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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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 23, 2001 Commission File No. 0-16728
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
10400 Fernwood Road
Bethesda, MD 20817-1109
(301) 380-9000
Delaware 52-1533559
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(State of Organization) (I.R.S. Employer Identification Number)
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
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(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 X No .
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Courtyard by Marriott II Limited Partnership
TABLE OF CONTENTS
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Page No.
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PART I - FINANCIAL INFORMATION (Unaudited)
Consolidated Balance Sheets
March 23, 2001 and December 31, 2000....................... 1
Condensed Consolidated Statements of Operations
Twelve Weeks Ended March 23, 2001 and March 24, 2000....... 2
Condensed Consolidated Statements of Cash Flows
Twelve Weeks Ended March 23, 2001 and March 24, 2000....... 3
Notes to Condensed Consolidated Financial Statements........ 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 5
Quantitative and Qualitative Disclosures about Market Risk.. 6
PART II - OTHER INFORMATION
Legal Proceedings........................................... 7
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 23, December 31,
2001 2000
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(Unaudited)
ASSETS
Property and equipment, net................................ $433,461 $439,098
Deferred financing costs, net of accumulated amortization.. 10,822 11,119
Due from Courtyard Management Corporation.................. 11,306 8,453
Other assets............................................... 8 2
Property improvement fund.................................. 23,267 18,912
Restricted cash............................................ 26,986 18,415
Cash and cash equivalents.................................. 1,046 13,511
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$506,896 $509,510
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LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Debt..................................................... $463,642 $466,539
Management fees due to Courtyard Management Corporation.. 34,189 31,417
Due to Marriott International, Inc. and affiliates....... 8,666 8,693
Accounts payable and accrued liabilities................. 10,704 12,106
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Total Liabilities.................................... 517,201 518,755
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PARTNERS' CAPITAL (DEFICIT)
General Partner.......................................... 9,304 9,409
Limited Partners......................................... (19,609) (18,654)
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Total Partners' Deficit.............................. (10,305) (9,245)
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$506,896 $509,510
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See Notes to Condensed Consolidated Financial Statements.
1
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except unit and per unit amounts)
Twelve Weeks Ended
March 23, March 24,
2001 2000
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REVENUES
Hotel revenues
Rooms............................................ $63,450 $ 61,453
Food and beverage................................ 3,960 4,092
Other............................................ 1,966 2,472
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Total hotel revenues............................ 69,376 68,017
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OPERATING COSTS AND EXPENSES
Hotel property-level costs and expenses
Rooms............................................ 13,999 13,796
Food and beverage................................ 3,578 3,559
Other department costs and expenses.............. 450 960
Selling, administrative and other................ 16,792 15,736
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Total hotel property-level costs and expenses... 34,819 34,051
Depreciation...................................... 6,515 6,647
Ground rent, taxes and other...................... 6,586 6,716
Base and Courtyard management fees................ 4,163 4,081
Incentive management fee.......................... 2,954 3,133
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Total operating costs and expenses.............. 55,037 54,628
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OPERATING PROFIT................................... 14,339 13,389
Interest expense.................................. (9,526) (10,005)
Interest income................................... 331 321
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NET INCOME......................................... $ 5,144 $ 3,705
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ALLOCATION OF NET INCOME
General Partner................................... $ 257 $ 185
Limited Partners.................................. 4,887 3,520
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$ 5,144 $ 3,705
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NET INCOME PER LIMITED PARTNER UNIT (1,470 Units).. $ 3,324 $ 2,395
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See Notes to Condensed Consolidated Financial Statements.
