EXHIBIT 99.1
TO THE LIMITED PARTNERS OF
MARRIOTT RESIDENCE INN
LIMITED PARTNERSHIP
Presented for your review is the 1998 Annual Report for the Marriott Residence
Inn Limited Partnership (the "Partnership"). A discussion of the Partnership's
performance and Inn 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 estimate of 1999 tax information is
included in this letter. The Partnership's Supplementary Unaudited Information
is contained in Item 13, Certain Relationships and Related Transactions, of the
Partnership's 10-K. As in the past, we encourage you to review the information
contained in this report.
Strategy for Liquidity
We previously reported to you that the General Partner was exploring
alternatives to provide liquidity for the Partnership and to maximize the value
of your investment including the possibility of combining the Partnership with
several others that owned similar hotels to create a publicly traded company in
the form of a real estate investment trust ("REIT"). Although, as we previously
reported, that plan proved to be impractical, we are continuing to explore other
options. While we can make no assurances as to the outcome of these efforts, the
General Partner continues to work with an investment bank that is acting as an
advisor in this regard.
At this time, we do not have any definitive offers or proposals to share with
you although we will continue to explore opportunities to provide liquidity for
the Partnership and maximize the value of your investment. If a suitable
transaction arises we will keep you apprised of such developments through both
quarterly updates and 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.
Partnership Cash Distributions, Mortgage Debt and Capital Budgets
The Partnership made a cash distribution in February 1998 of $50 per Limited
Partner Unit. The distribution was made entirely from 1997 cash from operations.
Since inception, the Partnership has distributed $659 per Limited Partner Unit.
As previously reported, the Partnership made a $5 million repayment of its
mortgage debt on October 1, 1998. This repayment was in addition to the required
monthly payments of principal and interest. Of this amount, $2 million was
required under the loan agreements and an additional $3 million was repaid at
the option of the Partnership. These repayments were made in accordance with the
terms of the Partnership's loan agreements. It was determined that these debt
repayments were in the best interest of the Partnership since the reduction of
$5 million in mortgage debt enhances the Partnership's financial position, which
may increase the Partnership's ability to pursue certain alternatives to provide
liquidity for the Partnership. Additionally, $2.3 million of the optional $3
million repayment was made on the Second Mortgage, which bears interest at
15.25%. In addition, $700,000 of the $3 million repayment was made on the Senior
Mortgage which bears interest at 8.6%. These repayments will have the effect of
reducing mortgage interest expense by $411,000 per year.
The General Partner had also noted in earlier reports that beginning in 1998,
the Partnership's property improvement fund was insufficient to meet current
needs. The shortfall is primarily due to the need to complete total suite
refurbishments at a majority of the Partnership's Inns. As you know, these Inns
are over ten years old and to remain competitive require major renovations.
Consequently, the Partnership increased its contribution to the property
improvement fund from 5% of gross revenues to 6% for 1998 and 5.5% for 1999.
Additionally, the Partnership advanced $1.5 million to the property improvement
fund in March 1999 to cover the 1998 shortfall. At this time, we expect the
refurbishments will require a total funding in excess of $20 million over the
next five years. In 1999, $1.2 million will be funded by the Partnership.
Looking ahead, we expect similar shortfalls in 2000 and beyond. We are working
with the Manager, Residence Inn by Marriott, Inc., to ensure that any fundings
made by the Partnership provide the maximum value to the Partnership.
As a result of the need to fund the property improvements and the additional
payment of mortgage principal, the Partnership did not make a cash distribution
from 1998 operations. At this time, we cannot determine when cash distributions
will resume. Following this letter is a Statement of Cash Flow Distributable to
Partners. This statement provides you with the details of Partnership cash flow.
Inn Operations
The combined operations of the Partnership Inns continued to improve in 1998.
Partnership revenues increased 6% when compared to 1997. 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 year increased 7% over 1997 due to a 5% increase in the combined average
suite rate to approximately $96. The combined average occupancy increased
approximately two percentage points to approximately 85%. The chart below
summarizes REVPAR for the years 1996 through 1998 and the percentage increase
from the prior year:
1998 1997 1996
----------------------- ------------------------- -------------------
REVPAR % Increase REVPAR % Increase REVPAR % Increase
------ ---------- ------ ---------- ------ ----------
$81.63 7% $76.26 4% $73.50 6%
Residence Inn by Marriott continues to be highly competitive and report strong
system-wide operating results due to successful marketing efforts and a
continued guest commitment. The coming year will be challenging as extended-stay
competitors continue to increase their presence in the market. In response, in
1999 the Manager will continue to heighten its efforts to become the pre-eminent
leader in this hospitality category, focusing on customers that prefer quality
residential suites. It is expected that the Residence Inn brand will continue to
outperform both national and local competitors. The Manager is continuing to
monitor the introduction and growth of new extended-stay brands including
Homewood Suites, Hawthorne Suites, Summerfield Suites, Staybridge by Holiday Inn
and Hilton Residential Suites. In addition, a renewed focus will be placed on
strengthening each Inn's sales efforts in order to solidify the existing
relationships shared with current clients and establish new ones. The Manager is
optimistic that continued strong operating results can be achieved in the coming
year through focused marketing activities to increase preference among quality
tier extended-stay travelers.
