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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 SEPTEMBER 6, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-28222
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
10400 Fernwood Road
Bethesda, MD 20817-1109
(301) 380-2070
Delaware 52-1604506
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(State of Organization) (I.R.S.Employer
Identification Number)
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. The Partnership became subject to
Section 13 reporting on April 17, 1996.)
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Marriott Hotel Properties II Limited Partnership
TABLE OF CONTENTS
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Statement of Operations
Twelve Weeks and Thirty-Six Weeks Ended
September 6, 1996 and September 8, 1995....................................................... 3
Condensed Balance Sheet
September 6, 1996 and December 31, 1995....................................................... 4
Condensed Statement of Cash Flows
Thirty-Six Weeks Ended
September 6, 1996 and September 8, 1995....................................................... 5
Notes to Condensed Financial Statements......................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................................10
PART II - OTHER INFORMATION AND SIGNATURE
Item 1. Legal Proceedings...............................................................................14
Item 5. Other Information...............................................................................14
Item 6. Exhibits and Reports on Form 8-K................................................................14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Marriott Hotel Properties II Limited Partnership
Condensed Statement of Operations
(Unaudited)
(in thousands, except per Unit amounts)
Twelve Weeks Ended Thirty-Six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------ ------------- -------------- -------------
REVENUES
Hotel..........................................$ 11,793 $ 10,910 $ 45,605 $ 43,651
Interest income................................ 531 684 1,455 1,428
------------ ------------- -------------- -------------
........................................... 12,324 11,594 47,060 45,079
------------ ------------- -------------- -------------
OPERATING COSTS AND EXPENSES
Interest....................................... 3,831 4,116 11,542 12,263
Depreciation and amortization.................. 3,140 3,123 9,051 9,051
Incentive management fees...................... 1,611 1,468 6,678 6,399
Property taxes................................. 1,264 1,270 3,825 3,830
Base management fees........................... 890 859 3,036 2,936
Ground rent.................................... 417 407 1,370 1,304
Insurance and other............................ 304 242 837 690
------------ ------------- -------------- -------------
............................................... 11,457 11,485 36,339 36,473
------------ ------------- -------------- -------------
INCOME BEFORE EQUITY IN
(LOSSES) INCOME OF SANTA
CLARA PARTNERSHIP.............................. 867 109 10,721 8,606
EQUITY IN (LOSSES) INCOME
OF SANTA CLARA PARTNERSHIP..................... (22) 52 548 227
------------ ------------- -------------- -------------
NET INCOME.........................................$ 845 $ 161 $ 11,269 $ 8,833
============ ============ ============ ===========
ALLOCATION OF NET INCOME
General Partner................................$ 8 $ 2 $ 113 $ 88
Limited Partners............................... 837 159 11,156 8,745
------------ ------------- -------------- -------------
...............................................$ 845 $ 161 $ 11,269 $ 8,833
============ ============ ============ ===========
NET INCOME PER LIMITED
PARTNER UNIT (745 Units).......................$ 1,123 $ 214 $ 14,976 $ 11,738
============ ============ ============ ===========
See Notes To Condensed Financial Statements.
3
Marriott Hotel Properties II Limited Partnership
Condensed Balance Sheet
(in thousands)
September 6, December 31,
1996 1995
-------------- --------------
(unaudited)
ASSETS
Property and equipment, net...................................................$ 200,352 $ 203,990
Due from Marriott International, Inc.......................................... 7,757 7,275
Property improvement funds.................................................... 11,440 11,940
Deferred financing and organization costs, net................................ 1,472 114
Restricted cash reserves...................................................... 29,608 9,193
Cash and cash equivalents..................................................... 2,924 21,601
------------- --------------
........................................................................$ 253,553 $ 254,113
============= ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt..............................................................$ 213,307 $ 222,500
Due to Marriott International, Inc......................................... 3,177 2,615
Investment in Santa Clara Partnership...................................... 8,336 8,244
Accounts payable and accrued expenses...................................... 616 433
------------- --------------
Total Liabilities....................................................... 225,436 233,792
------------- --------------
PARTNERS' CAPITAL
General Partner............................................................ 427 348
Limited Partners........................................................... 27,690 19,973
------------- --------------
Total Partners' Capital................................................. 28,117 20,321
------------- --------------
........................................................................$ 253,553 $ 254,113
============= ===============
See Notes To Condensed Financial Statements.
