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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 Quarter ended September 6, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-14381
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 52-1436985
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10400 Fernwood Road
Bethesda, Maryland 20817
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301-380-2070
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). On August 25, 1992, the
Registrant filed an application for relief from the reporting requirements of
the Securities Exchange Act of 1934 pursuant to Section 12(h) thereof. Because
of the pendency of such application, the Registrant was not required to, and did
not, make any filings pursuant to the Securities Exchange Act of 1934 from
October 23, 1989 until the application was voluntarily withdrawn on
November 18, 1996.
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Marriott Hotel Properties Limited Partnership
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TABLE OF CONTENTS
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PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Operations
Twelve and Thirty-Six Weeks Ended
September 6, 1996 and September 8, 1995........................1
Condensed Consolidated Balance Sheet
September 6, 1996 and December 31, 1995........................2
Condensed Consolidated Statement of Cash Flows
Thirty-Six Weeks Ended September 6, 1996 and
September 8, 1995..............................................3
Notes to Condensed Consolidated Financial Statements.............4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................8
Item 6. Exhibits and Reports on Form 8-K.................................8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED 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..................... $ 6,582 $ 8,166 $ 35,222 $ 35,129
Rental income............. 1,829 1,907 16,096 15,428
Interest and other income. 385 219 695 436
------------ ------------ ------------ ------------
8,796 10,292 52,013 50,993
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OPERATING COSTS AND EXPENSES
Interest.................. 4,980 5,083 15,098 14,923
Depreciation and
amortization............. 2,740 2,706 8,127 8,080
Incentive management fee.. 807 1,084 5,189 5,302
Base management fee....... 626 688 2,496 2,481
Ground rent, property
taxes and other.......... 2,108 2,178 6,211 6,152
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11,261 11,739 37,121 36,938
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(LOSS) INCOME BEFORE
MINORITY INTEREST......... (2,465) (1,447) 14,892 14,055
MINORITY INTEREST IN LOSS
(INCOME).................. 934 905 (2,441) (2,130)
------------ ------------ ------------ ------------
NET (LOSS) INCOME.......... $ (1,531) $ (542) $ 12,451 $ 11,925
============ ============ ============ ============
ALLOCATION OF NET (LOSS)
INCOME
General Partner........... $ (17) $ (6) $ 123 $ 119
Limited Partners.......... (1,514) (536) 12,328 11,806
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$ (1,531) $ (542) $ 12,451 $ 11,925
============ ============ ============ ============
NET (LOSS) INCOME PER
LIMITED PARTNER UNIT
(1,000 Units)............. $ (1,514) $ (536) $ 12,328 $ 11,806
============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
1
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
September 6, December 31,
1996 1995
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(Unaudited)
ASSETS
Property and equipment, net.............................. $ 222,059 $ 222,458
Due from Marriott International, Inc. and affiliates..... 6,641 7,136
Minority interest........................................ 10,229 11,185
Other assets............................................. 5,070 6,888
Cash and cash equivalents................................ 11,834 3,550
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$ 255,833 $ 251,217
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LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Mortgage debt............................................ $ 234,940 $ 239,860
Note payable and amounts due to Host Marriott Corporation 6,209 6,484
Note payable and amounts due to Marriott International,
Inc. and affiliates..................................... 4,216 6,052
Accounts payable and accrued interest.................... 3,198 1,087
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Total Liabilities....................................... 248,563 253,483
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PARTNERS' CAPITAL (DEFICIT)
General Partner.......................................... 181 87
Limited Partners......................................... 7,089 (2,353)
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Total Partners' Capital (Deficit)....................... 7,270 (2,266)
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$ 255,833 $ 251,217
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See Notes to Condensed Consolidated Financial Statements.
2
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Thirty-Six Weeks Ended
September 6, September 8,
1996 1995
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(in thousands)
OPERATING ACTIVITIES
Net income............................. $ 12,451 $ 11,925
Noncash items.......................... 10,927 10,989
Changes in operating accounts.......... 1,030 (2,818)
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Cash provided by operations.......... 24,408 20,096
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INVESTING ACTIVITIES
Additions to property and equipment.... (7,728) (4,369)
Changes in property improvement
funds and capital reserve escrow...... 1,588 (156)
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Cash used in investing activities.... (6,140) (4,525)
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FINANCING ACTIVITIES
Repayments of mortgage debt............ (4,920) (4,531)
Capital distributions to partners...... (2,908) (1,600)
Capital distributions to minority
interest.............................. (1,485) (990)
Repayments to Marriott
International, Inc. and affiliates.... (362) (331)
Repayments to Host Marriott
Corporation........................... (269) -
Payment of financing costs............. (40) (6)
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Cash used in financing activities.... (9,984) (7,458)
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INCREASE IN CASH AND CASH EQUIVALENTS 8,284 8,113
CASH AND CASH EQUIVALENTS at
beginning of period.................... 3,550 2,743
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CASH AND CASH EQUIVALENTS at end of
period................................. $ 11,834 $ 10,856
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for mortgage and other
interest.............................. $ 12,271 $ 13,735
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See Notes to Condensed Consolidated Financial Statements.
