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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. 033-20022
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
10400 Fernwood Road
Bethesda, MD 20817-1109
(301) 380-9000
Delaware 52-1558094
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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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Marriott Residence Inn Limited Partnership
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TABLE OF CONTENTS
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PAGE NO.
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PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Balance Sheets
March 23, 2001 and December 31, 2000........................ 1
Condensed Statements of Operations
Twelve Weeks Ended March 23, 2001 and March 24, 2000........ 2
Condensed Statements of Cash Flows
Twelve Weeks Ended March 23, 2001 and March 24, 2000........ 3
Notes to Condensed Financial Statements........................ 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 5
Quantitative and Qualitative Disclosures about Market Risk..... 7
PART II - OTHER INFORMATION
Marriott Residence Inn Limited Partnership
Condensed Balance Sheets
(In Thousands)
March 23, December 31,
2001 2000
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(unaudited)
ASSETS
Property and equipment, net....................................... $ 136,461 $ 137,497
Due from Residence Inn by Marriott, Inc........................... 4,250 2,160
Deferred financing costs, net of accumulated amortization......... 726 835
Property improvement fund......................................... 3,176 2,889
Cash and cash equivalents......................................... 11,444 10,755
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$ 156,057 $ 154,136
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LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt..................................................... $ 97,317 $ 98,213
Incentive management fees due to Residence Inn by Marriott, Inc... 4,620 3,626
Accounts payable and accrued expenses............................. 943 277
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Total Liabilities........................................... 102,880 102,116
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PARTNERS' CAPITAL
General Partner................................................... 609 597
Limited Partners.................................................. 52,568 51,423
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Total Partners' Capital..................................... 53,177 52,020
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$ 156,057 $ 154,136
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See Notes to Condensed Financial Statements.
1
Marriott Residence Inn Limited Partnership
Condensed 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
Inn revenues
Suites ............................................. $ 14,739 $ 14,264
Other .............................................. 612 719
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Total Inn revenues ............................. 15,351 14,983
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OPERATING COSTS AND EXPENSES
Inn property-level costs and expenses
Suites ............................................. 3,234 3,258
Other department costs and expenses ................ 321 374
Selling, administrative and other .................. 3,940 3,549
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Total Inn property-level costs and expenses .... 7,495 7,181
Depreciation ......................................... 1,470 1,482
Incentive management fee ............................. 1,024 770
Property taxes ....................................... 550 583
Residence Inn system fee ............................. 590 571
Equipment rent and other ............................. 528 527
Base management fee .................................. 307 300
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Total operating costs and expenses ............. 11,964 11,414
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OPERATING PROFIT ........................................ 3,387 3,569
Interest expense ..................................... (2,371) (2,519)
Interest income ...................................... 141 85
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NET INCOME .............................................. $ 1,157 $ 1,135
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ALLOCATION OF NET INCOME
General Partner ...................................... $ 12 $ 11
Limited Partners ..................................... 1,145 1,124
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$ 1,157 $ 1,135
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NET INCOME PER LIMITED
PARTNER UNIT (65,600 Units)........................... $ 17 $ 17
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See Notes to Condensed Financial Statements.
2
Marriott Residence Inn Limited Partnership
Condensed Statements Of Cash Flows
(Unaudited, In Thousands)
Twelve Weeks Ended
March 23, March 24,
2001 2000
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OPERATING ACTIVITIES
Net income .................................. $ 1,157 $ 1,135
Depreciation ................................ 1,470 1,482
Amortization of deferred financing costs .... 109 109
Deferred incentive management fees .......... 994 734
Loss on sale of fixed assets ................ 3 7
Changes in operating accounts ............... (1,424) (167)
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Cash provided by operating activities.. 2,309 3,300
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INVESTING ACTIVITIES
Additions to property and equipment ......... (437) (1,437)
Change in property improvement fund ......... (287) (1,176)
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Cash used in investing activities ..... (724) (2,613)
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FINANCING ACTIVITIES
Repayment of mortgage debt .................. (896) (809)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 689 (122)
CASH AND CASH EQUIVALENTS at beginning of period 10,755 6,025
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CASH AND CASH EQUIVALENTS at end of period ..... $ 11,444 $ 5,903
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest ............. $ 1,653 $ 1,740
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See Notes to Condensed Financial Statements.