4
Marriott Hotel Properties II Limited Partnership
Condensed Statement of Cash Flows
(Unaudited)
(in thousands)
Thirty-Six Weeks Ended
September 6, September 8,
1996 1995
-------------- --------------
OPERATING ACTIVITIES
Net income ...................................................................$ 11,269 $ 8,833
Noncash items................................................................. 8,764 9,471
Change in operating accounts.................................................. 115 (1,025)
------------- --------------
Cash provided by operations............................................. 20,148 17,279
------------- --------------
INVESTING ACTIVITIES
Additions to restricted cash reserves......................................... (20,415) (1,886)
Additions to property and equipment........................................... (5,413) (4,409)
Distributions from Santa Clara Partnership.................................... 640 967
Change in property improvement funds.......................................... 500 (357)
------------- --------------
Cash used in investing activities....................................... (24,688) (5,685)
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FINANCING ACTIVITIES
Repayment of mortgage debt.................................................... (9,193) --
Capital distributions......................................................... (3,473) (3,473)
Payment of financing costs.................................................... (1,471) --
------------- --------------
Cash used in financing activities....................................... (14,137) (3,473)
------------- --------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................................. (18,677) 8,121
CASH AND CASH EQUIVALENTS at beginning of period................................. 21,601 17,764
------------- --------------
CASH AND CASH EQUIVALENTS at end of period.......................................$ 2,924 $ 25,885
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest...............................................$ 11,207 $ 11,574
============= =============
See Notes To Condensed Financial Statements.
5
Marriott Hotel Properties II Limited Partnership
Notes to Condensed Financial Statements
(Unaudited)
1. The accompanying condensed financial statements have been prepared by
Marriott Hotel Properties II 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 for the fiscal year ended December 31, 1995.
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 September 6, 1996, the results of operations for
the twelve weeks and thirty-six weeks ended September 6, 1996 and
September 8, 1995 and cash flows for the thirty-six weeks ended September
6, 1996 and September 8, 1995. Interim results are not necessarily
indicative of fiscal year performance because of seasonal and short-term
variations.
2. The Partnership owns the New Orleans, San Antonio Rivercenter and San
Ramon Hotels (the "Hotels"). In addition, the Partnership owns a 50%
limited partnership interest in the Santa Clara Marriott Hotel Limited
Partnership (the "Santa Clara Partnership") which owns the Santa Clara
Marriott Hotel (the "Santa Clara Hotel"). The sole general partner of the
Partnership and the Santa Clara Partnership, with a 1% interest in each, is
Marriott MHP Two Corporation (the "General Partner"), a wholly-owned
subsidiary of Host Marriott Corporation ("Host Marriott"). The remaining
49% interest in the Santa Clara Partnership is owned by HMH Properties,
Inc., a wholly-owned subsidiary of Host Marriott. The Partnership's income
from the Santa Clara Partnership is reported as Equity in Income of the
Santa Clara Partnership. In arriving at Equity in Income from the Santa
Clara Partnership, the Partnership is allocated 100% of the interest
expense related to the debt incurred to purchase the Santa Clara
Partnership interest. Summarized financial information for the Santa Clara
Partnership is presented in Note 5 below.
3. For financial reporting purposes, net profits and net losses of the
Partnership are allocated 99% to the Limited Partners and 1% to the
General Partner. Significant differences exist between the net profits and
net losses for financial reporting purposes and the net profits and net
losses reported 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 recognition of incentive management fee expense.
4. Hotel revenues represent house profit of the Partnership's Hotels since
the Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Hotels to Marriott
International, Inc. (the "Manager"). House profit reflects hotel operating
results which flow to the Partnership as property owner and represents
gross hotel sales less property-level expenses, excluding depreciation and
amortization, base and incentive management fees, real and personal
property taxes, ground and equipment rent, insurance and certain other
costs, which are disclosed separately in the condensed statement of
operations.
