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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 June 15, 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
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TABLE OF CONTENTS
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Page No.
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PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets
June 15, 2001 and December 31, 2000............................................................ 1
Condensed Consolidated Statements of Operations
Twelve and Twenty-Four Weeks Ended June 15, 2001 and June 16, 2000............................. 2
Condensed Consolidated Statements of Cash Flows
Twenty-Four Weeks Ended June 15, 2001 and June 16, 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....................................... 7
PART II - OTHER INFORMATION
Legal Proceedings................................................................................ 7
Courtyard by Marriott II Limited Partnership
Condensed Consolidated Balance Sheets
(in thousands)
June 15, December 31,
2001 2000
----------- -----------
(Unaudited)
ASSETS
Property and equipment, net.............................. $427,855 $439,098
Deferred financing costs, net of accumulated
amortization........................................... 10,391 11,119
Due from Courtyard Management Corporation................ 6,439 8,453
Other assets............................................. 13 2
Property improvement fund................................ 26,841 18,912
Restricted cash.......................................... 28,301 18,415
Cash and cash equivalents................................ 7,022 13,511
-------- --------
$506,862 $509,510
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Debt..................................................... $459,229 $466,539
Management fees due to Courtyard Management Corporation.. 35,568 31,417
Due to Marriott International, Inc. and affiliates....... 8,638 8,693
Accounts payable and accrued liabilities................. 11,209 12,106
-------- --------
Total Liabilities.................................... 514,644 518,755
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PARTNERS' CAPITAL (DEFICIT)
General Partner.......................................... 9,482 9,409
Limited Partners......................................... (17,264) (18,654)
-------- --------
Total Partners' Deficit.............................. (7,782) (9,245)
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$506,862 $509,510
======== ========
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 Twenty-Four Weeks Ended
June 15, June 16, June 15, June 16,
2001 2000 2001 2000
------- ------- -------- --------
REVENUES
Hotel revenues
Rooms........................................... $65,040 $66,408 $128,490 $127,861
Food and beverage............................... 3,958 4,421 7,918 8,513
Other........................................... 1,949 2,327 3,915 4,799
------- ------- -------- --------
Total hotel revenues........................... 70,947 73,156 140,323 141,173
------- ------- -------- --------
OPERATING COSTS AND EXPENSES
Hotel property-level costs and expenses
Rooms........................................... 14,064 14,623 28,063 28,419
Food and beverage............................... 3,578 3,762 7,156 7,321
Other department costs and expenses............. 664 576 1,114 961
Selling, administrative and other............... 16,450 16,609 33,242 32,920
------- ------- -------- --------
Total hotel property-level costs and expenses.. 34,756 35,570 69,575 69,621
Depreciation..................................... 6,530 6,566 13,045 13,213
Ground rent, taxes and other..................... 6,703 7,500 13,289 14,216
Base and Courtyard management fees............... 4,256 4,389 8,419 8,470
Incentive management fee......................... 3,235 3,558 6,189 6,691
------- ------- -------- --------
Total operating costs and expenses............. 55,480 57,583 110,517 112,211
------- ------- -------- --------
OPERATING PROFIT.................................. 15,467 15,573 29,806 28,962
Interest expense................................. (9,582) (9,792) (19,108) (19,797)
Interest income.................................. 370 459 701 780
------- ------- -------- --------
NET INCOME........................................ $ 6,255 $ 6,240 $ 11,399 $ 9,945
======= ======= ======== ========
ALLOCATION OF NET INCOME
General Partner.................................. $ 313 $ 312 $ 570 $ 497
Limited Partners................................. 5,942 5,928 10,829 9,448
------- ------- -------- --------
$ 6,255 $ 6,240 $ 11,399 $ 9,945
======= ======= ======== ========
NET INCOME PER LIMITED PARTNER UNIT
(1,470 Units).................................... $ 4,042 $ 4,033 $ 7,367 $ 6,427
======= ======= ======== ========
See Notes to Condensed Consolidated Financial Statements.
2
Courtyard by Marriott II Limited Partnership
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Twenty-Four Weeks Ended
June 15, June 16,
2001 2000
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OPERATING ACTIVITIES
Net income...................................................... $ 11,399 $ 9,945
Depreciation.................................................... 13,045 13,213
Amortization of deferred financing costs as interest............ 728 725
(Gain)/loss on disposition of fixed assets...................... (4) 49
Changes in operating accounts................................... (4,684) 160
-------- --------
Cash provided by operating activities....................... 20,484 24,092
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INVESTING ACTIVITIES
Additions to property and equipment............................. (1,798) (5,655)
Change in property improvement funds............................ (7,929) (10,689)
-------- --------
Cash used in investing activities........................... (9,727) (16,344)
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FINANCING ACTIVITIES
Capital distributions........................................... (9,936) (3,675)
Repayments of debt.............................................. (7,310) (6,783)
-------- --------
Cash used in financing activities........................... (17,246) (10,458)
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DECREASE IN CASH AND CASH EQUIVALENTS............................ (6,489) (2,710)
CASH AND CASH EQUIVALENTS at beginning of period................. 13,511 23,341
-------- --------
CASH AND CASH EQUIVALENTS at end of period....................... $ 7,022 $ 20,631
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest....................... $ 18,933 $ 18,303
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See Notes to Condensed Consolidated Financial Statements.
3
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 June 15, 2001, the
results of its operations for the twelve and twenty-four weeks ended June 15,
2001 and June 16, 2000 and cash flows for the twenty-four weeks ended June 15,
2001 and June 16, 2000. Interim results are not necessarily indicative of full
year performance because of seasonal and short-term variations.
Certain reclassifications were made to the prior year financial statements to
conform to the 2001 presentation.
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.
