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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 12, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 033-20022
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 52-1558094
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10400 Fernwood Road
Bethesda, Maryland
20817
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(Address of principal executive offices)
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. Pursuant
to a grant of the relief requested in 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withdrawn on January 23, 1998.)
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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
Item 1. Financial Statements
Condensed Statement of Operations
Twelve and Thirty-Six Weeks Ended
September 12, 1997 and September 6, 1996................. 1
Condensed Balance Sheet
September 12, 1997 and December 31, 1996.................... 2
Condensed Statement of Cash Flows
Thirty-Six Weeks ended September 12, 1997
and September 6, 1996..................................... 3
Notes to Condensed 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............................................... 7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per unit amounts)
Twelve Weeks Ended Thirty-Six Weeks Ended
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
------------- ------------ ------------ ------------
REVENUES............................................... $ 8,551 $ 8,799 $ 23,225 $ 22,825
------------- ------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Depreciation........................................ 1,142 1,376 3,680 4,127
Incentive management fee............................ 911 949 2,427 2,382
Residence Inn system fee............................ 598 601 1,669 1,629
Property taxes...................................... 568 542 1,634 1,633
Base management fee................................. 314 315 877 854
Equipment rent and other............................ 227 280 847 840
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3,760 4,063 11,134 11,465
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OPERATING PROFIT....................................... 4,791 4,736 12,091 11,360
Interest expense.................................... (2,919) (3,074) (9,008) (9,251)
Interest income..................................... 91 103 216 251
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NET INCOME............................................. $ 1,963 $ 1,765 $ 3,299 $ 2,360
============= ============ ============ ============
ALLOCATION OF NET INCOME
General Partner..................................... $ 20 $ 18 $ 33 $ 24
Limited Partner..................................... 1,943 1,747 3,266 2,336
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$ 1,963 $ 1,765 $ 3,299 $ 2,360
============= ============ ============ ============
NET INCOME PER LIMITED PARTNER UNIT
(65,600 Units)...................................... $ 30 $ 27 $ 50 $ 36
============= ============ ============ ============
See Notes to Condensed Financial Statements.
1
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
CONDENSED BALANCE SHEET
(In thousands)
September 12, December 31,
1997 1996
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(Unaudited)
ASSETS
Property and equipment, net............................................................ $ 139,781 $ 140,272
Due from Residence Inn by Marriott, Inc................................................ 2,041 2,462
Deferred financing costs, net.......................................................... 2,396 2,728
Property improvement fund.............................................................. 2,224 2,767
Cash and cash equivalents.............................................................. 5,482 3,429
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$ 151,924 $ 151,658
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LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage note payable................................................................ $ 121,360 $ 123,519
Management fees due to Residence Inn by Marriott, Inc................................ 22,252 20,825
Accounts payable and accrued interest................................................ 1,303 1,993
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Total Liabilities................................................................. 144,915 146,337
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PARTNERS' CAPITAL
General Partner...................................................................... 146 129
Limited Partners..................................................................... 6,863 5,192
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Total Partners' Capital........................................................... 7,009 5,321
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$ 151,924 $ 151,658
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See Notes to Condensed Financial Statements.
2
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
Thirty-Six Weeks Ended
September 12, September 6,
1997 1996
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(in thousands)
OPERATING ACTIVITIES
Net income ....................................................................... $ 3,299 $ 2,360
Noncash items..................................................................... 6,434 6,822
Change in operating accounts...................................................... (1,269) (2,793)
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Cash provided by operations.................................................... 8,464 6,389
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INVESTING ACTIVITIES
Additions to property and equipment............................................... (3,189) (2,767)
Change in property improvement fund............................................... 543 521
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Cash used in investing activities.............................................. (2,646) (2,246)
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FINANCING ACTIVITIES
Capital distributions ............................................................ (1,611) (3,313)
Principal repayment on mortgage debt.............................................. (2,159) (1,655)
Financing costs................................................................... 5 (69)
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Cash used in financing activities.............................................. (3,765) (5,037)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................................... 2,053 (894)
CASH AND CASH EQUIVALENTS at beginning of period....................................... 3,429 7,271
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CASH AND CASH EQUIVALENTS at end of period............................................. $ 5,482 $ 6,377
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................................................ $ 9,314 $ 9,818
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3
MARRIOTT RESIDENCE INN LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed financial statements have been prepared by
Marriott Residence Inn 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
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 fiscal year ended December 31, 1996.