3
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements have been
prepared by Marriott Hotel Properties 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 consolidated financial
statements should be read in conjunction with the Partnership's financial
statements and notes thereto included in the Partnership's 1995 Form 10-K
for the fiscal year ended December 31, 1995. In the opinion of the
Partnership, the accompanying unaudited condensed consolidated 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 and December 31, 1995 and the results
of operations for the twelve and 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.
The Partnership owns Marriott's Orlando World Center and a 50.5% interest
in a partnership owning Marriott's Harbor Beach Resort (the "Harbor Beach
Partnership"), whose financial statements are consolidated herein. The
remaining 49.5% general partnership interest in the Harbor Beach
Partnership is reported as minority interest. All significant
intercompany balances and transactions have been eliminated.
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, shorter depreciable lives of the assets, differences
in the timing of the recognition of management fee expense and the
expensing of certain costs incurred during construction which have been
capitalized in the accompanying condensed consolidated financial
statements.
2. Hotel revenues represent house profit from the Orlando Hotel since the
Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Orlando Hotel 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,
property taxes and certain other costs, which are disclosed separately in
the condensed consolidated statement of operations.
Hotel revenues consist of hotel operating results for the Orlando Hotel
for the twelve and thirty-six weeks ended (in thousands):
Twelve Weeks Ended Thirty-Six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
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HOTEL SALES
Rooms..................... $ 10,180 $ 10,936 $ 41,175 $ 40,960
Food and beverage......... 8,595 9,810 33,012 33,379
Other..................... 2,087 2,158 9,000 8,345
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20,862 22,904 83,187 82,684
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HOTEL EXPENSES
Departmental Direct Costs
Rooms.................... 2,433 2,559 8,493 8,326
Food and beverage........ 5,829 6,176 20,384 20,502
Other hotel operating
expenses................. 6,018 6,003 19,088 18,727
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14,280 14,738 47,965 47,555
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HOTEL REVENUES............. $ 6,582 $ 8,166 $ 35,222 $ 35,129
=========== ============ =========== ============
3. 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 condensed
consolidated financial statements.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the twelve weeks ended September 6, 1996, total consolidated Partnership
revenues decreased $1.5 million, or 15%, when compared to the same period in
1995 primarily due to an anticipated decrease in group demand at both hotels.
However, for the thirty-six weeks ended September 6, 1996, total consolidated
Partnership revenues increased $1.0 million, or 2%, when compared to 1995.
The combined REVPAR, or revenue per available room, for the Hotels for the
twelve-week period ended September 6, 1996 declined 3% to $81 from the
comparable period in 1995 due to a 3.7 percentage point decrease in combined
average occupancy to 73% partially offset by a 2% increase in combined average
room rate to $111. On a year-to-date basis, combined REVPAR grew 2% to $117
as a result of a 3% increase in combined average room rate to $145.
Hotel Revenues. For the twelve weeks ended September 6, 1996, hotel revenues
declined $1.6 million, or 19%, when compared to the same period in 1995 due to
an anticipated decline in group demand. REVPAR for the twelve-week period
ended September 6, 1996 at the Orlando Hotel decreased 7% to $80 from the same
period in 1995 due to a 6.9 percentage point decrease in average occupancy to
71% offset by a 1% increase in average room rate to $114. The decrease in
room nights from the group segment was partially offset by an increase in
occupancy in the transient segment, which resulted in the slight increase in
average room rate for the quarter. Overall demand for the quarter decreased
by 7,900 room nights, which resulted in decreases in rooms sales and profit of
$0.8 million, or 7%, and $0.6 million, or 8%, respectively. In addition, the
decline in group business when compared to third quarter 1995 adversely
affected catering and banquet volume, resulting in decreases in food and
beverage sales and profit of $1.2 million, or 12%, and $0.9 million, or 24%,
respectively. For the year-to-date period ended September 6, 1996, hotel
revenues increased slightly when compared to 1995. Year-to-date REVPAR
improved slightly as a result of a 3% improvement in average room rate to $137
offset by a 1.8 percentage point decrease in average occupancy to 80%. For
the year-to-date, rooms profit has remained flat when compared to 1995, while
food and beverage profit has decreased by $0.3 million, or 2%. The Orlando
Hotel has benefited from improved profit in ancillary activities such as golf
course, telephone and gift shop operations. Marketing efforts at the Orlando
Hotel are focused on attracting short-term group demand. Demand is expected
to remain strong in the leisure transient segment, especially from
international markets.