Estimated 1999 Tax Information
Based on current projections, estimated taxable income of $160 will be allocated
to each limited partner unit for the year ending December 31, 1999. This
estimate will be updated in the third quarter 1999 report.
Conclusion
You will note that the name of the General Partner has changed to RIBM One LLC.
This change was necessary as a part of the conversion of Host Marriott
Corporation, from a corporation to a real estate investment trust. RIBM One LLC
is owned 1% by Host Marriott, L.P. and 99% by a wholly owned subsidiary of
Rockledge Hotel Properties, Inc. ("Rockledge"). Host Marriott Corporation is the
general partner of Host Marriott L.P. Host Marriott, L.P. receives approximately
99% of the economic interest in Rockledge by virtue of its ownership of 95% of
the non-voting common stock of Rockledge.
You are encouraged to review this Report in its entirety. If you have any
further questions regarding your investment, please contact Host Marriott
Partnership Investor Relations at the address or telephone number listed below.
Sincerely,
RIBM ONE LLC
General Partner
Robert E. Parsons, Jr.
President
April 30, 1999
Host Marriott Corporation For transfer or re-registration
Partnership Investor Relations information:
10400 Fernwood Road, Department 908 GEMISYS, INC.
Bethesda, MD 20817-1109 Transfer Department
Telephone 301/380-2070 7103 South Revere Parkway
Monday through Friday, Englewood, CO 80112
9am to 4pm, Eastern time Telephone: 800/797-6812
STATEMENT OF CASH FLOW
DISTRIBUTABLE TO PARTNERS
Marriott Residence Inn Limited Partnership
For the Years Ended December 31, 1998, 1997 and 1996
(in thousands, except per Unit amounts)
(Unaudited)
1998 1997 1996
----------- ----------- -------
REVENUES ...........................................................$ 66,135 $ 62,087 $ 60,824
----------- ----------- -----------
OPERATING COSTS AND EXPENSES
Inn property-level costs and expenses
Suites.......................................................... 13,543 12,603 11,756
Other department costs and expenses............................. 1,447 1,152 1,024
Selling, administrative and other............................... 16,802 15,290 15,960
----------- ----------- -----------
Total Inn property-level costs and expenses................... 31,792 29,045 28,740
Property improvement fund contribution............................ 3,968 3,104 3,041
Residence Inn system fee.......................................... 2,524 2,363 2,321
Base management fee............................................... 1,323 1,242 1,216
Taxes, insurance and other........................................ 2,930 3,780 3,065
----------- ----------- -----------
Cash flow from Inn operations............................... 23,598 22,553 22,441
----------- ----------- -----------
Deferred base management fee paid................................. (872) (627) (515)
Incentive management fee paid..................................... (400) -- --
Interest.......................................................... (11,728) (12,316) (12,938)
Principal......................................................... (8,492) (4,943) (6,305)
Partnership administration........................................ (371) (393) (372)
Interest income................................................... 198 174 206
----------- ----------- -----------
Cash flow from Partnership operations....................... 1,933 4,448 2,517
----------- ----------- -----------
Cash (held)/used for future property improvement fund shortfall... (200) 361 (693)
Owner funded capital expenditures................................. (1,733) (1,496) (304)
Debt refinancing costs............................................ -- -- (207)
Cash used for debt service........................................ -- -- 2,000
------ ------------- ---------
CASH FLOW DISTRIBUTABLE TO PARTNERS..................................$ -- $ 3,313 $ 3,313
========== =========== ===========
CASH FLOW DISTRIBUTED TO LIMITED PARTNERS............................$ -- $ 3,280 $ 3,280
========== ========== ===========
CASH FLOW DISTRIBUTED PER LIMITED PARTNER UNIT
(65,600 UNITS)....................................................$ -- $ 50 $ 50
=========== =========== ===========
Above amounts are presented on a basis which differs from the Statement of
Operations which is presented on the accrual basis of accounting in the enclosed
Form 10-K.