3. Amounts Paid to the General Partner and Marriott International, Inc.
The chart below summarizes amounts paid to Marriott International, Inc. for the
twenty-four weeks ended June 15, 2001 and June 16, 2000 (unaudited, in
thousands):
Marriott International, Inc.:
2001 2000
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Incentive management fee.............................. $ 2,040 $ 8,623
Base management fee................................... 4,911 4,941
Chain services and Marriott Rewards Program........... 4,238 4,313
Courtyard by Marriott system fee...................... 3,508 3,529
Marketing fund contribution........................... 2,981 2,953
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$17,678 $24,359
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4
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 the twelve weeks ended June 15, 2001
decreased $2.2 million, or 3% to $70.9 million compared to the same period in
2000. For the twenty-four weeks ended June 15, 2001, total hotel revenues
decreased $850,000, or 1%, to $140.3 million compared to the twenty-four weeks
ended June 16, 2000. The decrease in hotel revenues for both the second quarter
of 2001 and year-to-date 2001 is due to a decrease in food and beverage revenues
as well as a decrease in other revenues. These decreases were driven by a 5.1
percentage point decrease in occupancy for the second quarter of 2001 and a 3.7
percentage point decrease year-to-date. The results reflect a continued weakness
in the economy which we expect to continue through the remainder of 2001.
Room revenues increased $629,000, or 1%, to $128.5 million year-to-date and
decreased $1.4 million, or 2%, to $65.0 million for the second quarter. The
increase year-to-date is due to an increase in Revenue per available room
("REVPAR") of $0.36. The slight increase in REVPAR is due to an increase in
average room rate of $5.13 that was partially offset by the 3.7 percentage point
decrease in occupancy discussed above. For the quarter, REVPAR decreased $1.53
due to the decrease in occupancy discussed above, partially offset by an
increase in average room rate of $4.31.
Operating costs and expenses. Operating costs and expenses decreased $1.7
million, or 2%, to $110.5 million through the second quarter of 2001, and $2.1
million, or 4%, to $55.5 million for the second quarter of 2001 when compared to
the same periods in 2000, primarily due to a decrease in incentive management
fees and property-level expenses and a decrease in litigation expenses due to a
lawsuit that was resolved in 2000. As a percentage of hotel revenues, operating
costs and expenses represented 79% of revenues as of June 15, 2001 and June 16,
2000. For the quarters ended June 15, 2001 and June 16, 2000, operating costs
and expenses represented 78% and 79% of hotel revenues, respectively.
The Partnership's hotel property-level costs and expenses decreased $46,000 to
$69.6 million year-to-date as of June 16, 2001, and decreased $814,000, or 2%,
to $34.8 million for the second quarter of 2001 when compared to the same
periods in 2000. The decrease is due to a $1.0 million decrease in controllable
expenses as a result of decreased occupancy. This was partially offset by a $0.9
million increase in utility costs due to the inflation of energy costs. As a
percentage of hotel revenues, property-level costs and expenses represented
approximately 50% of revenues as of June 15, 2001 year-to-date, and 49% of
revenues for the same period in 2000. For the second quarters of 2001 and 2000,
property-level costs represented 49% of hotel revenues.
5
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating Profit. Operating profit increased $844,000 as of June 15, 2001 to
$29.8 million when compared to the same period in 2000. For the second quarter
of 2001, operating profit decreased $106,000 compared to second quarter 2000.
Operating profit represented 22% of revenues for second quarter 2001 and 21% for
second quarter 2000. Year-to-date, operating profit represented 21% of hotel
revenues for both 2001 and 2000.
Interest Expense. Interest expense decreased $210,000, or 2% and $689,000, or 4%
for the quarters ending June 15, 2001 and year-to-date through June 15, 2001,
respectively, when compared to the same periods in 2000 as a result of principal
amortization on the Certificates/Mortgage Loan.
Net Income. Net income as of June 15, 2001 increased by $1.5 million to $11.4
million over prior year, and second quarter 2001 income increased by $15,000
when compared to second 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 second quarter 2001 was $20.5 million compared
to $24.1 million for second quarter 2000. The decrease in cash provided by
operations is primarily due to increased cash deposited into the restricted cash
accounts to fund management fees and debt service due during 2001.
Cash used in investing activities was $9.7 million and $16.3 million as of June
15, 2001 and June 16, 2000, respectively. Cash used in investing activities for
2001 includes capital expenditures of $1.8 million, primarily related to
renovations and replacements of furniture, fixtures and equipment at the
Partnership's hotels as compared to $5.7 million in 2000. The property
improvement fund increased $7.9 million for the second quarter 2001 as compared
to an increase of $10.7 million for the comparable period in 2000. Contributions
to the property improvement fund were $9.1 million and $7.1 million as of the
second quarter 2001 and 2000, respectively. As of June 16, 2000, the Partnership
funded an additional $10.1 million to the property improvement fund for capital
expenditures at the properties.
Cash used in financing activities was $17.2 million and $10.5 million as of June
15, 2001 and June 16, 2000, respectively. The Partnership repaid $7.3 million
and $6.8 million, respectively, of principal on the commercial mortgage-backed
securities. Cash used in financing activities included $9.9 million of cash
distributions to limited partners as of June 15, 2001 as compared to $3.7
million of distributions as of June 16, 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 through fifth periods of 2001
as of June 15, 2001. As of June 16, 2000, the partners had only been distributed
cash from first quarter operations.
6
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
June 15, 2001, all of the Partnership's debt is fixed rate.
PART II. OTHER INFORMATION
LEGAL PROCEEDINGS
The Partnership is 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.
COURTYARD BY MARRIOTT II
LIMITED PARTNERSHIP
By: CBM TWO LLC
General Partner
July 27, 2001 By: /s/ Mathew J. Whelan
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Mathew J. Whelan
Vice President
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