rate to $89. The combined average occupancy for
1999 remained stable at 79%. The increase in the average room rate was primarily
due to aggressive weekday pricing combined with a strong advertising campaign
focused on leisure travelers.
During 1999, Courtyard continued with an aggressive marketing communications
approach. Courtyard's award winning advertising campaign ran in USA Today, on
local and national network radio and on key cable television networks, including
ESPN during NCAA and NFL games and CNN's Airport Network. In addition, Marriott
Rewards, Courtyard's loyalty marketing program, introduced a new program benefit
which allows members to earn either points or frequent flyer miles when they
stay at Courtyard. Frequent flyer miles can be earned in over 30 different
airline programs. Courtyard also ran nationally advertised promotions during the
winter and holiday seasons and executed an aggressive public relations effort
focused on brand growth.
Estimated 2000 Tax Information
Based on current projections, taxable income estimated at $12,100 will be
allocated to each limited partner unit for the full-year ended December 31,
2000. However, if the litigation settlement is consummated, an updated estimate
will be provided.
Conclusion
You are encouraged to review this report in its entirety. If you have any
further questions regarding your investment, please contact Host Marriott
Investor Relations at the address or telephone number listed below.
Sincerely,
CBM TWO LLC
General Partner
/s/ Robert E. Parsons, Jr.
Robert E. Parsons, Jr.
President
April 17, 2000
Host Marriott Corporation
Investor Relations
10400 Fernwood Road, Department 903
Bethesda, MD 20817-1109
Telephone: 301/380-2070
Facsimile: 301/380-5370
Monday through Friday
9am to 4pm, Eastern time
For transfer or re-registration information:
GEMISYS, INC.
Transfer Department
7103 South Revere Parkway
Englewood, CO 80112
Telephone: 800/797-6812