2
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Twelve Weeks Ended
March 23, March 24,
2001 2000
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OPERATING ACTIVITIES
Net income............................................ $ 5,144 $ 3,705
Depreciation.......................................... 6,515 6,647
Amortization of deferred financing costs as interest.. 363 363
Loss on disposition of fixed assets................... 1 49
Amortization of prepaid expenses...................... 2 (15)
Changes in operating accounts......................... (10,089) (1,248)
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Cash provided by operating activities............. 1,936 9,501
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INVESTING ACTIVITIES
Additions to property and equipment................... (879) (1,444)
Change in property improvement funds.................. (4,355) (6,374)
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Cash used in investing activities................. (5,234) (7,818)
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FINANCING ACTIVITIES
Capital distributions................................. (6,204) (3,675)
Deferred financing costs.............................. (66) --
Repayments of debt.................................... (2,897) (2,688)
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Cash used in financing activities................. (9,167) (6,363)
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DECREASE IN CASH AND CASH EQUIVALENTS.................. (12,465) (4,680)
CASH AND CASH EQUIVALENTS at beginning of period....... 13,511 23,341
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CASH AND CASH EQUIVALENTS at end of period............. $ 1,046 $18,661
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest............. $ 11,263 $11,453
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See Notes to Condensed Consolidated Financial Statements.
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COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Courtyard by Marriott II Limited Partnership (the "Partnership"), a Delaware
limited partnership, owns 70 Courtyard by Marriott hotels located in 29 states
within the contiguous United States. The hotels are operated, under a management
agreement by a subsidiary of Marriott International.
2. Summary of Significant Accounting Policies
The accompanying unaudited, condensed consolidated financial statements have
been prepared by the Partnership. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
accounting principles generally accepted in the United States 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 unaudited, condensed consolidated financial statements
should be read in conjunction with the Partnership's consolidated financial
statements and notes thereto included in the Partnership's Form 10-K for the
year ended December 31, 2000.
In the opinion of the Partnership, the accompanying unaudited, condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of the Partnership as of March 23, 2001, the
results of its operations and its cash flows for the twelve weeks ended March
23, 2001 and March 24, 2000. Interim results are not necessarily indicative of
full year performance because of seasonal and short-term variations.
For financial reporting purposes, the net income of the Partnership is allocated
95% to the Limited Partners and 5% to CBM Two LLC (the "General Partner").
Significant differences exist between the net income for financial reporting
purposes and the net income reported for Federal income tax purposes. These
differences are due primarily to the use for Federal income tax purposes of
accelerated depreciation methods, shorter depreciable lives for certain assets,
differences in the timing of the recognition of certain fees and straight-line
rent adjustments.
Certain reclassifications were made to the prior year financial statements to
conform to the 2001 presentation.
3. Amounts Paid to the General Partner and Marriott International, Inc.
The chart below summarizes amounts paid to the General Partner and Marriott
International, Inc. for the twelve weeks ended March 23, 2001 and March 24, 2000
(unaudited, in thousands):
Marriott International, Inc.:
2001 2000
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Base management fee.......................... $ 2,428 $ 2,381
Incentive management fee..................... 2,954 3,133
Chain services and Marriott Rewards Program.. 2,059 2,008
Courtyard by Marriott system fee............. 1,734 1,700
Marketing fund contribution.................. 1,483 1,423
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$10,658 $10,645
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General Partner:
Administrative expenses reimbursed........... $ -- $ --
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COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology, such as
"believes," "expects," "may," "will," "should," "estimates," or "anticipates,"
or the negative thereof or other variations thereof or comparable terminology.
All forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual transactions, results, performance
or achievements to be materially different from any future transactions,
results, performance or achievements expressed or implied by such forward-
looking statements. Although we believe the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, we can give no
assurance that our expectations will be attained or that any deviations will not
be material. We disclaim any obligations or undertaking to publicly release any
updates or revisions to any forward-looking statement contained in this
quarterly report on Form 10-Q to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
RESULTS OF OPERATIONS
Hotel Revenues. Total hotel revenues for first quarter 2001 increased by $1.4
million to $69.4 million when compared to the same period in 2000. The increase
in hotel revenues was achieved through an increase in rooms revenue, which was
slightly offset by a decrease in food and beverage and other income. Rooms
revenues for first quarter 2001 increased to $63.5 million when compared to the
same period last year due to the increase in revenue per available room
("REVPAR") to $73 in first quarter 2001 when compared to $71 for first quarter
2000, a 2.8% increase. The increase in REVPAR is due to the $6 increase in the
combined average rate to $99 partially offset by a 2.3 percentage point decrease
in combined average occupancy to 73.9%.