3
Marriott Residence Inn Limited Partnership
Note To Condensed Financial Statements
(Unaudited)
1. Organization
Marriott Residence Inn Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed on March 29, 1988 to acquire, own and operate 15
Residence Inn by Marriott hotels (the "Inns") and the land on which the Inns are
located. The Inns are located in seven states in the United States: four in
Ohio, three in California, three in Georgia, two in Missouri and one in each of
Illinois, Colorado and Michigan, and as of March 23, 2001, have a total of
2,129 suites. The Inns are managed by Residence Inn by Marriott, Inc. (the
"Manager"), a wholly-owned subsidiary of Marriott International, Inc., as part
of the Residence Inn by Marriott hotel system.
2. Summary of Significant Accounting Policies
The accompanying unaudited, condensed financial statements have been prepared by
Marriott Residence Inn Limited Partnership (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
financial statements should be read in conjunction with the Partnership's
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
financial statements reflect all adjustments necessary to present fairly the
financial position of the Partnership as of March 23, 2001, and the results of
its operations and cash flows for the twelve weeks ended March 23, 2001 and
March 24, 2000. Results are not necessarily indicative of full year performance
because of seasonal and short-term variations.
For financial reporting purposes, net income of the Partnership is allocated 99%
to the limited partners and 1% to RIBM One LLC (the "General Partner").
Significant differences exist between the net income for financial reporting
purposes and the net income for Federal income tax purposes. These differences
are due primarily to the use, for Federal income tax purposes, of accelerated
depreciation methods and shorter depreciable lives of the assets and differences
in the timing of the recognition of incentive management fee expense.
Certain reclassifications were made to the prior year unaudited, condensed
financial statements to conform to the current presentation.
3. Amounts Paid to the General Partner and Marriott International, Inc.
The chart below summarizes cash amounts paid to the General Partner and Marriott
International, Inc. for the twelve weeks ended March 23, 2001 and March 24, 2000
(in thousands):
2001 2000
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Marriott International, Inc.:
Residence Inn system fee .................. $ 590 $ 571
Incentive management fee .................. 30 36
Marketing fund contribution ............... 368 357
Base management fee ....................... 307 300
Chain services and Marriott Rewards Program 344 331
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$1,639 $1,595
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General Partner:
Administrative expenses reimbursed ...... $ -- $ 175
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4
RESIDENCE INN 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.
GENERAL
Consistent with the terms of the Partnership agreement and the original
investment objectives contemplated at the formation of the Partnership, the
General Partner is currently attempting to sell the Inns or, in the alternative,
find a buyer for the partnership interests. In this regard, the General Partner
has recently engaged a financial advisor to solicit bids from interested
parties. There can be no assurance, however, that such a transaction will occur
or, if it were to occur, of the timing or value of any such transaction. If the
General Partner determines that any such bids would be in the best interest of
the Limited Partners, then the General Partner will attempt to effectuate such a
transaction. No such transaction is pending as of the date of this report.
RESULTS OF OPERATIONS
Revenues. Partnership revenues increased $368,000, or 2.5%, to $15.4 million for
the first quarter of 2001 when compared to the same period in 2000. The increase
was achieved primarily through increases in room revenue per available room
("REVPAR"). REVPAR measures daily room revenues generated on a per room basis
and represents the combination of the average daily suite rate charged and the
average daily occupancy achieved. First quarter 2001 REVPAR for the 15 Inns
combined increased 3.2% over the same period in 2000 to $82.38, primarily due to
a 5.0% increase in the combined average suite rate from $97.54 in 2000 to
$102.37 in 2001, slightly offset by a one percentage point decrease in occupancy
to 80.5%.
Operating Costs and Expenses. Total operating costs and expenses increased
$550,000, or 4.8%, to $12.0 million for the first quarter of 2001, primarily due
to increases in Inn property-level costs and expenses and incentive management
fees. As a percentage of Inn revenues, operating costs and expenses were 78% of
revenues for the first quarter of 2001 compared to 76% for the first quarter of
2000.
Inn property-level costs and expenses for the first quarter of 2001 increased
$314,000 over the first quarter of 2000 primarily due to increases in selling,
administrative and other expenses, including salaries and benefits, energy
costs, and marketing and sales expenses, offset by a slight improvement in
suites margin from 77% for the first quarter of 2000 to 78% for the first
quarter of 2001.
The incentive management fee ("IMF") earned by Residence Inn by Marriott, Inc.