6
Partnership revenues generated by the Hotels for the 1996 and 1995 consist
of (in thousands):
Twelve Weeks Ended Thirty-Six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------ ------------ ------------ ------------
HOTEL SALES
Rooms......................................$ 19,801 $ 18,352 $ 67,637 $ 64,275
Food and beverage.......................... 8,049 8,825 27,835 28,503
Other...................................... 1,827 1,456 5,736 5,078
----------- ----------- ------------ ------------
........................................ 29,677 28,633 101,208 97,856
----------- ----------- ------------ ------------
HOTEL EXPENSES
Departmental direct costs
Rooms................................... 4,242 4,223 12,899 12,873
Food and beverage....................... 6,318 6,419 20,070 19,561
Other hotel operating expenses............. 7,324 7,081 22,634 21,771
----------- ----------- ------------ ------------
........................................ 17,884 17,723 55,603 54,205
----------- ----------- ------------ ------------
HOTEL REVENUES.................................$ 11,793 $ 10,910 $ 45,605 $ 43,651
=========== =========== ============ ============
5. Summarized financial information for the Santa Clara Partnership for
1996 and 1995 is as follows (in thousands):
Twelve Weeks Ended Thirty-Six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------ ------------ ------------ ------------
CONDENSED STATEMENT OF OPERATIONS
REVENUES....................................$ 3,541 $ 3,496 $ 11,772 $ 10,288
OPERATING COSTS AND EXPENSES
Interest expense......................... 781 695 2,177 2,138
Depreciation and amortization............ 638 638 1,896 1,896
Incentive management fees................ 529 530 1,788 1,551
Base management fees..................... 266 252 835 753
Property taxes........................... 113 117 344 351
Ground rent, insurance and other......... 56 45 197 145
......................................... 2,383 2,277 7,237 6,834
----------- ------------ ------------ ------------
NET INCOME..................................$ 1,158 $ 1,219 $ 4,535 $ 3,454
=========== ============ ============ ============
7
September 6, December 31,
1996 1995
CONDENSED BALANCE SHEET
Property and equipment, net.................................................$ 30,048 $ 28,406
Other assets................................................................ 3,618 3,590
Cash and cash equivalents................................................... 2,849 1,614
------------- ---------------
Total Assets.............................................................$ 36,515 $ 33,610
============= ===============
Mortgage debt...............................................................$ 43,500 $ 43,500
Due to Marriott International, Inc.......................................... 2,382 1,086
Accounts payable and accrued expenses....................................... 151 117
Partners' deficit........................................................... (9,518) (11,093)
------------- ---------------
Total Liabilities and Partners' Deficit..................................$ 36,515 $ 33,610
============= ===============
6. On March 21, 1996, the Mortgage Debt and the Santa Clara mortgage debt
matured. An extension was entered into between the Partnership and the
Santa Clara Partnership and the current lenders which extends the maturity
date on the two loans for an additional six months. On July 10, 1996, the
General Partner signed a commitment letter with a new third party lender.
Pursuant to the terms of the extension, interest accrued at the London
interbank offered rate ("LIBOR") plus 187.5 basis points through June 18,
1996 and accrues at LIBOR plus 225.0 basis points through September 21,
1996. No principal amortization is required during the extension period.
The Partnership was required to apply the $9.2 million accumulated in the
Partnership's primary lender reserve account to pay down the principal
balance of the Mortgage Debt to $213.3 million and deposited $19.1 million
into the primary lender reserve account. The $19.1 million deposit
represented the balance ($16.8 million) from the reserve account previously
established by the General Partner (the "General Partner Reserve") in 1992
and cash flow from the Partnership for the first two periods of 1996 ($2.3
million). Additionally, the Partnership also is required to deposit into
the primary lender reserve account all cash flow from the Hotels plus all
the Partnership's cash flow from the Santa Clara Partnership, net of (i)
$500,000 per four week accounting period, (ii) debt service and (iii)
current incentive management fees paid. The $500,000 per accounting period
will be deposited into a separate expense reserve account which will be
used to fund administrative expenses and refinancing costs, any
owner-funded capital expenditures, as well as the Partnership's share of
any such costs incurred by the Santa Clara Partnership in the six-month
extension period. As of September 6, 1996, the balances in the primary
lender reserve and in the expense reserve totaled $27.7 million and $1.9
million, respectively. This reserve account is classified as restricted
cash on the accompanying condensed balance sheet.