Operating costs and expenses. Operating costs and expenses increased $0.4
million, or 0.7%, to $55.0 million for first quarter 2001 when compared to first
quarter 2000, primarily due to an increase in property-level costs and expenses
discussed below. As a percentage of hotel revenues, operating costs and expenses
represented 79% and 80% of revenues for first quarter 2001 and first quarter
2000, respectively.
The Partnership's hotel property-level costs and expenses increased $768,000 to
$34.8 million when compared to the same period in 2000. Hotel property-level
costs and expenses are higher due primarily to a $608,000 increase in utility
costs due to the inflation of energy costs in 2001. As a percentage of hotel
revenues, property-level costs and expenses represented approximately 50% of
revenues for both first quarter 2001 and first quarter 2000.
Operating Profit. Operating profit increased $1.0 million for first quarter
2001 to $14.3 million when compared to the same period in 2000. The increase
was primarily due to the increase in hotel revenues described above. As a
percentage of hotel revenues, operating profit represented 21% of revenues for
first quarter 2001 and 20% for first quarter 2000.
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COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Interest Expense. Interest expense decreased $479,000, or 4.8%, to $9.5 million
for first quarter 2001 when compared to the same period in 2000 as a result of
principal amortization on the Certificates/Mortgage Loan.
Net Income. Net income for first quarter 2001 increased by $1.4 million to $5.1
million when compared to first quarter 2000 as a result of the items discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions. The General Partner
believes that cash from hotel operations will be sufficient to make the required
debt service payments, to fund the current capital expenditures needs of the
Hotels as well as to make cash distributions to the limited partners.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is from operations. Its principal
uses of cash are to make debt service payments, fund the property improvement
fund and to make distributions to limited partners.
Cash provided by operations for first quarter 2001 was $1.9 million compared to
$9.5 million for first quarter 2000. The decrease in cash provided by operations
is primarily due to increased cash deposited into the corporate reserves to fund
management fees and debt service due during second quarter.
Cash used in investing activities was $5.2 million and $7.8 million for first
quarter 2001 and first quarter 2000, respectively. Cash used in investing
activities for 2001 includes capital expenditures of $.9 million, primarily
related to renovations and replacements of furniture, fixtures and equipment at
the Partnership's Hotels as compared to $1.4 million in 2000. The property
improvement fund increased $4.4 million for the first quarter 2001 as compared
to an increase of $6.4 million for the comparable period in 2000. Contributions
to the property improvement fund were $4.5 million and $3.4 million for first
quarter 2001 and 2000, respectively. During first quarter 2000, the Partnership
funded an additional $4.9 million to the property improvement fund for capital
expenditures at the properties.
Cash used in financing activities was $9.2 million and $6.4 million for first
quarter 2001 and first quarter 2000, respectively. During these periods, the
Partnership repaid $2.9 million and $2.7 million, respectively, of principal on
the commercial mortgage-backed securities. Cash used in financing activities
included $6.2 million of cash distributions to limited partners during the first
quarter of 2001 as compared to $3.7 million of distributions during the first
quarter 2000. Distributions for 2001 are made on a monthly basis instead of a
quarterly basis as in prior years. Therefore, partners have received
distributions for the first and second periods of 2001 as of March 23, 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership does not have significant market risk with respect to interest
rates, foreign currency exchanges or other market rate or price risks, and the
Partnership does not hold any financial instruments for trading purposes. As of
March 23, 2001, all of the Partnership's debt is fixed rate.
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PART II. OTHER INFORMATION
LEGAL PROCEEDINGS
The Partnership and the 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
condition or results of operations of the Partnership.
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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.
COURTYARD BY MARRIOTT II
LIMITED PARTNERSHIP
By: CBM TWO LLC
General Partner
May 7, 2001 By: /s/ Mathew J. Whelan
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Mathew J. Whelan
Vice President
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