Exhibit 99.2
================================================================================
Courtyard by Marriott II
================================================================================
Limited Partnership
================================================================================
1999 Third Quarter Report
Limited Partner Quarterly Update
Presented for your review is the 1999 Third Quarter Report for Courtyard by
Marriott II Limited Partnership (the "Partnership"). A discussion of the
Partnership's performance and hotel operations is included in the attached Form
10-Q, Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations. You are encouraged to review this report in its entirety.
If you have any further questions regarding your investment, please contact Host
Marriott Partnership Investor Relations at (301) 380-2070.
Strategy for Liquidity
As previously reported, during 1999, the General Partner has been working with a
major investment banking firm to explore alternatives to provide liquidity for
the partners in the Partnership while securing the highest possible value for
the limited partners. More than 70 prospective purchasers were contacted and
Partnership financial information was made available to a number of them for
their review and analysis on a confidential basis. Due to the large number of
Hotels in the Partnership, many prospective purchasers did not have the ability
to consummate a transaction of this size. At this time, the General Partner and
the investment banking firm continue in their efforts to develop a transaction
that would be acceptable to a majority of the limited partners. Many factors,
the most important being the operating performance trends of the Hotels over the
next few months will impact these efforts. The General Partner can make no
assurances as to the outcome of these efforts. However, if a suitable
transaction develops we will advise you through special correspondence.
Transfer and Sale of Limited Partnership Units
As you know, the Partnership Units are a non-traded security. In most cases, the
Partnership Agreement does allow limited partners to transfer Partnership Units
to related parties. In addition, you may, under certain circumstances, sell your
Partnership Units to a third party; however, the General Partner must consent to
such sale. Please note there are certain tax and legal limitations to
transferring Partnership Units including significant tax effects resulting from
the sale of these Units that may impact your decision to sell. In addition to
consulting with your advisors, we recommend that limited partners contact the
General Partner about such limitations before entering into any agreement to
sell your Partnership Units.
If you do wish to request a transfer of your Partnership Units, please contact
our Transfer Agent at 800-797-6812. You will be supplied with the necessary
documents. Please note that the General Partner does not charge any fee for
effecting a transfer.
Cash Distributions
On April 30, 1999, the Partnership made the final 1998 cash distribution of
$1,500 per limited partner unit bringing the total for 1998 to $6,500 per
limited partner unit. On August 10, 1999, the Partnership distributed an interim
1999 distribution of $2,500 per limited partner unit. This distribution was
funded from first and second quarter 1999 Partnership operations. Since
inception, the Partnership has distributed $66,345 per limited partner unit.
We previously reported that we anticipated cash distributions for 1999 would be
similar to the level of the 1998 cash distributions after reserving $7.2 million
for capital expenditures as required by the management agreement. We want to
make you aware that actual 1999 Hotel operating results through the third
quarter are lower than hotel management's expectations provided to us earlier
this year. This is primarily due to the need to pay higher salaries and benefits
for Hotel employees in order to remain competitive in local labor markets. For
more information on Hotel operating results, please read the Management's
Discussion and Analysis of Financial Condition and Results of Operations section
of the enclosed Form 10-Q.
Based upon actual results through third quarter 1999, we continue to believe
that 1999 cash distributions will be at the same level as 1998. However, if the
declining trends continue, the actual amount available for distribution may be
impacted. The second interim 1999 cash distribution of $2,000 per limited
partner unit from third quarter 1999 operations was made on November 12, 1999.
The final 1999 cash distribution will be made in April 2000.
Capital Expenditures
The Partnership has spent over $120 million since inception on capital
improvements at the Hotels. As the Hotels age, the capital expenditure needs are
likely to increase as the Hotels will be coming up for the next cycle of rooms
renovations and other major work such as roof replacements may be required.
Based upon the Manager's estimates, it appears that a capital expenditure
shortfall will occur in 2002. The General Partner and the Manager have begun
initial discussions to address the shortfall. You will be advised in future
correspondence of the impact, if any, of this situation on your investment
results.
Partnership Debt
As previously reported, the Partnership's debt consists of a combination of
commercial mortgage backed securities and senior notes. During the third quarter
of 1999, the Partnership repaid $10.2 million on the commercial mortgage backed
securities resulting in a principal balance of $361.1 million as of September
10, 1999. The $127.4 million senior notes require no principal payments prior to
maturity.
Hotel Operations
During the third quarter of 1999, the combined revenues of the Partnership's 70
Hotels improved when compared to the same period in 1998. Operating profit
increased in the third quarter of 1999 when compared to same period in 1998
although there was a slight increase in hotel property-level costs and expenses.
For a detailed discussion of hotel operations, please refer to Item 2 of the
Partnership's Report on Form 10-Q for the 1999 third quarter.
During the third quarter, Courtyard continued its successful national marketing
communications efforts of USA Today print advertising, radio and television
advertising. Courtyard's award-winning commercials appeared on ESPN and CNN
Airport Network. In addition, Courtyard continued to drive significant traffic
to its website, Courtyard.com.
Marriott Rewards continues to offer Courtyard a major competitive advantage over
competitive brands. Courtyard received significant exposure through Marriott
Rewards' extensive third quarter communications plan. During the third quarter,
Marriott Rewards announced a new program component, the ability for members to
earn frequent flyer miles with any of 36 airlines by staying at Marriott. Print
advertising in major consumer publications, member communications and extensive
public relations efforts were implemented to launch the new program.
New supply continues to enter the Courtyard segment, creating a more intense
competitive environment. However, Courtyard's market share premiums over these
competitors remain strong, and Courtyard continues to focus on long-term growth,
product-development and marketing strategies that will allow the brand to
maintain its leadership position.
Estimated 1999 Tax Information
Based on current projections, estimated taxable income of $10,200 will be
allocated to each limited partner unit for the year ending December 31, 1999.
The 1999 tax information, used for preparing your Federal and state income tax
returns will be mailed no later than March 15, 2000. To ensure confidentiality,
we regret that we are unable to furnish your tax information over the telephone.
Unless otherwise instructed, we will mail your tax information to your address
as it appears on this report. Therefore, to avoid delays in delivery of this
important information, please notify the Partnership in writing of any address
changes by January 31, 2000.
We appreciate your continued support and invite you to visit Courtyard Hotels as
you travel throughout the United States.