(the "Manager") is calculated as 15% of Operating Profit, as defined in the
Management Agreement, in any year in which Operating Profit is less than $23.5
million and as 20% of Operating Profit whenever Operating Profit equals or
exceeds $23.5 million. During interim reporting periods, the percentage used to
calculate IMF is 15% or 20%, and is determined based on whether or not full year
Operating Profit is expected to fall short of, or exceed, $23.5 million.
Incentive management fees for the first quarter of 2001 increased $254,000, or
34%, to $1.0 million because for the first quarter of 2001, the IMF was
calculated as 20% of Operating Profit, based on full year 2001 forecasted
Operating Profit in excess of $23.5 million, versus 15% for the first quarter
of 2000. $994,000 and $734,000 of the incentive management fees expensed during
the first quarters of 2001 and 2000, respectively, were deferred and are payable
from future operating cash flow, as defined in the Management Agreement.
5
RESIDENCE INN LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit decreased $182,000, or 5.1% to $3.4
million, or 22% of revenues, for the twelve weeks ended March 23, 2001, compared
to $3.6 million, or 24% of revenues for the twelve weeks ended March 24, 2000.
Interest Expense. Interest expense decreased $148,000 for the twelve weeks ended
March 23, 2001 due to principal amortization of the Senior and Second Mortgages.
Net Income. As a result of the items discussed above, net income for the twelve
weeks ended March 23, 2001 increased $22,000, or 1.9%, to $1.2 million, when
compared to the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financing needs have been historically funded through loan
agreements with independent financial institutions. Our mortgage matures in
2002, and it is expected that the debt will be refinanced prior to maturity.
Beginning in 1998, the Partnership's property improvement fund was insufficient
to meet current needs. The shortfall is primarily due to the need for suite
refurbishments at a majority of the Inns as part of ongoing, routine capital
maintenance. To reduce the shortfall, the Partnership provided additional cash
of $1.2 million to the fund in the first quarter 2000.
In light of the increased competition in the extended-stay market described
above, the Manager has also proposed additional improvements that are intended
to enhance the overall value and competitiveness of the Inns. These proposed
improvements include design, structural and technological improvements to
modernize and enhance the functionality and appeal of the Inns. Based upon
information provided by the Manager, approximately $47 million may be required
over the next five years for the routine renovations and all of the proposed
additional improvements. The General Partner is currently in discussions with
the Manager regarding alternate funding sources for the capital expenditure
needs. The Partnership may be required to fund a portion of these capital needs.
Once negotiations are completed, the General Partner will be in a better
position to project possible cash distributions to limited partners in the
future.
The General Partner believes that cash from Inn operations and Partnership
reserves will be sufficient to make the required debt service payments and to
fund a portion of the capital expenditures at the Inns. The General Partner is
reviewing the Manager's proposed Inn renovations and improvements to identify
those projects that have the greatest value to the Partnership.
6
RESIDENCE INN LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OFFICIAL CONDITION
AND RESULTS OF OPERATIONS
Principal Sources and Uses of Cash
The Partnership's principal source of cash is cash from operations. Its
principal uses of cash are to make debt service payments and fund the property
improvement fund. Cash provided by operating activities was $2.3 million for the
first quarter 2001 compared to $3.3 million for the first quarter 2000. This
$1.0 million decrease was primarily due to changes in operating accounts, due to
the timing of receipts from the Manager.
The Partnership's cash used in investing activities primarily consists of
contributions to the property improvement fund and capital expenditures for
improvements to the Inns. Cash used in investing activities was $0.7 million and
$2.6 million for the first quarter 2001 and 2000, respectively. Contributions to
the property improvement fund were $844,000 and $749,000 for the first quarter
2001 and 2000 respectively, and we provided additional cash of $1.2 million to
the fund in the first quarter of 2000. Capital expenditures during these same
time periods were $0.4 million and $1.4 million, respectively.
The Partnership's cash used in financing activities consists of the repayment of
mortgage debt of $896,000 and $809,000 for the first quarter of 2001 and 2000,
respectively.
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 has a fixed interest rate. As of
March 23, 2001 and March 24, 2000, the Partnership's mortgage debt totaled $97.3
million and $98.2 million, respectively.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership and the Inns 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.
7
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.
MARRIOTT RESIDENCE INN
LIMITED PARTNERSHIP
By: RIBM ONE LLC
General Partner
May 7, 2001 By: /s/ Mathew Whelan
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Mathew Whelan
Vice President