In the opinion of the Partnership, the accompanying unaudited condensed
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position
of the Partnership as of September 12, 1997 and December 31, 1996, and the
results of operations for the twelve and thirty-six weeks ended September
12, 1997 and September 6, 1996. Interim results are not necessarily
indicative of fiscal year performance because of seasonal and short-term
variations.
The net income of the Partnership is allocated 99% to the limited partners
and 1% to RIBM One Corporation (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 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.
2. Revenues represent house profit of the Partnership Inns since the
Partnership had delegated substantially all of the operating decisions
related to the generation of house profit of the Inns to Residence Inn by
Marriott, Inc. (the "Manager"). House profit reflects the net revenues
flowing to the Partnership as property owner and represents Inn operating
results less property-level expenses, excluding depreciation and
amortization, base, Residence Inn system and incentive management fees,
property taxes, equipment rent and certain other costs, which are disclosed
separately in the condensed statement of operations.
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 a material effect on its
condensed financial statements.
Revenues consist of Inn operating results for the twelve and thirty-six
weeks ended (in thousands):
Twelve Weeks Ended Thirty-Six Weeks Ended
September 12, September 6, September 12, September 6,
1997 1996 1997 1996
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INN SALES
Suites........................................... $ 14,972 $ 15,015 $ 41,738 $ 40,725
Other operating departments...................... 758 696 2,118 1,954
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15,730 15,711 43,856 42,679
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INN EXPENSES
Departmental direct costs
Suites....................................... 2,993 2,915 8,569 8,110
Other operating departments.................. 287 239 810 744
Other Inn operating expenses..................... 3,899 3,758 11,252 11,000
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7,179 6,912 20,631 19,854
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REVENUES............................................. $ 8,551 $ 8,799 $ 23,225 $ 22,825
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3. The General Partner has undertaken, on behalf of the Partnership, to
pursue, subject to further approval of the partners, a potential
transaction (the "Consolidation") in which (i) subsidiaries of CRF Lodging
Company, L.P. (the "Company"), a newly formed Delaware limited partnership,
would merge with and into the Partnership and up to five other limited
partnerships, with the Partnership and the other limited partnerships being
the surviving entities (each, a "Merger" and collectively, the "Mergers"),
subject to the satisfaction or waiver of certain conditions, (ii) CRF
Lodging Trust ("CRFLT"), a Maryland real estate investment trust, the sole
general partner of the Company, would offer its common shares of beneficial
interest, par value $0.01 per share (the "Common Shares") to investors in
an underwritten public offering and would invest the proceeds of such
offering in the Company in exchange for units of limited partnership
interests in the Company ("Units") and (iii) the Partnership would enter
into a Lease for the operation of its Hotels pursuant to which a Lessee
would pay rent to the Partnership based upon the greater of a fixed dollar
amount of base rent or specified percentages of gross sales, as specified
in the Lease. If the partners approve the transaction and other conditions
are satisfied, the partners of the Partnership would receive Units in the
Merger in exchange for their interests in the Partnership.
A preliminary Prospectus/Consent Solicitation was filed as part of a
Registration Statement on Form S-4 with the Securities and Exchange
Commission and which describes the potential transaction in greater detail.