Rental Income. Rental income from the Harbor Beach Hotel for the twelve weeks
ended September 6, 1996 decreased $80,000, or 4%, from the comparable period
in 1995. Pursuant to the Operating Lease Agreement, the calculation of rental
income is based upon the payout of operating profit, as defined, of the Harbor
Beach Hotel. The Harbor Beach Partnership receives Performance Rental equal
to the first $10.4 million of annual operating profit of the Harbor Beach
Hotel. Operating profit in excess of the $10.4 million is split 50% to the
Harbor Beach Partnership, which is considered Additional Performance Rental,
and 50% to Marriott Hotel Services, Inc. (the "Operating Tenant"). For the
year-to-date period ended September 6, 1996, the Hotel has earned the full
amount of Performance Rental for the year and is currently earning Additional
Performance Rental. In previous years, the Hotel did not achieve the full
amount of Performance Rental until the fourth quarter. As a result, third
quarter 1996 rental income decreased from the same period in 1995 due to
amounts paid to the Operating Tenant from operating profit. For the thirty-
six weeks ended September 6, 1996 total rental income increased $0.7, or 4%,
over 1995. Performance Rental for the year-to-date increased $0.4 million, or
4%, over 1995. Additional Performance Rental for the 1996 year-to-date period
was $0.3 million compared to $-0- for the same period in 1995. REVPAR for the
twelve-week period ended September 6, 1996 increased 7% over 1995 to $83 due
to a 4% increase in average room rate to $107 combined with a 2.3 percentage
point increase in average occupancy to 78%. As a result, room sales for the
twelve-week period increased $0.3 million, or 7%, and rooms profit increased
$0.4 million, or 13%, when compared to 1995. For the year-to-date period,
REVPAR improved 5% over 1995 to $135 primarily due to a 3% increase in average
room rate to $164 combined with a 1.0 percentage point increase in average
occupancy to 82%. Room sales for the year-to-date period increased $0.9
million, or 4%, and rooms profit increased $0.8 million, or 5%, over 1995.
The Hotel has benefited from strong leisure transient demand, especially from
international markets. Demand in this segment is expected to remain strong
throughout the remainder of the year. In addition, operations are expected to
remain strong through the first half of 1997 due to strong advanced bookings
in the group segment.
Indirect hotel operating costs and expenses. Indirect hotel operating costs
and expenses decreased $0.4 million, or 6%, for the twelve weeks ended
September 6, 1996 when compared to the same period in 1995. For the thirty-
six weeks ended
5
September 6, 1996, indirect hotel operating costs and expenses remained stable
when compared to 1995. The principal components of this category are
discussed below:
Incentive management fees. Incentive management fees decreased $0.3 million,
-------------------------
or 26%, and $0.1 million, or 2% for third quarter and year-to-date 1996,
respectively. The decreases were primarily a result of decreases in operating
results at the Orlando Hotel for the third quarter and year-to-date.
Base management fees. Base management fees decreased $62,000, or 9%, for the
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twelve-weeks ended September 6, 1996 due to a slight decrease in total third
quarter sales at the Orlando Hotel. Base management fees increased $15,000,
or 1%, year-to-date due to improvements in total year-to-date sales at the
Orlando Hotel.
Interest expense. Consolidated interest expense for the twelve weeks ended
September 6, 1996 decreased $0.1 million, or 2%, when compared to the same
period in 1995. On a year-to-date basis, consolidated interest expense
increased $0.2 million, or 1%, due to an increase in the interest rate on the
Orlando Mortgage Debt from 6.7% to 8.4% in connection with the June 1995
modification and extension, offset by reduced principal balances on the
mortgage debt of the Hotels resulting from required principal amortization
during 1996 and 1995.
