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 QUARTERLY PERIOD ENDED MARCH 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 033-20022
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1558094
- --------------------------------------- --------------------------------------
(State of Organization) (I.R.S. Employer Identification Number)
10400 Fernwood Road, Bethesda, MD 20817-1109
- --------------------------------------- --------------------------------------
(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 _____ No_____ Not Applicable |X| . The Partnership
became subject to Section 13 reporting on January 23, 1998.
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statement of Operations
Twelve Weeks Ended March 27, 1998 and March 28, 1997.............1
Condensed Balance Sheet
March 27, 1998 and December 31, 1997.............................2
Condensed Statement of Cash Flows
Twelve Weeks ended March 27, 1998 and March 28, 1997.............3
Notes to Condensed Financial Statements............................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................7
Item 6. Exhibits and Reports on Form 8-K...................................8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per Unit amounts)
Twelve Weeks Ended
March 27, March 28,
1998 1997
------------- ------------
REVENUES..........................................$ 7,557 $ 6,766
------------- ------------
OPERATING COSTS AND EXPENSES
Depreciation and amortization................. 1,190 1,279
Incentive management fee...................... 808 689
Residence Inn system fee...................... 558 516
Property taxes................................ 499 587
Base management fee........................... 293 271
Equipment rent and other...................... 168 197
------------- -------------
3,516 3,539
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OPERATING PROFIT.................................. 4,041 3,227
Interest expense.............................. (3,009) (3,125)
Interest income............................... 56 68
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NET INCOME........................................$ 1,088 $ 170
============= =============
ALLOCATION OF NET INCOME
General Partner...............................$ 11 $ 2
Limited Partner............................... 1,077 168
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$ 1,088 $ 170
============= ============
NET INCOME PER LIMITED PARTNER UNIT
(65,600 Units)................................$ 16 $ 2
============= ===========
See Notes to Condensed Financial Statements.
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(in thousands)
March 27, December 31,
1998 1997
(unaudited)
ASSETS
Property and equipment, net...................$ 139,604 $ 140,448
Due from Residence Inn by Marriott, Inc....... 2,462 2,462
Deferred financing costs, net of accumulated
amortization................................ 2,142 2,251
Property improvement fund..................... 1,567 1,160
Cash and cash equivalents..................... 3,464 5,650
--------------- -------------
$ 149,239 $ 151,971
============= =============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt.................................$ 117,758 $ 118,576
Incentive management fee due to
Residence Inn by Marriott, Inc................ 23,517 22,709
Base management fee due to
Residence Inn by Marriott, Inc................ 545 872
Accounts payable and accrued expenses.......... 1,065 1,235
------------- ------------
Total Liabilities........................ 142,885 143,392
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PARTNERS' CAPITAL
General Partner................................ 140 162
Limited Partners............................... 6,214 8,417
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Total Partners' Capital.................. 6,354 8,579
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$ 149,239 $ 151,971
============= ============
See Notes to Condensed Financial Statements.
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Twelve Weeks Ended
March 27, March 28,
1998 1997
------------- -----------
OPERATING ACTIVITIES
Net income....................................$ 1,088 $ 170
Noncash items................................. 1,780 2,078
Changes in operating accounts................. (170) (8)
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Cash provided by operating activities... 2,698 2,240
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INVESTING ACTIVITIES
Additions to property and equipment........... (346) (262)
Changes in property improvement fund.......... (407) (586)
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Cash used in investing activities....... (753) (848)
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FINANCING ACTIVITIES
Capital distributions to partners............. (3,313) (1,657)
Repayment of mortgage debt.................... (818) (702)
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Cash used in financing activities....... (4,131) (2,359)
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DECREASE IN CASH AND CASH EQUIVALENTS............. (2,186) (967)
CASH AND CASH EQUIVALENTS at beginning of period... 5,650 3,429
------------- ----------
CASH AND CASH EQUIVALENTS at end of period........$ 3,464 $ 2,462
============= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest.........$ 3,006 $ 3,122
============= ==========
See Notes to Condensed Financial Statements.
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed financial statements have been prepared by
Marriott Residence Inn 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
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 condensed unaudited
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 net income of the Partnership is allocated 99% to the limited partners
and 1% to RIBM One Corporation (the "General Partner"). Significant
differences exist between the net income for financial reporting purposes
and the net income for Federal income tax purposes. These differences are
due primarily to the use, for income tax purposes, of accelerated
depreciation methods and shorter depreciable lives of the assets and
differences in the timing of the recognition of incentive management fee
expense.
