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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. 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
June 15, 2001 and December 31, 2000............................................. 1
Condensed Statements of Operations
Twelve and Twenty-Four Weeks Ended June 15, 2001 and June 16, 2000.............. 2
Condensed Statements of Cash Flows
Twenty-Four Weeks Ended June 15, 2001 and June 16, 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 AND SIGNATURE............................................. 7
Marriott Residence Inn Limited Partnership
Condensed Balance Sheets
(in thousands)
June 15, December 31,
2001 2000
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(unaudited)
ASSETS
Property and equipment, net......................................... $135,286 $137,497
Due from Residence Inn by Marriott, Inc............................. 2,562 2,160
Deferred financing costs, net of accumulated amortization........... 617 835
Property improvement fund........................................... 3,689 2,889
Cash and cash equivalents........................................... 14,613 10,755
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$156,767 $154,136
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LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt....................................................... $ 95,943 $ 98,213
Incentive management fees due to Residence Inn by Marriott, Inc..... 5,475 3,626
Accounts payable and accrued expenses............................... 710 277
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Total Liabilities............................................... 102,128 102,116
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PARTNERS' CAPITAL
General Partner..................................................... 623 597
Limited Partners.................................................... 54,016 51,423
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Total Partners' Capital......................................... 54,639 52,020
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$156,767 $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 Twenty-Four Weeks Ended
June 15, June 16, June 15, June 16,
2001 2000 2001 2000
------- ------- ------- -------
REVENUES
Inn revenues
Suites........................................ $15,040 $15,500 $29,779 $29,764
Other......................................... 634 742 1,246 1,461
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Total Inn revenues........................... 15,674 16,242 31,025 31,225
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OPERATING COSTS AND EXPENSES
Inn property-level costs and expenses
Suites........................................ 3,227 3,347 6,461 6,605
Other department costs and expenses........... 410 423 762 856
Selling, administrative and other............. 3,669 3,521 7,609 7,070
------- ------- ------- -------
Total Inn property-level costs and expenses.. 7,306 7,291 14,832 14,531
Depreciation................................... 1,564 1,469 3,034 2,951
Incentive management fee....................... 1,116 1,416 2,140 2,186
Property taxes................................. 574 611 1,124 1,194
Residence Inn system fee....................... 601 620 1,191 1,191
Equipment rent and other....................... 578 743 1,075 1,211
Base management fee............................ 314 325 621 625
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Total operating costs and expenses........... 12,053 12,475 24,017 23,889
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OPERATING PROFIT................................ 3,621 3,767 7,008 7,336
Interest expense............................... (2,355) (2,479) (4,726) (4,998)
Interest income................................ 196 137 337 222
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NET INCOME...................................... $ 1,462 $ 1,425 $ 2,619 $ 2,560
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ALLOCATION OF NET INCOME
General Partner................................ $ 14 $ 14 26 26
Limited Partners............................... 1,448 1,411 2,593 2,534
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$ 1,462 $ 1,425 $ 2,619 $ 2,560
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NET INCOME PER LIMITED PARTNER UNIT
(65,600 Units)................................. $ 22 $ 22 $ 40 $ 39
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See Notes to Condensed Financial Statements.
2
Marriott Residence Inn Limited Partnership
Condensed 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....................................... $ 2,619 $ 2,560
Depreciation..................................... 3,034 2,951
Amortization of deferred financing costs......... 218 218
Deferred incentive management fees............... 1,849 1,781
Loss on dispositions of fixed assets............. 3 16
Changes in operating accounts.................... 31 (254)
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Cash provided by operating activities........ 7,754 7,272
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INVESTING ACTIVITIES
Additions to property and equipment.............. (826) (2,476)
Change in property improvement fund.............. (800) (907)
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Cash used in investing activities............ (1,626) (3,383)
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FINANCING ACTIVITIES
Repayment of mortgage debt....................... (2,270) (2,049)
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INCREASE IN CASH AND CASH EQUIVALENTS............. 3,858 1,840
CASH AND CASH EQUIVALENTS at beginning of period.. 10,755 6,025
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CASH AND CASH EQUIVALENTS at end of period........ $14,613 $ 7,865
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest.................. $ 4,104 $ 4,324
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See Notes to Condensed Financial Statements.
3
Marriott Residence Inn Limited Partnership
Notes to 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
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 June 15, 2001, the results of its
operations for the twelve and twenty-four weeks ended June 15, 2001 and June 16,
2000 and its 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.