Subsequent to the close of the quarter, on September 23, 1996 (the "Closing
Date") the General Partner was successful in refinancing the Partnership's
Mortgage Debt as well as the $43.5 million mortgage debt of the Santa Clara
Partnership under substantially identical terms. A total of $266.0 million
was borrowed pursuant to the July 10, 1996 commitment letter with the new
third party lender, $222.5 million of which is recorded on the
Partnership's financial statements. The Partnership's Mortgage Debt will
continue to be non-recourse to the Partnership and is secured by first
mortgages on the Hotels, as well as a pledge of its limited partner
interest in the Santa Clara Partnership. The debt will bear interest at a
fixed rate of 8.22% based upon actual number of days over a 360 day year
for an 11-year term expiring October 11, 2007, requires payments of
interest only during the first loan year (October 1996 through September
1997) and then principal amortization based upon a 20-year amortization
schedule beginning with the second loan year. Additionally, the refinancing
substantially restricts the ability of the Partnership to sell the Hotels
during such term and prohibits the Partnership from prepaying any debt for
an extended period without paying a substantial premium during such term.
While Partnership debt service will increase as a result of this
refinancing when compared to 1995, the refinancing is expected to improve
the financial condition of the Partnership by reducing the Partnership's
long-term indebtedness.
8
On the Closing Date the Partnership was required to establish certain
reserves including:
o $7.0 million for various renewals and replacements and site
improvements;
o $1.1 million for Americans with Disabilities Act of
1990 modifications, deferred maintenance work and environmental
remediation projects identified during the course of the appraisal and
environmental studies undertaken in conjunction with the refinancing;
o $4.5 million debt service reserve -Based upon current forecasts, it
is expected that cash from operations will be sufficient for the
required payment terms of the Mortgage Debt. However due to the
seasonality of the Hotels and the Santa Clara Hotel operations, the
timing of debt service payments and the lender's desire for additional
security, the Partnership was required to establish a debt service
reserve for both the Partnership Mortgage Debt and the Santa Clara
Partnership mortgage debt containing two months of debt service; and
o $155,000 ground rent reserve equal to one month of ground rent.
These reserves were primarily funded from the General Partner Reserve with a
portion also funded from the Partnership property improvement funds. In
addition, the General Partner Reserve will be utilized to pay estimated
transaction costs which include property appraisals, legal expenses, bank fees,
environmentalstudies and other transaction costs, as well as any additional
reserves deemed necessary by the General Partner for future capital expenditure
needs of the Partnership.
7. In the first quarter of 1996, the Partnership adopted Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". Adoption of SFAS No. 121 did not have an effect on its financial
statements.
8. On June 13, 1996, MHP II Acquisition Corp. (the "Company"), a wholly-owned
subsidiary of Host Marriott, completed its tender offer for the limited
partnership units in the Partnership. The Company purchased 377 units for
an aggregate consideration of $56,550,000 or $150,000 per unit. As a result
of this transaction, the Company became the majority limited partner in the
Partnership, owning 382 units or approximately 51% of the total units
outstanding. Additionally, in a Partnership vote held in conjunction with
the tender offer, the limited partners approved certain amendments to the
partnership agreement that were conditions to the tender offer.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's long-term financing needs have historically been provided
through a loan agreement with an independent financial institution. The General
Partner believes that the Partnership will have sufficient capital resources and
liquidity to continue to conduct its operations in the ordinary course of
business.
MORTGAGE DEBT
The Partnership was financed with Mortgage Debt of $222.5 million which was
non-recourse to the Partnership. On March 21, 1996, the Mortgage Debt and the
Santa Clara mortgage debt matured. An extension was entered into between the
Partnership and the Santa Clara Partnership and the current lenders which
extends the maturity date on the two loans for an additional six months. On July
10, 1996, the General Partner signed a commitment letter with a new third party
lender. Pursuant to the terms of the extension, interest accrued at the London
interbank offered rate ("LIBOR") plus 187.5 basis points through June 18, 1996
and accrues at LIBOR plus 225.0 basis points through September 21, 1996. No
principal amortization is required during the extension period. The Partnership
was required to apply the $9.2 million accumulated in the Partnership's primary
lender reserve account to pay down the principal balance of the Mortgage Debt to
$213.3 million and deposited $19.1 million into the primary lender reserve
account. The $19.1 million deposit represented the balance ($16.8 million) from
the reserve account previously established by the General Partner (the "General
Partner Reserve") in 1992 and cash flow from the Partnership for the first two
periods of 1996 ($2.3 million).