Minority interest in loss (income). Based upon its 50.5% ownership interest,
the Partnership controls the Harbor Beach Partnership, and as a result, the
condensed consolidated financial statements of the Partnership include the
accounts of the Harbor Beach Partnership. Minority interest in loss (income)
represents the net loss or income from the Harbor Beach Partnership allocable
to the co-General Partner. For the twelve weeks ended September 6, 1996,
minority interest in loss increased slightly when compared to the same period
in 1995. Due to the seasonality of operations of the Harbor Beach Hotel, the
Harbor Beach Partnership historically reports a loss for the third quarter of
the year. For the thirty-six weeks ended September 6, 1996, minority interest
in income increased $0.3 million, or 15%, over 1995 primarily due to the
increase in rental income from the Harbor Beach Hotel combined with decreased
interest expense on the Harbor Beach Mortgage Debt.
Net (loss) income. For the twelve weeks ended September 6, 1996, the
Partnership recorded a net loss of $1.5 million, a decrease of $1.0 million
from the same period in 1995. This was primarily due to a decrease in hotel
revenues from the Orlando Hotel combined with a slight decrease in rental
income from the Harbor Beach Hotel for the quarter, offset slightly by
decreases in incentive and base management fee expense. For the year-to-date
period, net income increased $0.5 million, or 4%, to $12.5 million. These
increases were primarily due to higher year-to-date hotel revenues and rental
income offset by increased consolidated interest expense and an increase in
minority interest in income.
CAPITAL RESOURCES AND LIQUIDITY
General
The Partnership's financing needs have historically been funded through loan
agreements with independent financial institutions, Host Marriott Corporation
("Host Marriott") and its affiliates or Marriott International, Inc. ("MII")
and its affiliates. The General Partner believes that the Partnership will
have sufficient capital resources and liquidity to continue to conduct its
business in the ordinary course.
Principal Sources and Uses of Cash
The Partnership's principal source of cash is from operations. Its principal
uses of cash are to fund the property improvement funds of the Orlando World
Center and the Harbor Beach Hotel (the "Hotels"), required principal
amortization of the mortgage debt incurred to fund costs of the capital
improvements at the Hotels and cash distributions to the partners.
Total consolidated cash provided by operations for the thirty-six weeks ended
September 6, 1996 and September 8, 1995, was $24.4 million and $20.1 million,
respectively. The variance was the result of a $3.8 million increase in the
change in operating accounts, primarily accrued interest and amounts due to
and from MII and affiliates, combined with a $0.5 million increase in net
income for the thirty-six weeks ended September 6, 1996.
For the thirty-six weeks ended September 6, 1996 and September 8, 1995, cash
utilized in investing activities was $6.1 million and $4.5 million,
respectively. The variance is the result of a $3.4 million increase in
capital expenditures and a
6
$1.0 million decrease in the capital reserve escrow, which was used to fund
capital improvements at the Harbor Beach Hotel during 1995. In addition, cash
contributed to the property improvement funds of the Hotels was $6.0 million
and $5.4 million for the thirty-six weeks ended September 6, 1996 and
September 8, 1995, respectively. This increase is due primarily to an
increase in the required contribution amount to the Orlando Hotel property
improvement fund from 4% to 5% of total sales upon maturity of the Orlando
Mortgage Debt in June 1995.
For the thirty-six weeks ended September 6, 1996 and September 8, 1995, cash
utilized in financing activities was $10.0 million and $7.5 million,
respectively. The variance is primarily the result of a $1.3 million increase
in capital distributions to the partners of the Partnership and a $0.5 million
increase in capital distributions to the minority general partner of the
Harbor Beach Partnership. In addition, year-to-date repayment of mortgage
debt principal increased $0.4 million and repayments to Host Marriott
increased $0.3 million when compared to 1995.
Other
In first quarter 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 condensed consolidated financial
statements.
SEASONALITY
Demand, and thus occupancy and room rates, is affected by normally recurring
seasonal patterns. Demand tends to be higher during the months of November
through April than during the remainder of the year. This seasonality tends
to affect the results of operations, increasing the revenue and rental income
during these months. In addition, this seasonality may also increase the
liquidity of the Partnership during these months.
7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Partnerships nor the Hotels are presently subject to any material
litigation nor, to the General Partner's knowledge, is any material litigation
threatened against the Partnerships or the Hotels, other than 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27. Financial Data Schedule
8
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 HOTEL PROPERTIES
LIMITED PARTNERSHIP
By: HOTEL PROPERTIES MANAGEMENT, INC.
General Partner
November 18, 1996 By: /s/ Bruce F. Stemerman
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Bruce F. Stemerman
President, Treasurer and Chief Accounting Officer