Any offer of Units in connection with the Consolidation will be made solely
by a final Prospectus/Consent Solicitation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Partnership to be different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Although the Partnership believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Partnership's
filings with the Securities and Exchange Commission. The Partnership undertakes
no obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
RESULTS OF OPERATIONS
First Three Quarters 1997 Compared To First Three Quarters 1996
Revenues. Revenues for the first three quarters of 1997 increased $400,000, or
2%, to $23.2 million. Revenues and operating profit were impacted primarily by
growth in revenue per available room ("REVPAR") of 3%. REVPAR is a commonly used
indicator of market performance for hotels which represents the combination of
daily room rate charged and the average daily occupancy achieved (although it is
not GAAP). REVPAR does not include food and beverage or other ancillary revenues
generated by the property. Inn sales increased $1.2 million, or 3%, to $43.9
million in the first three quarters of 1997 also reflecting the improvement in
REVPAR for the period. REVPAR increased for the first three quarters of 1997 due
primarily to an increase in average room rates of 4%, while average occupancy
decreased just over one percentage point. Due to the high occupancy of these
properties, the Partnership expects future increases in REVPAR to be driven by
room rate increases, rather than occupancy increases. However, there can be no
assurance that REVPAR will continue to increase in the future.
Operating Costs and Expenses. Operating costs and expenses decreased $331,000 to
$11.1 million for the first three quarters of 1997. As a percentage of revenues,
Inn operating costs and expenses were 48% and 50% of revenues for the first
three quarters of 1997 and the first three quarters of 1996, respectively.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased by $731,000 to $12.1
million, or 52% of revenues, for the first three quarters of 1997 from $11.4
million, or 50% of revenues, for the first three quarters of 1996.
Interest Expense. Interest expense decreased $243,000 to $9.0 million for the
first three quarters of 1997 as a result of principal amortization on the
Partnership's debt.
Net Income. Net income for the first three quarters of 1997 increased $939,000
to $3.3 million, or 14% of revenues, compared to net income of $2.4 million, or
10% of revenues, for the first three quarters of 1996.
5
Third Quarter 1997 Compared To Third Quarter 1996
Revenues. Revenues for Third Quarter 1997 decreased $248,000, or 3%, to $8.6
million. Inn sales remained stable at $15.7 million in Third Quarter 1997.
REVPAR increased for Third Quarter 1997 due primarily to an increase in average
room rates of 4% and an increase in average occupancy of just under one
percentage point. Due to the high occupancy of these properties, the Partnership
expects future increases in REVPAR to be driven by room rate increases, rather
than occupancy increases. However, there can be no assurance that REVPAR will
continue to increase in the future.
Operating Costs and Expenses. Operating costs and expenses decreased $303,000 to
$3.8 million for Third Quarter 1997. As a percentage of revenues, Inn operating
costs and expenses were 44% and 46% of revenues for Third Quarter 1997 and Third
Quarter 1996, respectively.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased by $55,000 to $4.8 million,
or 56% of revenues, in Third Quarter 1997 from $4.7 million, or 54% of revenues,
for Third Quarter 1996.
Interest Expense. Interest expense decreased $155,000 to $2.9 million for Third
Quarter 1997 as a result of principal amortization on the Partnership's debt.
Net Income. Net income for Third Quarter 1997 increased $198,000 to $2.0
million, or 23% of revenues, compared to net income of $1.8 million, or 20% of
revenues, for Third Quarter 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $8.5 million and $6.4 million for the first
three quarters of 1997 and the first three quarters of 1996, respectively. The
improved cash from operations was a result of improved Inn lodging results and
collections of rent receivable from the Manager.
Cash used in investing activities was $2.6 million and $2.2 million for the
first three quarters of 1997 and the first three quarters of 1996, respectively.
The Partnership's cash investing activities consist primarily of contributions
to the property improvement fund and capital expenditures for improvements to
existing Inns.
The Partnership's cash used in financing activities was $3.8 million and $5.0
million for the first three quarters of 1997 and the first three quarters of
1996, respectively. Cash financing activities primarily consist of capital
distributions to partners, repayment of debt and payment of financing costs. The
Partnership distributed $1.7 million to the partners in the first quarter of
1997 from 1996 operations. In the first quarter of 1996, the Partnership
distributed $3.3 million to the partners from 1995 operations. Based on cash
available from Partnership operations from September 1, 1996 to August 31, 1997,
$2 million of additional amortization is required on the $130 million Senior
Mortgage, which occured on October 1, 1997.
6
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 CORPORATION
General Partner
January 16, 1998 By: /s/ Patricia K. Brady
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Patricia K. Brady
Vice President and Chief
Accounting Officer
8