Additionally, the Partnership also is required to deposit into the primary
lender reserve account all cash flow from the Hotels plus all the Partnership's
cash flow from the Santa Clara Partnership, net of (i) $500,000 per four week
accounting period, (ii) debt service and (iii) current incentive management fees
paid. The $500,000 per accounting period will be deposited into a separate
expense reserve account which will be used to fund administrative expenses and
refinancing costs, any owner-funded capital expenditures, as well as the
Partnership's share of any such costs incurred by the Santa Clara Partnership in
the six-month extension period. As of September 6, 1996, the balances in the
primary lender reserve and in the expense reserve totaled $27.7 million and $1.9
million, respectively.
Subsequent to the close of the quarter, on September 23, 1996 (the "Closing
Date") the General Partner was successful in refinancing the Partnership's
Mortgage Debt as well as the $43.5 million mortgage debt of the Santa Clara
Partnership under substantially identical terms. A total of $266.0 million was
borrowed pursuant to the July 10, 1996 commitment letter with the new third
party lender, $222.5 million of which is recorded on the Partnership's financial
statements. The Partnership's mortgage debt will continue to be non-recourse to
the Partnership and is secured by first mortgages on the Hotels, as well as a
pledge of its limited partner interest in the Santa Clara Partnership. The debt
will bear interest at a fixed rate of 8.22% based upon actual number of days
over a 360 day year for an 11-year term expiring October 11, 2007, requires
payments of interest only during the first loan year (October 1996 through
September 1997) and then principal amortization based upon a 20-year
amortization schedule beginning with the second loan year. Additionally, the
refinancing substantially restricts the ability of the Partnership to sell the
Hotels during such term and prohibits the Partnership from prepaying any debt
for an extended period without paying a substantial premium during such term.
While Partnership debt service will increase as a result of this refinancing
when compared to 1995, the refinacing is expected to improve the financial
condition of the Partnership by reducing the Partnership's long-term
indebtedness.
10
On the Closing Date the Partnership was required to establish certain reserves
including:
o $7.0 million for various renewals and replacements and site improvements;
o $1.1 million for Americans with Disabilities Act of 1990 modifications,
deferred maintenance work and environmental remediation projects
identified during the course of the appraisal and environmental studies
undertaken in conjunction with the refinancing;
o $4.5 million debt service reserve - Based upon current forecasts, it is
expected that cash from operations will be sufficient for the required
payment terms of the Mortgage Debt. However due to the seasonality of
the Hotels and the Santa Clara Hotel operations, the timing of debt
service payments and the lender's desire for additional security, the
Partnership was required to establish a debt service reserve for both
the Partnership Mortgage Debt and the Santa Clara Partnership Mortgage
Debt containing two months of debt service; and
o $155,000 ground rent reserve equal to one month of ground rent.
These reserves were primarily funded from the General Partner Reserve with a
portion also funded from the Partnership property improvement funds. In
addition, the General Partner Reserve will be utilized to pay estimated
transaction costs which include property appraisals, legal expenses, bank fees,
environmental studies and other transaction costs, as well as any additional
reserves deemed necessary by the General Partner for future capital expenditure
needs of the Partnership.
CAPITAL RESOURCES AND USES OF CASH
For the thirty-six weeks ended September 6, 1996 and September 8, 1995, cash
provided by operations was $20.1 million and $17.3 million, respectively. The
increase is primarily due to the increase in revenues discussed below.
Year-to-date, $24.7 million was utilized for investing activities compared with
$5.7 million for the same period in 1995. The increase is primarily the result
of cash transfers to the primary lender reserve and the expense reserve.