2. Revenues represent house profit of the Partnership Inns since the
Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Inns to Residence Inn by
Marriott, Inc. (the "Manager"). House profit reflects the net revenues
flowing to the Partnership as property owner and represents Inn operating
results less property-level expenses, excluding depreciation and
amortization, base, Residence Inn system and incentive management fees,
property taxes, equipment rent and certain other costs, which are
disclosed separately in the condensed statement of operations.
Revenues consist of the following for the twelve weeks ended March
March 27, 1998 and March 28, 1997 (in thousands):
March 27, March 28,
1998 1997
------------ -----------
INN SALES
Suites............................$ 13,956 $ 12,900
Other operating departments....... 696 665
------------ -------------
14,652 13,565
------------ -------------
INN EXPENSES
Departmental direct costs
Suites......................... 2,890 2,735
Other operating departments.... 335 256
Other Inn operating expenses...... 3,870 3,808
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7,095 6,799
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REVENUES............................$ 7,557 $ 6,766
============= ==============
3. In December 1997, Host Marriott Corporation on behalf of the General
Partner, RIBM One Corporation, filed a preliminary Prospectus/Consent
Solicitation Statement (the "S-4") with the SEC which proposed the
consolidation (the "Consolidation") of this Partnership and five other
limited partnerships into a publicly traded real estate investment trust
("REIT"). The General Partner has been working to resolve various open
issues concerning the proposed Consolidation.
In addition, there are existing REIT's which are active in the moderate
price and extended stay hotel segment that have expressed an interest in
the six limited partnerships. Therefore, the General Partner has had
preliminary discussions with some of these companies. Although no
agreements have yet been reached, the General Partner continues to pursue
the possibility of a potential transaction involving the Partnership's
assets or a merger of the Partnership with an existing publicly traded
company.
The General Partner has retained Merrill Lynch to advise the Partnership
with respect to the Partnership's strategic alternatives, including the
original Consolidation plan and other available alternatives. The General
Partner intends to continue to explore these alternatives and determine
which path to pursue, obviously subject to appropriate partner approval.
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
First Quarter 1998 Compared to First Quarter 1997
Revenues. Partnership revenues for first quarter 1998 increased $791,000,
or 12%, to $7.6 million. Revenues and operating profit were impacted primarily
by growth in revenue per available room ("REVPAR") of 8%. REVPAR, or revenue per
available room, represents the combination of the average daily suite rate
charged and the average daily occupancy achieved and is a commonly used
indicator of Inn performance (although it is not a GAAP, or generally accepted
accounting principles, measure of revenue). REVPAR does not include food and
beverage or other ancillary revenues generated by the property. Inn sales
increased $1.1 million, or 8%, to $14.7 million in first quarter 1998 also
reflecting the improvement in REVPAR for the period. REVPAR increased for first
quarter 1998 due primarily to an increase in combined average room rates of 7%,
along with an increase in combined average occupancy of just under one
percentage point. Due to the high occupancy of these properties, the Partnership
expects future increases in REVPAR to be driven by room rate increases, rather
than occupancy increases. However, there can be no assurance that REVPAR will
continue to increase in the future.
Operating Costs and Expenses. Operating costs and expenses remained stable at
$3.5 million for first quarter 1998. As a percentage of revenues, Inn operating
costs and expenses were 47% and 52% of revenues for first quarter 1998 and first
quarter 1997, respectively.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased by $814,000 to $4.0
million, or 53% of revenues, for first quarter 1998 from $3.2 million, or 48% of
revenues, for first quarter 1997.
Interest Expense. Interest expense decreased $116,000 to $3.0 million for the
first quarter of 1998 from $3.1 million for the first quarter of 1997 due to
principal amortization on the mortgage debt.
Net Income. Net income for first quarter 1998 increased $918,000 to $1.1
million, or 14% of revenues, compared to a net income of $170,000, or 3% of
revenues, for first quarter 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financing needs have been historically funded through loan
agreements with independent financial institutions. The General Partner believes
that the Partnership will have sufficient capital resources to conduct its
operations in the ordinary course of business although there can be no assurance
of the Partnership's ability to do so.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is cash from operations. Its
principal uses of cash are to make debt service payments, fund the property
improvement fund and to make distributions to the limited partners.
Cash provided by operating activities was $2.7 million and $2.2 million for
first quarter 1998 and first quarter 1997, respectively. The improved cash from
operations was a result of improved Inn lodging results.
Cash used in investing activities was $753,000 and $848,000 for first quarter
1998 and first quarter 1997, respectively. The Partnership's cash investing
activities consist primarily of contributions to the property improvement fund
and capital expenditures for improvements to existing Inns. Contributions to the
property improvement fund were $733,000 and $678,000, while expenditures were
$346,000 and $262,000, for first quarter 1998 and first quarter 1997,
respectively.
