Exhibit 99.1
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MARRIOTT RESIDENCE INN II
LIMITED PARTNERSHIP
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1998 First Quarter Report
Limited Partner Quarterly Update
Presented for your review is the 1998 First Quarter Report for Marriott
Residence Inn II Limited Partnership. In 1997, the Partnership began filing
periodic reports with the Securities and Exchange Commission ("SEC"). The
Partnership will continue to file what are known as Form 10-Qs each quarter, and
a Form 10-K annually. The Form 10-Q immediately follows this update and replaces
the quarterly report format previously used by the Partnership.
Potential Transaction
In December 1997, Host Marriott Corporation on behalf of the General Partner,
Marriott RIBM Two 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.
Cash Distributions and Capital Expenditure Budgets
During the first quarter of 1998, the Partnership distributed $50 per limited
partner unit which represents a 5% annualized return on invested capital. The
distribution was made entirely from 1997 cash from operations.
Based on current 1998 operating forecasts, we anticipate that 1998 cash
available for distribution will be comparable to 1997 levels. It is expected
that the Partnership will make one distribution after year end and that the
distribution will also be net of a reserve established by the General Partner
for the future capital needs of the Partnership Inns, as discussed below.
Based upon current capital expenditure budgets, the Partnership's property
improvement fund is forecasted to be insufficient beginning in 1998. This
shortfall is primarily due to the need to complete total suite refurbishments at
the majority of the Partnership's Inns in the next several years. As a result,
the General Partner established a reserve (the "Capital Reserve") in 1996 for
future capital needs of the Partnership's Inns. As of March 27, 1998, the
Capital Reserve balance was $4.7 million. The current property improvement fund
shortfall estimate of $6.4 million through 1999 will be funded by $4.1 million
from the Capital Reserve, with the remaining $2.3 million to be funded by
increasing the property improvement fund contribution rate from 5% to 6% in 1998
and 7% in 1999. The proposed financing of the property improvement fund
shortfall is subject to approval by the Partnership's mortgage lender. As
always, we will continue to work with the manager to promote efficient use of
the property improvement fund.
Inn Operations
Partnership revenues decreased 4% when compared to 1997. This decrease is
primarily due to stable Inn sales and REVPAR results combined with higher Inn
labor costs. REVPAR, or revenue per available room, is a commonly used indicator
of Inn performance which measures daily suite revenue generated on a per suite
basis. On a combined basis, REVPAR for the first quarter 1998 increased 1% to
$76 from $75 in first quarter 1997 due to a 2% increase in the combined average
suite rate to approximately $92 partially offset by a two percentage point
decrease in the combined average occupancy to approximately 83%.
Amounts Paid to the General Partner and Marriott International, Inc.
The chart below summarizes amounts paid (in thousands) to the General Partner
and Marriott International, Inc. for the twelve weeks ended March 27, 1998
(unaudited):
Marriott International, Inc.:
Residence Inn system fee............................$ 637
Chain services and Marriott Rewards Program......... 439
Marketing fund contribution......................... 398
Base management fee................................. 334
Incentive management fee............................ 298
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$ 2,106
General Partner:
Administrative expenses reimbursed..................$ 144
Capital distribution................................ 35
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$ 179
Further details of the First Quarter 1998 Inn operations are contained in the
Partnership's Form 10-Q, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
You are encouraged to review the enclosed Form 10-Q in its entirety. If you have
any further questions regarding your investment, please contact Host Marriott
Partnership Investor Relations at (301) 380-2070.