Financing activities utilized $14.1 million and $3.5 million in 1996 and 1995,
respectively. The increase is primarily due to the $9.2 million principal
paydown on the Mortgage Debt, in accordance with the terms of the extension
agreement, as well as payment of $1.5 million of financing costs to date
relating to the refinancing of the Partnership's Mortgage Debt.
The General Partner believes that cash from Hotel operations and the reserves
established in conjunction with the refinancing will continue to meet the short
and long-term operational needs of the Partnership. In addition, the General
Partner believes the property improvement fund will be adequate for the future
capital repairs and replacement needs of the Hotels. The General Partner will
make its interim cash distribution from 1996 operations of $20,000 per limited
partner unit on October 31, 1996. This distribution represents a 29% annualized
return on invested capital which is comparable to the prior year levels absent
the Partnership's primary lender and General Partner reserve requirements.
In the first quarter of 1996, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Adoption of SFAS
No. 121 did not have an effect on the Partnership's financial statements.
11
RESULTS OF OPERATIONS
Total Partnership revenues increased 8% and 5% for the third quarter and
year-to-date, respectively, when compared to 1995 results. The increase in third
quarter revenues is primarily due to a significant increase in revenues at the
New Orleans Hotel. Year-to-date revenues increased as a result of increases in
revenues at the New Orleans and Santa Clara Hotels. REVPAR, or revenue per
available room, increased 8% for the quarter when compared to the same period in
1995. This increase in REVPAR is primarily due to an 8% increase in combined
average room rate to $108. On a year-to-date basis, REVPAR increased 7%
primarily due to a 6% increase in combined average room rate to $121 while
combined average occupancy remained stable at 83%.
The New Orleans Marriott Hotel reported a 38%, or $1,380,000, increase in
revenues for the third quarter when compared to the same period in 1995. The
increase is primarily due to a 15% increase in REVPAR due to a 15% increase in
average room rate to $104 while average occupancy remained stable at 78%.
Yearto-date, revenues increased 6% when compared to 1995 results primarily due
to an 8% increase in room revenues which was partially offset by a 25%, or
$858,000 decrease in food and beverage operating results. The increase in room
revenues is due to a 5% increase in REVPAR. The increase in REVPAR is the result
of a 6% increase in average room rate to $121 offset by a slight decrease in
average occupancy to 79%. The increase in average room rate, both for the
quarter and year-to-date, is due to Hotel management's successful employment of
strategic rate structuring which has included driving transient room rates and
limiting rate discounting. The year-to-date decline in average occupancy is due
to a city-wide decrease in convention business when compared to the same period
in 1995. The decline in year-to-date food and beverage operating results is due
to a shift in the group business market from corporations and associations to
more cost conscious groups. Hotel management expects demand to remain strong for
the remainder of the year, thereby allowing the Hotel to maintain the average
room rate growth achieved year-to-date.
Revenues at the Marriott Rivercenter in San Antonio decreased 11%, or $680,000,
for the third quarter when compared to the same period in 1995 primarily due to
a $660,000 decrease in food and beverage operating results. The decrease in food
and beverage operating results is due to the inclusion of a high volume of
catering sales attributed to one large group in the calculation of 1995
operating results. On a year-to-date basis, Hotel revenues increased 1%
primarily due to a 4% increase in room revenues partially offset by a 6%
decrease in food and beverage operating results. The increase in room revenues
is due to a 4% increase in REVPAR as average room rate increased 4% to $132
while average occupancy remained stable at 86%. The increase in average room
rate is the result of Hotel management's continued success with aggressive
pricing strategies. The remainder of 1996 is expected to continue to be strong
as Hotel management will continue to focus on driving rate in response to strong
local demand.
Revenues at the San Ramon Marriott Hotel increased 14% for the third quarter and
13% year-to-date when compared to the same period in 1995 primarily due to
significant increases in REVPAR. For the quarter, REVPAR increased 11% as
average room rate increased 8% to $96 combined with a 1.9 percentage point
increase in average occupancy to 89%. On a year-to-date basis, REVPAR increased
12% primarily due to a 9% increase in average room rate to $96 combined with a
2.5 percentage point increase in average occupancy to 86%. The increase in
average room rate was achieved primarily as a result of increases in corporate
and transient rates. Average occupancy benefited primarily from an increase in
transient demand. Hotel management expects transient demand to remain strong for
the remainder of the year.