The Partnership's cash used in financing activities was $4.1 million and $2.4
million for the first quarter of 1998 and the first quarter of 1997,
respectively. Cash financing activities primarily consist of capital
distributions to partners and repayment of mortgage debt. The Partnership
distributed $3.3 million to the partners in the first quarter of 1998 from 1997
operations. In the first quarter of 1997, the Partnership distributed $1.7
million to the partners from 1996 operations.
The General Partner believes that cash from Inn operations and Partnership
reserves will be adequate in the short term and long term for the operational
and capital needs of the Partnership.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 11, 1998, four individual limited partners in partnerships
sponsored by Host Marriott Corporation ("Host Marriott") filed a class action
lawsuit, styled Ruben, et al. v. Host Marriott Corporation, et al., Civil Action
No. 16186, in Delaware State Chancery Court against Host Marriott and the
general partners of Courtyard by Marriott Limited Partnership, Courtyard by
Marriott II Limited Partnership, Marriott Residence Inn Limited Partnership,
Marriott Residence Inn II Limited Partnership, and Fairfield Inn by Marriott
Limited Partnership (collectively, the "Five Partnerships"). The plaintiffs
allege that the merger of the Five Partnerships (the "Merger") into an umbrella
partnership real estate investment trust proposed by CRF Lodging Company, L.P.
in a preliminary registration statement filed with the Securities and Exchange
Commission, dated December 22, 1997, constitutes a breach of the fiduciary
duties owed to the limited partners of the Five Partnerships by Host Marriott
and the general partners of the Five Partnerships. In addition, the plaintiffs
allege that the Merger breaches various agreements relating to the Five
Partnerships. The plaintiffs are seeking, among other things, the following:
certification of a class; injunctive relief to block consummation of the Merger
or, in the alternative, recision of the Merger; and damages. Host Marriott and
the general partners of the Five Partnerships believe that these allegations are
totally devoid of merit and they intend to vigorously defend against them. The
defendants also maintain that this lawsuit is premature because the Merger has
not been, and may not be, consummated as proposed in the SEC filings.
On March 16, 1998, limited partners in several partnerships sponsored by
Host Marriott, filed a lawsuit, styled Robert M. Haas, Sr. and Irwin Randolph
Joint Tenants, et al. v. Marriott International, Inc., et al., Case No.
CI-04092, in the 57th Judicial District Court of Bexar County, Texas against
Marriott International, Inc. ("Marriott International"), Host Marriott, various
of their subsidiaries, J.W. Marriott, Jr., Stephen Rushmore, and Hospitality
Valuation Services, Inc. (collectively, the "Defendants"). The lawsuit relates
to the following limited partnerships: Courtyard by Marriott Limited
Partnership, Courtyard by Marriott II Limited Partnership, Marriott Residence
Inn Limited Partnership, Marriott Residence Inn II Limited Partnership,
Fairfield Inn by Marriott Limited Partnership, Desert Springs Marriott Limited
Partnership, and Atlanta Marriott Marquis Limited Partnership (collectively, the
"Seven Partnerships"). The plaintiffs allege that the Defendants conspired to
sell hotels to the Seven Partnerships for inflated prices and that they charged
the Seven Partnerships excessive management fees to operate the Seven
Partnerships' hotels. The plaintiffs further allege that the Defendants
committed fraud, breached fiduciary duties, and violated the provisions of
various contracts. The plaintiffs are seeking unspecified damages. The
Defendants, which do not include the Seven Partnerships, believe that there is
no truth to the plaintiffs' allegations and that the lawsuit is totally devoid
of merit. The Defendants intend to vigorously defend against the claims asserted
in the lawsuit. Although the Seven Partnerships have not been named as
Defendants in the lawsuit, the partnership agreements relating to the Seven
Partnerships include an indemnity provision which requires the Seven
Partnerships, under certain circumstances, to indemnify the general partners
against losses, judgments, expenses, and fees.
The Partnership and the Inns are involved in 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
a. Exhibits:
None.
b. Reports on Form 8-K:
May 6, 1998 - Letter to limited partners regarding status of proposed
consolidation.
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 RESIDENCE INN
LIMITED PARTNERSHIP
By: RIBM ONE CORPORATION
General Partner
May 11, 1998 By: ------------------------
Patricia K. Brady
Vice President and
Chief Accounting Officer
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 RESIDENCE INN
LIMITED PARTNERSHIP
By: RIBM ONE CORPORATION
General Partner
May 11, 1998 By: /s/ Patricia K. Brady
------------------------
Patricia K. Brady
Vice President and
Chief Accounting Officer