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 twenty-four weeks ended June 15, 2001 and June 16,
2000 (in thousands):
2001 2000
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Marriott International, Inc.:
Residence Inn system fee..................... $1,191 $1,191
Incentive management fee..................... 291 405
Marketing fund contribution.................. 744 744
Base management fee.......................... 621 625
Chain services and Marriott Rewards Program.. 677 664
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$3,524 $3,629
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General Partner:
Administrative expenses reimbursed........... $ 70 $ 220
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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 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. Whereas we have been contacted by potential interested parties, no
such transaction is pending as of the date of this report.
RESULTS OF OPERATIONS
Revenues. Inn revenues decreased $568,000, or 3%, to $15.7 million and decreased
$200,000, or 1%, to $31.0 million, respectively, for the twelve week and twenty-
four week periods ended June 15, 2001 and are the result of the continued
overall weakness in the economy compared to the prior year. RevPAR is a
standard industry measure of the 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. For the second quarter of 2001, RevPAR
decreased 3% to $84.06 due to a less than 1% increase in the combined average
suite rate to $102.34 offset by a 2.9 percentage point decrease in the combined
average occupancy to 82.1%. Through the second quarter of 2001, RevPAR increased
less than 1% to $83.22 due to a $2.57, or 3%, increase in the combined average
suite rate to $102.35, offset by a 2.1 percentage point decrease in the combined
average occupancy to 81.3%. Year-to-date, telephone revenues declined $245,000,
reflecting the decline in occupancy year-to-date.
Operating Costs and Expenses. Operating costs and expenses decreased $422,000,
or 3%, to $12.1 million and increased $128,000, or 1%, to $24.0 million for the
twelve weeks and twenty-four weeks ended June 15, 2001, respectively, when
compared to the same periods in 2000. As a percentage of total Inn revenues,
total operating costs and expenses were 77% for the all periods presented.
5
Inn property-level costs and expenses increased $15,000, or less than 1%, to
$7.3 million and increased $301,000, or 2%, to $14.8 million for the twelve and
twenty-four weeks ended June 15, 2001, respectively, when compared to the same
periods in 2000. As a percentage of Inn revenues, Inn property-level costs and
expenses represented 47% and 45% for the second quarters of 2001 and 2000,
respectively, and 48% and 47% for year-to-date 2001 and 2000, respectively.
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. The IMF was calculated as 20% of Operating Profit for
the twenty-four weeks ended June 15, 2001 and June 16, 2000, based upon the
expectations for full year Operating Profit. However, the estimated full year
IMF calculation was increased from 15% of operating profit for the first quarter
of 2000 to 20% of Operating Profit in the second quarter 2000, the result was an
adjustment of $257,000 to IMF during the second quarter of 2000.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit decreased $146,000 to $3.6 million,
or 23% of revenues, for the second quarter of 2001, versus $3.8 million, or 23%
of revenues, for the same period in 2000, and decreased $328,000 to $7.0
million, or 23% of revenues, for the first two quarters of 2001, versus $7.3
million, or 23% of revenues, for the same period in 2000.
Interest Expense. Interest expense decreased $124,000, or 5%, and $272,000, or
5%, for the second quarter and year-to-date 2001, respectively, primarily due to
principal amortization of the Senior and Second Mortgages.
Net Income. As a result of the items discussed above, net income increased
$37,000, or 3%, to $1.5 million, and increased $59,000 or 2%, to $2.6 million
for the twelve and twenty-four weeks ended June 15, 2001, respectively. Net
income comprised approximately 9% of revenues for the second quarters of 2001
and 2000, and 8% of revenues for both the first two quarters of 2001 and 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
September 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
replacement. To reduce the shortfall, the contribution rate to the fund has been
set at 5.5% of gross Inn revenues since 1999. The contribution rate will remain
at 5.5% for 2001. Currently we are negotiating with the Manager a long-term
plan, discussed below, and until such time as this is completed we do not
anticipate any material routine capital maintenance expenses.
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, if any, to limited partners in
the future.
6
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.
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 $7.8 million for the
first two quarters of 2001 compared to $7.3 million for the first two quarters
of 2000.
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 $1.6 million and
$3.4 million for the first two quarters of 2001 and 2000, respectively.
Contributions to the property improvement fund were $1.7 and $2.9 million for
the first two quarters in 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 $0.8 million and $2.5
million, respectively.
The Partnership's cash used in financing activities consist of repayments of
mortgage debt of $2.3 million and $2.0 million for the first two quarters 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
June 15, 2001, all of the Partnership's debt has a fixed interest rate.
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
July 27, 2001 By: /s/ Mathew Whelan
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Mathew Whelan
Vice President
8