12
The Santa Clara Marriott Hotel reported a 1% increase in third quarter revenues
when compared to the same period in 1995. The increase is primarily due to a 10%
increase in room revenues which was partially offset by a $183,000 decrease in
food and beverage operating results. Room revenues increased due to a 12%
increase in REVPAR. The increase in REVPAR for the quarter is a result of a 13%
increase in average rate to $116 partially offset by a slight decrease in
average occupancy to 84%. On a year-to-date basis, Hotel revenues increased 14%
over 1995 results due to an 18% increase in REVPAR partially offset by a slight
decrease in food and beverage operating results. REVPAR increased primarily due
to a 13% increase in average room rate to $116 coupled with a 3.0 percentage
point increase in average occupancy to 84%. The increase in average room rate
was achieved through the employment of aggressive pricing strategies in all
categories. Occupancy levels have benefited from strong demand in the transient
market. Demand is expected to remain strong for the remainder of 1996.
Partnership interest expense decreased 7% and 6% for the quarter and
year-to-date, respectively. This decrease is due to a decline in interest rates.
The Partnership's equity allocation from the Santa Clara Partnership declined
$74,000 for the quarter primarily due to an increase in interest expense when
compared to the same period in 1995. However, on a year-to-date basis the equity
allocation increased $321,000 when compared to 1995 results primarily due to
improved operations at the Santa Clara Hotel, as discussed above. The
Partnership did not report any other significant variances during the twelve and
thirty-six weeks ended September 6, 1996.
13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership and the Partnership Hotels 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 conditions or results of operations of the
Partnership.
On April 23, 1996, MacKenzie Patterson Special Fund 2, L.P.
("MacKenzie Patterson"), a limited partner of the Partnership,
filed a purported class-action lawsuit in the Circuit Court
for Montgomery County, Maryland, against the Partnership, as a
nominal defendant, the Company, Host Marriott, the General
Partner and the directors of the General Partner, alleging,
among other things, that the defendants had violated their
fiduciary duties in connection with the Tender Offer. The
complaint sought certification as a class-action, to enjoin
the Tender Offer and the Consent Solicitation, and damages.
Subsequently, MacKenzie Patterson dismissed the Montgomery
County action and refiled in Delaware State Chancery Court. In
separate lawsuits, filed on April 24, 1996, in Delaware State
Chancery Court and on May 10, 1996, in the Circuit Court for
Palm Beach County, Florida, two other limited partners of the
Partnership sought similar relief. The Chancery Court
consolidated the two Delaware lawsuits and on June 12, 1996,
entered an order denying the Delaware plaintiffs' motion to
enjoin the Tender Offer and Consent Solicitation. The
defendants have moved to dismiss this consolidated action and
to stay discovery. Neither a briefing schedule nor a hearing
has been set on these motions. The defendants removed the
Florida action to federal court in Florida and filed motions
to dismiss, or in the alternative, to stay the action pending
resolution of the Delaware action. The District Court has not
yet set a hearing on these motions. This litigation is not
expected to have a material adverse effect on the business,
financial condition or results of operations of the
Partnership.
ITEM 5. OTHER INFORMATION
Patricia K. Brady was appointed to Vice President and Chief
Accounting Officer of the General Partner on October 8,
1996. Ms. Brady joined Host Marriott in 1989 as Assistant
Manager--Partnership Services. She was promoted to Manager
in 1990 and to Director--Partnership Services in June 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None
b. Reports on Form 8-K - None
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARRIOTT HOTEL PROPERTIES II
LIMITED PARTNERSHIP
By: MARRIOTT MHP TWO CORPORATION
General Partner
Date: October 21, 1996 By:
-----------------------------
Patricia K. Brady
Vice President and Chief Accounting Officer
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARRIOTT HOTEL PROPERTIES II
LIMITED PARTNERSHIP
By: MARRIOTT MHP TWO CORPORATION
General Partner
Date: October 21, 1996 By: /s/Patricia K. Brady
--------------------
Patricia K. Brady
Vice President and Chief Accounting Officer
16